Att E2_Acute Care Facilities, Long-term and Oncology Hospitals

Vol. 81

Wednesday,

No. 81

April 27, 2016

Part II

Department of Health and Human Services

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Centers for Medicare & Medicaid Services
42 CFR Parts 405, 412, 413, et al.
Medicare Program; Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and Proposed Policy Changes and Fiscal Year 2017
Rates; Quality Reporting Requirements for Specific Providers; Graduate
Medical Education; Hospital Notification Procedures Applicable to
Beneficiaries Receiving Observation Services; and Technical Changes
Relating to Costs to Organizations and Medicare Cost Reports; Proposed
Rule

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 405, 412, 413, and 485
[CMS–1655–P]
RIN 0938–AS77

Medicare Program; Hospital Inpatient
Prospective Payment Systems for
Acute Care Hospitals and the LongTerm Care Hospital Prospective
Payment System and Proposed Policy
Changes and Fiscal Year 2017 Rates;
Quality Reporting Requirements for
Specific Providers; Graduate Medical
Education; Hospital Notification
Procedures Applicable to Beneficiaries
Receiving Observation Services; and
Technical Changes Relating to Costs
to Organizations and Medicare Cost
Reports
Centers for Medicare and
Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
AGENCY:

We are proposing to revise the
Medicare hospital inpatient prospective
payment systems (IPPS) for operating
and capital-related costs of acute care
hospitals to implement changes arising
from our continuing experience with
these systems for FY 2017. Some of the
proposed changes would implement
certain statutory provisions contained in
the Pathway for Sustainable Growth
(SGR) Reform Act of 2013, the
Improving Medicare Post-Acute Care
Transformation Act of 2014, the Notice
of Observation Treatment and
Implications for Care Eligibility Act of
2015, and other legislation. We also are
providing the estimated market basket
update to apply 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 for FY 2017.
We are proposing to update the
payment policies and the annual
payment rates for the Medicare
prospective payment system (PPS) for
inpatient hospital services provided by
long-term care hospitals (LTCHs) for FY
2017.
In addition, we are proposing to make
changes relating to direct graduate
medical education (GME) and indirect
medical education (IME) payments to
hospitals with rural track training
programs. We are proposing to establish
new requirements or revise
requirements for quality reporting by
specific providers (acute care hospitals,
PPS-exempt cancer hospitals, LTCHs,

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SUMMARY:

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and inpatient psychiatric facilities) that
are participating in Medicare, including
related provisions for eligible hospitals
and critical care hospitals (CAHs)
participating in the Electronic Health
Record (EHR) Incentive Program. We are
proposing to update policies relating to
the Hospital Value-Based Purchasing
(VBP) Program, the Hospital
Readmissions Reduction Program, and
the Hospital-Acquired Condition (HAC)
Reduction Program. We also are
proposing to: Implement statutory
provisions that require hospitals and
CAHs to furnish notification to
Medicare beneficiaries, including
Medicare Advantage enrollees, when
the beneficiaries receive outpatient
observation services for more than 24
hours; announce the implementation of
the Frontier Community Health
Integration Project Demonstration; and
make technical corrections and changes
to regulations relating to costs to
organizations and Medicare cost reports.
DATES: To be assured consideration,
comments must be received at one of
the addresses provided in the
ADDRESSES section, no later than 5 p.m.
EDT on June 17, 2016.
ADDRESSES: In commenting, please refer
to file code CMS–1655–P. Because of
staff and resource limitations, we cannot
accept comments by facsimile (FAX)
transmission.
You may submit comments in one of
four ways (no duplicates, please):
1. Electronically. You may (and we
encourage you to) submit electronic
comments on this regulation to http://
www.regulations.gov. Follow the
instructions under the ‘‘submit a
comment’’ tab.
2. By regular mail. You may mail
written comments to the following
address ONLY: Centers for Medicare &
Medicaid Services, Department of
Health and Human Services, Attention:
CMS–1655–P, P.O. Box 8011, Baltimore,
MD 21244–1850.
Please allow sufficient time for mailed
comments to be received before the
close of the comment period.
3. By express or overnight mail. You
may send written comments via express
or overnight mail to the following
address ONLY: Centers for Medicare &
Medicaid Services, Department of
Health and Human Services, Attention:
CMS–1655–P, Mail Stop C4–26–05,
7500 Security Boulevard, Baltimore, MD
21244–1850.
4. By hand or courier. If you prefer,
you may deliver (by hand or courier)
your written comments before the close
of the comment period to either of the
following addresses:
a. For delivery in Washington, DC—
Centers for Medicare & Medicaid

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Services, Department of Health and
Human Services, Room 445–G, Hubert
H. Humphrey Building, 200
Independence Avenue SW.,
Washington, DC 20201.
(Because access to the interior of the
Hubert H. Humphrey Building is not
readily available to persons without
Federal Government identification,
commenters are encouraged to leave
their comments in the CMS drop slots
located in the main lobby of the
building. A stamp-in clock is available
for persons wishing to retain a proof of
filing by stamping in and retaining an
extra copy of the comments being filed.)
b. For delivery in Baltimore, MD—
Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, 7500 Security
Boulevard, Baltimore, MD 21244–1850.
If you intend to deliver your
comments to the Baltimore address,
please call the telephone number (410)
786–7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses
indicated as appropriate for hand or
courier delivery may be delayed and
received after the comment period.
For information on viewing public
comments, we refer readers to the
beginning of the SUPPLEMENTARY
INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Ing
Jye Cheng, (410) 786–4548, and Donald
Thompson, (410) 786–4487, Operating
Prospective Payment, MS–DRGs, 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)
Issues, Medicare-Dependent Small Rural
Hospital (MDH) Program, and LowVolume Hospital Payment Adjustment
Issues.
Michele Hudson, (410) 786–4487, and
Emily Lipkin, (410) 786–3633, LongTerm Care Hospital Prospective
Payment System and MS–LTC–DRG
Relative Weights Issues.
Mollie Knight (410) 786–7948, and
Bridget Dickensheets, (410) 786–8670,
Rebasing and Revising the LTCH Market
Basket Issues.
Siddhartha Mazumdar, (410) 786–
6673, Rural Community Hospital
Demonstration Program Issues.
Jason Pteroski, (410) 786–4681, and
Siddhartha Mazumdar, (410) 786–6673,
Frontier Community Health Integration
Project Demonstration Issues.
Kathryn McCann Smith, (410) 786–
7623, Hospital Notification Procedures
for Beneficiaries Receiving Outpatient
Observation Services Issues; or

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Stephanie Simons, (206) 615–2420, only
for Related Medicare Health Plans
Issues.
Lein Han, (617) 879–0129, Hospital
Readmissions Reduction Program—
Readmission Measures for Hospitals
Issues.
Delia Houseal, (410) 786–2724,
Hospital-Acquired Condition Reduction
Program and Hospital Readmissions
Reduction Program—Program
Administration Issues.
Joseph Clift, (410) 786–4165,
Hospital-Acquired Condition Reduction
Program—Measures Issues.
James Poyer, (410) 786–2261, Hospital
Inpatient Quality Reporting and
Hospital Value-Based Purchasing—
Program Administration, Validation,
and Reconsideration Issues.
Cindy Tourison, (410) 786–1093,
Hospital Inpatient Quality Reporting—
Measures Issues Except Hospital
Consumer Assessment of Healthcare
Providers and Systems Issues; and
Readmission Measures for Hospitals
Issues.
Kim Spaulding Bush, (410) 786–3232,
Hospital Value-Based Purchasing
Efficiency Measures Issues.
Elizabeth Goldstein, (410) 786–6665,
Hospital Inpatient Quality Reporting—
Hospital Consumer Assessment of
Healthcare Providers and Systems
Measures Issues.
James Poyer, (410) 786–2261, PPSExempt Cancer Hospital Quality
Reporting Issues.
Mary Pratt, (410) 786–6867, LongTerm Care Hospital Quality Data
Reporting Issues.
Jeffrey Buck, (410) 786–0407 and
Cindy Tourison (410) 786–1093,
Inpatient Psychiatric Facilities Quality
Data Reporting Issues.
Deborah Krauss, (410) 786–5264, and
Lisa Marie Gomez, (410) 786–1175, EHR
Incentive Program Clinical Quality
Measure Related Issues.
Elizabeth Myers, (410) 786–4751, EHR
Incentive Program Nonclinical Quality
Measure Related Issues.
Lauren Wu, (202) 690–7151, Certified
EHR Technology Related Issues.
Kellie Shannon, (410) 786–0416,
Technical Changes Relating to Costs to
Organizations and Medicare Cost
Reports Issues.
SUPPLEMENTARY INFORMATION:
Electronic Access
Inspection of Public Comments: All
public comments received before the
close of the comment period are
available for viewing by the public,
including any personally identifiable or
confidential business information that is
included in a comment. We post all
public comments received before the

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close of the comment period on the
following Web site as soon as possible
after they have been received: http://
www.regulations.gov. Follow the search
instructions on that Web site to view
public comments.
Electronic Access
This Federal Register document is
also available from the Federal Register
online database through Federal Digital
System (FDsys), a service of the U.S.
Government Printing Office. This
database can be accessed via the
Internet at: http://www.gpo.gov/fdsys.
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 the proposed
rule and the final rule were published
in the Federal Register as part of the
annual proposed and final rules.
However, beginning in FY 2012, some of
the IPPS tables and LTCH PPS tables are
no longer published in the Federal
Register. Instead, these tables generally
will be available only through the
Internet. The IPPS tables for this
proposed rule are available through the
Internet on the CMS Web site at: http://
www.cms.hhs.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatient
PPS/index.html. Click on the link on the
left side of the screen titled, ‘‘FY 2017
IPPS Proposed Rule Home Page’’ or
‘‘Acute Inpatient—Files for Download’’.
The LTCHy PPS tables for this FY 2017
proposed rule are available through the
Internyet on the CMS Web site at: http://
www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/LongTermCare
HospitalPPS/index.html under the list
item for Regulation Number CMS–1655–
P. For further details on the contents of
the tables referenced in this proposed
rule, we refer readers to section VI. of
the Addendum to this proposed rule.
Readers who experience any problems
accessing any of the tables that are
posted on the CMS Web sites identified
above should contact Michael Treitel at
(410) 786–4552.
Acronyms
3M 3M Health Information System
AAMC Association of American Medical
Colleges
ACGME Accreditation Council for Graduate
Medical Education
ACoS American College of Surgeons
AHA American Hospital Association
AHIC American Health Information
Community
AHIMA American Health Information
Management Association
AHRQ Agency for Healthcare Research and
Quality
AJCC American Joint Committee on Cancer

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ALOS Average length of stayALTHA Acute Long-Term Hospital
Association
AMA American Medical Association
AMGA American Medical Group
Association
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis
Related Group System
APRN Advanced practice registered nurse
ARRA American Recovery and
Reinvestment Act of 2009, Public Law
111–5
ASCA Administrative Simplification
Compliance Act of 2002, Public Law 107–
105
ASITN American Society of Interventional
and Therapeutic Neuroradiology
ASPE Assistant Secretary for Planning and
Evaluation (DHHS)
ATRA American Taxpayer Relief Act of
2012, Public Law 112–240
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
CABG Coronary artery bypass graft
[surgery]
CAH Critical access hospital
CARE [Medicare] Continuity Assessment
Record & Evaluation [Instrument]
CART CMS Abstraction & Reporting Tool
CAUTI Catheter-associated urinary tract
infection
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCN CMS Certification Number
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction
Center
CDAD Clostridium difficile-associated
disease
CDC Centers for Disease Control and
Prevention
CERT Comprehensive error rate testing
CDI Clostridium difficile [C. difficile]
infection
CFR Code of Federal Regulations
CLABSI Central line-associated
bloodstream infection
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
COPD Chronic obstructive pulmonary
disease
CPI Consumer price index
CQL Clinical quality language
CQM Clinical quality measure
CY Calendar year
DACA Data Accuracy and Completeness
Acknowledgement

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DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public
Law 109–171
DRG Diagnosis-related group
DSH Disproportionate share hospital
EBRT External beam radiotherapy
ECE Extraordinary circumstances
exemption
ECI Employment cost index
eCQM Electronic clinical quality measure
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
EMTALA Emergency Medical Treatment
and Labor Act of 1986, Public Law 99–272
EP Eligible professional
FAH Federation of American Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FPL Federal poverty line
FQHC Federally qualified health center
FR Federal Register
FTE Full-time equivalent
FY Fiscal year
GAF Geographic Adjustment Factor
GME Graduate medical education
HAC Hospital-acquired condition
HAI Healthcare-associated infection
HCAHPS Hospital Consumer Assessment of
Healthcare Providers and Systems
HCFA Health Care Financing
Administration
HCO High-cost outlier
HCP Healthcare personnel
HCRIS Hospital Cost Report Information
System
HF Heart failure
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
HwH Hospital-within-hospital
ICD–9–CM International Classification of
Diseases, Ninth Revision, Clinical
Modification
ICD–10–CM International Classification of
Diseases, Tenth Revision, Clinical
Modification
ICD–10–PCS International Classification of
Diseases, Tenth Revision, Procedure
Coding System
ICR Information collection requirement
ICU Intensive care unit
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
IMPACT Act Improving Medicare PostAcute Care Transformation Act of 2014,
Public Law 113–185

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I–O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPFQR Inpatient Psychiatric Facility
Quality Reporting [Program]
IPPS [Acute care hospital] inpatient
prospective payment system
IRF Inpatient rehabilitation facility
IQR [Hospital] Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LEP Limited English proficiency
LOC Limitation on charges
LOS Length of stay
LTC–DRG Long-term care diagnosis-related
group
LTCH Long-term care hospital
LTCH QRP Long-Term Care Hospital
Quality Reporting Program
MA Medicare Advantage
MAC Medicare Administrative Contractor
MACRA Medicare Access and CHIP
Reauthorization Act of 2015, Public Law
114–10
MAP Measure Application Partnership
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
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
MOON Medicare Outpatient Observation
Notice
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
MU Meaningful Use [EHR Incentive
Program]
MUC Measure under consideration
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

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NHSN National Healthcare Safety Network
NOP Notice of Participation
NOTICE Act Notice of Observation
Treatment and Implication for Care
Eligibility Act, Public Law 114–42
NQF National Quality Forum
NQS National Quality Strategy
NTIS National Technical Information
Service
NTTAA National Technology Transfer and
Advancement Act of 1991, Public Law
104–113
NUBC National Uniform Billing Code
NVHRI National Voluntary Hospital
Reporting Initiative
OACT [CMS’] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation
Act of 1986, Public Law 99–509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB [Executive] Office of Management and
Budget
ONC Office of the National Coordinator for
Health Information Technology
OPM [U.S.] Office of Personnel
Management
OQR [Hospital] Outpatient Quality
Reporting
O.R. Operating room
OSCAR Online Survey Certification and
Reporting [System]
PAC Post-acute care
PAMA Protecting Access to Medicare Act of
2014, Public Law 113–93
PCH PPS-exempt cancer hospital
PCHQR PPS-exempt cancer hospital quality
reporting
PMSAs Primary metropolitan statistical
areas
POA Present on admission
PPI Producer price index
PPR Potentially Preventable Readmissions
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
PSI Patient safety indicator
PS&R Provider Statistical and
Reimbursement [System]
PQRS Physician Quality Reporting System
PUF Public use file
QDM Quality data model
QIES ASAP Quality Improvement
Evaluation System Assessment Submission
and Processing
QIG Quality Improvement Group [CMS]
QIO Quality Improvement Organization
QM Quality measure
QRDA Quality Reporting Document
Architecture
RFA Regulatory Flexibility Act, Public Law
96–354
RHC Rural health clinic
RHQDAPU Reporting hospital quality data
for annual payment update
RIM Reference information model
RNHCI Religious nonmedical health care
institution
RPL Rehabilitation psychiatric long-term
care (hospital)
RRC Rural referral center

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RSMR Risk-standard mortality rate
RSP Risk-standardized payment
RSSR Risk-standard readmission rate
RTI Research Triangle Institute,
International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SCHIP State Child Health Insurance
Program
SCIP Surgical Care Improvement Project
SFY State fiscal year
SGR Sustainable Growth Rate
SIC Standard Industrial Classification
SIR Standardized infection ratio
SNF Skilled nursing facility
SNF QRP Skilled Nursing Facility Quality
Reporting Program
SNF VBP Skilled Nursing Facility ValueBased Purchasing
SOCs Standard occupational classifications
SOM State Operations Manual
SRR Standardized risk ratio
SSI Surgical site infection
SSI Supplemental Security Income
SSO Short-stay outlier
SUD Substance use disorder
TEFRA Tax Equity and Fiscal
Responsibility Act of 1982, Public Law 97–
248
TEP Technical expert panel
THA/TKA Total hip arthroplasty/total knee
arthroplasty
TMA TMA [Transitional Medical
Assistance], Abstinence Education, and QI
[Qualifying Individuals] Programs
Extension Act of 2007, Public Law 110–90
TPS Total Performance Score
UHDDS Uniform hospital discharge data set
UR Utilization review
VBP [Hospital] Value Based Purchasing
[Program]
VTE Venous thromboembolism

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Table of Contents
I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
2. Summary of the Major Provisions
3. Summary of Costs and Benefits
B. Summary
1. Acute Care Hospital Inpatient
Prospective Payment System (IPPS)
2. Hospitals and Hospital Units Excluded
from the IPPS
3. Long-Term Care Hospital Prospective
Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical
Education (GME)
C. Summary of Provisions of Recent
Legislation Proposed to be Implemented
in this Proposed Rule
1. American Taxpayer Relief Act of 2012
(ATRA) (Pub. L. 112–240)
2. Pathway for SGR Reform Act of 2013
(Pub. L. 113–67)
3. Improving Medicare Post-Acute Care
Transformation Act of 2014 (IMPACT
Act) (Pub. L. 113–185)
4. The Medicare Access and CHIP
Reauthorization Act (MACRA) of 2015
(Pub. L. 114–10)
5. The Consolidated Appropriations Act,
2016 (Pub. L. 114–113)

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6. The Notice of Observation Treatment
and Implication for Care Eligibility Act
(the NOTICE Act) of 2015 (Pub. L. 114–
42)
D. Summary of the Provisions of this
Proposed Rule
II. Proposed Changes to Medicare Severity
Diagnosis-Related Group (MS–DRG)
Classifications and Relative Weights
A. Background
B. MS–DRG Reclassifications
C. Adoption of the MS–DRGs in FY 2008
D. Proposed FY 2017 MS–DRG
Documentation and Coding Adjustment
1. Background on the Prospective MS–DRG
Documentation and Coding Adjustments
for FY 2008 and FY 2009 Authorized by
Public Law 110–90
2. Adjustment to the Average Standardized
Amounts Required by Public Law 110–
90
a. Prospective Adjustment Required by
Section 7(b)(1)(A) of Public Law 110–90
b. Recoupment or Repayment Adjustments
in FYs 2010 through 2012 Required by
Section 7(b)(1)(B) of Public Law 110–90
3. Retrospective Evaluation of FY 2008 and
FY 2009 Claims Data
4. Prospective Adjustments for FY 2008
and FY 2009 Authorized by Section
7(b)(1)(A) of Public Law 110–90
5. Recoupment or Repayment Adjustment
Authorized by Section 7(b)(1)(B) of
Public Law 110–90
6. Proposed Recoupment or Repayment
Adjustment Authorized by Section 631
of the American Taxpayer Relief Act of
2012 (ATRA)
E. Refinement of the MS–DRG Relative
Weight Calculation
1. Background
2. Discussion of Policy for FY 2017
F. Proposed Changes to Specific MS–DRG
Classifications
1. Discussion of Changes to Coding System
and Basis for MS–DRG Updates
a. Conversion of MS–DRGs to the
International Classification of Diseases,
10th Revision (ICD–10)
b. Basis for Proposed FY 2017 MS–DRG
Updates
2. Pre-Major Diagnostic Category (PreMDC): Total Artificial Heart
Replacement
3. MDC 1 (Diseases and Disorders of the
Nervous System)
a. Endovascular Embolization (Coiling) or
Occlusion of Head and Neck Procedures
b. Mechanical Complication Codes
4. MDC 4 (Diseases and Disorders of the
Ear, Nose, Mouth and Throat)
a. Proposed Reassignment of Diagnosis
Code R22.2 (Localized Swelling, Mass
and Lump, Trunk)
b. Pulmonary Embolism with tPA or Other
Thrombolytic Therapy
5. MDC 5 (Diseases and Disorders of the
Circulatory System)
a. Implant of Loop Recorder
b. Endovascular Thrombectomy of the
Lower Limbs
c. Pacemaker Procedures Code
Combinations
d. Transcatheter Mitral Valve Repair with
Implant
e. MS–DRG 245 (AICD Generator
Procedures)

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6. MDC 6 (Diseases and Disorders of the
Digestive System): Excision of Ileum
7. MDC 7 (Diseases and Disorders of the
Hepatobiliary System and Pancreas):
Bypass Procedures of the Veins
8. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue)
a. Proposed Updates to MS–DRGs 469 and
470 (Major Joint Replacement or
Reattachment of Lower Extremity with
and without MCC, respectively)
(1) Total Ankle Replacement (TAR)
Procedures
(2) Hip Replacements Procedures with
Principal Diagnosis of Hip Fracture
b. Revision of Total Ankle Replacement
Procedures
(1) Revision of Total Ankle Replacement
Procedures
(2) Combination Codes for Removal and
Replacement of Knee Joints
c. Decompression Laminectomy
d. Lordosis
9. MDC 13 (Diseases and Disorders of the
Female Reproductive System): Pelvic
Evisceration
10. MDC 19 (Mental Diseases and
Disorders): Proposed Modification of
Title of MS–DRG 884 (Organic
Disturbances and Mental Retardation)
11. MDC 23 (Factors Influencing Health
Status and Other Contacts with Health
Services): Logic of MS–DRGs 945 and
946 (Rehabilitation with and without
CC/MCC, Respectively)
12. Proposed Medicare Code Editor (MCE)
Changes
a. Age Conflict Edit
(1) Newborn Diagnosis Category
(2) Pediatric Diagnosis Category
b. Sex Conflict Edit
c. Non-Covered Procedure Edit
(1) Endovascular Mechanical
Thrombectomy
(2) Radical Prostatectomy
d. Unacceptable Principal Diagnosis Edit
(1) Liveborn Infant
(2) Multiple Gestation
(3) Supervision of High Risk Pregnancy
e. Other MCE Issues
(1) Procedure Inconsistent with Length of
Stay Edit
(2) Maternity Diagnoses
(3) Manifestation Codes Not Allowed as
Principal Diagnosis Edit
(4) Questionable Admission Edit
(5) Removal of Edits and Future
Enhancement
13. Proposed Changes to Surgical
Hierarchies
14. Proposed Changes to the MS–DRG
Diagnosis Codes for FY 2017
15. Proposed Complications or
Comorbidity (CC) Exclusions List
a. Background of the CC List and the CC
Exclusions List
b. Proposed CC Exclusions List for FY 2017
16. 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

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c. Adding Diagnosis or Procedure Codes to
MDCs
(1) Angioplasty of Extracranial Vessel
(2) Excision of Abdominal Arteries
(3) Excision of Retroperitoneal Tissue
(4) Occlusion of Vessels: Esophageal
Varices
(5) Excision of Vulva
(6) Lymph Node Biopsy
(7) Obstetrical Laceration Repair
17. Proposed Changes to the ICD–10–CM
and ICD–10–PCS Coding Systems
a. ICD–10 Coordination and Maintenance
Committee
b. Code Freeze
18. Replaced Devices Offered without Cost
or With a Credit
a. Background
b. Proposed Changes for FY 2017
19. Other Proposed Policy Changes
a. MS–DRG GROUPER Logic
(1) Operations on Products of Conception
(2) Other Heart Revascularization
(3) Procedures on Vascular Bodies:
Chemoreceptors
(4) Repair of the Intestine
(5) Insertion of Infusion Pump
(6) Procedures on the Bursa
(7) Procedures on the Breast
(8) Excision of Subcutaneous Tissue and
Fascia
(9) Shoulder Replacement
(10) Reposition
(11) Insertion of Infusion Device
(12) Bladder Neck Repair
(13) Future Consideration
b. Issues Relating to MS–DRG 999
(Ungroupable)
c. Other Operating Room (O.R.) and NonO.R. Issues
(1) O.R. Procedures to Non-O.R. Procedures
(a) Endoscopic/Transorifice Insertion
(b) Endoscopic/Transorifice Removal
(c) Tracheostomy Device Removal
(d) Endoscopic/Percutaneous Insertion
(e) Percutaneous Removal
(f) Percutaneous Drainage
(g) Percutaneous Inspection
(h) Inspection without Incision
(i) Dilation of Stomach
(j) Endoscopic/Percutaneous Occlusion
(k) Infusion Device
(2) Non-O.R. Procedures to O.R. Procedures
(a) Drainage of Pleural Cavity
(b) Drainage of Cerebral Ventricle
G. Recalibration of the Proposed FY 2017
MS–DRG Relative Weights
1. Data Sources for Developing the
Proposed Relative Weights
2. Methodology for Calculation of the
Proposed Relative Weights
3. Development of National Average CCRs
H. Proposed Add-On Payments for New
Services and Technologies
1. Background
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
3. ICD–10–PCS Section ‘‘X’’ Codes for
Certain New Medical Services and
Technologies
4. Proposed FY 2017 Status of
Technologies Approved for FY 2016
Add-On Payments
a. KcentraTM
b. Argus® II Retinal Prosthesis System

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c. CardioMEMSTM HF (Heart Failure)
Monitoring System
d. MitraClip® System
e. Responsive Neurostimulator (RNS®)
System
f. Blinatumomab (BLINCYTOTM Trade
Brand)
g. Lutonix® Drug Coated Balloon PTA
Catheter and In.PACTTM AdmiralTM
Pacliaxel Coated Percutaneous
Transluminal Angioplasty (PTA) Balloon
Catheter
5. Proposed FY 2017 Applications for New
Technology Add-On Payments
a. MAGEC® Spinal Bracing and Distraction
System (MAGEC® Spine)
b. MIRODERM Biologic Wound Matrix
(MIRODERM)
c. Idarucizumab
d. Titan Spine (Titan Spine Endoskeleton®
nanoLOCKTM Interbody Device)
e. Andexanet Alfa
f. Defitelio® (Defibrotide)
g. EDWARDS INTUITY EliteTM Valve
System
h. GORE® EXCLUDER® Iliac Branch
Endoprosthesis (IBE)
i. VistogardTM (Uridine Triacetate)
III. Proposed Changes to the Hospital Wage
Index for Acute Care Hospitals
A. Background
1. Legislative Authority
2. Core-Based Statistical Areas (CBSAs)
Revisions for the Proposed FY 2017
Hospital Wage Index
B. Worksheet S–3 Wage Data for the
Proposed FY 2017 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals under
the IPPS
C. Verification of Worksheet S–3 Wage
Data
D. Method for Computing the Proposed FY
2017 Unadjusted Wage Index
E. Proposed Occupational Mix Adjustment
to the FY 2017 Wage Index
1. Use of 2013 Occupational Mix Survey
for the Proposed FY 2017 Wage Index
2. Development of the 2016 Medicare Wage
Index Occupational Mix Survey for the
FY 2019 Wage Index
3. Calculation of the Proposed
Occupational Mix Adjustment for FY
2017
F. Analysis and Implementation of the
Proposed Occupational Mix Adjustment
and the Proposed FY 2017 Occupational
Mix Adjusted Wage Index
G. Transitional Wage Indexes
1. Background
2. Transition for Hospitals in Urban Areas
That Became Rural
3. Transition for Hospitals Deemed Urban
under Section 1886(d)(8)(B) of the Act
Where the Urban Area Became Rural
under the New OMB Delineations
4. Budget Neutrality
H. Proposed Application of the Proposed
Rural, Imputed, and Frontier Floors
1. Proposed Rural Floor
2. Proposed Imputed Floor for FY 2017
3. Proposed State Frontier Floor for FY
2017
I. Proposed FY 2017 Wage Index Tables

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J. Proposed Revisions to the Wage Index
Based on Hospital Redesignations and
Reclassifications
1. General Policies and Effects of
Reclassification and Redesignation
2. MGCRB Reclassification and
Redesignation Issues for FY 2017
a. FY 2017 Reclassification Requirements
and Approvals
b. Requirements for FY 2018 Applications
and Proposed Revisions Regarding Paper
Application Requirements
c. Other Policy Regarding Reclassifications
for Terminated Hospitals
3. Redesignation of Hospitals Under
Section 1886(d)(8)(B) of the Act
4. Waiving Lugar Redesignation for the
Out-Migration Adjustment
K. Proposed Out-Migration Adjustment
Based on Commuting Patterns of
Hospital Employees for FY 2017
L. Notification Regarding Proposed CMS
‘‘Lock-In’’ Date for Urban to Rural
Reclassifications Under § 412.103
M. Process for Requests for Wage Index
Data Corrections
N. Proposed Labor Market Share for the
Proposed FY 2017 Wage Index
O. Solicitation of Comments on Treatment
of Overhead and Home Office Costs in
the Wage Index Calculation
IV. Other Decisions and Proposed Changes to
the IPPS for Operating Costs and
Graduate Medical Education (GME)
Costs
A. Changes to Operating Payments for
Subsection (d) Puerto Rico Hospitals as
a Result of Section 601 of Public Law
114–113
B. Proposed Changes in the Inpatient
Hospital Updates for FY 2017
(§§ 412.64(d) and 412.211(c))
1. Proposed FY 2017 Inpatient Hospital
Update
2. Proposed FY 2017 Puerto Rico Hospital
Update
3. Electronic Health Records (EHR)
Adjustment to IPPS Market Basket
C. Rural Referral Centers (RRCs): Proposed
Annual Updates to Case-Mix Index (CMI)
and Discharge Criteria (§ 412.96)
1. Case-Mix Index (CMI)
2. Discharges
D. Proposed Payment Adjustment for LowVolume Hospitals (§ 412.101)
E. Indirect Medical Education (IME)
Payment Adjustment (§ 412.105)
1. IME Adjustment Factor for FY 2017
2. Other Proposed Policy Changes
Affecting IME
F. Proposed Payment Adjustment for
Medicare Disproportionate Share
Hospitals (DSHs) for FY 2017 and
Subsequent Years (§ 412.106)
1. General Discussion
2. Eligibility for Empirically Justified
Medicare DSH Payments and
Uncompensated Care Payments
3. Empirically Justified Medicare DSH
Payments
4. Uncompensated Care Payments
a. Calculation of Proposed Factor 1 for FY
2017
b. Calculation of Proposed Factor 2 for FY
2017
c. Calculation of Proposed Factor 3 for FY
2017

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d. Proposed Calculation of Factor 3 for FY
2018 and Subsequent Fiscal Years
(1) Background
(2) Proposed Data Source and Time Period
for FY 2018 and Subsequent Years,
Including Methodology for Incorporating
Worksheet S–10 Data
(3) Proposed Definition of Uncompensated
Care for FY 2018 and Subsequent Fiscal
Years
(4) Other Methodological Considerations
for FY 2018 and Subsequent Fiscal Years
G. Hospital Readmissions Reduction
Program: Proposed Updates and Changes
(§§ 412.150 through 412.154)
1. Statutory Basis for the Hospital
Readmissions Reduction Program
2. Regulatory Background
3. Proposed Policies for the FY 2017
Hospital Readmissions Reduction
Program
4. Maintenance of Technical Specifications
for Quality Measures
5. Proposed Applicable Period for FY 2017
6. Proposed Calculation of Aggregate
Payments for Excess Readmissions for
FY 2017
7. Extraordinary Circumstance Exception
Policy
8. Timeline for Public Reporting of Excess
Readmission Ratios on Hospital
Compare for the FY 2017 Payment
Determination
H. Hospital Value-Based Purchasing (VBP)
Program: Proposed Policy Changes for
the FY 2018 Program Year and
Subsequent Years
1. Background
a. Statutory Background and Overview of
Past Program Years
b. FY 2017 Program Year Payment Details
2. PSI 90 Measure in the FY 2018 and
Future Program Years
a. Proposed PSI 90 Measure Performance
Period Change for the FY 2018 Program
Year
b. Intent To Propose in Future Rulemaking
To Adopt the Modified PSI 90 Measure
3. Retention Policy, Domain Name
Proposal, and Updating of Quality
Measures for the FY 2019 Program Year
a. Retention of Previously Adopted
Hospital VBP Program Measures
b. Proposed Domain Name Change
c. Proposed Inclusion of Selected Ward
Non-Intensive Care Unit (ICU) Locations
in Certain NHSN Measures Beginning
With the FY 2019 Program Year
d. Summary of Previously Adopted
Measures and Newly Proposed Measure
Refinements for the FY 2019 Program
Year
4. Newly Proposed Measures and Measure
Refinements for the FY 2021 Program
Year and Subsequent Years
a. Condition-Specific Hospital Level, RiskStandardized Payment Measures
b. Proposed Update to an Existing Measure
for the FY 2021 Program Year: Hospital
30-Day, All-Cause, Risk-Standardized
Mortality Rate (RSMR) Following
Pneumonia (PN) Hospitalization (NQF
#0468) (Updated Cohort)
5. Proposed New Measure for the FY 2022
Program Year: Hospital 30-Day, AllCause, Risk-Standardized Mortality Rate

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(RSMR) Following Coronary Artery
Bypass Graft (CABG) Surgery (NQF
#2558)
6. Previously Adopted and Newly
Proposed Baseline and Performance
Periods
a. Background
b. Patient- and Caregiver-Centered
Experience of Care/Care Coordination
Domain (Proposed Person and
Community Engagement Domain)
c. Efficiency and Cost Reduction Domain
d. Safety Domain
e. Clinical Care Domain
f. Summary of Previously Adopted and
Newly Proposed Baseline and
Performance Periods for the FY 2018, FY
2019, FY 2020, FY 2021, and FY 2022
Program Years
7. Proposed Immediate Jeopardy Policy
Changes
a. Background
b. Proposed Increase of Immediate
Jeopardy Citations From Two to Three
Surveys
c. EMTALA-Related Immediate Jeopardy
Citations
8. Proposed Performance Standards for the
Hospital VBP Program
a. Background
b. Previously Adopted and Proposed
Performance Standards for the FY 2019
Program Year
c. Previously Adopted Performance
Standards for Certain Measures for the
FY 2020 Program Year
d. Previously Adopted and Newly
Proposed Performance Standards for
Certain Measures for the FY 2021
Program Year
e. Proposed Performance Standards for
Certain Measures for the FY 2022
Program Year
9. FY 2019 Program Year Scoring
Methodology
a. Domain Weighting for the FY 2019
Program Year for Hospitals That Receive
a Score on All Domains
b. Domain Weighting for the FY 2019
Program Year for Hospitals Receiving
Scores on Fewer Than Four Domains
I. Proposed Changes to the HospitalAcquired Condition (HAC) Reduction
Program
1. Background
2. Statutory Basis for the HAC Reduction
Program
3. Overview of Previous HAC Reduction
Program Rulemaking
4. Implementation of the HAC Reduction
Program for FY 2017
a. Clarification of Complete Data
Requirements for Domain 1
b. Clarification of NHSN CDC HAI Data
Submission Requirements for Newly
Opened Hospitals
5. Implementation of the HAC Reduction
Program for FY 2018
a. Proposed Adoption of PSI 90: Patient
Safety and Adverse Events Composite
(NQF # 0531)
b. Applicable Time Periods for the FY 2018
HAC Reduction Program and the FY
2019 HAC Reduction Program
c. Proposed Changes to the HAC Reduction
Program Scoring Methodology

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6. Request for Comments on Additional
Measures for Potential Future Adoption
7. Maintenance of Technical Specifications
for Quality Measures
8. Extraordinary Circumstance Exception
Policy for the HAC Reduction Program
Beginning in FY 2016 and for
Subsequent Years
J. Payment for Graduate Medical Education
(GME) and Indirect Medical Education
(IME) Costs (§§ 412.105, 413.75 through
413.83)
1. Background
2. Change in New Program Growth From 3
Years to 5 Years
a. Urban and Rural Hospitals
b. Proposed Policy Changes Relating to
Rural Training Tracks at Urban Hospitals
c. Proposed Effective Date
K. Rural Community Hospital
Demonstration Program
1. Background
2. Budget Neutrality Offset Adjustments:
Fiscal Years 2005 Through 2016
a. Fiscal Years 2005 Through 2013
b. Fiscal Years 2014 and 2015
c. Fiscal Year 2016
3. Proposed Budget Neutrality
Methodology for FY 2017
L. Proposed Hospital and CAH Notification
Procedures for Outpatients Receiving
Observation Services
1. Background
a. Statutory Authority
b. Proposed Effective Date
2. Proposed Implementation of the NOTICE
Act Provisions
a. Proposed Notice Process
b. Proposed Notification Recipients
c. Proposed Timing of Notice Delivery
d. Proposed Requirements for Written
Notice
e. Outpatient Observation Services and
Beneficiary Financial Liability
f. Delivering the Medicare Outpatient
Observation Notice
g. Proposed Oral Notice
h. Proposed Signature Requirements
i. No Appeal Rights Under the NOTICE Act
M. Proposed Technical Changes and
Correction of Typographical Errors in
Certain Regulations Under 42 CFR part
413 Relating to Costs to Related
Organizations and Medicare Cost Reports
1. General Background
2. Proposed Technical Change to
Regulations at 42 CFR 413.17(d)(1) on
Cost to Related Organizations
3. Proposed Changes to 42 CFR
413.24(f)(4)(i) Relating to Electronic
Submission of Cost Reports
4. Proposed Technical Changes to 42 CFR
413.24(f)(4)(ii) Relating to Electronic
Submission of Cost Reports and Due
Dates
5. Proposed Technical Changes to 42 CFR
413.24(f)(4)(iv) Relating to Reporting
Entities, Cost Report Certification
Statement, Electronic Submission and
Cost Reports Due Dates
6. Proposed Technical Correction to 42
CFR 413.200(c)(1)(i) Relating to Medicare
Cost Report Due Dates for Organ
Procurement Organizations and
Histocompatibility Laboratories
N. Clarification Regarding the Medicare
Utilization Requirement for Medicare-

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Dependent, Small Rural Hospitals
(MDHs) (§ 412.108)
1. Background
2. Clarification of Medicare Utilization
Criterion for MDH Classification
O. Adjustment to IPPS Rates Resulting
From 2-Midnight Policy
V. Proposed Changes to the IPPS for CapitalRelated Costs
A. Overview
B. Additional Provisions
1. Exception Payments
2. New Hospitals
3. Proposed Changes in Payments for
Hospitals Located in Puerto Rico
C. Proposed Annual Update for FY 2017
VI. Proposed Changes for Hospitals Excluded
From the IPPS
A. Proposed Rate-of-Increase in Payments
to Excluded Hospitals for FY 2017
B. Critical Care Hospitals (CAHs)
1. Background
2. Frontier Community Health Integration
Project (FCHIP) Demonstration
VII. Proposed Changes to the Long-Term Care
Hospital Prospective Payment System
(LTCH PPS) for FY 2015
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded From the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification
Compliance Act (ASCA) and Health
Insurance Portability and Accountability
Act (HIPAA) Compliance
B. Proposed Modifications to the
Application of the Site Neutral Payment
Rate (§ 412.522)
1. Background
2. Technical Correction of Definition of
‘‘Subsection (d) Hospital’’ for the Site
Neutral Payment Rate (§ 412.503)
C. Proposed Medicare Severity Long-Term
Care Diagnosis-Related Group (MS–LTC–
DRG) Classifications and Relative
Weights for FY 2017
1. Background
2. Patient Classifications Into MS–LTC–
DRGs
a. Background
b. Proposed Changes to the MS–LTC–DRGs
for FY 2017
3. Development of the Proposed FY 2017
MS–LTC–DRG Relative Weights
a. General Overview of the Development of
the MS–LTC–DRG Relative Weights
b. Development of the Proposed MS–LTC–
DRG Relative Weights for FY 2017
c. Data
d. Hospital-Specific Relative Value (HSRV)
Methodology
e. Treatment of Severity Levels in
Developing the MS–LTC–DRG Relative
Weights
f. Proposed Low-Volume MS–LTC–DRGs
g. Steps for Determining the Proposed FY
2017 MS–LTC–DRG Relative Weights
D. Proposed Rebasing of the LTCH Market
Basket
1. Background
2. Overview of the Proposed 2013-Based
LTCH Market Basket
3. Development of the Proposed 2013Based LTCH Market Basket Cost
Categories and Weights

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a. Use of Medicare Cost Report Data
(1) Wages and Salaries Costs
(2) Employee Benefit Costs
(3) Contract Labor Costs
(4) Pharmaceutical Costs
(5) Professional Liability Insurance Costs
(6) Capital Costs
b. Final Major Cost Category Computation
c. Derivation of the Detailed Operating Cost
Weights
d. Derivation of the Detailed Capital Cost
Weights
e. Proposed 2013-Based LTCH Market
Basket Cost Categories and Weights
4. Selection of Proposed Price Proxies
a. Price Proxies for the Operating Portion
of the Proposed 2013–Based LTCH
Market Basket
(1) Wages and Salaries
(2) Employee Benefits
(3) Electricity
(4) Fuel, Oil, and Gasoline
(5) Water and Sewage
(6) Professional Liability Insurance
(7) Pharmaceuticals
(8) Food: Direct Purchases
(9) Food: Contract Services
(10) Chemicals
(11) Medical Instruments
(12) Rubber and Plastics
(13) Paper and Printing Products
(14) Miscellaneous Products
(15) Professional Fees: Labor-Related
(16) Administrative and Facilities Support
Services
(17) Installation, Maintenance, and Repair
Services
(18) All Other: Labor-Related Services
(19) Professional Fees: Nonlabor-Related
(20) Financial Services
(21) Telephone Services
(22) All Other: Nonlabor-Related Services
b. Price Proxies for the Capital Portion of
the Proposed 2013-Based LTCH Market
Basket
(1) Capital Price Proxies Prior to Vintage
Weighting
(2) Vintage Weights for Price Proxies
c. Summary of Price Proxies of the
Proposed 2013-Based LTCH Market
Basket
d. Proposed FY 2017 Market Basket Update
for LTCHs
e. Proposed FY 2017 Labor-Related Share
E. Proposed Changes to the LTCH PPS
Payment Rates and Other Proposed
Changes to the LTCH PPS for FY 2017
1. Overview of Development of the LTCH
PPS Standard Federal Payment Rates
2. Proposed FY 2017 LTCH PPS Standard
Federal Payment Rate Annual Market
Basket Update
a. Overview
b. Proposed Market Basket Under the
LTCH PPS for FY 2017
c. Revision of Certain Market Basket
Updates as Required by the Affordable
Care Act
d. Proposed Adjustment to the LTCH PPS
Standard Federal Payment Rate Under
the Long-Term Care Hospital Quality
Reporting Program (LTCH QRP)
e. Proposed Annual Market Basket Update
Under the LTCH PPS for FY 2017
3. Proposed Update Under the Payment
Adjustment for ‘‘Subclause (II)’’ LTCHs

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F. Proposed Modifications to the ‘‘25Percent Threshold Policy’’ Payment
Adjustments (§§ 412.534 and 412.536)
G. Proposed Refinement to the Payment
Adjustment for ‘‘Subclause II’’ LTCHs
VIII. Quality Data Reporting Requirements for
Specific Providers and Suppliers
A. Hospital Inpatient Quality Reporting
(IQR) Program
1. Background
a. History of the Hospital IQR Program
b. Maintenance of Technical Specifications
for Quality Measures
c. Public Display of Quality Measures
2. Process for Retaining Previously
Adopted Hospital IQR Program Measures
for Subsequent Payment Determinations
3. Removal and Suspension of Hospital
IQR Program Measures
a. Considerations in Removing Quality
Measures From the Hospital IQR
Program
b. Proposed Removal of Hospital IQR
Program Measures for the FY 2019
Payment Determination and Subsequent
Years
4. Previously Adopted Hospital IQR
Program Measures for the FY 2018 and
FY 2019 Payment Determination and
Subsequent Years
5. Expansion and Updating of Quality
Measures
6. Proposed Refinements to Existing
Measures in the Hospital IQR Program
a. Proposed Expansion of the Cohort for the
PN Payment Measure: Hospital-Level,
Risk-Standardized Payment Associated
With a 30-Day Episode-of-Care for
Pneumonia (NQF # 2579)
b. Proposed Adoption of Modified PSI 90:
Patient Safety and Adverse Events
Composite Measure (NQF #0531)
7. Proposed Additional Hospital IQR
Program Measures for the FY 2019
Payment Determinations and Subsequent
Years
a. Proposed Adoption of Three Clinical
Episode-Based Payment Measures
b. Proposed Adoption of Excess Days in
Acute Care After Hospitalization for
Pneumonia (PN Excess Days) Measure
c. Summary of Previously Adopted and
Newly Proposed Hospital IQR Program
Measures for the FY 2019 Payment
Determination and Subsequent Years
8. Proposed Changes to Policies on
Reporting of eCQMs
a. Proposed Requirement That Hospitals
Report on All eCQMs in the Hospital IQR
Program Measure Set for the CY 2017
Reporting Period/FY 2019 Payment
Determination and Subsequent Years
b. Proposed Requirement That Hospitals
Report a Full Year of eCQM Data
c. Clarification Regarding Data Submission
for ED–1, ED–2, PC–01, STK–4, VTE–5,
and VTE–6
9. Possible New Quality Measures and
Measure Topics for Future Years
a. Potential Inclusion of the National
Institutes of Health (NIH) Stroke Scale
for the Hospital 30-Day Mortality
Following Acute Ischemic Stroke
Hospitalization Measure Beginning as
Early as the FY 2022 Payment
Determination

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b. Potential Inclusion of National
Healthcare Safety Network (NHSN)
Antimicrobial Use Measure (NQF #2720)
c. Potential Measures for Behavioral Health
in the Hospital IQR Program
d. Potential Public Reporting of Quality
Measures Data Stratified by Race,
Ethnicity, Sex, and Disability and Future
Hospital Quality Measures That
Incorporate Health Equity
10. Form, Manner, and Timing of Quality
Data Submission
a. Background
b. Procedural Requirements for the FY
2019 Payment Determination and
Subsequent Years
c. Data Submission Requirements for
Chart-Abstracted Measures
d. Proposed Alignment of the Hospital IQR
Program With the Medicare and
Medicaid EHR Incentive Programs for
Eligible Hospitals and CAHs
e. Sampling and Case Thresholds for the
FY 2019 Payment Determination and
Subsequent Years
f. HCAHPS Requirements for the FY 2019
Payment Determination and Subsequent
Years
g. Data Submission Requirements for
Structural Measures for the FY 2019
Payment Determination and Subsequent
Years
h. Data Submission and Reporting
Requirements for HAI Measures
Reported via NHSN
11. Proposed Modifications to the Existing
Processes for Validation of Hospital IQR
Program Data
a. Background
b. Proposed Modifications to the Existing
Processes for Validation of Hospital IQR
Program Data
12. Data Accuracy and Completeness
Acknowledgement (DACA)
Requirements for the FY 2019 Payment
Determination and Subsequent Years
13. Public Display Requirements for the FY
2019 Payment Determination and
Subsequent Years
14. Reconsideration and Appeal
Procedures for the FY 2019 Payment
Determination and Subsequent Years
15. Proposed Changes to the Hospital IQR
Program Extraordinary Circumstances
Extensions or Exemptions (ECE) Policy
a. Proposal To Extend the General ECE
Request Deadline for Non-eCQM
Circumstances
b. Proposal To Establish a Separate
Submission Deadline for ECE Requests
Related to eCQMs
B. PPS-Exempt Cancer Hospital Quality
Reporting (PCHQR) Program
1. Background
2. Proposed Criteria for Removal and
Retention of PCHQR Program Measures
3. Retention and Proposed Update to
Previously Finalized Quality Measures
for PCHs Beginning With the FY 2019
Program Year
a. Background
b. Proposed Update of Oncology: Radiation
Dose Limits to Normal Tissues (NQF
#0382) Measure for FY 2019 Program
Year and Subsequent Years

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4. Proposed New Quality Measure
Beginning With the FY 2019 Program
Year
a. Considerations in the Selection of
Quality Measures
b. Admissions and Emergency Department
(ED) Visits for Patients Receiving
Outpatient Chemotherapy
5. Possible New Quality Measure Topics
for Future Years
6. Maintenance of Technical Specifications
for Quality Measures
7. Public Display Requirements
a. Background
b. Proposed Additional Public Display
Requirements
c. Proposed Public Display of Additional
PCHQR Measure
d. Proposed Public Display of Updated
Measure
e. Proposed Postponement of Public
Display of Two Measures
8. Form, Manner, and Timing of Data
Submission
9. Exceptions From PCHQR Program
Requirements
C. Long-Term Care Hospital Quality
Reporting Program (LTCH QRP)
1. Background and Statutory Authority
2. General Considerations Used for
Selection of Quality, Resource Use, and
Other Measures for the LTCH QRP
3. Policy for Retention of LTCH QRP
Measures Adopted for Previous Payment
Determinations
4. Policy for Adopting Changes to LTCH
QRP Measures
5. Quality Measures Previously Finalized
for and Currently Used in the LTCH QRP
6. LTCH QRP Quality, Resource Use and
Other Measures Proposed for the FY
2018 Payment Determination and
Subsequent Years
a. Proposal To Address the IMPACT Act
Domain of Resource Use and Other
Measures: Total Estimated MSPB—PAC
LTCH QRP
b. Proposal To Address the IMPACT Act
Domain of Resource Use and Other
Measures: Discharge to Community-PostAcute Care (PAC) Long-Term Care
Hospital Quality Reporting Program
c. Proposal To Address the IMPACT Act
Domain of Resource Use and Other
Measures: Potentially Preventable 30Day Post-Discharge Readmission
Measure for the Long-Term Care Hospital
Quality Reporting Program
7. LTCH QRP Quality Measure Proposed
for the FY 2020 Payment Determination
and Subsequent Years
a. Background
b. Quality Measure Addressing the
IMPACT Act Domain of Medication
Reconciliation: Drug Regimen Review
Conducted With Follow-Up for
Identified Issues-Post-Acute Care LTCH
QRP
8. LTCH QRP Quality Measures and
Measure Concepts Under Consideration
for Future Years
9. Proposed Form, Manner, and Timing of
Quality Data Submission for the FY 2018
Payment Determination and Subsequent
Years
a. Background

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b. Timeline for Data Submission Under the
LTCH QRP for the FY 2018 and
Subsequent Years Payment
Determinations
c. Proposed Timeline and Data Submission
Mechanisms for the FY 2018 Payment
Determination and Subsequent Years for
New LTCH QRP Resource Use and Other
Measures—Claims-Based Measures
d. Proposal To Revise the Previously
Adopted Data Collection Period and
Submission Deadlines for Percent of
Residents or Patients Who Were
Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short Stay)
(NQF #0680) for the FY 2019 Payment
Determination and Subsequent Years
e. Proposed Timeline and Data Submission
Mechanisms for the Proposed LTCH QRP
Quality Measure for the FY 2020
Payment Determination and Subsequent
Years
10. LTCH QRP Data Completion
Thresholds for the FY 2016 Payment
Determination and Subsequent Years
11. LTCH QRP Data Validation Process for
the FY 2016 Payment Determination and
Subsequent Years
12. Proposed Change to Previously
Codified LTCH QRP Submission
Exception and Extension Policies
13. Previously Finalized LTCH QRP
Reconsideration and Appeals Procedures
14. Proposals and Policies Regarding
Public Display of Measure Data for the
LTCH QRP and Procedures for the
Opportunity To Review and Correct Data
and Information
a. Public Display of Measures
b. Procedures for the Opportunity To
Review and Correct Data and
Information
15. Proposed Mechanism for Providing
Feedback Reports to LTCHs
D. Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program
1. Background
a. Statutory Authority
b. Covered Entities
c. Considerations in Selecting Quality
Measures
2. Retention of IPFQR Program Measures
Adopted in Previous Payment
Determinations
3. Proposed Update to Previously Finalized
Measure: Screening for Metabolic
Disorders
4. Proposed New Quality Measures for the
FY 2019 Payment Determination and
Subsequent Years
a. SUB–3—Alcohol and Other Drug Use
Disorder Treatment Provided or Offered
at Discharge and the Subset Measure
SUB–3a—Alcohol and Other Drug Use
Disorder Treatment at Discharge (NQF
#1664)
b. Thirty-Day All-Cause Unplanned
Readmission Following Psychiatric
Hospitalization in an IPF
5. Summary of Proposed Measures for the
FY 2019 Payment Determination and
Subsequent Years
6. Possible IPFQR Program Measures and
Topics for Future Consideration
7. Public Display and Review
Requirements

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8. Form, Manner, and Timing of Quality
Data Submission
a. Procedural and Submission
Requirements
b. Proposed Change to the Reporting
Periods and Submission Timeframes
c. Population and Sampling
d. Data Accuracy and Completeness
Acknowledgement (DACA)
Requirements
9. Reconsideration and Appeals Procedures
10. Exceptions to Quality Reporting
Requirements
E. Clinical Quality Measurement for
Eligible Hospitals and Critical Access
Hospitals (CAHs) Participating in the
EHR Incentive Programs in 2017
1. Background
2. CQM Reporting for the Medicare and
Medicaid EHR Incentive Programs in
2017
a. Background
b. CQM Reporting Period for the Medicare
and Medicaid EHR Incentive Programs in
CY 2017
c. CQM Reporting Form and Method for
the Medicare EHR Incentive Program in
2017
IX. MedPAC Recommendations
X. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Statutory Requirement for Solicitation of
Comments
2. ICRs for Add-On Payments for New
Services and Technologies
3. ICRs for the Occupational Mix
Adjustment to the Proposed FY 2017
Wage Index (Hospital Wage Index
Occupational Mix Survey)
4. Hospital Applications for Geographic
Reclassifications by the MGCRB
5. ICRs for the Notice of Observation
Treatment by Hospitals and CAHs
6. ICRs for the Hospital Inpatient Quality
Reporting (IQR) Program
7. ICRs for PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program
8. ICRs for Hospital Value-Based
Purchasing (VBP) Program
9. ICRs for the Long-Term Care Hospital
Quality Reporting Program (LTCH QRP)
10. ICRs for the Inpatient Psychiatric
Facility Quality Reporting (IPFQR)
Program
11. ICRs for the Electronic Health Record
(EHR) Incentive Program and Meaningful
Use
C. Response to Public Comments
Regulation Text
Addendum—Proposed Schedule of
Standardized Amounts, Update Factors,
and Rate-of-Increase Percentages
Effective With Cost Reporting Periods
Beginning on or After October 1, 2016
and Payment Rates for LTCHs Effective
With Discharges Occurring on or After
October 1, 2016
I. Summary and Background
II. Proposed Changes to the Prospective
Payment Rates for Hospital Inpatient
Operating Costs for Acute Care Hospitals
for FY 2017
A. Calculation of the Adjusted
Standardized Amount
B. Proposed Adjustments for Area Wage
Levels and Cost-of-Living

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C. Calculation of the Prospective Payment
Rates
III. Proposed Changes to Payment Rates for
Acute Care Hospital Inpatient CapitalRelated Costs for FY 2017
A. Determination of Federal Hospital
Inpatient Capital-Related Prospective
Payment Rate Update
B. Calculation of the Proposed Inpatient
Capital-Related Prospective Payments for
FY 2017
C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for
Excluded Hospitals: Rate-of-Increase
Percentages for FY 2017
V. Proposed Updates to the Payment Rates
for the LTCH PPS for FY 2017
A. Proposed LTCH PPS Standard Federal
Payment Rate for FY 2017
B. Proposed Adjustment for Area Wage
Levels Under the LTCH PPS for FY 2017
1. Background
2. Proposed Geographic Classifications
(Labor Market Areas) for the LTCH PPS
Standard Federal Payment Rate
3. Proposed Labor-Related Share for the
LTCH PPS Standard Federal Payment
Rate
4. Proposed Wage Index for FY 2017 for the
LTCH PPS Standard Federal Payment
Rate
5. Proposed Budget Neutrality Adjustment
for Changes to the LTCH PPS Standard
Federal Payment Rate Area Wage Level
Adjustment
C. Proposed LTCH PPS Cost-of-Living
Adjustment (COLA) for LTCHs Located
in Alaska and Hawaii
D. Proposed Adjustment for LTCH PPS
High-Cost Outlier (HCO) Cases
E. Proposed Update to the IPPS
Comparable/Equivalent Amounts to
Reflect the Statutory Changes to the IPPS
DSH Payment Adjustment Methodology
F. Computing the Proposed Adjusted LTCH
PPS Federal Prospective Payments for
FY 2017
VI. Tables Referenced in This Proposed
Rulemaking and Available Through the
Internet on the CMS Web site
Appendix A—Economic Analyses
I. Regulatory Impact Analysis
A. Introduction
B. Need
C. Objectives of the IPPS
D. Limitations of Our Analysis
E. Hospitals Included in and Excluded
From the IPPS
F. Effects on Hospitals and Hospital Units
Excluded From the IPPS
G. Quantitative Effects of the Proposed
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 Proposed Policy
Changes
1. Effects of Proposed Policy Relating to
New Medical Service and Technology
Add-On Payments
2. Effect of Proposed Changes Relating to
Payment Adjustment for Medicare
Disproportionate Share Hospitals
3. Effects of Proposed Reduction Under the
Hospital Readmissions Reduction
Program

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4. Effects of Proposed Changes Under the
FY 2017 Hospital Value-Based
Purchasing (VBP) Program
5. Effects of the Proposed Changes to the
HAC Reduction Program for FY 2017
6. Effects of Proposed Policy Changes
Relating to Direct GME and IME
Payments for Rural Training Tracks at
Urban Hospitals
7. Effects of Implementation of Rural
Community Hospital Demonstration
Program
8. Effects of Proposed Implementation of
the Notice of Observation Treatment and
Implications for Care Eligibility Act
(NOTICE Act)
9. Effects of Proposed Technical Changes
and Correction of Typographical Errors
in Certain Regulations Under 42 CFR
part 413 Relating to Costs to Related
Organizations and Medicare Cost Reports
10. Effects of Proposed Implementation of
the Frontier Community Health
Integration Project (FCHIP)
Demonstration
I. Effects of Proposed Changes in the
Capital IPPS
1. General Considerations
2. Results
J. Effects of Proposed Payment Rate
Changes and Policy Changes Under the
LTCH PPS
1. Introduction and General Considerations
2. Impact on Rural Hospitals
3. Anticipated Effects of Proposed LTCH
PPS Payment Rate Changes and Policy
Changes
4. Effect on the Medicare Program
5. Effect on Medicare Beneficiaries
K. Effects of Proposed Requirements for
Hospital Inpatient Quality Reporting
(IQR) Program
L. Effects of Proposed Requirements for the
PPS-Exempt Cancer Hospital Quality
Reporting (PCHQR) Program
M. Effects of Proposed Requirements for
the Long-Term Care Hospital Quality
Reporting Program (LTCH QRP) for the
FY 2018 Payment Determination and
Subsequent Years
N. Effects of Proposed Updates to the
Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program
O. Effects of Proposed Requirements
Regarding Electronic Health Record
(EHR) Meaningful Use Program
P. Alternatives Considered
Q. Overall Conclusion
1. Acute Care Hospitals
2. LTCHs
II. Accounting Statements and Tables
A. Acute Care Hospitals
B. LTCHs
III. Regulatory Flexibility Act (RFA) Analysis
IV. Impact on Small Rural Hospitals
V. Unfunded Mandate Reform Act (UMRA)
Analysis
VI. Executive Order 12866
Appendix B: Recommendation of Update
Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2017
A. Proposed FY 2017 Inpatient Hospital
Update
B. Proposed Update for SCHs and MDHs
for FY 2017

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C. Proposed FY 2017 Puerto Rico Hospital
Update
D. Proposed Update for Hospitals Excluded
From the IPPS
E. Proposed Update for LTCHs for FY 2017
III. Secretary’s Recommendation
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating
Payments in Traditional Medicare

I. Executive Summary and Background

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

A. Executive Summary
1. Purpose and Legal Authority
This proposed rule would make
payment and policy changes under the
Medicare inpatient prospective payment
systems (IPPS) for operating and capitalrelated costs of acute care hospitals as
well as for certain hospitals and hospital
units excluded from the IPPS. In
addition, it would make payment and
policy changes for inpatient hospital
services provided by long-term care
hospitals (LTCHs) under the long-term
care hospital prospective payment
system (LTCH PPS). It also would make
policy changes to programs associated
with Medicare IPPS hospitals, IPPSexcluded hospitals, and LTCHs.
We are proposing to establish new
requirements or revise requirements for
quality reporting by specific providers
(acute care hospitals, PPS-exempt
cancer hospitals, LTCHs, and inpatient
psychiatric facilities) that are
participating in Medicare, including
related provisions for eligible hospitals
and critical assess hospitals (CAHs)
participating in the Electronic Health
Record (EHR) Incentive Program. We are
proposing to update policies relating to
the Hospital Value-Based Purchasing
(VBP) Program, the Hospital
Readmissions Reduction Program, and
the Hospital-Acquired Condition (HAC)
Reduction Program. We also are
proposing to: Implement statutory
provisions that require hospitals and
CAHs to furnish notification to
Medicare beneficiaries, including
Medicare Advantage enrollees, when
the beneficiaries receive outpatient
observation services for more than 24
hours; announce the implementation of
the Frontier Community Health
Integration Project Demonstration; make
technical corrections and changes to
regulations relating to costs to
organizations and Medicare cost reports.
Under various statutory authorities,
we are proposing to make changes to the
Medicare IPPS, to the LTCH PPS, and to
other related payment methodologies
and programs for FY 2017 and
subsequent fiscal years. These statutory
authorities include, but are not limited
to, the following:
• Section 1886(d) of the Social
Security Act (the Act), which sets forth

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a system of payment for the operating
costs of acute care hospital inpatient
stays under Medicare Part A (Hospital
Insurance) based on prospectively set
rates. Section 1886(g) of the Act requires
that, instead of paying for capital-related
costs of inpatient hospital services on a
reasonable cost basis, the Secretary use
a prospective payment system (PPS).
• Section 1886(d)(1)(B) of the Act,
which specifies that certain hospitals
and hospital units are excluded from the
IPPS. These hospitals and units are:
Rehabilitation hospitals and units;
LTCHs; psychiatric hospitals and units;
children’s hospitals; and cancer
hospitals. Religious nonmedical health
care institutions (RNHCIs) are also
excluded from the IPPS.
• Sections 123(a) and (c) of Public
Law 106–113 and section 307(b)(1) of
Public Law 106–554 (as codified under
section 1886(m)(1) of the Act), which
provide for the development and
implementation of a prospective
payment system for payment for
inpatient hospital services of long-term
care hospitals (LTCHs) described in
section 1886(d)(1)(B)(iv) of the Act.
• Sections 1814(l), 1820, and 1834(g)
of the Act, which specify that payments
are made to critical access hospitals
(CAHs) (that is, rural hospitals or
facilities that meet certain statutory
requirements) for inpatient and
outpatient services and that these
payments are generally based on 101
percent of reasonable cost.
• Section 1866(k) of the Act, as added
by section 3005 of the Affordable Care
Act, which establishes a quality
reporting program for hospitals
described in section 1886(d)(1)(B)(v) of
the Act, referred to as ‘‘PPS-exempt
cancer hospitals.’’
• Section 1886(a)(4) of the Act, which
specifies that costs of approved
educational activities are excluded from
the operating costs of inpatient hospital
services. Hospitals with approved
graduate medical education (GME)
programs are paid for the direct costs of
GME in accordance with section 1886(h)
of the Act.
• Section 1886(b)(3)(B)(viii) of the
Act, which requires the Secretary to
reduce the applicable percentage
increase in payments to a subsection (d)
hospital for a fiscal year if the hospital
does not submit data on measures in a
form and manner, and at a time,
specified by the Secretary.
• Section 1886(o) of the Act, which
requires the Secretary to establish a
Hospital Value-Based Purchasing (VBP)
Program under which value-based
incentive payments are made in a fiscal
year to hospitals meeting performance

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standards established for a performance
period for such fiscal year.
• Section 1886(p) of the Act, as added
by section 3008 of the Affordable Care
Act, which establishes a HospitalAcquired Condition (HAC) Reduction
Program, under which payments to
applicable hospitals are adjusted to
provide an incentive to reduce hospitalacquired conditions.
• Section 1886(q) of the Act, as added
by section 3025 of the Affordable Care
Act and amended by section 10309 of
the Affordable Care Act, which
establishes the ‘‘Hospital Readmissions
Reduction Program’’ effective for
discharges from an ‘‘applicable
hospital’’ beginning on or after October
1, 2012, under which payments to those
hospitals under section 1886(d) of the
Act will be reduced to account for
certain excess readmissions.
• Section 1886(r) of the Act, as added
by section 3133 of the Affordable Care
Act, which provides for a reduction to
disproportionate share hospital (DSH)
payments under section 1886(d)(5)(F) of
the Act and for a new uncompensated
care payment to eligible hospitals.
Specifically, section 1886(r) of the Act
requires that, for fiscal year 2014 and
each subsequent fiscal year, subsection
(d) hospitals that would otherwise
receive a DSH payment made under
section 1886(d)(5)(F) of the Act will
receive two separate payments: (1) 25
percent of the amount they previously
would have received under section
1886(d)(5)(F) of the Act for DSH (‘‘the
empirically justified amount’’), and (2)
an additional payment for the DSH
hospital’s proportion of uncompensated
care, determined as the product of three
factors. These three factors are: (1) 75
percent of the payments that would
otherwise be made under section
1886(d)(5)(F) of the Act; (2) 1 minus the
percent change in the percent of
individuals under the age of 65 who are
uninsured (minus 0.1 percentage points
for FY 2014, and minus 0.2 percentage
points for FY 2015 through FY 2017);
and (3) a hospital’s uncompensated care
amount relative to the uncompensated
care amount of all DSH hospitals
expressed as a percentage.
• Section 1886(m)(6) of the Act, as
added by section 1206(a)(1) of the
Pathway for SGR Reform Act of 2013
(Pub. L. 113–67), which provided for the
establishment of site neutral payment
rate criteria under the LTCH PPS with
implementation beginning in FY 2016.
• Section 1886(m)(5)(D)(iv) of the
Act, as added by section 1206 (c) of the
Pathway for SGR Reform Act of 2013,
which provides for the establishment of
a functional status quality measure
under the LTCH QRP for change in

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mobility among inpatients requiring
ventilator support.
• Section 1899B of the Act, as added
by the Improving Medicare Post-Acute
Care Transformation Act of 2014 (the
IMPACT Act), which imposes data
reporting requirements for certain postacute care providers, including LTCHs.
• Section 1886(d)(12) of the Act, as
amended by section 204 of the Medicare
Access and CHIP Reauthorization Act of
2015, which extended, through FY
2017, changes to the inpatient hospital
payment adjustment for certain lowvolume hospitals; and section
1886(d)(5)(G) of the Act, as amended by
section 205 of the Medicare Access and
CHIP Reauthorization Act of 2015,
which extended, through FY 2017, the
Medicare-dependent, small rural
hospital (MDH) program.
2. Summary of the Major Provisions

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

a. MS–DRG Documentation and Coding
Adjustment
Section 631 of the American Taxpayer
Relief Act (ATRA, Pub. L. 112–240)
amended section 7(b)(1)(B) of Public
Law 110–90 to require the Secretary to
make a recoupment adjustment to the
standardized amount of Medicare
payments to acute care hospitals to
account for changes in MS–DRG
documentation and coding that do not
reflect real changes in case-mix, totaling
$11 billion over a 4-year period of FYs
2014, 2015, 2016, and 2017. This
adjustment represents the amount of the
increase in aggregate payments as a
result of not completing the prospective
adjustment authorized under section
7(b)(1)(A) of Public Law 110–90 until
FY 2013. Prior to the ATRA, this
amount could not have been recovered
under Public Law 110–90.
While our actuaries estimated that a
¥9.3 percent adjustment to the
standardized amount would be
necessary if CMS were to fully recover
the $11 billion recoupment required by
section 631 of the ATRA in one year, it
is often our practice to delay or phase
in rate adjustments over more than one
year, in order to moderate the effects on
rates in any one year. Therefore,
consistent with the policies that we
have adopted in many similar cases, we
made a ¥0.8 percent recoupment
adjustment to the standardized amount
in FY 2014, FY 2015, and FY 2016. For
FY 2017, we are proposing to make an
additional ¥1.5 percent recoupment
adjustment to the standardized amount.
b. Adjustment to IPPS Rates Resulting
From 2-Midnight Policy
In this proposed rule, we are
proposing a permanent adjustment of

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(1/0.998) to the standardized amount,
the hospital-specific payment rates, and
the national capital Federal rate using
our authority under sections
1886(d)(5)(I)(i) and 1886(g) of the Act to
prospectively remove the 0.2 percent
reduction to the rate put in place in FY
2014 to offset the estimated increase in
IPPS expenditures as a result of the 2midnight policy. In addition, we are
proposing a temporary one-time
prospective increase to the FY 2017
standardized amount, the hospitalspecific payment rates, and the national
capital Federal rate of 0.6 percent by
including a temporary one-time factor of
1.006 in the calculation of the
standardized amount, the hospitalspecific payment rates, and the national
capital Federal rate using our authority
under sections 1886(d)(5)(I)(i) and
1886(g) of the Act, to address the effects
of the 0.2 percent reduction to the rate
for the 2-midnight policy in effect for
FYs 2014, 2015, and 2016.

year to hospitals based on their
performance on measures established
for a performance period for such fiscal
year.
In this proposed rule, we are
proposing to refine two previously
adopted measures beginning with the
FY 2019 program year, to update one
previously adopted measure beginning
with the FY 2021 program year, to adopt
two new measures beginning with the
FY 2021 program year, and to adopt one
new measure beginning with the FY
2022 program year. We also are
proposing to change the performance
period for one previously adopted
measure for the FY 2018 program year
and to change the name of the Patientand Caregiver-Centered Experience of
Care/Care Coordination domain to the
Person and Community Engagement
domain beginning with the FY 2019
program year. In addition, we are
proposing changes to the immediate
jeopardy citation policy.

c. Reduction of Hospital Payments for
Excess Readmissions
We are proposing to make changes to
policies for the Hospital Readmissions
Reduction Program, which is
established under section 1886(q) of the
Act, as added by section 3025 of the
Affordable Care Act, as amended by
section 10309 of the Affordable Care
Act. The Hospital Readmissions
Reduction Program requires a reduction
to a hospital’s base operating DRG
payment to account for excess
readmissions of selected applicable
conditions. For FY 2017 and subsequent
years, the reduction is based on a
hospital’s risk-adjusted readmission rate
during a 3-year period for acute
myocardial infarction (AMI), heart
failure (HF), pneumonia, chronic
obstructive pulmonary disease (COPD),
total hip arthroplasty/total knee
arthroplasty (THA/TKA), and coronary
artery bypass graft (CABG). In this
proposed rule, to align with other
quality reporting programs and allow us
to post data as soon as possible, we are
clarifying our public reporting policy so
that excess readmission rates will be
posted to the Hospital Compare Web
site as soon as feasible following the
preview period, and we are proposing
the methodology to include the addition
of the CABG applicable condition in the
calculation of the readmissions payment
adjustment for FY 2017.

e. Hospital-Acquired Condition (HAC)
Reduction Program
Section 1886(p) of the Act, as added
under section 3008(a) of the Affordable
Care Act, establishes an incentive to
hospitals to reduce the incidence of
hospital-acquired conditions by
requiring the Secretary to make an
adjustment to payments to applicable
hospitals effective for discharges
beginning on October 1, 2014. This 1percent payment reduction applies to a
hospital whose ranking is in the top
quartile (25 percent) of all applicable
hospitals, relative to the national
average, of conditions acquired during
the applicable period and on all of the
hospital’s discharges for the specified
fiscal year. In this proposed rule, we are
proposing the following HAC Reduction
Program policies: (1) Establishing NHSN
CDC HAI data submission requirements
for newly opened hospitals; (2) a
clarification of data requirements for
Domain 1 scoring; (3) establishing
performance periods for the FY 2018
and FY 2019 HAC Reduction Programs,
including revising our regulations to
accommodate variable timeframes; (4)
adopting the refined PSI 90: Patient
Safety and Adverse Events Composite
(NQF #0531); and (5) changing the
program scoring methodology from the
current decile-based scoring to a
continuous scoring methodology.

d. Hospital Value-Based Purchasing
(VBP) Program
Section 1886(o) of the Act requires the
Secretary to establish a Hospital VBP
Program under which value-based
incentive payments are made in a fiscal

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f. DSH Payment Adjustment and
Additional Payment for Uncompensated
Care
Section 3133 of the Affordable Care
Act modified the Medicare
disproportionate share hospital (DSH)
payment methodology beginning in FY

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

2014. Under section 1886(r) of the Act,
which was added by section 3133 of the
Affordable Care Act, starting in FY
2014, DSHs will receive 25 percent of
the amount they previously would have
received under the statutory formula for
Medicare DSH payments in section
1886(d)(5)(F) of the Act. The remaining
amount, equal to 75 percent of what
otherwise would have been paid as
Medicare DSH payments, will be paid as
additional payments after the amount is
reduced for changes in the percentage of
individuals that are uninsured. Each
Medicare DSH will receive an
additional payment based on its share of
the total amount of uncompensated care
for all Medicare DSHs for a given time
period.
In this proposed rule, we are
proposing to update our estimates of the
three factors used to determine
uncompensated care payments for FY
2017 and proposing to continue our
methodology of using a hospital’s share
of insured low-income days for
purposes of determining Factor 3. For
Puerto Rico hospitals, we are proposing
to use 14 percent of Medicaid days as
a proxy for SSI days in the calculation
of Factor 3. We are proposing to
continue to use the methodology we
established in FY 2015 to calculate the
uncompensated care payment amounts
for merged hospitals such that we
combine uncompensated care data for
the hospitals that have undergone a
merger in order to calculate their
relative share of uncompensated care.
We are proposing to expand the time
period of the data used to calculate the
uncompensated care payment amounts
to be distributed, from one cost
reporting period to three cost reporting
periods. We also are proposing a future
transition to using Worksheet S–10 data
to determine the amounts and
distribution of uncompensated care
payments. Specifically, we are
proposing a 3-year transition beginning
in FY 2018 where we use a combination
of Worksheet S–10 and proxy data until
FY 2020 when all data used in
computing the uncompensated care
payment amounts to be distributed
would come from Worksheet S–10.
g. Payments for Capital-Related Costs for
Hospitals Located in Puerto Rico
Capital IPPS payments to hospitals
located in Puerto Rico are currently
computed based on a blend of 25
percent of the capital IPPS Puerto Rico
rate and 75 percent of the capital IPPS
Federal rate. Section 601 of the
Consolidated Appropriations Act, 2016
(Pub. L. 114–113) increased the
applicable Federal percentage of the
operating IPPS payment for hospitals

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located in Puerto Rico from 75 percent
to 100 percent and decreased the
applicable Puerto Rico percentage of the
operating IPPS payments for hospitals
located in Puerto Rico from 25 percent
to zero percent, applicable to discharges
occurring on or after January 1, 2016. In
this proposed rule, we are proposing to
revise the calculation of capital IPPS
payments to hospitals located in Puerto
Rico to parallel the change in the
statutory calculation of operating IPPS
payments to hospitals located in Puerto
Rico, beginning in FY 2017.
h. Proposed Changes to the LTCH PPS
In this proposed rule, we are
proposing to revise and rebase the
market basket used under the LTCH PPS
(currently the 2009-based LTCH-specific
market basket) to reflect a 2013 base
year. In addition, in this proposed rule,
we are proposing to change our 25percent threshold policy by proposing
to sunset our existing regulations at 42
CFR 412.534 and 412.536 and replace
them with a single consolidated 25percent threshold policy at proposed
§ 412.538. We also are proposing to
change our existing regulations limiting
allowable charges to beneficiaries for
Subclause (II) LTCHs and proposing to
make technical corrections to § 412.503.
i. Hospital Inpatient Quality Reporting
(IQR) Program
Under section 1886(b)(3)(B)(viii) of
the Act, hospitals are required to report
data on measures selected by the
Secretary for the Hospital IQR Program
in order to receive the full annual
percentage increase in payments. In past
years, we have established measures for
reporting data and the process for
submittal and validation of the data.
In this proposed rule, we are making
several proposals. First, we are
proposing to remove 15 measures for the
FY 2019 payment determination and
subsequent years. Thirteen of these
measures are electronic clinical quality
measures (eCQMs), two of which we are
proposing also to remove in their chartabstracted form, because they are
‘‘topped-out,’’ and two others are
structural measures.
Second, we are proposing to refine
two previously adopted measures
beginning with the FY 2018 payment
determination: (1) The Hospital-level,
Risk-standardized Payment Associated
with a 30-day Episode-of-Care for
Pneumonia (NQF #2579); and (2) the
Patient Safety and Adverse Events
Composite (NQF #0531).
Third, we are proposing to add four
new claims-based measures: (1) Aortic
Aneurysm Procedure Clinical EpisodeBased Payment Measure; (2)

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Cholecystectomy and Common Duct
Exploration Clinical Episode-Based
Payment Measure; (3) Spinal Fusion
Clinical Episode-Based Payment
Measure; and (4) Excess Days in Acute
Care after Hospitalization for
Pneumonia for the FY 2019 payment
determination and subsequent years.
Fourth, we are inviting public
comment on potential new quality
measures under consideration for future
inclusion in the Hospital IQR Program:
(1) A refined version of the NIH Stroke
Scale for the Hospital 30-Day Mortality
Following Acute Ischemic Stroke
Hospitalization Measure beginning as
early as the FY 2022 payment
determination; (2) the National
Healthcare Safety Network (NHSN)
Antimicrobial Use Measure (NQF
#2720); and (3) one or more measures of
behavioral health for the inpatient
hospital setting, including measures
previously adopted for the IPFQR
Program (80 FR 46417). Also, we are
seeking public comment on the
possibility of future stratification of
Hospital IQR Program data by race,
ethnicity, sex, and disability on Hospital
Compare, as well as on potential future
hospital quality measures that
incorporate health equity.
Fifth, we are proposing to require
hospitals to submit all available eCQMs
included in the Hospital IQR Program
measure set for four quarters of data, on
an annual basis, beginning with the CY
2017 reporting period/FY 2019 payment
determination, in order to align the
Hospital IQR Program with the
Medicare and Medicaid EHR Incentive
Programs. Also, we are proposing
related eCQM submission requirements
beginning with the FY 2019 payment
determination.
Sixth, we are proposing to modify the
existing validation process for Hospital
IQR Program data to include validation
of eCQMs beginning with the FY 2020
payment determination.
Seventh, we are proposing to update
our Extraordinary Circumstances
Extensions or Exemptions (ECE) policy
by: (1) Extending the ECE request
deadline for non-eCQM circumstances
from 30 to 90 calendar days following
an extraordinary circumstance,
beginning in FY 2017 as related to
extraordinary circumstance events that
occur on or after October 1, 2016; and
(2) establishing a separate submission
deadline of April 1 following the end of
the reporting calendar year for ECEs
related to eCQMs beginning with an
April 1, 2017 deadline and applying for
subsequent eCQM reporting years.

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j. Long-Term Care Hospital Quality
Reporting Program (LTCH QRP)
Section 3004(a) of the Affordable Care
Act amended section 1886(m)(5) of the
Act to require the Secretary to establish
the Long-Term Care Hospital Quality
Reporting Program (LTCH QRP). This
program applies to all hospitals certified
by Medicare as LTCHs. Beginning with
the FY 2014 payment determination and
subsequent years, the Secretary is
required to reduce any annual update to
the LTCH PPS standard Federal rate for
discharges occurring during such fiscal
year by 2 percentage points for any
LTCH that does not comply with the
requirements established by the
Secretary.
The Improving Medicare Post-Acute
Care Transformation Act of 2014
(IMPACT Act) amended the Act in ways
that affect the LTCH QRP. Specifically,
section 2(a) of the IMPACT Act
amended title XVIII of the Act by adding
section 1899B, titled Standardized PostAcute Care (PAC) Assessment Data for
Quality, Payment, and Discharge
Planning. The Act requires that each
LTCH submit, for FYs beginning on or
after the specified application date (as
defined in section 1899B(a)(2)(E) of the
Act), data on quality measures specified
under section 1899B(c)(1) of the Act and
data on resource use and other measures
specified under section 1899B(d)(1) of
the Act in a manner and within the
timeframes specified by the Secretary.
In addition, each LTCH is required to
submit standardized patient assessment
data required under section 1899B(b)(1)
of the Act in a manner and within the
timeframes specified by the Secretary.
Sections 1899B(c)(1) and 1899B(d)(1) of
the Act require the Secretary to specify
quality measures and resource use and
other measures with respect to certain
domains no later than the specified
application date in section
1899B(a)(2)(E) of the Act that applies to
each measure domain and PAC provider
setting.
In this proposed rule, we are
proposing three new measures for the
FY 2018 payment determination and
subsequent years to meet the
requirements as set forth by the
IMPACT Act. These proposed measures
are: (1) MSPB–PAC LTCH QRP; (2)
Discharge to Community-PAC LTCH
QRP; and (3) Potentially Preventable 30Day Post-Discharge Readmission
Measure for the PAC LTCH QRP. We
also are proposing one new quality
measure to meet the requirements of the
IMPACT Act for the FY 2020
determination and subsequent years.
The proposed measure, Drug Regimen
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Identified Issues-PAC LTCH QRP,
addresses the IMPACT Act domain of
Medication Reconciliation.
In addition, we will publicly report
LTCH quality data beginning in fall
2016, on a CMS Web site, such as
Hospital Compare. We will initially
publicly report quality data on four
quality measures. In this proposed rule,
we are proposing to publicly report data
in 2017 on four additional measures. We
are proposing additional details
regarding procedures that would allow
individual LTCHs to review and correct
their data and information on measures
that are to be made public before those
measure data are made public. We also
are proposing to provide confidential
feedback reports to LTCHs on their
performance on the specified measures,
beginning 1 year after the specified
application date that applies to such
measures and LTCHs.
Finally, we are proposing to change
the timing for submission of exception
and extension requests from 30 days to
90 days from the date of the qualifying
event which is preventing an LTCH
from submitting their quality data for
the LTCH QRP.
k. Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program
Section 1886(s)(4) of the Act, as added
and amended by sections 3401(f) and
10322(a) of the Affordable Care Act,
requires the Secretary to implement a
quality reporting program for inpatient
psychiatric hospitals and psychiatric
units. Section 1886(s)(4)(C) of the Act
requires that, for FY 2014 (October 1,
2013 through September 30, 2014) and
each subsequent year, each psychiatric
hospital and psychiatric unit must
submit to the Secretary data on quality
measures as specified by the Secretary.
The data must be submitted in a form
and manner and at a time specified by
the Secretary. In this proposed rule, for
the IPFQR Program, we are making
several proposals. We are proposing two
new measures beginning with the FY
2019 payment determination:
• SUB–3 Alcohol & Other Drug Use
Disorder Treatment Provided or Offered
at Discharge and SUB–3a Alcohol and
Other Drug Use Disorder Treatment at
Discharge (NQF #1664); and
• Thirty-day all-cause unplanned
readmission following psychiatric
hospitalization in an IPF.
We also are proposing a technical
update to the previously finalized
measure, ‘‘Screening for Metabolic
Disorder.’’ In addition, we are proposing
to no longer specify in rulemaking the
date of the public display of the
program’s data or that the preview

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period will be approximately 12 weeks
before the public display date.
3. Summary of Costs and Benefits
• Adjustment for MS–DRG
Documentation and Coding Changes.
We are proposing to make a ¥1.5
percent recoupment adjustment to the
standardized amount for FY 2017 to
implement, in part, the requirement of
section 631 of the ATRA that the
Secretary make an adjustment totaling
$11 billion over a 4-year period of FYs
2014, 2015, 2016, and 2017. This
recoupment adjustment represents the
amount of the increase in aggregate
payments as a result of not completing
the prospective adjustment authorized
under section 7(b)(1)(A) of Public Law
110–90 until FY 2013. Prior to the
ATRA, this amount could not have been
recovered under Public Law 110–90.
While our actuaries estimated that a
¥9.3 percent recoupment adjustment to
the standardized amount would be
necessary if CMS were to fully recover
the $11 billion recoupment required by
section 631 of the ATRA in FY 2014, it
is often our practice to delay or phase
in rate adjustments over more than one
year, in order to moderate the effects on
rates in any one year. Taking into
account the cumulative effects of this
proposed adjustment and the
adjustments made in FYs 2014, 2015,
and 2016, we estimate that we would
recover the full $11 billion required
under section 631 of the ATRA by the
end of FY 2017. We note that section
414 of the MACRA (Pub. L. 114–10),
enacted on April 16, 2015, requires us
to not make the single positive
adjustment we intended to make in FY
2018, but instead make a 0.5 percent
positive adjustment for each of FYs
2018 through 2023. The provision under
section 414 of the MACRA does not
impact our proposed FY 2017
recoupment adjustment, and we will
address this MACRA provision in future
rulemaking.
• Proposed Adjustment to IPPS
Payment Rates as a Result of the 2Midnight Policy. The proposed
adjustment to IPPS rates resulting from
the 2-midnight policy would increase
IPPS payment rates by (1/0.998) * 1.006
for FY 2017. The 1.006 is a one-time
factor that would be applied to the
standardized amount, the hospitalspecific rates, and the national capital
Federal rate for FY 2017 only.
Therefore, for FY 2018, we would apply
a one-time factor of (1/1.006) in the
calculation of the rates to remove this
one-time prospective increase.
• Proposed Changes to the Hospital
Readmissions Reduction Program. For
FY 2017 and subsequent years, the

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reduction is based on a hospital’s riskadjusted readmission rate during a 3year period for acute myocardial
infarction (AMI), heart failure (HF),
pneumonia, chronic obstructive
pulmonary disease (COPD), total hip
arthroplasty/total knee arthroplasty
(THA/TKA), and coronary artery bypass
graft (CABG). Overall, in this proposed
rule, we estimate that 2,603 hospitals
will have their base operating DRG
payments reduced by their proposed
proxy FY 2017 hospital-specific
readmission adjustment. As a result, we
estimate that the Hospital Readmissions
Reduction Program will save
approximately $532 million in FY 2017,
an increase of approximately $100
million over the estimated FY 2016
savings. This increase in the estimated
savings for the Hospital Readmissions
Reduction Program in FY 2017 as
compared to FY 2016 is primarily due
to the inclusion of the refinement of the
pneumonia readmissions measure,
which expanded the measure cohort,
along with the addition of the CABG
readmission measure, in the calculation
of the payment adjustment.
• Value-Based Incentive Payments
under the Hospital VBP Program. We
estimate that there will be no net
financial impact to the Hospital VBP
Program for the FY 2017 program year
in the aggregate because, by law, the
amount available for value-based
incentive payments under the program
in a given year must be equal to the total
amount of base operating MS–DRG
payment amount reductions for that
year, as estimated by the Secretary. The
estimated amount of base operating MS–
DRG payment amount reductions for the
FY 2017 program year and, therefore,
the estimated amount available for
value-based incentive payments for FY
2017 discharges is approximately $1.7
billion.
• Proposed Changes to the HAC
Reduction Program. In regard to the five
proposed changes to existing HAC
Reduction Program policies described
earlier, because a hospital’s Total HAC
score and its ranking in comparison to
other hospitals in any given year
depends on several different factors, any
significant impact due to the HAC
Reduction Program proposed changes
for FY 2017, including which hospitals
receive the adjustment, would depend
on actual experience.
• Medicare DSH Payment Adjustment
and Additional Payment for
Uncompensated Care. Under section
1886(r) of the Act (as added by section
3133 of the Affordable Care Act), DSH
payments to hospitals under section
1886(d)(5)(F) of the Act are reduced and
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uncompensated care is made to eligible
hospitals beginning in FY 2014.
Hospitals that receive Medicare DSH
payments will receive 25 percent of the
amount they previously would have
received under the current statutory
formula for Medicare DSH payments in
section 1886(d)(5)(F) of the Act. The
remainder, equal to an estimate of 75
percent of what otherwise would have
been paid as Medicare DSH payments,
will be the basis for determining the
additional payments for uncompensated
care after the amount is reduced for
changes in the percentage of individuals
that are uninsured and additional
statutory adjustments. Each hospital
that receives Medicare DSH payments
will receive an additional payment for
uncompensated care based on its share
of the total uncompensated care amount
reported by Medicare DSHs. The
reduction to Medicare DSH payments is
not budget neutral.
For FY 2017, we are providing that
the 75 percent of what otherwise would
have been paid for Medicare DSH is
adjusted to approximately 56.74 percent
of the amount to reflect changes in the
percentage of individuals that are
uninsured and additional statutory
adjustments. In other words,
approximately 42.56 percent (the
product of 75 percent and 56.74
percent) of our estimate of Medicare
DSH payments, prior to the application
of section 3133 of the Affordable Care
Act, is available to make additional
payments to hospitals for their relative
share of the total amount of
uncompensated care. We project that
estimated Medicare DSH payments, and
additional payments for uncompensated
care made for FY 2017, would reduce
payments overall by approximately 0.3
percent as compared to the estimate of
Medicare DSH payments and
uncompensated care payments that will
be distributed in FY 2016. The
additional payments have redistributive
effects based on a hospital’s
uncompensated care amount relative to
the uncompensated care amount for all
hospitals that are estimated to receive
Medicare DSH payments, and the
proposed payment amount is not
directly tied to a hospital’s number of
discharges.
• Proposed Update to the LTCH PPS
Payment Rates and Other Payment
Factors. Based on the best available data
for the 419 LTCHs in our data base, we
estimate that the proposed changes to
the payment rates and factors that we
are presenting in the preamble and
Addendum of this proposed rule, which
includes the second year under the
transition of the statutory application of
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required by section 1886(m)(6)(A) of the
Act, the proposed update to the LTCH
PPS standard Federal payment rate for
FY 2017, the proposed update to the
LTCH PPS adjustment for differences in
area wage levels (which includes the
proposed update to the labor-related
share based on the proposed revised and
rebased LTCH PPS market basket) and
estimated changes to the site neutral
payment rate and short-stay outlier
(SSO) and high-cost outlier (HCO)
payments would result in an estimated
decrease in payments from FY 2016 of
approximately $355 million.
• Hospital Inpatient Quality
Reporting (IQR) Program. In this
proposed rule, we are proposing to
remove 15 measures for the FY 2019
payment determination and subsequent
years. We are proposing to add four new
claims-based measures to the Hospital
IQR Program for the FY 2019 payment
determination and subsequent years. We
also are proposing to require hospitals
to report on all Hospital IQR Program
electronic clinical quality measures that
align with the Medicare EHR Incentive
Program for four quarters of data on an
annual basis for the FY 2019 payment
determination and subsequent years. In
addition, we are proposing to modify
the existing validation process for the
Hospital IQR Program data to include a
random sample of up to 200 hospitals
for validation of eCQMs. We estimate
that our policies for the adoption and
removal of measures will result in total
hospital costs of $30 million across
3,300 IPPS hospitals.
• Proposed Changes Related to the
LTCH QRP. In this proposed rule, we
are proposing four quality measures for
the LTCH QRP. We estimate that the
total cost related to one of these
proposed measures, the Drug Regimen
Review Conducted with Follow-up for
Identified Issues-PAC measure, would
be $3,080 per LTCH annually, or
$1,330,721 for all LTCHs annually. We
also estimate that while there will be
some additional burden associated with
our proposal to expand data collection
for the measure NQF #0680 Percent of
Residents or Patients Who Were
Assessed and Appropriately Given the
Seasonal Influenza Vaccine (77 FR
53624 through 53627), this burden has
been previously accounted for in PRA
submissions approved under OMB
control number 0938–1163. For a
detailed explanation, we refer readers to
section I.M. of Appendix A (Economic
Analyses) of this proposed rule. There is
no additional burden for the three other
claims-based measures proposed for
adoption. Overall, we estimate the total
cost for the 13 previously adopted
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measures would be $27,905 per LTCH
annually or $12,054,724 for all LTCHs
annually. These estimates were based
on 432 LTCHs that are currently
certified by Medicare. This is an average
increase of 14 percent over the burden
for FY 2016. This increase includes all
quality measures that LTCHs are
required to report, with the exception of
the four proposed measures for FY 2017.
Section VIII.C. of this proposed rule
includes a detailed discussion of the
policies.
• Proposed Changes to the IPFQR
Program. In this proposed rule, we are
proposing to add two new measures
beginning with the FY 2019 payment
determination and for subsequent years.
One of these measures, the 30-Day AllCause Unplanned Readmissions
following Psychiatric Hospitalization in
an Inpatient Psychiatric Facility
measure, is calculated from
administrative claims data. For the
second measure, we estimate that our
proposed policies would result in total
costs of $11,834,748 for 1,684 IPFs
nationwide.

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B. Summary
1. Acute Care Hospital Inpatient
Prospective Payment System (IPPS)
Section 1886(d) of the Social Security
Act (the Act) sets forth a system of
payment for the operating costs of acute
care hospital inpatient stays under
Medicare Part A (Hospital Insurance)
based on prospectively set rates. Section
1886(g) of the Act requires the Secretary
to use a prospective payment system
(PPS) to pay for the capital-related costs
of inpatient hospital services for these
‘‘subsection (d) hospitals.’’ Under these
PPSs, Medicare payment for hospital
inpatient operating and capital-related
costs is made at predetermined, specific
rates for each hospital discharge.
Discharges are classified according to a
list of diagnosis-related groups (DRGs).
The base payment rate is comprised of
a standardized amount that is divided
into a labor-related share and a
nonlabor-related share. The laborrelated share is adjusted by the wage
index applicable to the area where the
hospital is located. If the hospital is
located in Alaska or Hawaii, the
nonlabor-related share is adjusted by a
cost-of-living adjustment factor. This
base payment rate is multiplied by the
DRG relative weight.
If the hospital treats a high percentage
of certain low-income patients, it
receives a percentage add-on payment
applied to the DRG-adjusted base
payment rate. This add-on payment,
known as the disproportionate share
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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. The Affordable Care Act
revised the Medicare DSH payment
methodology and provides for a new
additional Medicare payment that
considers the amount of uncompensated
care beginning on October 1, 2013.
If the hospital is training residents in
an approved residency program(s), 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.
SCHs are the sole source of care 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
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addition, certain rural hospitals
previously designated by the Secretary
as essential access community hospitals
are considered SCHs.
Under current law, the Medicaredependent, small rural hospital (MDH)
program is effective through FY 2017.
Through and including FY 2006, an
MDH received the higher of the Federal
rate or the Federal rate plus 50 percent
of the amount by which the Federal rate
was exceeded by the higher of its FY
1982 or FY 1987 hospital-specific rate.
For discharges occurring on or after
October 1, 2007, but before October 1,
2017, an MDH receives 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. MDHs are a major
source of care for Medicare beneficiaries
in their areas. 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).
Section 1886(g) of the Act requires the
Secretary to pay for the capital-related
costs of inpatient hospital services ‘‘in
accordance with a prospective payment
system established by the Secretary.’’
The basic methodology for determining
capital prospective payments is set forth
in our regulations at 42 CFR 412.308
and 412.312. Under the capital IPPS,
payments are adjusted by the same DRG
for the case as they are under the
operating IPPS. Capital IPPS payments
are also adjusted for IME and DSH,
similar to the adjustments made under
the operating IPPS. In addition,
hospitals may receive outlier payments
for those cases that have unusually high
costs.
The existing regulations governing
payments to hospitals under the IPPS
are located in 42 CFR part 412, subparts
A through M.
2. Hospitals and Hospital Units
Excluded From the IPPS
Under section 1886(d)(1)(B) of the
Act, as amended, certain hospitals and
hospital units are excluded from the
IPPS. These hospitals and units are:
Inpatient rehabilitation facility (IRF)
hospitals and units; long-term care
hospitals (LTCHs); psychiatric hospitals
and units; children’s hospitals; and
cancer hospitals. Religious nonmedical
health care institutions (RNHCIs) are
also excluded from the IPPS. Various
sections of the Balanced Budget Act of

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1997 (BBA, Pub. L. 105–33), the
Medicare, Medicaid and SCHIP [State
Children’s Health Insurance Program]
Balanced Budget Refinement Act of
1999 (BBRA, Pub. L. 106–113), and the
Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection
Act of 2000 (BIPA, Pub. L. 106–554)
provide for the implementation of PPSs
for IRF hospitals and units, 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-ofincrease ceiling on inpatient operating
costs.
The existing regulations governing
payments to excluded hospitals and
hospital units are located in 42 CFR
parts 412 and 413.
3. Long-Term Care Hospital Prospective
Payment System (LTCH PPS)
The Medicare prospective payment
system (PPS) for LTCHs applies to
hospitals described in section
1886(d)(1)(B)(iv) of the Act effective for
cost reporting periods beginning on or
after October 1, 2002. The LTCH PPS
was established under the authority of
sections 123 of the BBRA and section
307(b) of the BIPA (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.
Section 1206(a) of Public Law 113–67
established the site neutral payment rate
under the LTCH PPS, which made the
LTCH PPS a dual rate payment system
beginning in FY 2016. Under this
statute, based on a rolling effective date
that is linked to the date on which a
given LTCH’s Federal FY 2016 cost
reporting period begins, LTCHs are paid
for LTCH discharges at the site neutral
payment rate unless the discharge meets
the patient criteria for payment at the
LTCH PPS standard Federal payment
rate. The existing regulations governing
payment under the LTCH PPS are
located in 42 CFR part 412, subpart O.
Beginning October 1, 2009, we issue the
annual updates to the LTCH PPS in the
same documents that update the IPPS
(73 FR 26797 through 26798).

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4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and
1834(g) of the Act, payments made to
critical access hospitals (CAHs) (that is,
rural hospitals or facilities that meet
certain statutory requirements) for
inpatient and outpatient services are
generally based on 101 percent of
reasonable cost. Reasonable cost is
determined under the provisions of
section 1861(v)(1)(A) of the Act and
existing regulations under 42 CFR parts
413 and 415.
5. Payments for Graduate Medical
Education (GME)
Under section 1886(a)(4) of the Act,
costs of approved educational activities
are excluded from the operating costs of
inpatient hospital services. Hospitals
with approved graduate medical
education (GME) programs are paid for
the direct costs of GME in accordance
with section 1886(h) of the Act. The
amount of payment for direct GME costs
for a cost reporting period is based on
the hospital’s number of residents in
that period and the hospital’s costs per
resident in a base year. The existing
regulations governing payments to the
various types of hospitals are located in
42 CFR part 413.
C. Summary of Provisions of Recent
Legislation Proposed To Be
Implemented in This Proposed Rule
1. American Taxpayer Relief Act of 2012
(ATRA) (Pub. L. 112–240)
The American Taxpayer Relief Act of
2012 (ATRA) (Pub. L. 112–240), enacted
on January 2, 2013, made a number of
changes that affect the IPPS. In this
proposed rule, we are proposing to
make policy changes to implement
section 631 of the American Taxpayer
Relief Act of 2012, which amended
section 7(b)(1)(B) of Public Law 110–90
and requires a recoupment adjustment
to the standardized amounts under
section 1886(d) of the Act based upon
the Secretary’s estimates for discharges
occurring in FY 2014 through FY 2017
to fully offset $11 billion (which
represents the amount of the increase in
aggregate payments from FYs 2008
through 2013 for which an adjustment
was not previously applied).
2. Pathway for SGR Reform Act of 2013
(Pub. L. 113–67)
The Pathway for SGR Reform Act of
2013 (Pub. L. 113–67) introduced new
payment rules in the LTCH PPS. Under
section 1206 of this law, discharges in
cost reporting periods beginning on or
after October 1, 2015 under the LTCH
PPS will receive payment under a site
neutral rate unless the discharge meets

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certain patient-specific criteria. In this
proposed rule, we are providing
clarifications to prior policy changes
that implemented provisions under
section 1206 of the Pathway for SGR
Reform Act.
3. Improving Medicare Post-Acute Care
Transformation Act of 2014 (IMPACT
Act) (Pub. L. 113–185)
The Improving Medicare Post-Acute
Care Transformation Act of 2014
(IMPACT Act (Pub. L. 113–185), enacted
on October 6, 2014, made a number of
changes that affect the Long-Term Care
Quality Reporting Program (LTCH QRP).
In this proposed rule, we are continuing
to implement portions of section 1899B
of the Act, as added by section 2 of the
IMPACT Act, which, in part, requires
LTCHs, among other postacute care
providers, to report standardized patient
assessment data, data on quality
measures, and data on resource use and
other measures.
4. The Medicare Access and CHIP
Reauthorization Act of 2015 (Pub. L.
114–10)
The Medicare Access and CHIP
Reauthorization Act of 2015 (Pub. L.
114–10) extended the MDH program
and changes to the payment adjustment
for low-volume hospitals through FY
2017. In this proposed rule, we are
proposing to update the low-volume
hospital payment adjustment for FY
2017 under the extension of the
temporary changes to the low-volume
hospital payment adjustment provided
for by section 204 of Public Law 114–
10. We also state our intention to
finalize in the FY 2017 IPPS/LTCH PPS
final rule the provisions of the FY 2016
IPPS/LTCH PPS interim final rule with
comment period (80 FR 49594 through
49597) that implemented sections 204
and 205 of Public Law 114–10.
5. The Consolidated Appropriations
Act, 2016 (Pub. L. 114–113)
The Consolidated Appropriations Act,
2016 (Pub. L. 114–113), enacted on
December 18, 2015, made changes that
affect the IPPS and the LTCH PPS.
Section 231 of Public Law 114–113
provides for a temporary exception for
certain wound care discharges from the
application of the site neutral payment
rate under the LTCH PPS for certain
LTCHs, which is being implemented in
an interim final rule with comment
period. Section 601 of Public Law 114–
113 made changes to the payment
calculation for operating IPPS payments
for hospitals located in Puerto Rico.
Section 602 of Public Law 114–113
specifies that Puerto Rico hospitals are
eligible for incentive payments for the

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meaningful use of certified EHR
technology, effective beginning FY
2016, and also applies the adjustments
to the applicable percentage increase
under the statute for Puerto Rico
hospitals that are not meaningful EHR
users, effective FY 2022. In this
proposed rule, we are proposing
conforming changes to our regulations
to reflect the provisions of section 601
of Public Law 114–113, which increased
the applicable Federal percentage of the
operating IPPS payment for hospitals
located in Puerto Rico from 75 percent
to 100 percent and decreased the
applicable Puerto Rico percentage of the
operating IPPS payments for hospitals
located in Puerto Rico from 25 percent
to zero percent, applicable to discharges
occurring on or after January 1, 2016.
6. The Notice of Observation Treatment
and Implication for Care Eligibility Act
(the NOTICE Act) (Pub. L. 114–42)
The Notice of Observation Treatment
and Implication for Care Eligibility Act
(the NOTICE Act) (Pub. L. 114–42)
enacted on August 6, 2015, amended
section 1866(a)(1) of the Act by adding
new subparagraph (Y) that requires
hospitals and CAHs to provide written
notification and an oral explanation of
such notification to individuals
receiving observation services as
outpatients for more than 24 hours at
the hospitals or CAHs. In this proposed
rule, we are proposing to implement the
provisions of Public Law 114–42.

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D. Summary of the Provisions of This
Proposed Rule
In this proposed rule, we are setting
forth proposed payment and policy
changes to the Medicare IPPS for FY
2017 operating costs and for capitalrelated costs of acute care hospitals and
certain hospitals and hospital units that
are excluded from IPPS, including
proposed changes relating to payments
for IME and direct GME to certain
hospitals that continue to be excluded
from the IPPS and paid on a reasonable
cost basis. In addition, in this proposed
rule, we are setting forth proposed
changes to the payment rates, factors,
and other payment and policy-related
changes to programs associated with
payment rate policies under the LTCH
PPS for FY 2017.
Below is a summary of the major
changes that we are proposing to make:
1. Proposed Changes to MS–DRG
Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of the
proposed rule, we include—

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• Proposed changes to MS–DRG
classifications based on our yearly
review for FY 2017.
• Proposed application of the
documentation and coding adjustment
for FY 2017 resulting from
implementation of the MS–DRG system.
• Proposed recalibrations of the MS–
DRG relative weights.
• A discussion of the FY 2017 status
of new technologies approved for addon payments for FY 2016 and a
presentation of our evaluation and
analysis of the FY 2017 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).
2. Proposed Changes to the Hospital
Wage Index for Acute Care Hospitals
In section III. of the preamble to this
proposed rule, we are proposing
revisions to the wage index for acute
care hospitals and the annual update of
the wage data. Specific issues addressed
include, but not limited to, the
following:
• The proposed FY 2017 wage index
update using wage data from cost
reporting periods beginning in FY 2013.
• Calculation of the proposed
occupational mix adjustment for FY
2017 based on the 2013 Occupational
Mix Survey.
• Analysis and implementation of the
proposed FY 2017 occupational mix
adjustment to the wage index for acute
care hospitals.
• Proposed application of the rural
floor, the proposed imputed floor, and
the proposed frontier State floor.
• Transitional wage indexes relating
to the continued use of the revised OMB
labor market area delineations based on
2010 Decennial Census data.
• Proposed revisions to the wage
index for acute care hospitals based on
hospital redesignations and
reclassifications under sections
1886(d)(8)(B), (d)(8)(E), and (d)(10) of
the Act.
• Notification regarding proposed
CMS ‘‘lock-in’’ date for urban to rural
reclassifications under § 412.103.
• The proposed adjustment to the
wage index for acute care hospitals for
FY 2017 based on commuting patterns
of hospital employees who reside in a
county and work in a different area with
a higher wage index.
• Determination of the labor-related
share for the proposed FY 2017 wage
index.
• Solicitation of Comments on
Treatment of Overhead and Home Office
Costs in the Wage Index Calculation

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3. Other Decisions and Proposed
Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble of this
proposed rule, we discuss proposed
changes or clarifications of a number of
the provisions of the regulations in 42
CFR parts 412 and 413, including the
following:
• Proposed conforming changes to
our regulations to reflect the changes to
operating payments for subsection (d)
Puerto Rico hospitals in accordance
with the provisions of section 601 of
Public Law 114–113.
• Proposed changes to the inpatient
hospital update for FY 2017.
• Proposed updated national and
regional case-mix values and discharges
for purposes of determining RRC status.
• Proposed payment adjustment for
low-volume hospitals for FY 2017.
• The statutorily required IME
adjustment factor for FY 2017.
• Proposed changes to the
methodologies for determining
Medicare DSH payments and the
additional payments for uncompensated
care.
• Proposed changes to the rules for
payment adjustments under the
Hospital Readmissions Reduction
Program based on hospital readmission
measures and the process for hospital
review and correction of those rates for
FY 2017.
• Proposed changes to the
requirements and provision of valuebased incentive payments under the
Hospital Value-Based Purchasing
Program for FY 2017.
• Proposed requirements for payment
adjustments to hospitals under the HAC
Reduction Program for FY 2017.
• Proposed changes relating to direct
GME and IME payments to urban
hospitals with rural track training
programs.
• Discussion of the Rural Community
Hospital Demonstration Program and a
proposal for making a budget neutrality
adjustment for the demonstration
program.
• Proposed implementation of the
Notice of Observation Treatment and
Implications for Care Eligibility Act (the
NOTICE Act) for hospitals and CAHs.
• Proposed technical changes and
corrections to regulations relating to
cost to related organizations and
Medicare cost reports.
4. Proposed FY 2017 Policy Governing
the IPPS for Capital-Related Costs
In section V. of the preamble to this
proposed rule, we discuss the proposed
payment policy requirements for
capital-related costs and capital

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payments to hospitals for FY 2017. In
addition, we discuss proposed changes
to the calculation of capital IPPS
payments to hospitals located in Puerto
Rico to parallel the change in the
statutory calculation of operating IPPS
payments to hospitals located in Puerto
Rico, beginning in FY 2017.
5. Proposed Changes to the Payment
Rates for Certain Excluded Hospitals:
Rate-of-Increase Percentages
In section VI. of the preamble of this
proposed rule, we discuss—
• Proposed changes to payments to
certain excluded hospitals for FY 2017.
• Proposed implementation of the
Frontier Community Health Integration
Project (FCHIP) Demonstration.
6. Proposed Changes to the LTCH PPS
In section VII. of the preamble of this
proposed rule, we set forth—
• Proposed changes to the LTCH PPS
Federal payment rates, factors, and
other payment rate policies under the
LTCH PPS for FY 2017.
• Proposals to sunset our existing 25percent threshold policy regulations,
and replace them with single
consolidated 25 percent threshold
policy regulation.
• Proposed changes to the limitation
on charges (LOC) to beneficiaries and
related billing requirements for
‘‘subclause (II)’’ LTCHs to align those
LTCH PPS payment adjustment policies
with the LOC policies applied in the
TEFRA payment context.
• Proposed technical corrections to
certain definitions to correct and clarify
their use under the application of the
site neutral payment rate and proposed
additional definitions in accordance
with our proposed modifications to the
25-percent policy.
• Proposed rebasing and revising of
the LTCH market basket to update the
LTCH PPS, effective for FY 2017.

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7. Proposed Changes Relating to Quality
Data Reporting for Specific Providers
and Suppliers
In section VIII. of the preamble of the
proposed rule, we address—
• Proposed requirements for the
Hospital Inpatient Quality Reporting
(IQR) Program as a condition for
receiving the full applicable percentage
increase.
• Proposed changes to the
requirements for the quality reporting
program for PPS-exempt cancer
hospitals (PCHQR Program).
• Proposed changes to the
requirements under the LTCH Quality
Reporting Program (LTCH QRP).
• Proposed changes to the
requirements under the Inpatient

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Psychiatric Facility Quality Reporting
(IPFQR) Program.
• Proposed changes relating to
clinical quality measures for the
Medicare Electronic Health Record
(EHR) Incentive Program and eligible
hospitals and CAHs.
8. Determining Prospective Payment
Operating and Capital Rates and Rate-ofIncrease Limits for Acute Care Hospitals
In the Addendum to this proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2017 prospective
payment rates for operating costs and
capital-related costs for acute care
hospitals. We are proposing to establish
the threshold amounts for outlier cases.
In addition, we address the update
factors for determining the rate-ofincrease limits for cost reporting periods
beginning in FY 2017 for certain
hospitals excluded from the IPPS.
9. Determining Prospective Payment
Rates for LTCHs
In the Addendum to this proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2017 LTCH PPS
standard Federal payment rate and other
factors used to determine LTCH PPS
payments under both the LTCH PPS
standard Federal payment rate and the
site neutral payment rate in FY 2017.
We are proposing to establish the
adjustments for wage levels, the laborrelated share, the cost-of-living
adjustment, and high-cost outliers,
including the applicable fixed-loss
amounts and the LTCH cost-to-charge
ratios (CCRs) for both payment rates. We
also are providing the estimated market
basket update to apply to the ceiling
used to determine payments under the
existing payment adjustment for
‘‘subclause (II)’’ LTCHs for cost
reporting periods beginning in FY 2017.
10. Impact Analysis
In Appendix A of this proposed rule,
we set forth an analysis of the impact
that the proposed changes would have
on affected acute care hospitals, CAHs,
LTCHs, PCHs, and IPFs.
11. Recommendation of Update Factors
for Operating Cost Rates of Payment for
Hospital Inpatient Services
In Appendix B of this proposed rule,
as required by sections 1886(e)(4) and
(e)(5) of the Act, we provided our
recommendations of the appropriate
percentage changes for FY 2017 for the
following:
• A single average standardized
amount for all areas for hospital
inpatient services paid under the IPPS

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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 LTCH PPS standard Federal
payment rate and the site neutral
payment rate for hospital inpatient
services provided for LTCH PPS
discharges.
12. Discussion of Medicare Payment
Advisory Commission
Recommendations
Under section 1805(b) of the Act,
MedPAC is required to submit a report
to Congress, no later than March 15 of
each year, in which MedPAC reviews
and makes recommendations on
Medicare payment policies. MedPAC’s
March 2016 recommendations
concerning hospital inpatient payment
policies address the update factor for
hospital inpatient operating costs and
capital-related costs for hospitals under
the IPPS. We addressed these
recommendations in Appendix B of this
proposed rule. For further information
relating specifically to the MedPAC
March 2016 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.
II. Proposed 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
diagnosis-related groups (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

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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
For general information about the
MS–DRG system, including yearly
reviews and changes to the MS–DRGs,
we refer readers to the previous
discussions in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43764
through 43766), the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50053 through
50055), the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51485 through 51487),
the FY 2013 IPPS/LTCH PPS final rule
(77 FR 53273), the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50512), the FY
2015 IPPS/LTCH PPS final rule (79 FR
49871), and the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49342).
C. Adoption of the MS–DRGs in FY 2008
For information on the adoption of
the MS–DRGs in FY 2008, we refer
readers to the FY 2008 IPPS final rule
with comment period (72 FR 47140
through 47189).
D. Proposed FY 2017 MS–DRG
Documentation and Coding Adjustment

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1. Background on the Prospective MS–
DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009
Authorized by Public Law 110–90
In the FY 2008 IPPS final rule with
comment period (72 FR 47140 through
47189), we adopted the MS–DRG
patient classification system for the
IPPS, effective October 1, 2007, to better
recognize severity of illness in Medicare
payment rates for acute care hospitals.
The adoption of the MS–DRG system
resulted in the expansion of the number
of DRGs from 538 in FY 2007 to 745 in
FY 2008. (Currently, for FY 2016, there
are 756 MS–DRGs.) By increasing the
number of MS–DRGs and more fully
taking into account patient severity of
illness in Medicare payment rates for
acute care hospitals, MS–DRGs
encourage hospitals to improve their
documentation and coding of patient
diagnoses.
In the FY 2008 IPPS final rule with
comment period (72 FR 47175 through
47186), we indicated that the adoption
of the MS–DRGs had the potential to
lead to increases in aggregate payments
without a corresponding increase in
actual patient severity of illness due to
the incentives for additional
documentation and coding. In that final
rule with comment period, we exercised

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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 (Pub. L. 110–90).
Section 7(a) of Public Law 110–90
reduced the documentation and coding
adjustment made as a result of the MS–
DRG system that we adopted in the FY
2008 IPPS final rule with comment
period to ¥0.6 percent for FY 2008 and
¥0.9 percent for FY 2009, and we
finalized the FY 2008 adjustment
through rulemaking, effective October 1,
2007 (72 FR 66886).
For FY 2009, section 7(a) of Public
Law 110–90 required a documentation
and coding adjustment of ¥0.9 percent,
and we finalized that adjustment
through rulemaking effective October 1,
2008 (73 FR 48447). The documentation
and coding adjustments established in
the FY 2008 IPPS final rule with
comment period, which reflected the
amendments made by section 7(a) of
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. Adjustment to the Average
Standardized Amounts Required by
Public Law 110–90
a. Prospective Adjustment 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

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under section 1886(d)(3)(A)(vi) of the
Act.
Section 1886(d)(3)(A)(vi) of the Act
authorizes adjustments to the average
standardized amounts for subsequent
fiscal years in order to eliminate the
effect of such coding or classification
changes. These adjustments are
intended to ensure that future annual
aggregate IPPS payments are the same as
the payments that otherwise would have
been made had the prospective
adjustments for documentation and
coding applied in FY 2008 and FY 2009
reflected the change that occurred in
those years.
b. Recoupment or Repayment
Adjustments in FYs 2010 Through 2012
Required by Section 7(b)(1)(B) 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 matched the
changes that occurred in those years.
Public Law 110–90 requires that the
Secretary only make these recoupment
or repayment adjustments for discharges
occurring during FYs 2010, 2011, and
2012.
3. Retrospective Evaluation of FY 2008
and FY 2009 Claims Data
In order to implement the
requirements of section 7 of Public Law
110–90, we performed a retrospective

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evaluation of the FY 2008 data for
claims paid through December 2008
using the methodology first described in
the FY 2009 IPPS/LTCH PPS final rule
(73 FR 43768 and 43775) and later
discussed in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43768
through 43772). We performed the same
analysis for FY 2009 claims data using
the same methodology as we did for FY
2008 claims (75 FR 50057 through
50068). The results of the analysis for
the FY 2011 IPPS/LTCH PPS proposed
and final rules, and subsequent
evaluations in FY 2012, supported that
the 5.4 percent estimate accurately
reflected the FY 2009 increases in
documentation and coding under the
MS–DRG system. We were persuaded by
both MedPAC’s analysis (as discussed
in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50064 through 50065)) and
our own review of the methodologies
proposed by various commenters that
the methodology we employed to
determine the required documentation
and coding adjustments was sound.
As in prior years, the FY 2008, FY
2009, and FY 2010 MedPAR files are
available to the public to allow
independent analysis of the FY 2008
and FY 2009 documentation and coding
effects. Interested individuals may still
order these files through the CMS Web
site at: http://www.cms.gov/ResearchStatistics-Data-and-Systems/Files-forOrder/LimitedDataSets/ by clicking on
MedPAR Limited Data Set (LDS)—
Hospital (National). This CMS 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 (refer to the Web site for the
required payment amount) 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.
4. Prospective Adjustments for FY 2008
and FY 2009 Authorized by Section
7(b)(1)(A) of Public Law 110–90
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43767 through
43777), we opted to delay the

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implementation of any documentation
and coding adjustment until a full
analysis of case-mix changes based on
FY 2009 claims data could be
completed. We refer readers to the FY
2010 IPPS/RY LTCH PPS final rule for
a detailed description of our proposal,
responses to comments, and finalized
policy. After analysis of the FY 2009
claims data for the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50057 through
50073), we found a total prospective
documentation and coding effect of 5.4
percent. After accounting for the ¥0.6
percent and the ¥0.9 percent
documentation and coding adjustments
in FYs 2008 and 2009, we found a
remaining documentation and coding
effect of 3.9 percent. As we have
discussed, an additional cumulative
adjustment of ¥3.9 percent would be
necessary to meet the requirements of
section 7(b)(1)(A) of Public Law 110–90
to make an adjustment to the average
standardized amounts in order to
eliminate the full effect of the
documentation and coding changes that
do not reflect real changes in case-mix
on future payments. Unlike section
7(b)(1)(B) of Public Law 110–90, section
7(b)(1)(A) does not specify when we
must apply the prospective adjustment,
but merely requires us to make an
‘‘appropriate’’ adjustment. Therefore, as
we stated in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50061), we
believed the law provided some
discretion as to the manner in which we
applied the prospective adjustment of
¥3.9 percent. As we discussed
extensively in the FY 2011 IPPS/LTCH
PPS final rule, it has been our practice
to moderate payment adjustments when
necessary to mitigate the effects of
significant downward adjustments on
hospitals, to avoid what could be
widespread, disruptive effects of such
adjustments on hospitals. Therefore, we
stated that we believed it was
appropriate to not implement the ¥3.9
percent prospective adjustment in FY
2011 because we finalized a ¥2.9
percent recoupment adjustment for that
fiscal year. Accordingly, we did not
propose a prospective adjustment under
section 7(b)(1)(A) of Public Law 110–90
for FY 2011 (75 FR 23868 through
23870). We noted that, as a result,
payments in FY 2011 (and in each
future fiscal year until we implemented
the requisite adjustment) would be
higher than they would have been if we
had implemented an adjustment under
section 7(b)(1)(A) of Public Law 110–90.
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51489 and 51497), we
indicated that, because further delay of
this prospective adjustment would

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result in a continued accrual of
unrecoverable overpayments, it was
imperative that we implement a
prospective adjustment for FY 2012,
while recognizing CMS’ continued
desire to mitigate the effects of any
significant downward adjustments to
hospitals. Therefore, we implemented a
¥2.0 percent prospective adjustment to
the standardized amount instead of the
full ¥3.9 percent.
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53274 through 53276), we
completed the prospective portion of
the adjustment required under section
7(b)(1)(A) of Public Law 110–90 by
finalizing a ¥1.9 percent adjustment to
the standardized amount for FY 2013.
We stated that this adjustment would
remove the remaining effect of the
documentation and coding changes that
do not reflect real changes in case-mix
that occurred in FY 2008 and FY 2009.
We believed that it was imperative to
implement the full remaining
adjustment, as any further delay would
result in an overstated standardized
amount in FY 2013 and any future fiscal
years until a full adjustment was made.
We noted again that delaying full
implementation of the prospective
portion of the adjustment required
under section 7(b)(1)(A) of Public Law
110–90 until FY 2013 resulted in
payments in FY 2010 through FY 2012
being overstated. These overpayments
could not be recovered by CMS, as
section 7(b)(1)(B) of Public Law 110–90
limited recoupments to overpayments
made in FY 2008 and FY 2009.
5. Recoupment or Repayment
Adjustment Authorized by Section
7(b)(1)(B) of Public Law 110–90
Section 7(b)(1)(B) of Public Law 110–
90 requires the Secretary to make an
adjustment to the standardized amounts
under section 1886(d) of the Act to
offset the estimated increase or decrease
in aggregate payments for FY 2008 and
FY 2009 (including interest) resulting
from the difference between the
estimated actual documentation and
coding effect and the documentation
and coding adjustments applied under
section 7(a) of Public Law 110–90. This
determination must be based on a
retrospective evaluation of claims data.
Our actuaries estimated that there was
a 5.8 percentage point difference
resulting in an increase in aggregate
payments of approximately $6.9 billion.
Therefore, as discussed in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50062
through 50067), we determined that an
aggregate adjustment of ¥5.8 percent in
FYs 2011 and 2012 would be necessary
in order to meet the requirements of
section 7(b)(1)(B) of Public Law 110–90

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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
payment rate adjustments over more
than one year in order to moderate the
effect on payment rates in any one year.
Therefore, consistent with the policies
that we have adopted in many similar
cases, in the FY 2011 IPPS/LTCH PPS
final rule, we made an adjustment to the
standardized amount of ¥2.9 percent,
representing approximately half of the
aggregate adjustment required under
section 7(b)(1)(B) of Public Law 110–90,
for FY 2011. An adjustment of this
magnitude allowed us to moderate the
effects on hospitals in one year while
simultaneously making it possible to
implement the entire adjustment within
the timeframe required under section
7(b)(1)(B) of Public Law 110–90 (that is,
no later than FY 2012). For FY 2012, in
accordance with the timeframes set
forth by section 7(b)(1)(B) of Public Law
110–90, and consistent with the
discussion in the FY 2011 IPPS/LTCH
PPS final rule, we completed the
recoupment adjustment by
implementing the remaining ¥2.9
percent adjustment, in addition to
removing the effect of the ¥2.9 percent
adjustment to the standardized amount
finalized for FY 2011 (76 FR 51489 and
51498). Because these adjustments, in
effect, balanced out, there was no yearto-year change in the standardized
amount due to this recoupment
adjustment for FY 2012. In the FY 2013
IPPS/LTCH PPS final rule (77 FR
53276), we made a final +2.9 percent
adjustment to the standardized amount,
completing the recoupment portion of
section 7(b)(1)(B) of Public Law 110–90.
We note that with this positive
adjustment, according to our estimates,
all overpayments made in FY 2008 and
FY 2009 have been fully recaptured
with appropriate interest, and the
standardized amount has been returned
to the appropriate baseline.
6. Proposed Recoupment or Repayment
Adjustment Authorized by Section 631
of the American Taxpayer Relief Act of
2012 (ATRA)
Section 631 of the ATRA amended
section 7(b)(1)(B) of Public Law 110–90

to require the Secretary to make a
recoupment adjustment or adjustments
totaling $11 billion by FY 2017. This
adjustment represents the amount of the
increase in aggregate payments as a
result of not completing the prospective
adjustment authorized under section
7(b)(1)(A) of Public Law 110–90 until
FY 2013. As discussed earlier, this delay
in implementation resulted in
overstated payment rates in FYs 2010,
2011, and 2012. The resulting
overpayments could not have been
recovered under Public Law 110–90.
Similar to the adjustments authorized
under section 7(b)(1)(B) of Public Law
110–90, the adjustment required under
section 631 of the ATRA is a one-time
recoupment of a prior overpayment, not
a permanent reduction to payment rates.
Therefore, we anticipated that any
adjustment made to reduce payment
rates in one year would eventually be
offset by a positive adjustment in 2018,
once the necessary amount of
overpayment was recovered. However,
section 414 of the Medicare Access and
CHIP Reauthorization Act (MACRA) of
2015, Public Law 114–10, enacted on
April 16, 2015, replaced the single
positive adjustment we intended to
make in FY 2018 with a 0.5 percent
positive adjustment for each of FYs
2018 through 2023. We stated in the FY
2016 IPPS/LTCH PPS final rule (80 FR
49345) that we will address this
MACRA provision in future rulemaking.
As we stated in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50515
through 50517), our actuaries estimate
that a ¥9.3 percent adjustment to the
standardized amount would be
necessary if CMS were to fully recover
the $11 billion recoupment required by
section 631 of the ATRA in FY 2014. It
is often our practice to phase in
payment rate adjustments over more
than one year, in order to moderate the
effect on payment rates in any one year.
Therefore, consistent with the policies
that we have adopted in many similar
cases, and after consideration of the
public comments we received, in the FY
2014 IPPS/LTCH PPS final rule (78 FR
50515 through 50517), we implemented
a ¥0.8 percent recoupment adjustment
to the standardized amount in FY 2014.
We stated that if adjustments of
approximately ¥0.8 percent are
implemented in FYs 2014, 2015, 2016,
and 2017, using standard inflation

factors, we estimate that the entire $11
billion will be accounted for by the end
of the statutory 4-year timeline. As
estimates of any future adjustments are
subject to slight variations in total
savings, we did not provide for specific
adjustments for FYs 2015, 2016, or 2017
at that time. We stated that we believed
that this level of adjustment for FY 2014
was a reasonable and fair approach that
satisfies the requirements of the statute
while mitigating extreme annual
fluctuations in payment rates.
Consistent with the approach
discussed in the FY 2014 rulemaking for
recouping the $11 billion required by
section 631 of the ATRA, in the FY 2015
IPPS/LTCH PPS final rule (79 FR 49874)
and the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49345), we implemented
additional ¥0.8 percent recoupment
adjustments to the standardized amount
in FY 2015 and FY 2016, respectively.
We estimated that these adjustments,
combined with leaving the prior ¥0.8
percent adjustments in place, would
recover up to $2 billion in FY 2015 and
another $3 billion in FY 2016. When
combined with the approximately $1
billion adjustment made in FY 2014, we
estimated that approximately $5 to $6
billion would be left to recover under
section 631 of the ATRA by the end of
FY 2016.
However, due to lower than
previously estimated inpatient
spending, an adjustment of ¥0.8
percent in FY 2017 would not recoup
the $11 billion under section 631 of the
ATRA. Based on the FY 2017
President’s Budget, our actuaries
currently estimate that FY 2014 through
FY 2016 spending subject to the
documentation and coding recoupment
adjustment in the absence of the ¥0.8
percent adjustments made in FYs 2014
through 2016 would have been $123.783
billion in FY 2014, $124.361 billion in
FY 2015, and $127.060 billion in FY
2016. As shown in the following table,
the amount recouped in each of those
fiscal years is therefore calculated as the
difference between those amounts and
the amounts determined to have been
spent in those years with the ¥0.8
percent adjustment applied, namely
$122.801 billion in FY 2014, $122.395
billion in FY 2015, and $124.059 billion
in FY 2016. This yields an estimated
total recoupment through the end of FY
2016 of $5.950 billion.

RECOUPMENT MADE UNDER SECTION 631 OF THE AMERICAN TAXPAYER RELIEF ACT OF 2012 (ATRA)
IPPS
Spending *
(billions)
FY 2014 ...........................................................................................................

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$122.801

Cumulative
adjustment
factor
1.00800

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Adjusted IPPS
spending
(billions)
$123.783

Recoupment
amount
(billions)
$0.98

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RECOUPMENT MADE UNDER SECTION 631 OF THE AMERICAN TAXPAYER RELIEF ACT OF 2012 (ATRA)—Continued
IPPS
Spending *
(billions)

Cumulative
adjustment
factor

Adjusted IPPS
spending
(billions)

Recoupment
amount
(billions)

FY 2015 ...........................................................................................................
FY 2016 ...........................................................................................................

122.395
124.059

1.01606
1.02419

124.361
127.060

1.97
3.00

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

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

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

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

5.95

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* Based on FY 2017 President’s Budget, including capital, IME, and DSH payments.

These estimates and the estimate of
FY 2017 spending subject to the
documentation and coding recoupment
adjustment also will be contained in a
memorandum from the Office of the
Actuary that we will make publicly
available on the CMS Web site. A
description of the President’s Budget for
FY 2017 is currently available on the
OMB Web site at: https://www.
whitehouse.gov/omb/budget.
Our actuaries currently estimate that
the FY 2017 spending subject to the
documentation and coding recoupment
adjustment (including capital, IME, and
DSH payment) would be $129.625
billion in the absence of any
documentation and recoupment
adjustments from FY 2014 through FY
2017. Therefore, our actuaries currently
estimate that, to the nearest tenth of a
percent, the FY 2017 documentation
and coding adjustment factor that will
recoup as closely as possible $11 billion
from FY 2014 through FY 2017 without
exceeding this amount is ¥1.5 percent.
This adjustment factor yields an
estimated spending amount in FY 2017
of $124.693 billion, calculated as
$129.625/(1.008*1.008*1.008*1.015).
This estimated ¥1.5 percent adjustment
factor will be updated for the final rule
based on the FY 2017 President’s
Budget Midsession Review. It is
possible that, based on updated
estimates, the necessary adjustment
factor to the nearest tenth of a percent
could be different than our actuaries’
current estimate of ¥1.5 percent. The
proposed ¥1.5 percent adjustment
would be the final adjustment required
under section 631 of the ATRA, and
when combined with the effects of
previous adjustments made in FY 2014,
FY 2015, and FY 2016, we estimate will
satisfy the section 631 of the ATRA
recoupment. As stated earlier, once the
recoupment was complete, we had
anticipated making a single positive
adjustment in FY 2018 to offset the
reductions required to recoup the $11
billion under section 631 of the ATRA.
However, as stated earlier, section 414
of the MACRA requires that we not
make the single positive adjustment we
intended to make in FY 2018, but

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instead make a 0.5 percent positive
adjustment for each of FYs 2018 through
2023. The provision under section 414
of the MACRA does not impact our
proposed FY 2017 adjustment, and we
will address this MACRA provision in
future rulemaking.
E. Refinement of the MS–DRG Relative
Weight Calculation
1. Background
Beginning in FY 2007, we
implemented relative weights for DRGs
based on cost report data instead of
charge information. We refer readers to
the FY 2007 IPPS final rule (71 FR
47882) for a detailed discussion of our
final policy for calculating the costbased DRG relative weights and to the
FY 2008 IPPS final rule with comment
period (72 FR 47199) for information on
how we blended relative weights based
on the CMS DRGs and MS–DRGs.
As we implemented cost-based
relative weights, some public
commenters raised concerns about
potential bias in the weights due to
‘‘charge compression,’’ which is the
practice of applying a higher percentage
charge markup over costs to lower cost
items and services, and a lower
percentage charge markup over costs to
higher cost items and services. As a
result, the cost-based weights would
undervalue high-cost items and
overvalue low-cost items if a single costto-charge ratio (CCR) is applied to items
of widely varying costs in the same cost
center. To address this concern, in
August 2006, we awarded a contract to
the Research Triangle Institute,
International (RTI) to study the effects of
charge compression in calculating the
relative weights and to consider
methods to reduce the variation in the
CCRs across services within cost
centers. For a detailed summary of RTI’s
findings, recommendations, and public
comments that we received on the
report, we refer readers to the FY 2009
IPPS/LTCH PPS final rule (73 FR 48452
through 48453). In addition, we refer
readers to RTI’s July 2008 final report
titled ‘‘Refining Cost to Charge Ratios
for Calculating APC and MS–DRG
Relative Payment Weights’’ (http://

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www.rti.org/reports/cms/HHSM-5002005-0029I/PDF/Refining_Cost_to_
Charge_Ratios_200807_Final.pdf).
In the FY 2009 IPPS final rule (73 FR
48458 through 48467), in response to
the RTI’s recommendations concerning
cost report refinements, we discussed
our decision to pursue changes to the
cost report to split the cost center for
Medical Supplies Charged to Patients
into one line for ‘‘Medical Supplies
Charged to Patients’’ and another line
for ‘‘Implantable Devices Charged to
Patients.’’ We acknowledged, as RTI had
found, that charge compression occurs
in several cost centers that exist on the
Medicare cost report. However, as we
stated in the FY 2009 IPPS 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
the items that should be reported in
these respective cost centers, we
adopted the commenters’
recommendations that hospitals use
revenue codes established by the AHA’s
National Uniform Billing Committee to
determine the items that should be
reported in the ‘‘Medical Supplies
Charged to Patients’’ and the
‘‘Implantable Devices Charged to
Patients’’ cost centers. Accordingly, a
new subscripted line for ‘‘Implantable
Devices Charged to Patients’’ was
created in July 2009. This new
subscripted cost center has been
available for use for cost reporting
periods beginning on or after May 1,
2009.
As we discussed in the FY 2009 IPPS
final rule (73 FR 48458) and in the CY
2009 OPPS/ASC final rule with
comment period (73 FR 68519 through
68527), in addition to the findings
regarding implantable devices, RTI
found that the costs and charges of
computed tomography (CT) scans,
magnetic resonance imaging (MRI), and
cardiac catheterization differ
significantly from the costs and charges
of other services included in the
standard associated cost center. RTI also
concluded that both the IPPS and the

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OPPS relative weights would better
estimate the costs of those services if
CMS were to add standard cost centers
for CT scans, MRIs, and cardiac
catheterization in order for hospitals to
report separately the costs and charges
for those services and in order for CMS
to calculate unique CCRs to estimate the
costs from charges on claims data. In the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50075 through 50080), we finalized
our proposal to create standard cost
centers for CT scans, MRIs, and cardiac
catheterization, and to require that
hospitals report the costs and charges
for these services under new cost
centers on the revised Medicare cost
report Form CMS–2552–10. (We refer
readers to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50075 through 50080)
for a detailed discussion of the reasons
for the creation of standard cost centers
for CT scans, MRIs, and cardiac
catheterization.) The new standard cost
centers for CT scans, MRIs, and cardiac
catheterization are effective for cost
reporting periods beginning on or after
May 1, 2010, on the revised cost report
Form CMS–2552–10.
In the FY 2009 IPPS final rule (73 FR
48468), we stated that, due to what is
typically a 3-year lag between the
reporting of cost report data and the
availability for use in ratesetting, we
anticipated that we might be able to use
data from the new ‘‘Implantable Devices
Charged to Patients’’ cost center to
develop a CCR for ‘‘Implantable Devices
Charged to Patients’’ in the FY 2012 or
FY 2013 IPPS rulemaking cycle.
However, as noted in the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR
43782), due to delays in the issuance of
the revised cost report Form CMS 2552–
10, we determined that a new CCR for
‘‘Implantable Devices Charged to
Patients’’ might not be available before
FY 2013. Similarly, when we finalized
the decision in the FY 2011 IPPS/LTCH
PPS final rule to add new cost centers
for CT scans, MRIs, 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). In preparation for the FY
2012 IPPS/LTCH PPS rulemaking, we
checked the availability of data in the
‘‘Implantable Devices Charged to
Patients’’ cost center on the FY 2009
cost reports, but we did not believe that
there was a sufficient amount of data
from which to generate a meaningful
analysis in this particular situation.
Therefore, we did not propose to use
data from the ‘‘Implantable Devices
Charged to Patients’’ cost center to
create a distinct CCR for ‘‘Implantable

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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 for the
FY 2013 IPPS/LTCH PPS rulemaking
cycle and, if appropriate, we would
propose to create a distinct CCR at that
time.
During the development of the FY
2013 IPPS/LTCH PPS proposed and
final rules, hospitals were still in the
process of transitioning from the
previous cost report Form CMS–2552–
96 to the new cost report Form CMS–
2552–10. Therefore, we were able to
access only those cost reports in the FY
2010 HCRIS with fiscal year begin dates
on or after October 1, 2009, and before
May 1, 2010; that is, those cost reports
on Form CMS–2552–96. Data from the
Form CMS–2552–10 cost reports were
not available because cost reports filed
on the Form CMS–2552–10 were not
accessible in the HCRIS. Further
complicating matters was that, due to
additional unforeseen technical
difficulties, the corresponding
information regarding charges for
implantable devices on hospital claims
was not yet available to us in the
MedPAR file. Without the breakout in
the MedPAR file of charges associated
with implantable devices to correspond
to the costs of implantable devices on
the cost report, we believed that we had
no choice but to continue computing the
relative weights with the current CCR
that combines the costs and charges for
supplies and implantable devices. We
stated in the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53281 through 53283)
that when we do have the necessary
data for supplies and implantable
devices on the claims in the MedPAR
file to create distinct CCRs for the
respective cost centers for supplies and
implantable devices, we hoped that we
would also have data for an analysis of
creating distinct CCRs for CT scans,
MRIs, and cardiac catheterization,
which could then be finalized through
rulemaking. In the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53281), we stated
that, prior to proposing to create these
CCRs, we would first thoroughly
analyze and determine the impacts of
the data, and that distinct CCRs for
these new cost centers would be used in
the calculation of the relative weights
only if they were first finalized through
rulemaking.
At the time of the development of the
FY 2014 IPPS/LTCH PPS proposed rule
(78 FR 27506 through 27507), we had a
substantial number of hospitals
completing all, or some, of these new
cost centers on the FY 2011 Medicare

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cost reports, compared to prior years.
We stated that we believed that the
analytic findings described using the FY
2011 cost report data and FY 2012
claims data supported our original
decision to break out and create new
cost centers for implantable devices,
MRIs, CT scans, and cardiac
catheterization, and we saw no reason to
further delay proposing to implement
the CCRs of each of these cost centers.
Therefore, beginning in FY 2014, we
proposed a policy to calculate the MS–
DRG relative weights using 19 CCRs,
creating distinct CCRs from cost report
data for implantable devices, MRIs, CT
scans, and cardiac catheterization.
We refer readers to the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27507
through 27509) and final rule (78 FR
50518 through 50523) in which we
presented data analyses using distinct
CCRs for implantable devices, MRIs, CT
scans, and cardiac catheterization. The
FY 2014 IPPS/LTCH PPS final rule also
set forth our responses to public
comments we received on our proposal
to implement these CCRs. As explained
in more detail in the FY 2014 IPPS/
LTCH PPS final rule, we finalized our
proposal to use 19 CCRs to calculate
MS–DRG relative weights beginning in
FY 2014—the then existing 15 cost
centers and the 4 new CCRs for
implantable devices, MRIs, CT scans,
and cardiac catheterization. Therefore,
beginning in FY 2014, we calculate the
IPPS MS–DRG relative weights using 19
CCRs, creating distinct CCRs for
implantable devices, MRIs, CT scans,
and cardiac catheterization.
2. Discussion of Policy for FY 2017
Consistent with our established
policy, we calculated the proposed MS–
DRG relative weights for FY 2017 using
two data sources: The MedPAR file as
the claims data source and the HCRIS as
the cost report data source. We adjusted
the charges from the claims to costs by
applying the 19 national average CCRs
developed from the cost reports. The
description of the calculation of the
proposed 19 CCRs and the proposed
MS–DRG relative weights for FY 2017 is
included in section II.G. of the preamble
of this proposed rule. As we did with
the FY 2016 IPPS/LTCH PPS final rule,
we are providing the version of the
HCRIS from which we calculated these
proposed 19 CCRs on the CMS Web site
at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html. Click on
the link on the left side of the screen
titled, ‘‘FY 2017 IPPS Proposed Rule
Home Page’’ or ‘‘Acute Inpatient Files
for Download.’’

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F. Proposed Changes to Specific MS–
DRG Classifications

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

1. Discussion of Changes to Coding
System and Basis for MS–DRG Updates
a. Conversion of MS–DRGs to the
International Classification of Diseases,
10th Revision (ICD–10)
As of October 1, 2015, providers use
the International Classification of
Diseases, 10th Revision (ICD–10) coding
system to report diagnoses and
procedures for Medicare hospital
inpatient services under the MS–DRG
system instead of the ICD–9–CM coding
system, which was used through
September 30, 2015. The ICD–10 coding
system includes the International
Classification of Diseases, 10th
Revision, Clinical Modification (ICD–
10–CM) for diagnosis coding and the
International Classification of Diseases,
10th Revision, Procedure Coding
System (ICD–10–PCS) for inpatient
hospital procedure coding, as well as
the Official ICD–10–CM and ICD–10–
PCS Guidelines for Coding and
Reporting. The ICD–10 coding system
was initially adopted for transactions
conducted on or after October 1, 2013,
as described in the Health Insurance
Portability and Accountability Act of
1996 (HIPAA) Administrative
Simplification: Modifications to
Medical Data Code Set Standards to
Adopt ICD–10–CM and ICD–10–PCS
Final Rule published in the Federal
Register on January 16, 2009 (74 FR
3328 through 3362) (hereinafter referred
to as the ‘‘ICD–10–CM and ICD–10–PCS
final rule’’). However, the Secretary of
Health and Human Services (the
Secretary) issued a final rule that
delayed the compliance date for ICD–10
from October 1, 2013, to October 1,
2014. That final rule, entitled
‘‘Administrative Simplification:
Adoption of a Standard for a Unique
Health Plan Identifier; Addition to the
National Provider Identifier
Requirements; and a Change to the
Compliance Date for ICD–10–CM and
ICD–10–PCS Medical Data Code Sets,’’
CMS–0040–F, was published in the
Federal Register on September 5, 2012
(77 FR 54664) and is available for
viewing on the Internet at: http://
www.gpo.gov/fdsys/pkg/FR-2012-09-05/
pdf/2012-21238.pdf. On April 1, 2014,
the Protecting Access to Medicare Act of
2014 (PAMA) (Pub. L. 113–93) was
enacted, which specified that the
Secretary may not adopt ICD–10 prior to
October 1, 2015. Accordingly, the U.S.
Department of Health and Human
Services released a final rule in the
Federal Register on August 4, 2014 (79
FR 45128 through 45134) that included

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a new compliance date that required the
use of ICD–10 beginning October 1,
2015. The rule also required HIPAAcovered entities to continue to use ICD–
9–CM through September 30, 2015.
The anticipated move to ICD–10
necessitated the development of an
ICD–10–CM/ICD–10–PCS version of the
MS–DRGs. CMS began a project to
convert the ICD–9–CM-based MS–DRGs
to ICD–10 MS–DRGs. In response to the
FY 2011 IPPS/LTCH PPS proposed rule,
we received public comments on the
creation of the ICD–10 version of the
MS–DRGs to be implemented at the
same time as ICD–10 (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 current MS–
DRGs from ICD–9–CM codes to ICD–10
codes and sharing this information
through the ICD–10 (previously ICD–9–
CM) Coordination and Maintenance
Committee. We undertook this early
conversion project to assist other payers
and providers in understanding how to
implement their own conversion
projects. We posted ICD–10 MS–DRGs
based on Version 26.0 (FY 2009) of the
MS–DRGs. We also posted a paper that
describes how CMS went about
completing this project and suggestions
for other payers and providers to follow.
Information on the ICD–10 MS–DRG
conversion project can be found on the
ICD–10 MS–DRG Conversion Project
Web site at: http://cms.hhs.gov/
Medicare/Coding/ICD10/ICD-10-MSDRG-Conversion-Project.html. 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–10 (previously ICD–9–
CM) Coordination and Maintenance
Committee. Information on these
committee meetings can be found on the
CMS Web site at: http://www.cms.
hhs.gov/Medicare/Coding/ICD9Provider
DiagnosticCodes/index.html.
During FY 2011, we developed and
posted Version 28.0 of the ICD–10 MS–
DRGs based on the FY 2011 MS–DRGs
(Version 28.0) that we finalized in the
FY 2011 IPPS/LTCH PPS final rule on
the CMS Web site. This ICD–10 MS–
DRGs Version 28.0 also included the CC
Exclusion List and the ICD–10 version
of the hospital-acquired conditions
(HACs), which was not posted with
Version 26. 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

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CMS Web site at: http://www.cms.
hhs.gov/Medicare/Coding/ICD9Provider
DiagnosticCodes/index.html.
We reviewed comments on the ICD–
10 MS–DRGs Version 28 and made
updates as a result of these comments.
We called the updated version the ICD–
10 MS–DRGs Version 28–R1. We posted
a Definitions Manual of ICD–10 MS–
DRGs Version 28–R1 on our ICD–10
MS–DRG Conversion Project Web site.
To make the review of Version 28–R1
updates easier for the public, we also
made available pilot software on a CD
ROM that could be ordered through the
National Technical Information Service
(NTIS). A link to the NTIS ordering page
was provided on the CMS ICD–10 MS–
DRGs Web site. We stated that we
believed that, by providing the ICD–10
MS–DRGs Version 28–R1 Pilot Software
(distributed on CD ROM), the public
would be able to more easily review and
provide feedback on updates to the ICD–
10 MS–DRGs. We discussed the updated
ICD–10 MS–DRGs Version 28–R1 at the
September 14, 2011 ICD–9–CM
Coordination and Maintenance
Committee meeting. We encouraged the
public to continue to review and
provide comments on the ICD–10 MS–
DRGs so that CMS could continue to
update the system.
In FY 2012, we prepared the ICD–10
MS–DRGs Version 29, based on the FY
2012 MS–DRGs (Version 29.0) that we
finalized in the FY 2012 IPPS/LTCH
PPS final rule. We posted a Definitions
Manual of ICD–10 MS–DRGs Version 29
on our ICD–10 MS–DRG Conversion
Project Web site. We also prepared a
document that describes changes made
from Version 28 to Version 29 to
facilitate a review. The ICD–10 MS–
DRGs Version 29 was discussed at the
ICD–9–CM Coordination and
Maintenance Committee meeting on
March 5, 2012. Information was
provided on the types of updates made.
Once again the public was encouraged
to review and comment on the most
recent update to the ICD–10 MS–DRGs.
CMS prepared the ICD–10 MS–DRGs
Version 30 based on the FY 2013 MS–
DRGs (Version 30) that we finalized in
the FY 2013 IPPS/LTCH PPS final rule.
We posted a Definitions Manual of the
ICD–10 MS–DRGs Version 30 on our
ICD–10 MS–DRG Conversion Project
Web site. We also prepared a document
that describes changes made from
Version 29 to Version 30 to facilitate a
review. We produced mainframe and
computer software for Version 30,
which was made available to the public
in February 2013. Information on
ordering the mainframe and computer
software through NTIS was posted on
the ICD–10 MS–DRG Conversion Project

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Web site. The ICD–10 MS–DRGs
Version 30.0 computer software
facilitated additional review of the ICD–
10 MS–DRGs conversion.
We provided information on a study
conducted on the impact of converting
the MS–DRGs to ICD–10. Information on
this study is summarized in a paper
entitled ‘‘Impact of the Transition to
ICD–10 on Medicare Inpatient Hospital
Payments.’’ This paper was posted on
the CMS ICD–10 MS–DRGs Conversion
Project Web site and was distributed
and discussed at the September 15, 2010
ICD–9–CM Coordination and
Maintenance Committee meeting. The
paper described CMS’ approach to the
conversion of the MS–DRGs from ICD–
9–CM codes to ICD–10 codes. The study
was undertaken using the ICD–9–CM
MS–DRGs Version 27.0 (FY 2010),
which was converted to the ICD–10
MS–DRGs Version 27.0. The study
estimated the impact on aggregate
payment to hospitals and the
distribution of payments across
hospitals. The impact of the conversion
from ICD–9–CM to ICD–10 on Medicare
MS–DRG hospital payments was
estimated using FY 2009 Medicare
claims data. The study found a hospital
payment increase of 0.05 percent using
the ICD–10 MS–DRGs Version 27.
CMS provided an overview of this
hospital payment impact study at the
March 5, 2012 ICD–9–CM Coordination
and Maintenance Committee meeting.
This presentation followed
presentations on the creation of ICD–10
MS–DRGs Version 29.0. A summary
report of this meeting can be found on
the CMS Web site at: http://www.cms.
hhs.gov/Medicare/Coding/ICD9Provider
DiagnosticCodes/index.html. At this
March 2012 meeting, CMS announced
that it would produce an update on this
impact study based on an updated
version of the ICD–10 MS–DRGs. This
update of the impact study was
presented at the March 5, 2013 ICD–9–
CM Coordination and Maintenance
Committee meeting. The study found
that moving from an ICD–9–CM-based
system to an ICD–10 MS–DRG
replicated system would lead to DRG
reassignments on only 1 percent of the
10 million MedPAR sample records
used in the study. Ninety-nine percent
of the records did not shift to another
MS–DRG when using an ICD–10 MS–
DRG system. For the 1 percent of the
records that shifted, 45 percent of the
shifts were to a higher-weighted MS–
DRG, while 55 percent of the shifts were
to lower-weighted MS–DRGs. The net
impact across all MS–DRGs was a
reduction by 4/10000 or minus 4
pennies per $100. The updated paper is
posted on the CMS Web site at: http://

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cms.hhs.gov/Medicare/Coding/ICD10/
ICD-10-MS-DRG-ConversionProject.html under the ‘‘Downloads’’
section. Information on the March 5,
2013 ICD–9–CM Coordination and
Maintenance Committee meeting can be
found on the CMS Web site at: http://
cms.hhs.gov/Medicare/Coding/ICD9
ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html. This
update of the impact paper and the ICD–
10 MS–DRG Version 30 software
provided additional information to the
public who were evaluating the
conversion of the MS–DRGs to ICD–10
MS–DRGs.
CMS prepared the ICD–10 MS–DRGs
Version 31 based on the FY 2014 MS–
DRGs (Version 31) that we finalized in
the FY 2014 IPPS/LTCH PPS final rule.
In November 2013, we posted a
Definitions Manual of the ICD–10 MS–
DRGs Version 31 on the ICD–10 MS–
DRG Conversion Project Web site at:
http://www.cms.hhs.gov/Medicare/
Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. We also
prepared a document that described
changes made from Version 30 to
Version 31 to facilitate a review. We
produced mainframe and computer
software for Version 31, which was
made available to the public in
December 2013. Information on ordering
the mainframe and computer software
through NTIS was posted on the CMS
Web site at: http://cms.hhs.gov/
Medicare/Coding/ICD10/ICD-10-MSDRG-Conversion-Project.html under the
‘‘Related Links’’ section. This ICD–10
MS–DRGs Version 31.0 computer
software facilitated additional review of
the ICD–10 MS–DRGs conversion. We
encouraged the public to submit to CMS
any comments on areas where they
believed the ICD–10 MS–DRGs did not
accurately reflect grouping logic found
in the ICD–9–CM MS–DRGs Version 31.
We reviewed public comments
received and developed an update of
ICD–10 MS–DRGs Version 31, which we
called ICD–10 MS–DRGs Version 31–R.
We posted a Definitions Manual of the
ICD–10 MS–DRGs Version 31–R on the
ICD–10 MS–DRG Conversion Project
Web site at: http://www.cms.hhs.gov/
Medicare/Coding/ICD10/ICD-10-MSDRG-Conversion-Project.html. We also
prepared a document that describes
changes made from Version 31 to
Version 31–R to facilitate a review. We
continued to share ICD–10 MS–DRG
conversion activities with the public
through this Web site.
CMS prepared the ICD–10 MS–DRGs
Version 32 based on the FY 2015 MS–
DRGs (Version 32) that we finalized in
the FY 2015 IPPS/LTCH PPS final rule.
In November 2014, we made available a

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Definitions Manual of the ICD–10 MS
DRGs Version 32 on the ICD–10 MS–
DRG Conversion Project Web site at:
http://www.cms.gov/Medicare/Coding/
ICD10/ICD-10-MS-DRG-ConversionProject.html. We also prepared a
document that described changes made
from Version 31–R to Version 32 to
facilitate a review. We produced
mainframe and computer software for
Version 32, which was made available
to the public in January 2015.
Information on ordering the mainframe
and computer software through NTIS
was made available on the CMS Web
site at: http://www.cms.gov/Medicare/
Coding/ICD10/ICD-10-MS-DRGConversion-Project.html under the
‘‘Related Links’’ section. This ICD–10
MS–DRGs Version 32 computer
software facilitated additional review of
the ICD–10 MS–DRGs conversion. We
encouraged the public to submit to CMS
any comments on areas where they
believed the ICD–10 MS–DRGs did not
accurately reflect grouping logic found
in the ICD–9–CM MS–DRGs Version 32.
We discussed five requests from the
public to update the ICD–10 MS–DRGs
Version 32 to better replicate the ICD–
9–CM MS–DRGs in section II.G.3., 4.,
and 5. of the preamble of the FY 2016
IPPS/LTCH PPS final rule. In the FY
2016 IPPS/LTCH PPS proposed rule (80
FR 24351), we proposed to implement
the MS–DRG code logic in the ICD–10
MS–DRGs Version 32 along with any
finalized updates to the ICD–10 MS–
DRGs Version 32 for the final ICD–10
MS–DRGs Version 33. In the proposed
rule, we proposed the ICD–10 MS–DRGs
Version 33 as the replacement logic for
the ICD–9–CM based MS–DRGs Version
32 as part of the proposed MS–DRG
updates for FY 2016. We invited public
comments on how well the ICD–10 MS–
DRGs Version 32 replicated the logic of
the MS–DRGs Version 32 based on ICD–
9–CM codes.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49356 through 49357 and
49363 through 49407), we addressed the
public comments we received on the
replication in the ICD–10 MS–DRGs
Version 32 of the logic of the MS–DRGs
Version 32 based on ICD–9–CM codes.
We refer readers to that final rule for a
discussion of the changes we made in
response to public comments.
b. Basis for Proposed FY 2017 MS–DRG
Updates
CMS encourages input from our
stakeholders concerning the annual
IPPS updates when that input is made
available to us by December 7 of the
year prior to the next annual proposed
rule update. For example, to be
considered for any updates or changes

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
in FY 2017, comments and suggestions
should have been submitted by
December 7, 2015. The comments that
were submitted in a timely manner for
FY 2017 are discussed in this section of
the proposed rule. Interested parties
should submit any comments and
suggestions for FY 2018 by December 7,
2016, via the new CMS MS–DRG
Classification Change Requests Mailbox
located at:
MSDRGClassificationChange@
cms.hhs.gov.
Following are the changes we are
proposing to the MS–DRGs for FY 2017.
We are inviting public comment on each
of the MS–DRG classification proposed
changes described in this rule, as well
as our proposals to maintain certain
existing MS–DRG classifications, which
are also discussed later in this section
of the proposed rule. In some cases, we
are proposing changes to the MS–DRG
classifications based on our analysis of
claims data. In other cases, we are
proposing to maintain the existing MS–
DRG classification based on our analysis
of claims data. For this FY 2017
proposed rule, our MS–DRG analysis is
based on claims data from the December
2015 update of the FY 2015 MedPAR
file, which contains hospital bills
received through September 30, 2015,
for discharges occurring through
September 30, 2015. In our discussion
of the proposed MS–DRG
reclassification changes that follows, we
refer to our analysis of claims data from
the ‘‘December 2015 update of the FY
2015 MedPAR file.’’
As explained in previous rulemaking
(76 FR 51487), in deciding whether to
propose to make further modification to
the MS–DRGs for particular
circumstances brought to our attention,
we consider 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 evaluate patient care costs
using average costs and lengths of stay
and rely on the judgment of our clinical
advisors to decide whether patients are
clinically distinct or similar to other
patients in the MS–DRG. In evaluating
resource costs, we consider both the
absolute and percentage differences in
average costs between the cases we
select for review and the remainder of
cases in the MS–DRG. We also consider
variation in costs within these groups;
that is, whether observed average
differences are consistent across
patients or attributable to cases that are
extreme in terms of costs or length of
stay, or both. Further, we consider the
number of patients who will have a
given set of characteristics and generally

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prefer not to create a new MS–DRG
unless it would include a substantial
number of cases.
In our examination of the claims data,
we apply the following criteria
established in FY 2008 (72 FR 47169) to
determine if the creation of a new
complication or comorbidity (CC) or
major complication or comorbidity
(MCC) subgroup within a base MS–DRG
is warranted:
• 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.
In order to warrant creation of a CC
or MCC subgroup within a base MS–
DRG, the subgroup must meet all five of
the criteria.
We note that some of the issues being
evaluated for the FY 2017 MS–DRGs
update continue to relate to the need for
the ICD–10 MS–DRGs to accurately
replicate the logic of the ICD–9–CM
based version of the MS–DRGs.
Replication is important because both
the logic for the proposed MS–DRGs
and the data source used to calculate
and develop proposed relative payment
weights are based on the same MedPAR
claims data. In other words, as the logic
for the proposed FY 2017 ICD–10 MS–
DRGs is based upon the FY 2015 ICD–
9–CM MedPAR claims data, the data
source used to calculate and develop the
proposed FY 2017 relative payment
weights is also based on the FY 2015
ICD–9–CM MedPAR claims data,
including any proposed MS–DRG
classification changes discussed in this
proposed rule. This is consistent with
how the current FY 2016 relative
payment weights are based on the ICD–
9–CM diagnosis and procedure codes
from the FY 2014 MedPAR claims data
that were grouped through the ICD–9–
CM version of the FY 2016 GROUPER
Version 33. We note that we made the
MS–DRG GROUPER and Medicare Code
Editor (MCE) ICD–9–CM Software
Version 33 available to the public for
use in analyzing ICD–9–CM data to
create relative payment weights using
ICD–9–CM data on our CMS Web site at:
https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/FY2016-IPPS-FinalRule-Home-Page.html?DLSort
=0&DLEntries=10&
DLPage=1&DLSortDir=ascending.
Therefore, as discussed in section II.G.

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of the preamble of this proposed rule,
ICD–9–CM data were used for
computing the proposed FY 2017 MS–
DRG relative payment weights. If the
ICD–9 and ICD–10 versions of MS–
DRGs cease to be replications of each
other, the relative payment weights
computed using the ICD–9 claims data
and MS–DRGs would be inconsistent
with the relative payment weights
assigned for the ICD–10 MS–DRGs,
causing unintended payment
redistributions. Thus, if the findings of
our data analyses and the
recommendations of our clinical
advisors supported modifications to the
current ICD–10 MS–DRG structure,
prior to proposing any changes, we first
evaluated whether the requested change
could be replicated in the ICD–9–CM
MS–DRGs. If the answer was ‘‘yes,’’
from a replication perspective, the
change was considered feasible. If the
answer was ‘‘no,’’ we examined whether
the change in the ICD–10 MS–DRGs was
likely to cause a significant number of
patient cases to change or ‘‘shift’’ ICD–
10 MS–DRGs. If relatively few patient
cases would be impacted, we evaluated
if it would be feasible to propose the
change even though it could not be
replicated by the ICD–9 MS–DRGs
because it would not cause a material
payment redistribution. For the ICD–10
MS–DRG classification change requests
that could not be replicated in ICD–9–
CM and that would cause a significant
number of patient cases to shift MS–
DRG assignment, we considered other
alternatives.
2. Pre-Major Diagnostic Category (PreMDC): Total Artificial Heart
Replacement
An ICD–10 MS–DRG replication issue
regarding the assignment of two ICD–
10–PCS procedure codes was identified
after the October 1, 2015
implementation of the Version 33 ICD–
10 MS–DRGs. ICD–10–PCS procedure
codes 02RK0JZ (Replacement of right
ventricle with synthetic substitute, open
approach) and 02RL0JZ (Replacement of
left ventricle with synthetic substitute,
open approach), when reported
together, describe a biventricular heart
replacement (artificial heart). Under the
Version 32 ICD–9–CM based MS–DRGs,
this procedure was described by ICD–9–
CM procedure code 37.52 (Implantation
of total internal biventricular heart
replacement system) and grouped to
MS–DRGs 001 and 002 (Heart
Transplant or Implant of Heart Assist
System with and without MCC,
respectively).
As discussed in section II.F.1.a. of the
preamble of this proposed rule, to assist
in the conversion from the ICD–9–CM

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based MS–DRGs to ICD–10, beginning
in FY 2011, draft versions of the ICD–
10 based MS–DRGs were developed and
made available for public comment. The
two ICD–10–PCS procedure codes
(02RK0JZ and 02RL0JZ) were assigned
as a ‘‘cluster’’ to the draft ICD–10 based
MS–DRGs 001 and 002 in prior draft
versions of the ICD–10 MS–DRGs. In
ICD–10–PCS, a cluster is the term used
to describe when a combination of ICD–
10–PCS procedure codes are needed to
fully satisfy the equivalent meaning of
an ICD–9–CM procedure code for it to
be considered a plausible translation.
Upon review of prior draft versions of
the ICD–10 MS–DRGs, it was
determined that Version 30 was the last
version to include ICD–10–PCS
procedure codes 02RK0JZ and 02RL0JZ
as a code cluster (from ICD–9–CM
procedure code 37.52) that grouped to
the draft ICD–10 based MS–DRGs 001
and 002. Subsequent draft versions of
the ICD–10 MS–DRGs inadvertently
omitted this code cluster from those
MS–DRGs.
Therefore, for FY 2017, we are
proposing to assign ICD–10–PCS
procedure codes 02RK0JZ and 02RL0JZ
as a code cluster to ICD–10 Version 34
MS–DRGs 001 and 002 (Heart
Transplant or Implant of Heart Assist
System with and without MCC,

respectively) to accurately replicate the
Version 32 ICD–9–CM based MS–DRG
logic of procedure code 37.52. We are
inviting public comments on our
proposal.
3. MDC 1 (Diseases and Disorders of the
Nervous System)
a. Endovascular Embolization (Coiling)
or Occlusion of Head and Neck
Procedures
We received a repeat request to
change the MS–DRG assignment for
procedure codes describing
endovascular embolization (coiling) or
occlusion of the head and neck. This
topic was discussed in the FY 2015
IPPS/LTCH PPS proposed rule (79 FR
28005 through 28007); the FY 2015
IPPS/LTCH PPS final rule (79 FR 49883
through 49886); the FY 2016 IPPS/LTCH
PPS proposed rule (80 FR 24351
through 24356); and the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49358
through 49363). For these 2 fiscal years,
we did not change the MS–DRG
assignment for procedure codes
describing endovascular embolization
(coiling) or occlusion of the head and
neck for the reasons discussed in these
proposed and final rules.
For FY 2017, the requestor again
asked that CMS change the MS–DRG
assignment for procedure codes

describing endovascular embolization or
occlusion of the head and neck as well
as several other codes describing
endovascular procedures of the head
and neck.
The ICD–10–PCS procedure codes
listed in the following table capture
endovascular embolization or occlusion
of the head and neck procedures that are
assigned to the following MS–DRGs in
ICD–10 Version 33 MS–DRGs: MS–DRG
020 (Intracranial Vascular Procedures
with Principal Diagnosis of Hemorrhage
with MCC); MS–DRG 021 (Intracranial
Vascular Procedures with Principal
Diagnosis of Hemorrhage with CC); MS–
DRG 022 (Intracranial Vascular
Procedures with Principal Diagnosis of
Hemorrhage without CC/MCC); MS–
DRG 023 (Craniotomy with Major
Device Implant/Acute Complex CNS
Principal Diagnosis with MCC or Chemo
Implant); MS–DRG 024 (Craniotomy
with Major Device Implant/Acute
Complex CNS Principal Diagnosis
without MCC); 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):

ICD–10–PCS CODES FOR ENDOVASCULAR EMBOLIZATION OR OCCLUSION OF THE HEAD AND NECK PROCEDURES
ASSIGNED TO MS–DRGS 020 THROUGH 027 IN ICD–10 MS–DRGS VERSION 33

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ICD–10–PCS
code

Code description

03LG3BZ ..........
03LG3DZ ..........
03LG4BZ ..........
03LG4DZ ..........
03LH3BZ ..........
03LH3DZ ..........
03LH4BZ ..........
03LH4DZ ..........
03LJ3BZ ...........
03LJ3DZ ...........
03LJ4BZ ...........
03LJ4DZ ...........
03LK3BZ ...........
03LK3DZ ..........
03LK4BZ ...........
03LK4DZ ..........
03LL3BZ ...........
03LL3DZ ...........
03LL4BZ ...........
03LL4DZ ...........
03LM3BZ ..........
03LM3DZ ..........
03LM4BZ ..........
03LM4DZ ..........
03LN3BZ ..........
03LN3DZ ..........
03LN4BZ ..........
03LN4DZ ..........
03LP3BZ ...........
03LP3DZ ..........
03LP4BZ ...........

VerDate Sep<11>2014

Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion
Occlusion

of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of

18:46 Apr 26, 2016

intracranial artery with bioactive intraluminal device, percutaneous approach.
intracranial artery with intraluminal device, percutaneous approach.
intracranial artery with bioactive intraluminal device, percutaneous endoscopic approach.
intracranial artery with intraluminal device, percutaneous endoscopic approach.
right common carotid artery with bioactive intraluminal device, percutaneous approach.
right common carotid artery with intraluminal device, percutaneous approach.
right common carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
right common carotid artery with intraluminal device, percutaneous endoscopic approach.
left common carotid artery with bioactive intraluminal device, percutaneous approach.
left common carotid artery with intraluminal device, percutaneous approach.
left common carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
left common carotid artery with intraluminal device, percutaneous endoscopic approach.
right internal carotid artery with bioactive intraluminal device, percutaneous approach.
right internal carotid artery with intraluminal device, percutaneous approach.
right internal carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
right internal carotid artery with intraluminal device, percutaneous endoscopic approach.
left internal carotid artery with bioactive intraluminal device, percutaneous approach.
left internal carotid artery with intraluminal device, percutaneous approach.
left internal carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
left internal carotid artery with intraluminal device, percutaneous endoscopic approach.
right external carotid artery with bioactive intraluminal device, percutaneous approach.
right external carotid artery with intraluminal device, percutaneous approach.
right external carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
right external carotid artery with intraluminal device, percutaneous endoscopic approach.
left external carotid artery with bioactive intraluminal device, percutaneous approach.
left external carotid artery with intraluminal device, percutaneous approach.
left external carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
left external carotid artery with intraluminal device, percutaneous endoscopic approach.
right vertebral artery with bioactive intraluminal device, percutaneous approach.
right vertebral artery with intraluminal device, percutaneous approach.
right vertebral artery with bioactive intraluminal device, percutaneous endoscopic approach.

Jkt 238001

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27APP2

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

24973

ICD–10–PCS CODES FOR ENDOVASCULAR EMBOLIZATION OR OCCLUSION OF THE HEAD AND NECK PROCEDURES
ASSIGNED TO MS–DRGS 020 THROUGH 027 IN ICD–10 MS–DRGS VERSION 33—Continued
ICD–10–PCS
code

Code description

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

03LP4DZ ..........
03LQ3BZ ..........
03LQ3DZ ..........
03LQ4BZ ..........
03LQ4DZ ..........
03LR3DZ ..........
03LR4DZ ..........
03LS3DZ ..........
03LS4DZ ..........
03LT3DZ ...........
03LT4DZ ...........
03VG3BZ ..........
03VG3DZ ..........
03VG4BZ ..........
03VG4DZ ..........
03VH3BZ ..........
03VH3DZ ..........
03VH4BZ ..........
03VH4DZ ..........
03VJ3BZ ...........
03VJ3DZ ...........
03VJ4BZ ...........
03VJ4DZ ...........
03VK3BZ ..........
03VK3DZ ..........
03VK4BZ ..........
03VK4DZ ..........
03VL3BZ ...........
03VL3DZ ..........
03VL4BZ ...........
03VL4DZ ..........
03VM3BZ ..........
03VM3DZ .........
03VM4BZ ..........
03VM4DZ .........
03VN3BZ ..........
03VN3DZ ..........
03VN4BZ ..........
03VN4DZ ..........
03VP3BZ ..........
03VP3DZ ..........
03VP4BZ ..........
03VP4DZ ..........
03VQ3BZ ..........
03VQ3DZ ..........
03VQ4BZ ..........
03VQ4DZ ..........
03VR3DZ ..........
03VR4DZ ..........
03VS3DZ ..........
03VS4DZ ..........
03VT3DZ ..........
03VT4DZ ..........
03VU3DZ ..........
03VU4DZ ..........
03VV3DZ ..........
03VV4DZ ..........

Occlusion of right vertebral artery with intraluminal device, percutaneous endoscopic approach.
Occlusion of left vertebral artery with bioactive intraluminal device, percutaneous approach.
Occlusion of left vertebral artery with intraluminal device, percutaneous approach.
Occlusion of left vertebral artery with bioactive intraluminal device, percutaneous endoscopic approach.
Occlusion of left vertebral artery with intraluminal device, percutaneous endoscopic approach.
Occlusion of face artery with intraluminal device, percutaneous approach.
Occlusion of face artery with intraluminal device, percutaneous endoscopic approach.
Occlusion of right temporal artery with intraluminal device, percutaneous approach.
Occlusion of right temporal artery with intraluminal device, percutaneous endoscopic approach.
Occlusion of left temporal artery with intraluminal device, percutaneous approach.
Occlusion of left temporal artery with intraluminal device, percutaneous endoscopic approach.
Restriction of intracranial artery with bioactive intraluminal device, percutaneous approach.
Restriction of intracranial artery with intraluminal device, percutaneous approach.
Restriction of intracranial artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of intracranial artery with intraluminal device, percutaneous endoscopic approach.
Restriction of right common carotid artery with bioactive intraluminal device, percutaneous approach.
Restriction of right common carotid artery with intraluminal device, percutaneous approach.
Restriction of right common carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of right common carotid artery with intraluminal device, percutaneous endoscopic approach.
Restriction of left common carotid artery with bioactive intraluminal device, percutaneous approach.
Restriction of left common carotid artery with intraluminal device, percutaneous approach.
Restriction of left common carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of left common carotid artery with intraluminal device, percutaneous endoscopic approach.
Restriction of right internal carotid artery with bioactive intraluminal device, percutaneous approach.
Restriction of right internal carotid artery with intraluminal device, percutaneous approach.
Restriction of right internal carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of right internal carotid artery with intraluminal device, percutaneous endoscopic approach.
Restriction of left internal carotid artery with bioactive intraluminal device, percutaneous approach.
Restriction of left internal carotid artery with intraluminal device, percutaneous approach.
Restriction of left internal carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of left internal carotid artery with intraluminal device, percutaneous endoscopic approach.
Restriction of right external carotid artery with bioactive intraluminal device, percutaneous approach.
Restriction of right external carotid artery with intraluminal device, percutaneous approach.
Restriction of right external carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of right external carotid artery with intraluminal device, percutaneous endoscopic approach.
Restriction of left external carotid artery with bioactive intraluminal device, percutaneous approach.
Restriction of left external carotid artery with intraluminal device, percutaneous approach.
Restriction of left external carotid artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of left external carotid artery with intraluminal device, percutaneous endoscopic approach.
Restriction of right vertebral artery with bioactive intraluminal device, percutaneous approach.
Restriction of right vertebral artery with intraluminal device, percutaneous approach.
Restriction of right vertebral artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of right vertebral artery with intraluminal device, percutaneous endoscopic approach.
Restriction of left vertebral artery with bioactive intraluminal device, percutaneous approach.
Restriction of left vertebral artery with intraluminal device, percutaneous approach.
Restriction of left vertebral artery with bioactive intraluminal device, percutaneous endoscopic approach.
Restriction of left vertebral artery with intraluminal device, percutaneous endoscopic approach.
Restriction of face artery with intraluminal device, percutaneous approach.
Restriction of face artery with intraluminal device, percutaneous endoscopic approach.
Restriction of right temporal artery with intraluminal device, percutaneous approach.
Restriction of right temporal artery with intraluminal device, percutaneous endoscopic approach.
Restriction of left temporal artery with intraluminal device, percutaneous approach.
Restriction of left temporal artery with intraluminal device, percutaneous endoscopic approach.
Restriction of right thyroid artery with intraluminal device, percutaneous approach.
Restriction of right thyroid artery with intraluminal device, percutaneous endoscopic approach.
Restriction of left thyroid artery with intraluminal device, percutaneous approach.
Restriction of left thyroid artery with intraluminal device, percutaneous endoscopic approach.

Cases reporting any of the ICD–10–
PCS procedures codes listed in the table
above that are assigned to MS–DRGs
020, 021, and 022 under MDC 1 require
a principal diagnosis of hemorrhage.
Cases reporting any of the ICD–10–PCS
procedure codes listed in the table
above that are assigned to MS–DRGs 023

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18:46 Apr 26, 2016

Jkt 238001

and 024 require the insertion of a major
implant or an acute complex central
nervous system (CNS) principal
diagnosis. Cases reporting any of the
ICD–10–PCS procedure codes listed in
the table above that are assigned to MS–
DRGs 025, 026, and 027 do not have a
principal diagnosis of hemorrhage, an

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acute complex CNS principal diagnosis,
or a major device implant.
The requestor expressed concerns
about the appropriateness of the MS–
DRG assignment for the endovascular
embolization or occlusion of head and
neck procedures. The requestor stated
that past data demonstrated that the cost
of cases involving endovascular coils

E:\FR\FM\27APP2.SGM

27APP2

24974

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

exceeds the average cost of all cases
within each of the MS–DRGs to which
these procedures are assigned. The
requestor pointed out that these
procedures were formerly captured by
the following ICD–9–CM codes that
were assigned to MS–DRGs 020 through
027:
• 39.72 (Endovascular (total)
embolization or occlusion of head and
neck vessels);
• 39.75 (Endovascular embolization
or occlusion of vessel(s) of head or neck
using bare coils); and
• 39.76 (Endovascular embolization
or occlusion of vessel(s) of head or neck
using bioactive coils).

The commenter also expressed
concern about the appropriateness of
the current ICD–10 MS–DRG assignment
of the following ICD–9–CM codes that
describe other endovascular procedures
of head and neck that were previously
assigned to MS–DRGs 023 through 027
in the ICD–9–CM MS–DRGs Version 32.
The commenter stated that these
procedures are more clinically complex
than other procedures assigned to these
MS–DRGs.
• 00.62 (Percutaneous angioplasty of
intracranial vessels(s));
• 39.74 (Endovascular removal of
obstruction from head and neck
vessel(s)); and

• 39.79 (Other endovascular
procedures on other vessels).
We examined claims data from the
December 2015 update of the FY 2015
MedPAR file for the endovascular
embolization or occlusion of the head
and neck procedures or other
endovascular procedures reported under
ICD–9–CM procedure codes 00.62,
39.72, 39.74, 39.75, 39.76, and 39.79 in
MS–DRGs 020 through 027. The table
below shows our findings.

ENDOVASCULAR EMBOLIZATION OR OCCLUSION OF THE HEAD AND NECK PROCEDURES AND OTHER ENDOVASCULAR
PROCEDURES
Number of
cases

MS–DRG

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

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

020—All cases ............................................................................................................
020—Cases with procedure code 00.62, 39.72, 39.74, 39.75, 39.76, or 39.79 ........
021—All cases ............................................................................................................
021—Cases with procedure code 00.62, 39.72, 39.74, 39.75, 39.76, or 39.79 ........
022—All cases ............................................................................................................
022—Cases with procedure code 00.62, 39.72, 39.74, 39.75, 39.76, or 39.79 ........
023—All cases ............................................................................................................
023—Cases with procedure code 00.62, 39.72, 39.74, 39.75, 39.76, or 39.79 ........
024—All cases ............................................................................................................
024—Cases with procedure code 00.62, 39.72, 39.74, 39.75, 39.76, or 39.79 ........
025—All cases ............................................................................................................
025—Cases with procedure code 00.62, 39.72, 39.74, 39.75, 39.76 or 39.79 .........
026—All cases ............................................................................................................
026—Cases with procedure code 00.62, 39.72, 39.74, 39.75, 39.76, or 39.79 ........
027—All cases ............................................................................................................
027—Cases with procedure code 00.62, 39.72, 39.74, 39.75, 39.76 or 39.79 .........

As can be seen from the table, most
of the cases of endovascular
embolization or occlusion of the head
and neck procedures and other
endovascular procedures reported with
procedure codes 00.62, 39.72, 39.74,
39.75, 39.76, and 39.79 occur in MS–
DRGs 023, 024, and 027. There were
2,183 of these procedure cases reported
in MS–DRG 023 with an average length
of stay of 8.57 days and average costs of
$38,935, compared to an average length
of stay of 10.63 days and average costs
of $38, 204 for all 6,360 cases reported
in MS–DRG 023. There were 1,402 of
these cases reported in MS–DRG 024
with an average length of stay of 5.46
days and average costs of $28,543,
compared to an average length of stay of
5.52 days and average costs of $28,270
for all 2,376 cases reported in MS–DRG
024. There were 1,847 of these cases
reported in MS–DRG 027 with an
average length of stay of 1.62 days and
average costs of $22,845, compared to
an average length of stay of 2.99 days
and average costs of $17,158 for all

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18:46 Apr 26, 2016

Jkt 238001

9,628 cases reported in MS–DRG 027.
The average costs for endovascular
embolization or occlusion of the head
and neck procedures and other
endovascular procedures cases reported
in MS–DRGs 023 and 024 are not
significantly different from the average
costs for all cases reported in MS–DRGs
023 and 024. The average costs for
endovascular embolization or occlusion
of the head and neck procedures and
other endovascular procedures cases
reported in MS–DRG 027 are higher
($22,845) than the average costs of all
cases reported in MS–DRG 027
($17,158). However, average costs are
not significantly different for the
endovascular embolization or occlusion
of the head and neck procedures and
other endovascular procedures cases
reported in MS–DRG 020 ($72,357)
compared to the average costs for all
cases ($70,716) reported in MS–DRS
020; for the endovascular embolization
or occlusion of the head and neck
procedures and other endovascular
procedures cases reported in MS–DRG

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Sfmt 4702

1,213
895
350
272
84
63
6,360
2,183
2,376
1,402
17,756
671
7,630
825
9,628
1,847

Average
length of
stay
16.44
16.15
13.74
13.21
7.83
7.27
10.63
8.57
5.52
5.46
9.19
9.20
5.80
3.11
2.99
1.62

Average costs
$70,716
72,357
53,289
53,478
33,598
33,606
38,204
38,935
28,270
28,543
29,657
47,579
21,441
27,429
17,158
22,845

021 ($53,478) compared to the average
costs for all cases ($53,289) reported in
MS–DRG 021; and for the endovascular
embolization or occlusion of the head
and neck procedures and other
endovascular procedures cases reported
in MS–DRG 022 ($33,606) compared to
the average costs for all cases ($33,598)
reported in MS–DRG 022.
Average costs were higher for the 671
endovascular embolization or occlusion
of the head and neck procedures and
other endovascular procedures cases
reported in MS–DRG 025 ($47,579)
compared to the average costs for all
17,756 cases ($29,657) reported in MS–
DRG 025. The average costs also were
higher for the 825 endovascular
embolization or occlusion of the head
and neck procedures and other
endovascular procedures cases reported
in MS–DRG 26 ($27,429) compared to
the average costs for all 7,630 cases
($21,441) reported in MS–DRG 26.
Given that average costs are similar for
most endovascular embolization or
occlusion of the head and neck

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
procedures and other endovascular
procedures cases reported in MS–DRGs
020, 021, 022, 023, 024, 025, 026, and
027, we do not believe that all
endovascular embolization or occlusion
of the head and neck procedures and

other endovascular procedures should
be reassigned from these eight MS–
DRGs.
We also examined the average costs
for each specific ICD–9–CM code
compared to the average costs of all

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

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
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
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

cases within each of the eight MS–
DRGs. The following table shows our
findings.

Number of
cases

MS–DRG
020—All cases ............................................................................................................
020—Cases with code 00.62 ......................................................................................
020—Cases with code 39.72 ......................................................................................
020—Cases with code 39.74 ......................................................................................
020—Cases with code 39.75 ......................................................................................
020—Cases with code 39.76 ......................................................................................
020—Cases with code 39.79 ......................................................................................
021—All cases ............................................................................................................
021—Cases with code 00.62 ......................................................................................
021—Cases with code 39.72 ......................................................................................
021—Cases with code 39.74 ......................................................................................
021—Cases with code 39.75 ......................................................................................
021—Cases with code 39.76 ......................................................................................
021—Cases with code 39.79 ......................................................................................
022—All cases ............................................................................................................
022—Cases with code 00.62 ......................................................................................
022—Cases with code 39.72 ......................................................................................
022—Cases with code 39.74 ......................................................................................
022—Cases with code 39.75 ......................................................................................
022—Cases with code 39.76 ......................................................................................
022—Cases with code 39.79 ......................................................................................
023—All cases ............................................................................................................
023—Cases with code 00.62 ......................................................................................
023—Cases with code 39.72 ......................................................................................
023—Cases with code 39.74 ......................................................................................
023—Cases with code 39.75 ......................................................................................
023—Cases with code 39.76 ......................................................................................
023—Cases with code 39.79 ......................................................................................
024—All cases ............................................................................................................
024—Cases with code 00.62 ......................................................................................
024—Cases with code 39.72 ......................................................................................
024—Cases with code 39.74 ......................................................................................
024—Cases with code 39.75 ......................................................................................
024—Cases with code 39.76 ......................................................................................
024—Cases with code 39.79 ......................................................................................
025—All cases ............................................................................................................
025—Cases with code 00.62 ......................................................................................
025—Cases with code 39.72 ......................................................................................
025—Cases with code 39.74 ......................................................................................
025—Cases with code 39.75 ......................................................................................
025—Cases with code 39.76 ......................................................................................
025—Cases with code 39.79 ......................................................................................
026—All cases ............................................................................................................
026—Cases with code 00.62 ......................................................................................
026—Cases with code 39.72 ......................................................................................
026—Cases with code 39.74 ......................................................................................
026—Cases with code 39.75 ......................................................................................
026—Cases with code 39.76 ......................................................................................
026—Cases with code 39.79 ......................................................................................
027—All cases ............................................................................................................
027—Cases with code 00.62 ......................................................................................
027—Cases with code 39.72 ......................................................................................
027—Cases with code 39.74 ......................................................................................
027—Cases with code 39.75 ......................................................................................
027—Cases with code 39.76 ......................................................................................
027—Cases with code 39.79 ......................................................................................

As can be seen from the table above,
there are a large number of cases
reporting procedure code 39.74 in MS–
DRGs 023 and 024. There were 2,016
cases that reported procedure code

VerDate Sep<11>2014

18:46 Apr 26, 2016

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39.74 in MS–DRG 023 compared to
6,360 total cases reported in the MS–
DRG. The cases that reported procedure
code 39.74 in MS–DRG 023 had an
average length of stay of 8.30 days and

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Fmt 4701

Sfmt 4702

24975

1,213
11
422
9
424
39
25
350
1
130
1
133
7
3
84
0
40
0
21
3
0
6,360
67
56
2,016
20
3
71
2,376
76
31
1,284
8
2
27
17,756
17
380
55
139
25
82
7,630
31
481
16
253
31
45
9,628
61
1,159
13
580
61
30

Average
length of
stay
16.44
16.09
16.31
16.78
15.79
18.26
16.64
13.74
11.00
13.12
11.00
13.46
10.57
12.00
7.83
0
6.43
0
8.81
10.00
0
10.63
9.30
11.14
8.30
12.65
23.00
13.08
5.52
6.74
6.35
5.35
6.50
1.50
6.74
9.19
5.88
9.46
9.87
8.94
5.84
11.04
5.80
3.48
3.00
4.69
2.77
3.32
5.42
2.99
2.23
1.58
1.62
1.63
1.74
1.53

Average
costs
$70,716
95,422
74,951
71,478
69,081
71,630
73,043
53,289
75,492
54,715
75,492
52,819
48,749
40,458
33,598
0
32,598
0
32,690
62,417
0
38,204
43,741
52,589
38,047
53,837
84,947
50,720
28,270
32,415
29,977
28,268
50,333
19,567
28,019
29,657
29,036
51,082
45,895
52,188
38,654
39,839
21,441
25,611
27,180
27,519
26,863
27,891
37,410
17,158
21,337
22,893
69,081
23,296
27,403
17,740

average costs of $38,047, compared to
an average length of stay of 10.63 days
and average costs of $38,204 for all
cases reported in MS–DRG 023. There
were 1,284 cases that reported

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27APP2

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

24976

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

procedure code 39.74 in MS–DRG 024
compared to 2,376 total cases reported
in MS–DRG 024. The cases that reported
procedure code 39.74 in MS–DRG 024
had an average length of stay of 5.35
days and average costs of $28,268,
compared to an average length of stay of
5.52 days and average costs of $28,270
for all cases reported in MS–DRG 024.
The average length of stay and average
costs for cases that reported procedure
code 39.74 are very similar to the
average length of stay and average costs
for all cases reported in MS–DRGs 023
and 024. The only other group of
endovascular embolization or occlusion
of the head and neck procedures and
other endovascular procedures cases
that exceeded 1,000 in number was
reported in MS–DRG 027. There were
1,159 cases that reported procedure
code 39.72 in MS–DRG 027, compared
to 9,628 total cases reported in MS–DRG
027. The cases that reported procedure
code 39.72 in MS–DRG 027 had an
average length of stay of 1.58 days and
average costs of $22,893, compared to
an average length of stay of 2.99 days
and average costs of $17,158 for all
cases reported in MS–DRG 027. In other
words, the cases that reported procedure
code 39.72 in MS–DRG 027 had a
shorter average length of stay and
average costs that were $5,735 higher
than the average costs for all cases
reported in MS–DRG 027. The cases that
reported procedure code 39.72 in MS–
DRG 020 had a shorter average length of
stay and average costs that were $4,235
higher than the average costs for all
cases reported in MS–DRG 020.
However, the average costs for the cases
that reported procedure code 39.72 in
MS–DRGs 021, 022, and 024 were close
to the average costs for all cases
reported in the three MS–DRGs ($54,715
compared to $53,289 in MS–DRG 021;
$32,598 compared to $33,598 in MS–
DRG 022; and $29,997 compared to
$28,270 in MS–DRG 024).
Our clinical advisors reviewed this
issue and advised us that the
endovascular embolization or occlusion
of head and neck procedures and other
endovascular procedures currently are
appropriately assigned to MS–DRGs 020
through 027. They did not support
reassigning these procedures from MS–
DRGs 020 through 027 to another MS–
DRG or creating a new MS–DRG for
these procedures. Our clinical advisors
stated that these procedures are all
clinically similar to other procedures in
these MS–DRGs. In addition, they stated
that the surgical techniques are all
designed to correct the same clinical
problem and advised us against

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reassigning the procedures from MS–
DRGs 020 through 027.
Based on the findings from our data
analyses and the recommendations from
our clinical advisors, we are not
proposing to reassign the cited
endovascular embolization or occlusion
of head and neck procedures and other
endovascular procedures from MS–
DRGs 020 through 027 to another MS–
DRG or to create a new MS–DRG for
these procedures for FY 2017. We are
inviting public comments on our
proposal to maintain the current MS–
DRG assignments of these procedures in
MS–DRGs 020 through 027.
b. Mechanical Complication Codes
We received a request to reassign the
following four ICD–10–CM diagnosis
codes from MDC 21 (Injuries,
Poisonings and Toxic Effects of Drugs)
under MS–DRGs 919, 920, and 921
(Complications of Treatment with MCC,
with CC, and without CC/MCC,
respectively) to MDC 1 (Diseases and
Disorders of the Nervous System) under
MS–DRGs 091, 092, and 093 (Other
Disorders of the Nervous System with
MCC, with CC, and without CC/MCC,
respectively):
• T85.610A (Breakdown (mechanical)
of epidural and subdural infusion
catheter, initial encounter);
• T85.620A (Displacement of
epidural and subdural infusion catheter,
initial encounter);
• T85.630A (Leakage of epidural and
subdural infusion catheter, initial
encounter); and
• T85.690A (Other mechanical
complication of epidural and subdural
infusion catheter, initial encounter).
The requestor stated that these ICD–
10–CM diagnosis code titles clearly
describe mechanical complications of
nervous system devices, implants, or
grafts and are unquestionably nervous
system codes. Therefore, the requestor
recommended that these diagnosis
codes be reassigned to MDC 1 under
MS–DRGs 091, 092, and 093.
We examined ICD–10–CM diagnosis
codes T85.610A, T85.620A, T85.630A,
and T85.690A that are currently
assigned to MDC 21 under MS–DRGs
919, 920, and 921. We note that the
predecessor ICD–9–CM diagnosis code
for these four ICD–10–CM diagnosis
codes was diagnosis code 996.59
(Mechanical complication due to other
implant and internal device, not
elsewhere classified), which also was
assigned to MDC 21 under MS–DRGs
919, 920, and 921. ICD–9–CM diagnosis
code 996.59 did not describe the
location of the device. However, ICD–
10–CM diagnosis codes T85.610A,
T85.620A, T85.630A, and T85.690A

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Sfmt 4702

provide additional detail that describes
the location of the mechanical
complication as being within the
nervous system.
Based on the results of our
examination, we agree with the
requestor that ICD–10–CM diagnosis
codes T85.610A, T85.620A, T85.630A,
and T85.690A describe conditions
occurring within the nervous system.
Within the ICD–9–CM MS–DRGs, codes
describing nervous system disorders
were assigned to MDC 1. The prior ICD–
9–CM codes for mechanical
complications did not indicate the type
of complication and therefore could not
be assigned to a specific MDC.
Therefore, the nonspecific complication
codes were assigned to MDC 21. These
new ICD–10–CM diagnosis codes
describe concepts not previously
captured by the ICD–9–CM codes and
capture nervous system conditions.
Therefore, ICD–10–CM diagnosis codes
T85.610A, T85.620A, T85.630A, and
T85.690A should be reassigned from
MDC 21 under MS–DRGs 919, 920, and
921 to MDC 1 under MS–DRGs 091, 092,
and 093. Our clinical advisors reviewed
this issue and also agree that the four
ICD–10–CM diagnosis codes describe
conditions occurring within the nervous
system and therefore should be
reassigned from MDC 21 to MDC 1.
Based on the results of our analysis and
the recommendations of our clinical
advisors, we are proposing to reassign
ICD–10–CM diagnosis codes T85.610A,
T85.620A, T85.630A, and T85.690A
from MDC 21 under MS–DRGs 919, 920,
and 921 to MDC 1 under MS–DRGs 091,
092, and 093.
We are inviting public comments on
our proposal.
4. MDC 4 (Diseases and Disorders of the
Ear, Nose, Mouth and Throat)
a. Proposed Reassignment of Diagnosis
Code R22.2 (Localized Swelling, Mass
and Lump, Trunk)
We received a request to reassign
ICD–10–CM diagnosis code R22.2
(Localized swelling, mass and lump,
trunk) from MDC 4 (Diseases and
Disorders of the Respiratory System) to
MDC 9 (Diseases and Disorders of the
Skin, Subcutaneous Tissue and Breast).
The requestor stated that this code is
used to capture a buttock mass. The
requestor pointed out that the ICD–10–
CM index for localized swelling and
localized mass directs the coder to
diagnosis code R22.2 for both the chest
and the trunk as sites.
We reviewed this issue and note that
diagnosis code R22.2 is included in a
category of ICD–10–CM codes
describing symptoms and signs

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
involving the skin and subcutaneous
tissue (categories R20 through R23).
Diagnosis code R22.2 is clearly
designated within the ICD–10 coding
system as a code that describes a
condition of the skin and subcutaneous
tissue. Therefore, we agree with the
requester that ICD–10–CM diagnosis
code R22.2 should be reassigned from
MDC 4 to MDC 9. One of the
predecessor ICD–9–CM codes for ICD–
10–CM diagnosis code R22.2 was
diagnosis code 782.2 (Localized
superficial swelling, mass, or lump),
which is assigned to MS–DRG 606 and
607 (Minor Skin Disorders with and
without MCC, respectively). Our clinical
advisors reviewed this issue and agree
that ICD–10–CM diagnosis code R22.2
captures a skin diagnosis. Therefore, for

FY 2017, we are proposing to reassign
ICD–10–CM diagnosis code R22.2 from
MDC 4 to MDC 9 under MS–DRGs 606
and 607 (Minor Skin Disorders with and
without MCC, respectively).
We are inviting public comments on
our proposal to reassign ICD–10–CM
diagnosis code R22.2 from MDC 4 to
MDC 9 under MS–DRGs 606 and 607.
b. Pulmonary Embolism With tPA or
Other Thrombolytic Therapy
We received a request to create a new
MS–DRG or to reassign cases with a
principal diagnosis of pulmonary
embolism where tPA or other
thrombolytic therapy was administered
from MS–DRGs 175 and 176 (Pulmonary
Embolism with and without MCC,
respectively) to a higher paying MS–

ICD–10–CM
diagnosis code
I26.01
I26.02
I26.09
I26.90
I26.92
I26.99

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

24977

DRG. The requestor suggested that CMS
review cases reporting the following
ICD–9–CM diagnosis codes describing
pulmonary embolism: 415.11 (Iatrogenic
pulmonary embolism and infarction),
415.12 (Septic pulmonary embolism),
415.13 (Saddle embolus of pulmonary
artery), and 415.19 (Other pulmonary
embolism and infarction), when
reported in combination with ICD–9–
CM procedure code 99.10 (Injection or
infusion of thrombolytic agent), to
identify that thrombolytic therapy was
administered.
The comparable ICD–10–CM
diagnosis code translations for the ICD–
9–CM pulmonary embolism diagnosis
codes to which the requestor cited
consist of the following:

Description
Septic pulmonary embolism with acute cor pulmonale.
Saddle embolus of pulmonary artery with acute cor pulmonale.
Other pulmonary embolism with acute cor pulmonale.
Septic pulmonary embolism without acute cor pulmonale.
Saddle embolus of pulmonary artery without acute cor pulmonale.
Other pulmonary embolism without acute cor pulmonale.

Thrombolytic therapy is identified
with the following ICD–10–PCS
procedure codes:
ICD–10–PCS
procedure code

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

3E03017
3E03317
3E04017
3E04317
3E05017
3E05317
3E06017
3E06317

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

Description
Introduction
Introduction
Introduction
Introduction
Introduction
Introduction
Introduction
Introduction

of
of
of
of
of
of
of
of

other
other
other
other
other
other
other
other

thrombolytic
thrombolytic
thrombolytic
thrombolytic
thrombolytic
thrombolytic
thrombolytic
thrombolytic

A pulmonary embolism is an
obstruction of pulmonary vasculature
most commonly caused by a venous
thrombus, and less commonly by fat or
tumor tissue or air bubbles or both. Risk
factors for a pulmonary embolism
include prolonged immobilization from
any cause, obesity, cancer, fractured hip
or leg, use of certain medications such
as oral contraceptives, presence of
certain medical conditions such as heart
failure, sickle cell anemia, or certain

into
into
into
into
into
into
into
into

peripheral vein, open approach.
peripheral vein, percutaneous approach.
central vein, open approach.
central vein, percutaneous approach.
peripheral artery, open approach.
peripheral artery, percutaneous approach.
central artery, open approach.
central artery, percutaneous approach.

congenital heart defects. Common
symptoms of pulmonary embolism
include shortness of breath with or
without chest pain, tachycardia,
hemoptysis, low grade fever, pleural
effusion, and depending on the etiology
of the embolus, might include lower
extremity pain or swelling, syncope,
jugular venous distention, and finally a
pulmonary embolus could be
asymptomatic.

We examined the claims data from the
December 2015 update of the FY 2015
MedPAR file for ICD–9–CM MS–DRGs
175 and 176 for cases with a principal
diagnosis of pulmonary embolism
where tPA or other thrombolytic
therapy (procedure code 99.10) was
administered and cases of a principal
diagnosis of pulmonary embolism
where no tPA or other thrombolytic
therapy was administered. Our findings
are shown in the table below.

PRINCIPAL DIAGNOSIS OF PULMONARY EMBOLISM WITH AND WITHOUT TPA OR OTHER THROMBOLYTIC THERAPY
ADMINISTERED
Number of
cases

MS–DRG
MS–DRG 175—All MCC cases ...................................................................................................

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E:\FR\FM\27APP2.SGM

19,274

27APP2

Average
length of
stay
5.76

Average
costs
$10,479

24978

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

PRINCIPAL DIAGNOSIS OF PULMONARY EMBOLISM WITH AND WITHOUT TPA OR OTHER THROMBOLYTIC THERAPY
ADMINISTERED—Continued
Number of
cases

MS–DRG
MS–DRG 175—MCC cases with principal diagnosis of pulmonary embolism with tPA or other
thrombolytic therapy administered ...........................................................................................
MS–DRG 175—MCC cases with principal diagnosis of pulmonary embolism without tPA or
other thrombolytic therapy administered ..................................................................................
MS–DRG 176—All Without MCC cases .....................................................................................
MS–DRG 176—Without MCC cases with principal diagnosis of pulmonary embolism with tPA
or other thrombolytic therapy administered .............................................................................
MS–DRG 176—Without MCC cases with principal diagnosis of pulmonary embolism without
tPA or other thrombolytic therapy administered ......................................................................

As shown in the table above, for MS–
DRG 175, there were a total of 19,274
cases with an average length of stay of
5.76 days and average costs of $10,479.
Of the 19,274 cases in MS–DRG 175,
there were 630 cases that reported a
principal diagnosis of pulmonary
embolism where tPA or other
thrombolytic therapy was also reported
with an average length of stay of 6.31
days and average costs of $19,419. For
MS–DRG 176, there were a total of
33,565 cases with an average length of
stay of 3.81 days and average costs of
$6,645. Of the 33,565 cases reported in
MS–DRG 176, there were 544 cases that
reported a principal diagnosis of
pulmonary embolism where tPA or
other thrombolytic therapy also was
reported with an average length of stay
of 5.07 days and average costs of
$16,345.
To address the request we received to
create a new MS–DRG, we reviewed the
data for the 1,174 total cases (630 and
544, respectively) that reported a
principal diagnosis of pulmonary
embolism that received tPA or other

thrombolytic therapy in MS–DRGs 175
and 176. As shown in the table above,
our data analysis demonstrates the
average costs for these cases are higher
($19,419 compared to $10,479 for MS–
DRG 175, and $16,345 compared to
$6,645 for MS–DRG 176) and the length
of stay is slightly longer (6.31 days
compared to 5.76 days for MS–DRG 175,
and 5.07 days compared to 3.81 days for
MS–DRG 176) compared to all cases
reported in MS–DRGs 175 and 176. Out
of a total of 52,492 cases (630 + 18,529
+ 544 + 32,789) in MS–DRGs 175 and
176 reporting a principal diagnosis of
pulmonary embolism, 1,174 (2.24
percent) of these cases also received tPA
or other thrombolytic therapy. While we
recognize the differences in average
costs and length of stay for these cases,
the volume of these cases as well as the
potential creation of a new MS–DRG for
this subset of patients raised some
concerns with our clinical advisors. We
present our clinical advisors’ concerns
following the additional data analysis
discussions below.

Average
length of
stay

Average
costs

630

6.31

19,419

18,529
33,565

5.74
3.81

10,181
6,645

544

5.07

16,345

32,789

3.79

6,483

We then conducted additional data
analyses to determine if reassignment of
cases with a principal diagnosis of
pulmonary embolism where tPA or
other thrombolytic therapy was
administered to a higher paying MS–
DRG was supported. As displayed in the
data findings in the tables below, we
explored reassigning cases with a
principal diagnosis of pulmonary
embolism that received tPA or other
thrombolytic therapy from MS–DRG 176
to the higher severity level MS–DRG
175. The data do not adequately support
this reassignment, as the cases with a
principal diagnosis of pulmonary
embolism where tPA or other
thrombolytic therapy is administered
would continue to be underpaid.
As shown in the data findings in the
table below, the initial data analysis for
MS–DRG 175 found the average costs
for cases that reported a principal
diagnosis of pulmonary embolism that
received tPA or other thrombolytic
therapy were $19,419, and for MS–DRG
176, the average costs for these cases
were $16,345.

PRINCIPAL DIAGNOSIS OF PULMONARY EMBOLISM WITH TPA OR OTHER THROMBOLYTIC THERAPY ADMINISTERED
Number
of cases

MS–DRG

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

MS–DRG 175—All MCC cases ...................................................................................................
MS–DRG 175—MCC cases with principal diagnosis of pulmonary embolism with tPA or other
thrombolytic therapy administered ...........................................................................................
MS–DRG 176—All without MCC cases ......................................................................................
MS–DRG 176—Without MCC cases with principal diagnosis of pulmonary embolism with tPA
or other thrombolytic therapy administered .............................................................................

As displayed in the table below, if we
reassigned the 544 cases with a
principal diagnosis of pulmonary
embolism where tPA or other
thrombolytic therapy is administered
from the ‘‘without MCC’’ level, MS–
DRG 176, to the ‘‘with MCC’’ severity
level, MS–DRG 175, the average costs

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for all cases in MS–DRG 175 would be
approximately $10,640. This figure
continues to result in a difference of
approximately $9,000 for the MCC cases
and $6,000 for the without MCC cases
when compared to findings for the
average costs of these cases from the
initial data analysis ($19,419¥$10,640

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Average
length of
stay

Average
costs

19,274

5.76

$10,479

630
33,565

6.31
3.81

19,419
6,645

544

5.07

16,345

= $8,779 and $16,345¥$10,640 =
$5,705, respectively). In addition, our
clinical advisors had concerns about the
prospect of moving the subset of 544
patients from the ‘‘without MCC’’ level
to the ‘‘with MCC’’ level. We present
these concerns following the additional
data analysis discussion below.

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24979

OPTION OF REASSIGNMENT OF CASES OF PRINCIPAL DIAGNOSIS OF PULMONARY EMBOLISM WITH AND WITHOUT TPA
MS–DRG 175—Cases with pulmonary embolism with MCC or tPA or other thrombolytic therapy ............................................................................................................................................
MS–DRG 176—Cases with pulmonary embolism without MCC ................................................

We also reviewed claims data in
considering the option of adding
another severity level to the current
structure of MS–DRGs 175 and 176 and
assigning the cases with a principal
diagnosis of pulmonary embolism that
receive tPA or other thrombolytic
therapy to the highest level. This option
would involve modifying the current 2way severity level split of ‘‘with MCC’’
and ‘‘without MCC’’ to a 3-way severity

level split of ‘‘with MCC or tPA, with
CC, and without CC/MCC.’’ Therefore, it
would include proposing new MS–
DRGs if the data and our clinical
advisors supported creation of new MS–
DRGs. However, as displayed in the data
findings in the table below, the data did
not support this option. In addition to
similar results from the previous
option’s discussion regarding continued
differences in average costs for these

19,818
33,021

5.74
3.79

$10,640
6,486

cases, the data failed to meet the
criterion that there be at least a $2,000
difference between the ‘‘with CC’’ and
‘‘without CC/MCC’’ subgroups. Our data
analysis shows the average costs in the
hypothetical ‘‘with CC’’ subgroup of
$6,932 and the average costs in the
hypothetical ‘‘without CC/MCC’’
subgroup of $5,309. The difference only
amounts to $1,623 ($6,932 minus $5,309
= $1,623).

PRINCIPAL DIAGNOSIS OF PULMONARY EMBOLISM WITH AND WITHOUT TPA OR OTHER THROMBOLYTIC THERAPY
Number
of cases

Optional new MS–DRG

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

MS–DRG XXX—Pulmonary embolism with MCC or tPA or other thrombolytic therapy ............
MS–DRG XXX—Pulmonary embolism with CC ..........................................................................
MS–DRG XXX—Pulmonary embolism without CC/MCC ............................................................

Lastly, we explored reassigning cases
with a principal diagnosis of pulmonary
embolism that receive tPA or other
thrombolytic therapy to other MS–DRGs
within MDC 4. However, our review did
not support reassignment of these cases
to any other medical MS–DRGs as these
cases would not be clinically coherent
with the cases assigned to those other
MS–DRGs.
In addition to the results of the
various data analyses we performed for
creating a new MS–DRG or for
reassignment of cases of pulmonary
embolism with tPA or other
thrombolytic therapy to another higher
paying MS–DRG, our clinical advisors
also expressed a number of concerns.
They pointed out that all patients with
a diagnosis of pulmonary embolism are
considered high risk and the small
subset of patients receiving
thrombolytic therapy does not
necessarily warrant a separate MS–DRG
or reassignment at this time. Our
clinical advisors noted that it is unclear
if: (1) The higher costs associated with
receiving tPA or other thrombolytic
therapy are due to a different subset of
patients or complications; (2) if those
patients treated with tPA or other
thrombolytic therapy for pulmonary
embolism are indeed sicker patients; (3)
if the cost of tPA or other thrombolytic
therapy for patients with pulmonary
embolism is the reason for the higher
costs seen with these cases; or (4) if the
increased average costs for cases of
pulmonary embolism with tPA or other

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thrombolytic therapy is a combination
of numbers (1) through (3). They
recommended maintaining the current
structure of MS–DRGs 175 and 176 at
this time.
As a result of the data analysis and
the concerns expressed by our clinical
advisors, we are not proposing to create
a new MS–DRG or to reassign cases with
a principal diagnosis of pulmonary
embolism with tPA or other
thrombolytic therapy for FY 2017. We
are inviting public comment on our
proposal.
5. MDC 5 (Diseases and Disorders of the
Circulatory System)
a. Implant of Loop Recorder
We received a request to examine a
potential ICD–9 to ICD–10 replication
issue for procedures describing
implantation or revision of loop
recorder that were reported using ICD–
9–CM procedure code 37.79 (Revision
or relocation of cardiac device pocket).
A loop recorder is also known as an
implantable cardiac monitor. It is
indicated for patients who experience
episodes of unexplained syncope
(fainting), heart palpitations, or patients
at risk for various types of cardiac
arrhythmias, such as atrial fibrillation or
ventricular tachyarrhythmia. Loop
recorders function by detecting and
monitoring potential episodes of these
kinds of conditions. The requestor
acknowledged that these implantation
procedures are frequently performed in
the outpatient setting. However, the

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19,819
23,929
9,091

Average
length of
stay
5.74
4.04
3.13

Average
costs
$10,641
6,932
5,309

requestor also noted that the
implantation procedures are often
performed in the inpatient setting and
suggested that they be recognized under
the ICD–10 MS–DRGs as they had been
under the ICD–9–CM based MS–DRG
logic.
The requestor stated that, under the
ICD–9–CM based MS–DRGs, procedure
code 37.79 was designated as an
operating room (O.R.) procedure in the
Definitions Manual under Appendix E—
Operating Room Procedures and
Procedure Code/MS–DRG Index and
grouped to MS–DRGs 040, 041, and 042
(Peripheral, Cranial Nerve and Other
Nervous System Procedures with MCC,
with CC or peripheral neurostimulator,
and without CC/MCC, respectively);
MS–DRGs 260, 261, and 262 (Cardiac
Pacemaker Revision Except Device
Replacement with MCC, with CC, and
without CC/MCC, respectively); MS–
DRGs 579, 580, and 581 (Other Skin,
Subcutaneous Tissue and Breast
Procedures with MCC, with CC and
without CC/MCC, respectively); MS–
DRGs 907, 908, and 909 (Other O.R.
Procedures for Injuries with MCC, with
CC, and without CC/MCC, respectively);
and MS–DRGs 957, 958, and 959 (Other
O.R. Procedures for Multiple Significant
Trauma with MCC, with CC, and
without CC/MCC, respectively).
Under the current Version 33 ICD–10
MS–DRGs, there are two comparable
ICD–10–PCS code translations for ICD–
9–CM code 37.79. They are procedure
codes 0JWT0PZ (Revision of cardiac

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

rhythm related device in trunk
subcutaneous tissue and fascia, open
approach) and 0JWT3PZ (Revision of
cardiac rhythm related device in trunk
subcutaneous tissue and fascia,
percutaneous approach), which are

designated as O.R. procedures and
group to the above listed MS–DRGs.
According to the requestor, the
following six ICD–10–PCS procedure
codes identify the implantation or
revision of a loop recorder and were not
replicated appropriately because they
are currently designated as

ICD–10–PCS
procedure code

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

0JH602Z ...........
0JH632Z ...........
0JH802Z ...........
0JH832Z ...........
0JWT02Z ..........
0JWT32Z ..........

Description
Insertion
Insertion
Insertion
Insertion
Revision
Revision

of
of
of
of
of
of

monitoring
monitoring
monitoring
monitoring
monitoring
monitoring

device
device
device
device
device
device

We examined the six ICD–10–PCS
procedure codes that the commenter
recommended be designated as O.R.
procedures and assigned to the same
MS–DRGs as ICD–9–CM procedure code
37.79. As discussed in section II.F.1.b.
of the preamble of this proposed rule, in
evaluating requested MS–DRG changes,
we determined if they could be
replicated in the ICD–9–CM MS–DRGs
so as not to affect the FY 2017 relative
payment weights. If the answer was
‘‘no,’’ we examined whether the change
in the ICD–10 MS–DRGs was likely to
cause a significant number of patient
cases to change or ‘‘shift’’ ICD–10 MS–
DRGs. If relatively few patient cases
would be impacted, we evaluated if it
would be feasible to propose the change
even though it could not be replicated
by the ICD–9 MS–DRGs logic because it
would not cause a material payment
redistribution.
Under our review, we recognized that
the six ICD–10–PCS procedure codes are
currently identified as comparable
translations of ICD–9–CM procedure
code 86.09 (Other incision of skin and
subcutaneous tissue), which was
designated as a non-O.R. procedure
code under the ICD–9–CM based MS–
DRGs. Therefore, changing the
designation of the six ICD–10–PCS
procedure codes from non-O.R. to O.R.
for the ICD–10 MS–DRGs cannot be
replicated in the ICD–9–CM based MS–
DRGs. In other words, we cannot
designate ICD–9–CM procedure code
86.09 as an O.R. code. However, we
believe that if we limit the change in
designation to four of the six identified
ICD–10–PCS procedure codes from nonO.R. to O.R., the change would not have
any impact. We are not including the
two ICD–10–PCS procedure codes that
describe the insertion of a monitoring
device into the abdomen in our proposal
because a loop recorder is not inserted

VerDate Sep<11>2014

nonoperating room (non-O.R.)
procedures under the ICD–10 MS–
DRGs. The requestor suggested that
these codes be designated as O.R.
procedures and assigned to the same
MS–DRGs as the former ICD–9–CM
procedure code 37.79:

18:46 Apr 26, 2016

Jkt 238001

into chest subcutaneous tissue and fascia, open approach.
into chest subcutaneous tissue and fascia, percutaneous approach.
into abdomen subcutaneous tissue and fascia, open approach.
into abdomen subcutaneous tissue and fascia, percutaneous approach.
in trunk subcutaneous tissue and fascia, open approach.
in trunk subcutaneous tissue and fascia, percutaneous approach.

into that location and it would not be
clinically appropriate.
Therefore, for FY 2017, we are
proposing to designate the following
four ICD–10–PCS codes as O.R.
procedures within Appendix E of the
Version 34 ICD–10 MS–DRG Definitions
Manual:
• 0JH602Z (Insertion of monitoring
device into chest subcutaneous tissue
and fascia, open approach);
• 0JH632Z (Insertion of monitoring
device into chest subcutaneous tissue
and fascia, percutaneous approach);
• 0JWT02Z (Revision of monitoring
device in trunk subcutaneous tissue and
fascia, open approach); and
• 0JWT32Z (Revision of monitoring
device in trunk subcutaneous tissue and
fascia, percutaneous approach).
We also are proposing that the ICD–
10 MS–DRG assignment for these four
ICD–10–PCS codes replicate the ICD–9–
CM based MS–DRG assignment for
procedure code 37.79; that is, MS–DRGs
040, 041, 042, 260, 261, 262, 579,580,
581, 907, 908, 909, 957, 958, and 959 as
cited earlier in this section.
We are inviting public comments on
our proposals.
b. Endovascular Thrombectomy of the
Lower Limbs
We received a comment stating that
the logic for ICD–10 MS–DRGs Version
33 is not compatible with the ICD–9–
CM MS–DRGs Version 32 for the
assignment of procedures describing
endovascular thrombectomy of the
lower limbs. The commenter asked CMS
to reconfigure the MS–DRG structure
within the ICD–10 MS–DRGs for
endovascular thrombectomy of the
lower limbs, specifically MS–DRGs 270,
271, and 272 (Endovascular
Thrombectomy of the Lower Limbs with
MCC, with CC, and without CC/MCC,
respectively). The commenter believed
that this requested restructuring would
be consistent with the MS–DRG

PO 00000

Frm 00036

Fmt 4701

Sfmt 4702

assignments for the other procedures
describing lower extremity
thrombectomy, and would accurately
replicate the logic of the ICD–9–CM
MS–DRGs Version 32. Under the ICD–
9–CM, endovascular thrombectomy of
the lower limbs is described by
procedure code 39.79 (Other
endovascular procedures on other
vessels). The commenter stated that,
with deep vein thrombosis (DVT) or any
other circulatory system disorders as the
principal diagnosis, cases involving
procedures described by procedure code
39.79 grouped to ICD–9–CM MS–DRGs
237 and 238 (Major Cardiovascular
Procedures with and without MCC,
respectively). However, the commenter
pointed out that, for FY 2016, ICD–9–
CM MS–DRGs 237 and 238 were deleted
and replaced with ICD–10 Version 33
MS–DRGs 268 and 269 (Aortic and
Heart Assist Procedures Except
Pulsation Balloon with and without
MCC, respectively), for the higher
complexity procedures, and MS–DRGs
270, 271, and 272 (Other Major
Cardiovascular Procedures with MCC,
with CC, and without CC/MCC,
respectively), for the lower complexity
procedures (80 FR 49389). The
commenter stated that ICD–9–CM
procedure code 39.79 describes the
lower complexity procedures assigned
to ICD–10–PCS MS–DRGs 270, 271, and
272. The commenter believed that the
comparable ICD–10–PCS procedure
codes also should have been assigned to
MS–DRGs 270, 271, and 272.
We agree with the requestor that
procedures describing endovascular
thrombectomy of the lower limbs
should be assigned to ICD–10 MS–DRGs
270, 271, and 272. Therefore, for
implementation October 1, 2016, we are
proposing to restructure the ICD–10–
PCS MS–DRG configuration and add the
ICD–10–PCS code translations listed in
the following chart (which would

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
capture procedures describing
endovascular thrombectomy of the

24981

lower limbs) to ICD–10–PCS Version 34
MS–DRGs 270, 271, and 272.

ICD–10–PCS ENDOVASCULAR THROMBECTOMY PROCEDURE CODES PROPOSED TO BE ASSIGNED TO MS–DRGS 270,
271, AND 272 FOR FY 2017

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

03C53ZZ ...........
03C63ZZ ...........
03C73ZZ ...........
03C83ZZ ...........
03C93ZZ ...........
03CA3ZZ ..........
03CB3ZZ ..........
03CC3ZZ ..........
03CD3ZZ ..........
03CF3ZZ ..........
03CY3ZZ ..........
04CK3ZZ ..........
04CL3ZZ ...........
04CM3ZZ ..........
04CN3ZZ ..........
04CP3ZZ ..........
04CQ3ZZ ..........
04CR3ZZ ..........
04CS3ZZ ..........
04CT3ZZ ..........
04CU3ZZ ..........
04CV3ZZ ..........
04CW3ZZ .........
04CY3ZZ ..........
05C73ZZ ...........
05C83ZZ ...........
05C93ZZ ...........
05CA3ZZ ..........
05CB3ZZ ..........
05CC3ZZ ..........
05CD3ZZ ..........
05CF3ZZ ..........
05CG3ZZ ..........
05CH3ZZ ..........
05CL3ZZ ...........
05CM3ZZ ..........
05CN3ZZ ..........
05CP3ZZ ..........
05CQ3ZZ ..........
05CR3ZZ ..........
05CS3ZZ ..........
05CT3ZZ ..........
05CV3ZZ ..........
05CY3ZZ ..........
06C33ZZ ...........
06CM3ZZ ..........
06CN3ZZ ..........
06CP3ZZ ..........
06CQ3ZZ ..........
06CR3ZZ ..........
06CS3ZZ ..........
06CT3ZZ ..........

Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation
Extirpation

of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
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of
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of
of
of

matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
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matter
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matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
matter
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matter
matter
matter

from
from
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from

right axillary artery, percutaneous approach.
left axillary artery, percutaneous approach.
right brachial artery, percutaneous approach.
left brachial artery, percutaneous approach.
right ulnar artery, percutaneous approach.
left ulnar artery, percutaneous approach.
right radial artery, percutaneous approach.
left radial artery, percutaneous approach.
right hand artery, percutaneous approach.
left hand artery, percutaneous approach.
upper artery, percutaneous approach.
right femoral artery, percutaneous approach.
left femoral artery, percutaneous approach.
right popliteal artery, percutaneous approach.
left popliteal artery, percutaneous approach.
right anterior tibial artery, percutaneous approach.
left anterior tibial artery, percutaneous approach.
right posterior tibial artery, percutaneous approach.
left posterior tibial artery, percutaneous approach.
right peroneal artery, percutaneous approach.
left peroneal artery, percutaneous approach.
right foot artery, percutaneous approach.
left foot artery, percutaneous approach.
lower artery, percutaneous approach.
right axillary vein, percutaneous approach.
left axillary vein, percutaneous approach.
right brachial vein, percutaneous approach.
left brachial vein, percutaneous approach.
right basilic vein, percutaneous approach.
left basilic vein, percutaneous approach.
right cephalic vein, percutaneous approach.
left cephalic vein, percutaneous approach.
right hand vein, percutaneous approach.
left hand vein, percutaneous approach.
intracranial vein, percutaneous approach.
right internal jugular vein, percutaneous approach.
left internal jugular vein, percutaneous approach.
right external jugular vein, percutaneous approach.
left external jugular vein, percutaneous approach.
right vertebral vein, percutaneous approach.
left vertebral vein, percutaneous approach.
right face vein, percutaneous approach.
left face vein, percutaneous approach.
upper vein, percutaneous approach.
esophageal vein, percutaneous approach.
right femoral vein, percutaneous approach.
left femoral vein, percutaneous approach.
right greater saphenous vein, percutaneous approach.
left greater saphenous vein, percutaneous approach.
right lesser saphenous vein, percutaneous approach.
left lesser saphenous vein, percutaneous approach.
right foot vein, percutaneous approach.

We are inviting public comments on
our proposal to assign the ICD–10–PCS
procedures describing the endovascular
thrombectomy of the lower limbs listed
in the table above to ICD–10 Version 34
MS–DRGs 270, 271, and 272 for FY
2017.
c. Pacemaker Procedures Code
Combinations
We received a request that CMS
examine the list of ICD–10–PCS
procedure code combinations that

VerDate Sep<11>2014

18:46 Apr 26, 2016

Jkt 238001

describe procedures involving
pacemakers to determine if some
procedure code combinations were
excluded from the ICD–10 MS–DRG
assignments for MS–DRGs 242, 243, and
244 (Permanent Cardiac Pacemaker
Implant with MCC, with CC, and
without CC/MCC). The requestor
believed that some ICD–10–PCS
procedure code combinations describing
procedures involving pacemaker
devices and leads are not included in
the current list.

PO 00000

Frm 00037

Fmt 4701

Sfmt 4702

We reviewed the list of ICD–10–PCS
procedure code combinations describing
procedures involving pacemakers
assigned to ICD–10 MS–DRGs 242, 243,
and 244, and determined that our initial
approach of using specified procedure
code combinations to identify
procedures involving pacemakers and
leads was overly complex and may have
led to inadvertent omissions of
qualifying procedure code
combinations. Under our initial
approach, we developed a list of

E:\FR\FM\27APP2.SGM

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24982

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

possible ICD–10–PCS procedure code
combinations that describe procedures
involving pacemaker devices and leads
as well as ICD–10–PCS procedure code
combinations for procedures describing
the removal and replacement of
pacemaker devices. We now believe that
a more appropriate approach would be
to compile a list of all procedure codes
describing procedures involving
pacemaker devices and a list of all
procedure codes describing procedures
involving pacemaker leads. If a
procedure code from the list of
procedure codes describing procedures

involving pacemaker devices and a
procedure code from the list of
procedure codes describing procedures
involving pacemaker leads are reported
in combination with one another, the
case would be assigned to ICD–10 MS–
DRGs 242, 243, and 244. We believe that
this more generic approach would
capture a wider range of possible
reported procedure codes describing
procedures involving pacemaker
devices and leads. Therefore, we are
proposing to modify the ICD–10 MS–
DRG logic so that if one of the ICD–10–
PCS procedure codes describing

ICD–10–PCS Procedure codes describing procedures
involving cardiac pacemaker devices
(any one code reported from this column list)
(1)
Procedure
code

Code description

0JH604Z ......

Insertion of pacemaker, single chamber into
chest subcutaneous tissue and fascia,
open approach.
Insertion of pacemaker, single chamber rate
responsive into chest subcutaneous tissue
and fascia, open approach.
Insertion of pacemaker, dual chamber into
chest subcutaneous tissue and fascia,
open approach.
Insertion of cardiac resynchronization pacemaker pulse generator into chest subcutaneous tissue and fascia, open approach.
Insertion of cardiac rhythm related device into
chest subcutaneous tissue and fascia,
open approach.
Insertion of pacemaker, single chamber into
chest subcutaneous tissue and fascia,
percutaneous approach.
Insertion of pacemaker, single chamber rate
responsive into chest subcutaneous tissue
and fascia, percutaneous approach.
Insertion of pacemaker, dual chamber into
chest subcutaneous tissue and fascia,
percutaneous approach.
Insertion of cardiac resynchronization pacemaker pulse generator into chest subcutaneous tissue and fascia, percutaneous approach.
Insertion of cardiac rhythm related device into
chest subcutaneous tissue and fascia,
percutaneous approach.
Insertion of pacemaker, single chamber into
abdomen subcutaneous tissue and fascia,
open approach.
Insertion of pacemaker, single chamber rate
responsive into abdomen subcutaneous tissue and fascia, open approach.
Insertion of pacemaker, dual chamber into
abdomen subcutaneous tissue and fascia,
open approach.
Insertion of cardiac resynchronization pacemaker pulse generator into abdomen subcutaneous tissue and fascia, open approach.
Insertion of cardiac rhythm related device into
abdomen subcutaneous tissue and fascia,
open approach.
Insertion of pacemaker, single chamber into
abdomen subcutaneous tissue and fascia,
percutaneous approach.

0JH605Z ......
0JH606Z ......

0JH607Z ......
0JH60PZ ......
0JH634Z ......
0JH635Z ......
0JH636Z ......

0JH637Z ......

0JH63PZ ......
0JH804Z ......

0JH805Z ......

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

0JH806Z ......
0JH807Z ......

0JH80PZ ......
0JH834Z ......

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18:46 Apr 26, 2016

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PO 00000

In combination
with
(2)

procedures involving pacemaker
devices listed in column 1 of the table
below is reported in combination with
one of the ICD–10–PCS procedure codes
describing procedures involving leads
listed in column 3 of the table below,
the case would be assigned to MS–DRGs
242, 243, and 244. We believe that this
proposed simplified approach would
capture all possible cases reporting
procedure code combinations describing
procedures involving pacemaker
devices and leads to ensure that these
cases would be assigned to MS–DRGs
242, 243, and 244.

ICD–10–PCS Procedure codes describing procedures
involving cardiac pacemaker leads
(any one code reported from this column list)
(3)
Procedure
code

Frm 00038

Code description

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

02H40JZ

Insertion of pacemaker lead into coronary
vein, open approach.

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

02H40MZ

Insertion of cardiac lead into coronary vein,
open approach.

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

02H43JZ

Insertion of pacemaker lead into coronary
vein, percutaneous approach.

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

02H43MZ

Insertion of cardiac lead into coronary vein,
percutaneous approach.

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

02H44JZ

Insertion of pacemaker lead into coronary
vein, percutaneous endoscopic approach.

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

02H44MZ

Insertion of cardiac lead into coronary vein,
percutaneous endoscopic approach.

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

02H60JZ

Insertion of pacemaker lead into right atrium,
open approach.

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

02H60MZ

Insertion of cardiac lead into right atrium,
open approach.

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

02H63JZ

Insertion of pacemaker lead into right atrium,
percutaneous approach.

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

02H63MZ

Insertion of cardiac lead into right atrium,
percutaneous approach.

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

02H64JZ

Insertion of pacemaker lead into right atrium,
percutaneous endoscopic approach.

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

02H64MZ

Insertion of cardiac lead into right atrium,
percutaneous endoscopic approach.

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

02H70JZ

Insertion of pacemaker lead into left atrium,
open approach.

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

02H70MZ

Insertion of cardiac lead into left atrium, open
approach.

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

02H73JZ

Insertion of pacemaker lead into left atrium,
percutaneous approach.

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

02H73MZ

Insertion of cardiac lead into left atrium,
percutaneous approach.

Fmt 4701

Sfmt 4702

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27APP2

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
ICD–10–PCS Procedure codes describing procedures
involving cardiac pacemaker devices
(any one code reported from this column list)
(1)
Procedure
code

Code description

0JH835Z ......

Insertion of pacemaker, single chamber rate
responsive into abdomen subcutaneous tissue and fascia, percutaneous approach.
Insertion of pacemaker, dual chamber into
abdomen subcutaneous tissue and fascia,
percutaneous approach.
Insertion of cardiac resynchronization pacemaker pulse generator into abdomen subcutaneous tissue and fascia, percutaneous
approach.
Insertion of cardiac rhythm related device into
abdomen subcutaneous tissue and fascia,
percutaneous approach.

0JH836Z ......
0JH837Z ......

0JH83PZ ......

In combination
with
(2)

ICD–10–PCS Procedure codes describing procedures
involving cardiac pacemaker leads
(any one code reported from this column list)
(3)
Procedure
code
02H74JZ

Insertion of pacemaker lead into left atrium,
percutaneous endoscopic approach.

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

02H74MZ

Insertion of cardiac lead into left atrium,
percutaneous endoscopic approach.

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

02HK0JZ

Insertion of pacemaker lead into right ventricle, open approach.

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

02HK0MZ

Insertion of cardiac lead into right ventricle,
open approach.

02HK3JZ

Insertion of pacemaker lead into right ventricle, percutaneous approach.
Insertion of cardiac lead into right ventricle,
percutaneous approach.
Insertion of pacemaker lead into right ventricle, percutaneous endoscopic approach.
Insertion of cardiac lead into right ventricle,
percutaneous endoscopic approach.
Insertion of pacemaker lead into left ventricle,
open approach.
Insertion of cardiac lead into left ventricle,
open approach.
Insertion of pacemaker lead into left ventricle,
percutaneous approach.
Insertion of cardiac lead into left ventricle,
percutaneous approach.
Insertion of pacemaker lead into left ventricle,
percutaneous endoscopic approach.
Insertion of cardiac lead into left ventricle,
percutaneous endoscopic approach.
Insertion of pacemaker lead into pericardium,
open approach.
Insertion of cardiac lead into pericardium,
open approach.
Insertion of pacemaker lead into pericardium,
percutaneous approach.
Insertion of cardiac lead into pericardium,
percutaneous approach.
Insertion of pacemaker lead into pericardium,
percutaneous endoscopic approach.
Insertion of cardiac lead into pericardium,
percutaneous endoscopic approach.

02HK4JZ
02HK4MZ
02HL0JZ
02HL0MZ
02HL3JZ
02HL3MZ
02HL4JZ
02HL4MZ
02HN0JZ
02HN0MZ
02HN3JZ
02HN3MZ
02HN4JZ

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

02HN4MZ

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18:46 Apr 26, 2016

Jkt 238001

(Cardiac Pacemaker Device Replacement
with and without MCC, respectively).
Assignments of cases to these MS–DRGs
also include qualifying ICD–10–PCS
procedure code combinations describing
procedures that involve the removal of
pacemaker devices and the insertion of
new devices. We believe that this logic
may also be overly complex. Moreover,
we believe that a more simplified
approach would be to compile a list of
all ICD–10–PCS procedure codes
describing procedures involving cardiac
pacemaker device insertions. Therefore,
we are proposing this approach for FY

PO 00000

Frm 00039

Code description

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

02HK3MZ

We are inviting public comments on
our proposal to modify the MS–DRG
logic for MS–DRGs 242, 243, and 244 to
establish that cases reporting one ICD–
10–PCS code from the list of procedure
codes describing procedures involving
pacemaker devices and one ICD–10–
PCS code from the list of procedure
codes describing procedures involving
pacemaker leads in combination with
one another would qualify the case for
assignment to MS–DRGs 242, 243, and
244.
We also examined our GROUPER
logic for MS–DRGs 258 and 259

24983

Fmt 4701

Sfmt 4702

2017. Under the proposed approach, if
one of the procedure codes describing
procedures involving pacemaker device
insertions is reported, and there are no
other procedure codes describing
procedures involving the insertion of a
pacemaker lead reported in combination
with one of these procedures, the case
would be assigned to MS–DRG 258 and
259. Cases reporting any one of the
following ICD–10–PCS procedure codes
describing procedures involving
pacemaker device insertions would be
assigned to MS–DRG 258 and 259.

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24984

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

PROCEDURE CODES DESCRIBING PROCEDURES INVOLVING CARDIAC PACEMAKER DEVICE INSERTIONS REPORTED WITHOUT ANY OTHER PACEMAKER DEVICE PROCEDURE CODE PROPOSED TO BE ASSIGNED TO ICD–10 MS–DRGS 258
AND 259
Procedure code

Description

0JH604Z
0JH605Z
0JH606Z
0JH607Z
0JH60PZ
0JH634Z
0JH635Z
0JH636Z
0JH637Z

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

0JH63PZ
0JH804Z
0JH805Z
0JH806Z
0JH807Z

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

0JH80PZ ...........
0JH834Z ...........
0JH835Z ...........
0JH836Z ...........
0JH837Z ...........
0JH83PZ ...........

Insertion of pacemaker, single chamber into chest subcutaneous tissue and fascia, open approach.
Insertion of pacemaker, single chamber rate responsive into chest subcutaneous tissue and fascia, open approach.
Insertion of pacemaker, dual chamber into chest subcutaneous tissue and fascia, open approach.
Insertion of cardiac resynchronization pacemaker pulse generator into chest subcutaneous tissue and fascia, open approach.
Insertion of cardiac rhythm related device into chest subcutaneous tissue and fascia, open approach.
Insertion of pacemaker, single chamber into chest subcutaneous tissue and fascia, percutaneous approach.
Insertion of pacemaker, single chamber rate responsive into chest subcutaneous tissue and fascia, percutaneous approach.
Insertion of pacemaker, dual chamber into chest subcutaneous tissue and fascia, percutaneous approach.
Insertion of cardiac resynchronization pacemaker pulse generator into chest subcutaneous tissue and fascia, percutaneous
approach.
Insertion of cardiac rhythm related device into chest subcutaneous tissue and fascia, percutaneous approach.
Insertion of pacemaker, single chamber into abdomen subcutaneous tissue and fascia, open approach.
Insertion of pacemaker, single chamber rate responsive into abdomen subcutaneous tissue and fascia, open approach.
Insertion of pacemaker, dual chamber into abdomen subcutaneous tissue and fascia, open approach.
Insertion of cardiac resynchronization pacemaker pulse generator into abdomen subcutaneous tissue and fascia, open approach.
Insertion of cardiac rhythm related device into abdomen subcutaneous tissue and fascia, open approach.
Insertion of pacemaker, single chamber into abdomen subcutaneous tissue and fascia, percutaneous approach.
Insertion of pacemaker, single chamber rate responsive into abdomen subcutaneous tissue and fascia, percutaneous approach.
Insertion of pacemaker, dual chamber into abdomen subcutaneous tissue and fascia, percutaneous approach.
Insertion of cardiac resynchronization pacemaker pulse generator into abdomen subcutaneous tissue and fascia,
percutaneous approach.
Insertion of cardiac rhythm related device into abdomen subcutaneous tissue and fascia, percutaneous approach.

We are inviting public comments on
our proposal to modify the GROUPER
logic for MS–DRGs 258 and 259 to
establish that a case reporting one
procedure code from the above list of
ICD–10–PCS procedure codes
describing procedures involving
pacemaker device insertions without
any other procedure codes describing
procedures involving pacemaker leads
reported would be assigned to MS–
DRGs 258 and 259.
We also examined our GROUPER
logic for MS–DRGs 260, 261, and 262
(Cardiac Pacemaker Revision Except
Device with MCC, with CC, and without
CC/MCC, respectively). Cases assigned
to MS–DRGs 260, 261, and 262 also

include lists of procedure code
combinations describing procedures
involving the removal of pacemaker
leads and the insertion of new leads, in
addition to lists of single procedure
codes describing procedures involving
the insertion of pacemaker leads,
removal of devices, and revision of
devices. We believe that this logic may
also be overly complex. Moreover, we
believe that a more simplified approach
would be to provide a single list of
procedure codes describing procedures
involving cardiac pacemaker lead
insertions and other related procedures
involving device insertions that would
be assigned to MS–DRGs 260, 261, and
262. If one of these procedure codes

describing procedures involving the
insertion of pacemaker leads is reported,
and there are no other procedure codes
describing procedures involving the
insertion of a device reported, the case
would be assigned to MS–DRG 260, 261,
and 262. We are proposing that the list
of ICD–10–PCS procedure codes
describing procedures involving
pacemaker lead insertion, removal, or
revisions and insertion of hemodynamic
devices in the following table would be
assigned to MS–DRGs 260, 261, and
262. We are simply proposing to use a
single list of ICD–10–PCS procedure
codes to determine the MS–DRG
assignment.

LIST OF PROCEDURE CODES PROPOSED TO BE ASSIGNED TO MS–DRGS 260, 261, AND 262

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Procedure code
02H40JZ ...........
02H40MZ ..........
02H43JZ ...........
02H43MZ ..........
02H44JZ ...........
02H44MZ ..........
02H60MZ ..........
02H63JZ ...........
02H63MZ ..........
02H64JZ ...........
02H64MZ ..........
02H70JZ ...........
02H70MZ ..........
02H73JZ ...........
02H73MZ ..........
02H74JZ ...........
02H74MZ ..........
02HK00Z ..........

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Description
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion

of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of

18:46 Apr 26, 2016

pacemaker lead into coronary vein, open approach.
cardiac lead into coronary vein, open approach.
pacemaker lead into coronary vein, percutaneous approach.
cardiac lead into coronary vein, percutaneous approach.
pacemaker lead into coronary vein, percutaneous endoscopic approach.
cardiac lead into coronary vein, percutaneous endoscopic approach.
pacemaker lead into right atrium, open approach.
cardiac lead into right atrium, open approach.
pacemaker lead into right atrium, percutaneous approach.
cardiac lead into right atrium, percutaneous approach.
pacemaker lead into right atrium, percutaneous endoscopic approach.
cardiac lead into right atrium, percutaneous endoscopic approach.
pacemaker lead into left atrium, open approach.
cardiac lead into left atrium, open approach.
pacemaker lead into left atrium, percutaneous approach.
cardiac lead into left atrium, percutaneous approach.
pacemaker lead into left atrium, percutaneous endoscopic approach.
cardiac lead into left atrium, percutaneous endoscopic approach.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

24985

LIST OF PROCEDURE CODES PROPOSED TO BE ASSIGNED TO MS–DRGS 260, 261, AND 262—Continued
Procedure code
02HK02Z ..........
02HK0JZ ...........
02HK0MZ .........
02HK30Z ..........
02HK32Z ..........
02HK3JZ ...........
02HK3MZ .........
02HK40Z ..........
02HK42Z ..........
02HK4JZ ...........
02HK4MZ .........
02HL0JZ ...........
02HL0MZ ..........
02HL3JZ ...........
02HL3MZ ..........
02HL4JZ ...........
02HL4MZ ..........
02HN0JZ ..........
02HN0MZ .........
02HN3JZ ..........
02HN3MZ .........
02HN4JZ ..........
02HN4MZ .........
02PA0MZ ..........
02PA3MZ ..........
02PA4MZ ..........
02PAXMZ .........
02WA0MZ .........
02WA3MZ .........
02WA4MZ .........
0JH600Z ...........
0JH630Z ...........
0JH800Z ...........
0JH830Z ...........
0JPT0PZ ...........
0JPT3PZ ...........
0JWT0PZ ..........
0JWT3PZ ..........

Description
Insertion of pressure sensor monitoring device into right ventricle, open approach.
Insertion of monitoring device into right ventricle, open approach.
Insertion of pacemaker lead into right ventricle, open approach.
Insertion of cardiac lead into right ventricle, open approach.
Insertion of pressure sensor monitoring device into right ventricle, percutaneous approach.
Insertion of monitoring device into right ventricle, percutaneous approach.
Insertion of pacemaker lead into right ventricle, percutaneous approach.
Insertion of cardiac lead into right ventricle, percutaneous approach.
Insertion of pressure sensor monitoring device into right ventricle, percutaneous endoscopic approach.
Insertion of monitoring device into right ventricle, percutaneous endoscopic approach.
Insertion of pacemaker lead into right ventricle, percutaneous endoscopic approach.
Insertion of cardiac lead into right ventricle, percutaneous endoscopic approach.
Insertion of pacemaker lead into left ventricle, open approach.
Insertion of cardiac lead into left ventricle, open approach.
Insertion of pacemaker lead into left ventricle, percutaneous approach.
Insertion of cardiac lead into left ventricle, percutaneous approach.
Insertion of pacemaker lead into left ventricle, percutaneous endoscopic approach.
Insertion of cardiac lead into left ventricle, percutaneous endoscopic approach.
Insertion of pacemaker lead into pericardium, open approach.
Insertion of cardiac lead into pericardium, open approach.
Insertion of pacemaker lead into pericardium, percutaneous approach.
Insertion of cardiac lead into pericardium, percutaneous approach.
Insertion of pacemaker lead into pericardium, percutaneous endoscopic approach.
Insertion of cardiac lead into pericardium, percutaneous endoscopic approach.
Removal of cardiac lead from heart, open approach.
Removal of cardiac lead from heart, percutaneous approach.
Removal of cardiac lead from heart, percutaneous endoscopic approach.
Revision of cardiac lead in heart, open approach.
Revision of cardiac lead in heart, percutaneous approach.
Revision of cardiac lead in heart, percutaneous endoscopic approach.
Insertion of hemodynamic monitoring device into chest subcutaneous tissue and fascia, open approach.
Insertion of hemodynamic monitoring device into chest subcutaneous tissue and fascia, percutaneous approach.
Insertion of hemodynamic monitoring device into abdomen subcutaneous tissue and fascia, open approach.
Insertion of hemodynamic monitoring device into abdomen subcutaneous tissue and fascia, percutaneous approach.
Removal of cardiac rhythm related device from trunk subcutaneous tissue and fascia, open approach.
Removal of cardiac rhythm related device from trunk subcutaneous tissue and fascia, percutaneous approach.
Revision of cardiac rhythm related device in trunk subcutaneous tissue and fascia, open approach.
Revision of cardiac rhythm related device in trunk subcutaneous tissue and fascia, percutaneous approach.

We are inviting public comments on
our proposal to modify the GROUPER
logic for MS–DRGs 260, 261, and 262 so
that cases reporting any one of the ICD–
10–PCS procedure codes describing
procedures involving pacemakers and
related procedures and associated
devices listed in the table above would
be assigned to MS–DRGs 260, 261, and
262.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

d. Transcatheter Mitral Valve Repair
With Implant
As we did for the FY 2015 IPPS/LTCH
PPS proposed rule (79 FR 28008
through 28010), for FY 2017, we
received a request to modify the MS–
DRG assignment for transcatheter mitral
valve repair with implant procedures.
We refer readers to detailed discussions
of the MitraClip® System (hereafter
referred to as MitraClip®) for
transcatheter mitral valve repair in
previous rulemakings, including the FY
2012 IPPS/LTCH PPS proposed rule (76
FR 25822) and final rule (76 FR 51528
through 51529) and the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27902

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18:46 Apr 26, 2016

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through 27903) and final rule (77 FR
53308 through 53310), in response to
requests for MS–DRG reclassification, as
well as the FY 2014 IPPS/LTCH PPS
proposed rule (78 FR 27547 through
27552), under the new technology addon payment policy. In the FY 2014
IPPS/LTCH PPS final rule (78 FR
50575), the application for a new
technology add-on payment for
MitraClip® was unable to be considered
further due to lack of FDA approval by
the July 1, 2013 deadline.
In the FY 2015 IPPS/LTCH PPS final
rule, we finalized our proposal to not
create a new MS–DRG or to reassign
cases reporting procedures involving the
MitraClip® to another MS–DRG (79 FR
49890 through 49892). Under a separate
process, the request for a new
technology add-on payment for the
MitraClip® System was approved (79 FR
49941 through 49946). As discussed in
section II.I.4.e. of the preamble of this
proposed rule, we are proposing to
discontinue the new technology add-on
payment for MitraClip® for FY 2017.

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In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49371), we finalized a
modification to the MS–DRGs to which
the procedure involving the MitraClip®
System was assigned. For the ICD–10
based MS–DRGs to fully replicate the
ICD–9–CM based MS–DRGs, ICD–10–
PCS code 02UG3JZ (Supplement mitral
valve with synthetic substitute,
percutaneous approach), which
identifies the use of the MitraClip®
technology and is the ICD–10–PCS code
translation for ICD–9–CM procedure
code 35.97 (Percutaneous mitral valve
repair with implant), was assigned to
new MS–DRGs 273 and 274
(Percutaneous Intracardiac Procedures
with and without MCC, respectively)
and continued to be assigned to MS–
DRGs 231 and 232 (Coronary Bypass
with PTCA with MCC and without
MCC, respectively). According to the
requestor, there are substantial clinical
and resource differences between the
transcatheter mitral valve repair
procedure and other procedures
currently grouping to MS–DRGs 273 and
274, which are the focus of the request.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

The requestor submitted three options
for CMS to consider for FY 2017. The
first option was to create a new MS–
DRG for endovascular cardiac valve
repair with implant; the second option
was to reassign cases for the MitraClip®
implant from MS–DRGs 273 and 274 to

MS–DRGs 266 and 267 (Endovascular
Cardiac Valve Replacement with and
without MCC, respectively); and the
third option was to reassign cases
involving the MitraClip® system to
another higher paying MS–DRG.

We analyzed claims data from the
December 2015 update of the FY 2015
MedPAR file on reported cases of
percutaneous mitral valve repair with
implant (ICD–9–CM procedure code
35.97) in MS–DRGs 273 and 274. Our
findings are shown in the table below.

PERCUTANEOUS MITRAL VALVE REPAIR WITH IMPLANT
Number of
cases

MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG

273—All cases ............................................................................................................
273—Cases with procedure code 35.97 ....................................................................
274—All cases ............................................................................................................
274—Cases with procedure code 35.97 ....................................................................

As shown in the table, the total
number of cases reported in MS–DRG
273 was 6,620 and had an average
length of stay of 8.01 days and average
costs of $27,625. The number of cases
reporting the ICD–9–CM procedure code
35.97 in MS–DRG 273 totaled 457 and
had an average length of stay of 7.57
days and average costs of $50,560. For
MS–DRG 274, there were a total of

14,220 cases with an average length of
stay of 3.46 days and average costs of
$19,316. There were a total of 693 cases
in MS–DRG 274 that reported procedure
code 35.97; these cases had an average
length of stay of 2.67 days and average
costs of $37,686. We recognize that the
cases reporting procedure code 35.97
had a shorter length of stay and higher

ICD–10–PCS
Code

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

8.01
7.57
3.46
2.67

Average
costs
$27,625
50,560
19,316
37,686

average costs in comparison to all the
cases within MS–DRGs 273 and 274.
As stated above, the first option of the
requestor was that we create a new MS–
DRG for endovascular cardiac valve
repair with implant procedures for all
cardiac valve repairs. We reviewed the
following list of ICD–10–PCS procedure
codes that the requestor submitted to
comprise this proposed new MS–DRG.

Description

02UF37Z ...........
02UF38Z ...........
02UF3JZ ...........
02UF3KZ ..........
02UG37Z ..........
02UG38Z ..........
02UG3JZ ..........
02UG3KZ ..........
02UH37Z ..........
02UH38Z ..........
02UH3JZ ..........
02UH3KZ ..........
02UJ37Z ...........
02UJ38Z ...........
02UJ3JZ ...........
02UJ3KZ ...........

Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement
Supplement

aortic valve with autologous tissue substitute, percutaneous approach.
aortic valve with zooplastic tissue, percutaneous approach.
aortic valve with synthetic substitute, percutaneous approach.
aortic valve with nonautologous tissue substitute, percutaneous approach.
mitral valve with autologous tissue substitute, percutaneous approach.
mitral valve with zooplastic tissue, percutaneous approach.
mitral valve with synthetic substitute, percutaneous approach.
mitral valve with nonautologous tissue substitute, percutaneous approach.
pulmonary valve with autologous tissue substitute, percutaneous approach.
pulmonary valve with zooplastic tissue, percutaneous approach.
pulmonary valve with synthetic substitute, percutaneous approach.
pulmonary valve with nonautologous tissue substitute, percutaneous approach.
tricuspid valve with autologous tissue substitute, percutaneous approach.
tricuspid valve with zooplastic tissue, percutaneous approach.
tricuspid valve with synthetic substitute, percutaneous approach.
tricuspid valve with nonautologous tissue substitute, percutaneous approach.

The above list of ICD–10–PCS
procedure codes are currently assigned
to MS–DRGs 216 through 221 (Cardiac
Valve and Other Major Cardiovascular
Procedures with and without Cardiac
Catheterization with MCC, with CC, and
without CC/MCC, respectively), with
the exception of procedure code
02UG3JZ, which is assigned to MS–
DRGs 273 and 274, as noted earlier in
this section.
All 16 of the ICD–10–PCS procedure
codes submitted by the requester are
comparable translations of ICD–9–CM
procedure code 35.33 (Annuloplasty),
which also grouped to MS–DRGs 216
through 221. However, ICD–10–PCS
procedure code 02UG3JZ (Supplement
mitral valve with synthetic substitute,

VerDate Sep<11>2014

6,620
457
14,220
693

Average
length of
stay

18:46 Apr 26, 2016

Jkt 238001

percutaneous approach) is the
comparable translation for both ICD–9–
CM procedure code 35.33 and ICD–9–
CM procedure code 35.97 (Percutaneous
mitral valve repair with implant), which
grouped to MS–DRGs 273 and 274 as
mentioned previously.
Upon review of the 16 ICD–10–PCS
procedure codes submitted for
consideration by the requestor, we
determined that we cannot propose the
suggested change because the resulting
ICD–10 MS–DRG logic would not be an
accurate replication of the ICD–9–CM
based MS–DRG logic. Specifically, it is
not possible to replicate reassigning the
percutaneous annuloplasty codes from
ICD–9–CM based MS–DRGs 216 through
221 to a new MS–DRG because we

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cannot isolate those cases from
procedure code 35.33. Under ICD–9–
CM, procedure code 35.33 does not
differentiate the specific type of
approach used to perform the
procedure. This is in contrast to the 60
comparable ICD–10 code translations
that do differentiate among various
approaches (open, percutaneous, and
percutaneous endoscopic).
As stated previously, if the ICD–9–CM
and ICD–10 versions of the MS–DRGs
cease to be replications of each other,
the relative payment weights (computed
using the ICD–9–CM based MS–DRGs)
would be inconsistent with the ICD–10
MS–DRG assignment, which may cause
unintended payment redistribution.
Therefore, we are not proposing to

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
create a new MS–DRG for transcatheter
mitral valve repair with implant
procedures for FY 2017.
The second option in the request was
to evaluate reassigning cases involving
the MitraClip® to MS–DRGs 266 and
267. This option is not supported for the
same reasons provided in previous
rulemaking regarding differences
between valve replacements and valve

repairs. Our clinical advisors do not
believe that these procedures are
clinically coherent or similar in terms of
resource consumption because the
MitraClip® technology is utilized for a
percutaneous mitral valve repair, while
the other technologies assigned to MS–
DRGs 266 and 267 are utilized for
transcatheter/endovascular cardiac
valve replacements. In addition, if cases

24987

involving the MitraClip® were
reassigned to MS–DRGs 266 and 267,
they would be overpaid by
approximately $10,000 as shown in the
table below. Our clinical advisors agree
that we should not propose to reassign
endovascular cardiac valve repair
procedures to the endovascular cardiac
valve replacement MS–DRGs.

ENDOVASCULAR CARDIAC VALVE REPLACEMENT WITH AND WITHOUT MCC
MS–DRG 266—All cases ............................................................................................................
MS–DRG 267—All cases ............................................................................................................

Next, we analyzed claims data from
the December 2015 update of the FY
2015 MedPAR file relating to the
possible reassignment of cases involving
the MitraClip® (identified by ICD–9–CM
procedure code 35.97) to MS–DRGs 228,
229, and 230 (Other Cardiothoracic
Procedures with MCC, with CC, and

without CC/MCC, respectively).
However, as shown in the findings in
the table below, the claims data did not
support this option under the current 3way severity level split. That is, the data
findings based on reassignment of
MitraClip® cases (ICD–9–CM procedure
code 35.97) to MS–DRGs 228, 229, and

7,436
8,480

8.54
4.45

$59,675
47,013

230 did not support the required
criterion that there be at least a $2,000
difference between subgroups. A
reassignment would not meet the
requirement for the ‘‘with CC’’ and
‘‘without CC/MCC’’ subgroups ($34,461
¥ $33,216 = $1,245).

OTHER CARDIOTHORACIC PROCEDURES (WITH PROCEDURE CODE 35.97)
Number of
cases

MS–DRG
MS–DRG 228—with MCC ...........................................................................................................
MS–DRG 229—with CC ..............................................................................................................
MS–DRG 230—without CC/MCC ................................................................................................

We then performed additional
analysis consisting of the base DRG
report for MS–DRGs 228, 229 and 230.
As shown in the table below, the
average costs between the ‘‘with CC’’
and the ‘‘without CC/MCC’’ subgroups

no longer meet the criterion that there
be at least a 20-percent difference in
average costs between subgroups. These
data findings support collapsing MS–
DRGs 228, 229, and 230 from a 3-way
severity level split into a 2-way severity

1,966
2,318
709

Average
length of
stay
11.53
6.28
3.76

Average
costs
$51,634
34,461
33,216

level split (with MCC and without MCC)
based on 2 years (FY 2014 and FY 2015)
of MedPAR data. This option would
involve the deletion of an MS–DRG.

OTHER CARDIOTHORACIC PROCEDURES
Number
of cases
FY 2015

MS–DRG

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

MS–DRG 228—with MCC .......................
MS–DRG 229—with CC ..........................
MS–DRG 230—without CC/MCC ............

1,509
1,835
499

In the additional analysis, we
evaluated if reassignment of cases
reporting ICD–9–CM procedure code
35.97 to this proposed 2-way severity
split was supported. We confirmed that
the reassignment of ICD–9–CM
procedure code 35.97 could be
replicated under the ICD–9 MS–DRGs.
We believe that deleting MS–DRG 230,
revising MS–DRG 229, and reassigning

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Average
length
of stay
FY 2015

Average
costs
FY 2015

12.73
7.16
4.52

$51,960
33,786
30,697

cases with procedure code 35.97 from
MS–DRGs 273 and 274 to this new
structure would reflect these procedures
more accurately in the ICD–10 MS–
DRGs. Our clinical advisors agreed with
a proposal to delete MS–DRG 230 and
reassign cases involving percutaneous
mitral valve repair with implant
(MitraClip®) to MS–DRG 228 and
revised MS–DRG 229. We believe that

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Number of
cases
FY 2014
1,486
1,900
443

Average
length
of stay
FY 2014
12.75
7.46
4.84

Average
costs
FY 2014
$50,688
33,277
31,053

this approach would maintain clinical
coherence for these MS–DRGs and
reflect more appropriate payment for
procedures involving percutaneous
mitral valve repair. The proposed
revisions to the MS–DRGs, which
include the MitraClip® cases, are shown
in the table below.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
OTHER CARDIOTHORACIC PROCEDURES
Number of
cases

Proposed revised MS–DRGs
MS–DRG 228—with MCC ...........................................................................................................
MS–DRG 229—without MCC ......................................................................................................

For FY 2017, we are proposing to
collapse MS–DRGs 228, 229, and 230
from three severity levels to two severity
levels by deleting MS–DRG 230 and
revising MS–DRG 229. We also are
proposing to reassign ICD–9–CM
procedure code 35.97 and the cases
reporting ICD–10–PCS procedure code
02UG3JZ (Supplement mitral valve with
synthetic substitute, percutaneous
approach) from MS–DRGs 273 and 274
to MS–DRG 228 and proposed revised
MS–DRG 229. The title of MS–DRG 229
would be modified as follows to reflect
the ‘‘without MCC’’ designation. The
title of proposed revised MS–DRG 229
would be ‘‘Other Cardiothoracic
Procedures without MCC’’. The title for
MS–DRG 228 would remain the same:
MS–DRG 228 (Other Cardiothoracic
Procedures with MCC). We are inviting
public comments on our proposals.
We also note that, as discussed earlier
in this section, in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49371),
ICD–10–PCS code 02UG3JZ
(Supplement mitral valve with synthetic
substitute, percutaneous approach) was
assigned to MS–DRGs 231 and 232
(Coronary Bypass with PTCA with MCC
and without MCC, respectively), in
addition to new MS–DRGs 273 and 274,

to fully replicate the ICD–9–CM based
MS–DRG logic for ICD–9–CM procedure
code 35.97. If our proposal in this FY
2017 proposed rule to reassign ICD–10–
PCS code 02UG3JZ to MS–DRGs 228
and proposed revised MS–DRG 229 is
finalized in the FY 2017 IPPS/LTCH
PPS final rule, it will eliminate the need
to continue having ICD–10–PCS code
02UG3JZ and ICD–9–CM code 35.97
group to MS–DRGs 231 and 232. This is
due to the fact that, currently, MS–DRGs
228, 229, and 230 are listed higher than
MS–DRGs 231 through 236 in the
surgical hierarchy, as shown in the ICD–
9 and ICD–10 MS–DRGs Definitions
Manual Files in Appendix D—MS–DRG
Surgical Hierarchy by MDC and MS–
DRG, which is available via the Internet
on the CMS Web site at: https://www.
cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
FY2016-IPPS-Final-Rule-Home-PageItems/FY2016-IPPS-Final-Rule-DataFiles.html?DLPage=1&DLEntries=10&
DLSort=0&DLSortDir=ascending.
Therefore, if the proposal is finalized for
FY 2017, cases reporting ICD–10–PCS
procedure code 02UG3JZ will group to
MS–DRGs 228 and revised MS–DRG 229
versus MS–DRGs 231 and 232 because

Average
length
of stay

1,966
3,027

Average
costs

11.53
5.69

$51,634
34,169

of the surgical hierarchy GROUPER
logic.
As a result, we are proposing to
remove ICD–10–PCS procedure code
02UG3JZ and ICD–9–CM procedure
code 35.97 from the PTCA list in MS–
DRGs 231 and 232 (Coronary Bypass
with PTCA with MCC and without
MCC, respectively) for FY 2017 if the
proposal to reassign ICD–9–CM
procedure code 35.97 and the cases
reporting ICD–10–PCS procedure codes
02UG3JZ from MS–DRGs 273 and 274 to
MS–DRGs 228 and proposed revised
MS–DRG 229 is finalized. We are
inviting public comments on our
proposals.
e. MS–DRG 245 (AICD Generator
Procedures)
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49369), we stated that we
would continue to monitor MS–DRG
245 (AICD Generator Procedures) to
determine if the data supported
subdividing this base MS–DRG into
severity levels. As displayed in the table
below, the results of the FY 2015 data
analysis showed there were a total of
1,464 cases, with an average length of
stay of 5.5 days and average costs of
$34,564 for MS–DRG 245.

AICD GENERATOR PROCEDURES
MS–DRG

Number
of cases

Average
length of
stay

Average
costs

MS–DRG 245 ..............................................................................................................................

1,464

5.5

$34,564

We applied the five criteria
established in the FY 2008 IPPS final
rule (72 FR 47169), as described in

section II.F.1.b. of the preamble of this
proposed rule to determine if it was
appropriate to subdivide MS–DRG 245

into severity levels. The table below
illustrates our findings.

AICD GENERATOR PROCEDURES
Number
of cases

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

MS–DRG by suggested severity level
MS–DRG 245—with MCC ...........................................................................................................
MS–DRG 245—with CC ..............................................................................................................
MS–DRG 245—without CC/MCC ................................................................................................

Based on our analysis of claims data
from the December 2015 update of the
FY 2015 MedPAR file, the data findings

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18:46 Apr 26, 2016

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do not support creating new severity
levels. The findings show that the data
do not meet the criteria for a 3-way

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449
861
154

Average
length of
stay
8.37
4.59
2.86

Average
costs
$40,175
32,518
29,646

severity level split as the criterion that
there be at least a 20-percent difference
in average costs between subgroups is

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
not met for the ‘‘with CC’’ and ‘‘without
CC/MCC’’ severity levels. We also

24989

looked at the prospect of a 2-way
severity level split.

AICD GENERATOR PROCEDURES
Number
of cases

MS–DRG by suggested severity level
MS–DRG 245—with MCC ...........................................................................................................
MS–DRG 245—without MCC ......................................................................................................

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

The findings do show that the data are
close to meeting the criteria for a 2-way
severity level split of ‘‘with MCC and
without MCC.’’ However, the required
criterion that there must be at least 500
cases in the MCC group is not met.
Therefore, for FY 2017, we are not
proposing to subdivide MS–DRG 245
into severity levels. We are inviting
public comments on our proposal to
maintain the current structure for MS–
DRG 245.
6. MDC 6 (Diseases and Disorders of the
Digestive System): Excision of Ileum
We received a request to analyze an
MS–DRG replication issue from the
ICD–9–CM based MS–DRGs to the ICD–
10 based MS–DRGs for excision
procedures performed on the ileum.
Under ICD–9–CM, procedure code 45.62
(Other partial resection of small
intestine) was assigned to MS–DRGs
329, 330 and 331 (Major Small and
Large Bowel Procedures with MCC, with
CC, and without CC/MCC, respectively).
Under the current ICD–10 MS–DRGs
Version 33, ICD–10–PCS procedure
code 0DBB0ZZ (Excision of ileum, open
approach) is assigned to MS–DRGs 347,
348, and 349 (Anal and Stomal
Procedures with MCC, with CC, and
without CC/MCC, respectively). The
requestor indicated that, despite the
variation in terms for ‘‘excision’’ and
‘‘resection’’ between the two code sets,
the surgical procedure to remove a
portion of the small intestine, whether
it is the ileum, duodenum, or jejunum,
has not changed and should not result
in different MS–DRG assignments when
translated from ICD–9–CM to ICD–10.
We agree that this is a replication
error. In addition to ICD–10–PCS code
0DBB0ZZ, we also reviewed the MS–
DRG assignments for ICD–10–PCS code
0DBA0ZZ (Excision of jejunum, open
approach) and determined the MS–DRG
assignment for this code resulted in the
same replication error. Therefore, we are
proposing to reassign ICD–10–PCS
codes 0DBB0ZZ and 0DBA0ZZ from
MS–DRGs 347, 348, and 349 to MS–
DRGs 329, 330, and 331, effective with

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the ICD–10 MS–DRGs Version 34 on
October 1, 2016.
We are inviting public comments on
our proposal.
7. MDC 7 (Diseases and Disorders of the
Hepatobiliary System and Pancreas):
Bypass Procedures of the Veins
We received a request to assign ICD–
10–PCS code 06183DY (Bypass portal
vein to lower vein with intraluminal
device, percutaneous approach) to MDC
7 (Diseases and Disorders of the
Hepatobiliary System and Pancreas)
under MS–DRGs 405, 406, and 407
(Pancreas Liver and Shunt Procedures
with MCC, with CC, and without CC/
MCC, respectively). The requestor
described this code as capturing a
transjugular intrahepatic portosystem
shunt procedure. The requestor stated
that, under ICD–9–CM, when a
procedure for cirrhosis of the liver was
performed, the procedure was assigned
to ICD–9–CM code 39.1 (Intraabdominal venous shunt). The requestor
noted that when ICD–9–CM procedure
code 39.1 is reported with a principal
diagnosis of cirrhosis of the liver, the
procedure was assigned to MS–DRG
405, 406, or 407 in the ICD–9–CM MS–
DRGs.
Currently, ICD–10–PCS procedure
code 06183DY is assigned to only MDC
5 (Diseases and Disorders of the
Circulatory System) and MS–DRGs 270,
271, and 272 (Other Major
Cardiovascular Procedures with MCC,
with CC, and without CC/MCC,
respectively) under ICD–10 MS–DRGs
Version 33. The requestor stated that
ICD–10–PCS procedure code 06183DY
code should also be assigned to MDC 7
and MS–DRGs 405, 406, and 407 to be
consistent with the ICD–9–CM MS–
DRGs Version 32.
We analyzed this issue and agree that
the ICD–10 MS–DRGs do not fully
replicate the ICD–9–CM MS–DRGs. We
agree that ICD–10–PCS procedure code
06183DY should be assigned to MDC 7
and MS–DRGs 405, 406, and 407 to
replicate the ICD–9–CM MS–DRGs. Our
clinical advisors reviewed this issue and

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449
1,015

Average
length of
stay
8.37
4.33

Average
costs
$40,175
32,081

also agree that ICD–10–PCS procedure
code 06183DY should be assigned to
MDC 7 and MS–DRGs 405, 406, and
407. Therefore, we are proposing to
assign ICD–10–PCS procedure code
06183DY to MDC 7 and MS–DRGs 405,
406, and 407 for FY 2017.
We are inviting public comments on
our proposal.
8. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue)
a. Proposed Updates to MS–DRGs 469
and 470 (Major Joint Replacement or
Reattachment of Lower Extremity With
and Without MCC, respectively)
(1) Total Ankle Replacement (TAR)
Procedures
We received a request to create a new
MS–DRG for total ankle replacement
(TAR) procedures, which are currently
assigned to MS–DRGs 469 and 470
(Major Joint Replacement or
Reattachment of Lower Extremity with
and without MCC, respectively). We
previously discussed requested changes
to the MS–DRG assignment for TAR
procedures in the FY 2015 IPPS/LTCH
PPS proposed rule (79 FR 28013
through 28015) and in the FY 2015
IPPS/LTCH PPS final rule (79 FR 49896
through 49899). For FY 2015, we did
not change the MS–DRG assignment for
total ankle replacements. The requestor
stated that reassigning total ankle
replacement procedures from MS–DRGs
469 and 470 to a new MS–DRG would
have an important benefit for the new
Medicare Comprehensive Care for Joint
Replacement (CJR) model. The
commenter noted that because total
ankle replacement cases currently are
assigned to MS–DRGs 469 and 470, they
are included in the model.
Ankle replacement procedures were
captured by ICD–9–CM code 81.56
(Total ankle replacement). We examined
claims data for total ankle procedures
using the December 2015 update of the
FY 2015 MedPAR file. Our findings are
displayed in the table below.

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TOTAL ANKLE REPLACEMENT CASES REPORTED IN MS–DRGS 469 AND 470
Number of
cases

MS–DRG

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MS–DRG
MS–DRG
MS–DRG
MS–DRG

469—All cases ............................................................................................................
469—Total ankle replacement cases .........................................................................
470—All cases ............................................................................................................
470—Total ankle replacement cases .........................................................................

As the total ankle replacement claims
data analysis showed, these procedures
represent a small fraction of the total
number of cases reported in MS–DRGs
469 and 470. There were 30 total ankle
replacement cases reported in MS–DRG
469 and 1,626 total ankle replacement
cases in MS–DRG 470, compared to
25,729 total cases reported in MS–DRG
469 and 421,149 total cases reported in
MS–DRG 470. The average length of stay
for total ankle replacement cases was
5.40 days and average costs for total
ankle replacement cases were $34,889
reported in MS–DRG 469, compared to
average length of stay of 6.92 days and
average costs of $22,358 for all cases
reported in MS–DRG 469. The average
length of stay for total ankle
replacement cases was 1.94 days and
average costs of total ankle replacement
cases were $20,019 reported in MS–DRG
470, compared to an average length of
stay of 2.92 days and average costs of
$14,834 for all cases reported in MS–
DRG 470.
Given the low volume of cases, we
believe that these cost data may not be
a complete measure of actual differences
in inpatient resource utilization for
beneficiaries receiving total ankle
replacements. In addition, these total
ankle replacement cases may have been
impacted by other factors such as
complication or comorbidities. Several
expensive cases could impact the
average costs for a very small number of
patients. The average cost of total ankle
replacement cases reported in MS–DRG
469 was $12,531 higher than all cases
reported in MS–DRG 469 ($34,889
compared to $22,358 for all reported
cases), but there were only 30 cases
compared to a total of 25,729 cases
reported in MS–DRG 469. The average
cost of total ankle replacement cases
reported in MS–DRG 470 was $5,185
higher than all cases reported in MS–
DRG 470. There were 1,626 total ankle
replacement cases out of a total of
421,149 cases reported in MS–DRG 470.
The average costs of the total ankle
replacement cases were higher than
those for all cases reported in MS–DRG
469 and 470. However, some cases have
higher and some cases have lower
average costs within any MS–DRG. MS–
DRGs are groups of clinically similar

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cases that have similar overall costs.
Within a group of cases, one would
expect that some cases have costs that
are higher than the overall average and
some cases have costs that are lower
than the overall average.
The data do not support creating a
new total ankle replacement MS–DRG
for this small number of cases. Also, our
clinical advisors pointed out that
creating a new MS–DRG for total ankle
replacements would result in combining
cases reporting an MCC with an average
length of stay of 5.40 days and cases not
reporting an MCC with an average
length of stay of 1.94 days. Our clinical
advisors did not recommend the
creation of a new MS–DRG for this
single procedure with such a small
number of cases. They also stated that
patients undergoing total ankle
replacement have similar clinical
features compared to other patients
undergoing procedures included in MS–
DRGs 469 and 470. Furthermore, we
believe that the volume of total ankle
replacement procedures performed
relative to hip and knee replacement
procedures minimizes the benefit that a
new MS–DRG would have on the
Medicare CJR model. Our clinical
advisors determined that the cases
involving total ankle replacements are
more appropriately assigned to MS–
DRGs 469 and 470 with the two severity
levels.
Based on the findings from our data
analysis and the recommendations from
our clinical advisors, we are not
proposing to create a new MS–DRG for
total ankle replacement procedures. We
are proposing to maintain the current
MS–DRG structure for MS–DRGs 469
and 470.
We are inviting public comments on
this proposal.
(2) Hip Replacement Procedures With
Principal Diagnosis of Hip Fracture
We received several requests to
remove hip replacement procedures
with a principal diagnosis of hip
fracture from MS–DRGs 469 and 470
(Major Joint Replacement or
Reattachment of Lower Extremity with
and without MCC, respectively) and to
create a new MS–DRG for assignment of
these hip replacement procedures. One

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25,729
30
421,149
1,626

Average
length of stay
6.92
5.40
2.92
1.94

Average costs
$22,358
34,889
14,834
20,019

requestor suggested that if such a new
MS–DRG could not be created, CMS
consider reassigning all hip replacement
procedures with a principal diagnosis of
hip fracture only to MS–DRG 469, even
if there were no reported MCC.
The requestors stated that hip
replacement procedures performed on
patients with hip fractures involve a
more fragile population of patients than
the typical patient population who
undergo elective hip or knee
replacement and that these more fragile
patient cases also are assigned to MS–
DRGs 469 and 470. The requestors
stated that cases of patients who have
hip replacements with hip fractures may
have significant comorbidities not
present in patients who undergo
elective hip replacements. One
requestor stated that the absolute
number of hospitalizations for hip
fractures in the United States is
currently more than 350,000 and the
number is rising. The requestor stated
that 90 percent of hip fractures result
from a simple fall, and that hip fracture
rates increase with age. According to the
requestor, the 1-year mortality rate for
patients who undergo hip replacement
procedures after a hip fracture was
approximately 20 percent, and the 3year mortality rate was up to 50 percent.
The requestor also stated that one out of
three adults who lived independently
before their hip fracture remains in a
nursing home for at least a year after the
hip fracture. In contrast, the requestor
noted that patients under elective hip
replacement procedures for arthritis
have fewer comorbidities, improved
health after the procedure, low rates of
readmission, and less postacute needs.
The requestor believed that there are
many factors that impact the outcome of
hip replacements for hip fractures,
including patient factors, fracture type,
surgeon and hospital factors, treatment
decisions, complication rates, and
rehabilitation factors/access. The
requestor added that, despite the
commitment to standardization, the use
of protocol-driven care, early surgery
(<24 hours) after surgical optimization,
prevention of recurrent fractures, and
comanagement with medical/surgical
teams, many patients who undergo hip
replacement procedures for hip

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fractures have serious renal,
cardiovascular, and liver disease, as
well as multiple medical comorbidities.
The rates of postoperative infections,
readmissions, and postacute care for the
patients who undergo hip replacements
for hip fractures are higher than for
patients who undergo elective hip
replacement. Some requestors
referenced the Bundled Payments for
Care Improvement Initiative (BPCI) and
believed that their requested changes to
MS–DRGs 469 and 470 would support

this effort. The requestors stated that the
MS–DRG assignment for the hip
replacement procedures with hip
fractures has tremendous implications
for successful participation in the BPCI
because the BPCI’s clinical episodes
track to MS–DRG assignment, and the
Major Joint Replacement of the Lower
Extremity Clinical Episode encompasses
procedures assigned to MS–DRGs 469
and 470. Alternatively, the requestors
suggested that CMS reassign all cases of
hip replacement procedures with a

principal diagnosis of hip fracture to
MS–DRG 469 to recognize the more
significant adverse health profile of
these types of cases.
We examined claims data for cases
reporting hip replacement procedures
for patients admitted with hip fractures
under MS–DRGs 469 and 470 in the
December 2015 update of the FY 2015
MedPAR file. We used the following list
of ICD–9–CM diagnosis codes to
identify cases representing hip
replacements for hip fractures:

ICD–9–CM DIAGNOSIS CODES REVIEWED FOR CASES REPRESENTING HIP REPLACEMENT FOR HIP FRACTURES
ICD–9–CM
diagnosis code
733.14 ...............
733.15 ...............
733.81 ...............
733.82 ...............
733.96 ...............
808.0 .................
808.1 .................
820.8 .................
820.9 .................
820.00 ...............
820.01 ...............
820.02 ...............
820.03 ...............
820.09 ...............
820.10 ...............
820.11 ...............
820.12 ...............
820.13 ...............
820.19 ...............
820.20 ...............
820.21 ...............
820.22 ...............
820.30 ...............
820.31 ...............
820.32 ...............

Descriptions
Pathological fracture of neck of femur.
Pathological fracture of other specified part of femur.
Malunion of fracture.
Nonunion of fracture.
Stress fracture of femoral neck.
Closed fracture of acetabulum.
Open fracture of acetabulum.
Fracture of unspecified part of neck of femur closed.
Fracture of unspecified part of neck of femur open.
Fracture of unspecified intracapsular section of neck of femur closed.
Fracture of epiphysis (separation) (upper) of neck of femur closed.
Fracture of midcervical section of femur closed.
Fracture of base of neck of femur closed.
Other transcervical fracture of femur closed.
Fracture of unspecified intracapsular section of neck of femur open.
Fracture of epiphysis (separation) (upper) of neck of femur open.
Fracture of midcervical section of femur open.
Fracture of base of neck of femur open.
Other transcervical fracture of femur open.
Fracture of unspecified trochanteric section of femur closed.
Fracture of intertrochanteric section of femur closed.
Fracture of subtrochanteric section of femur closed.
Fracture of unspecified trochanteric section of femur open.
Fracture of intertrochanteric section of femur open.
Fracture of subtrochanteric section of femur open.

Our findings from our examination of
the data are shown in the table below.

CASES OF HIP REPLACEMENTS WITH AND WITHOUT PRINCIPAL DIAGNOSIS OF HIP FRACTURE
Number of
cases

MS–DRG

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

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

469—All cases ............................................................................................................
469—Hip replacement cases with hip fractures .........................................................
469—Hip replacement cases without hip fractures ....................................................
470—All cases ............................................................................................................
470—Hip replacement cases with hip fractures .........................................................
470—Hip replacement cases without hip fractures ....................................................

For MS–DRG 469, the average costs of
all 25,729 reported cases were $22,358
and the average length of stay was 6.9
days. Within MS–DRG 469, there were
14,459 cases of hip replacements with
hip fractures reported, with average
costs of $22,852 and an average length
of stay of 7.9 days. Within MS–DRG
469, there were 4,714 cases of hip

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replacements without hip fractures
reported, with average costs of $22,430
and an average length of stay of 5.7
days. The average costs of reported
cases of hip replacements with hip
fractures are similar to the average costs
of all cases reported within MS–DRG
469 ($22,852 compared to $22,358), and
to the average costs of reported cases of

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25,729
14,459
4,714
421,149
49,703
125,607

Average
length of
stay

Average costs
6.9
7.9
5.7
2.9
4.7
2.6

$22,358
22,852
22,430
14,834
15,795
14,870

hip replacements without hip fractures
($22,852 compared to $22,430).
However, the average length of stay for
cases of hip replacements with hip
fractures reported in MS–DRG 469 is
higher than the average length of stay
for all cases reported in MS–DRG 469
and for cases of hip replacements
without hip fractures reported in MS–

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

DRG 469 (7.9 days compared to 6.9 days
and 5.7 days, respectively.)
For MS–DRG 470, the average costs of
all 421,149 cases reported were $14,834
and the average length of stay was 2.9
days. Within MS–DRG 470, there were
49,703 reported cases of hip
replacements with hip fractures, with
average costs $15,795 and an average
length of stay of 4.7 days. Within MS–
DRG 470, there were 125,607 cases of
hip replacements without hip fractures
reported, with average costs of $14,870
and an average length of stay of 2.6
days. However, the average length of
stay for cases of hip replacements with
hip fractures reported in MS–DRG 470
was higher than the average length of
stay for all cases and for cases of hip
replacements without hip fractures
reported in MS–DRG 470 (4.7 days
compared to 2.9 days and 2.6 days,
respectively). Therefore, the average
costs of cases of hip replacements with
hip fractures were similar for both MS–
DRG 469 and MS–DRG 470 ($22,852
compared to $22,358 and $15,795
compared to $14,834, respectively).
However, the average lengths of stay are
longer for cases of hip replacements
with hip fractures compared to all cases
reported in both MS–DRGs 469 and 470
(7.9 days compared to 6.9 days and 4.7
days compared to 2.9 days,
respectively).
The claims data do not support
creating a new MS–DRG for the
assignment of cases of hip replacements
with hip fractures. As discussed earlier,
the average costs for cases of hip
replacements with hip fractures
reported in MS–DRG 469 and MS–DRG
470 are similar to the average costs for
all cases reported in MS–DRG 469 and
MS–DRG 470. While the average length
of stay is longer for cases of hip
replacements with hip fractures than for
cases of hip replacements without hip
fractures reported within MS–DRGs 469
and 470, the increased length of stay did
not impact the average costs of reported
cases in either MS–DRG 469 or 470. The
data showed that cases of hip
replacement procedures are clearly
influenced by the presence of an MCC.
The average costs of all cases reported
in MS–DRG 469, which identifies an
MCC, were $22,358, compared to
average costs of $14,834 for all cases
reported in MS–DRG 470, which did not
identify an MCC. The data showed that
the presence of a principal diagnosis of

a hip fracture did not impact the average
costs of cases reported in either MS–
DRG 469 or MS–DRG 470.
We also examined the data in relation
to the request to reassign all procedures
of hip replacement with hip fractures
from MS–DRG 470 to MS–DRG 469,
even if there is no MCC present. The
data showed that the 49,703 cases of hip
replacements with hip fractures
reported in MS–DRG 470 have average
costs of $15,795 and an average length
of stay of 4.7 days. The 25,729 total
cases of hip replacements reported in
MS–DRG 469 have average costs of
$22,358 and an average length of stays
of 6.9 days. Therefore, the data for
average costs and average length of stay
for all cases involving hip replacement
procedures with hip fractures reported
in MS–DRG 470 do not support
reassigning all cases of hip replacement
procedures with hip fractures to MS–
DRG 469, even if there is no MCC
present.
Our clinical advisors reviewed this
issue and agree that the hip replacement
procedures performed for patients with
hip fractures are appropriately assigned
to MS–DRGs 469 and 470. They did not
support reassigning these procedures
from MS–DRGs 469 and 470 to a new
MS–DRG or reassigning all cases of hip
replacement procedures with hip
fractures to MS–DRG 469, even if the
case does not have an MCC. Our clinical
advisors stated that the surgical
techniques used for hip replacements
are similar for all patients. They advised
that the fact that some patients also had
a hip fracture would not justify creating
a new MS–DRG or reassigning all cases
of hip replacement procedures with hip
fractures to MS–DRG 469. Our clinical
advisors noted that the costs of cases of
hip replacements are more directly
impacted by the presence or absence of
an MCC than the presence or absence of
a hip fracture.
Based on the findings from our data
analyses and the recommendations from
our clinical advisors, we are not
proposing to create a new MS–DRG for
the assignment of procedures involving
hip replacement in patients who have
hip fractures or to reassign all
procedures involving hip replacements
with hip fractures to MS–DRG 469 even
if there is no MCC present. We are
proposing to maintain the current MS–
DRG structure for MS–DRGs 469 and
470.

ICD–10–PCS
procedure code
0SWF0JZ ..........
0SWF3JZ ..........
0SWF4JZ ..........

VerDate Sep<11>2014

We are inviting public comments on
our proposals.
b. Revision of Total Ankle Replacement
Procedures
(1) Revision of Total Ankle Replacement
Procedures
We received a request to modify the
MS–DRG assignment for revision of
total ankle replacement procedures.
Currently, these procedures are assigned
to MS–DRGs 515, 516, and 517 (Other
Musculoskeletal System and Connective
Tissue O.R. Procedures with MCC, with
CC and without CC/MCC, respectively).
This topic was discussed in the FY 2015
IPPS/LTCH PPS proposed rule (79 FR
28013 through 28015) and the FY 2015
IPPS/LTCH PPS final rule (79 FR 49896
through 49899). However, at that time,
we did not change the MS–DRG
assignment for revisions of total ankle
replacement procedures.
The requestor presented two options
for consideration for modifying the MS–
DRG assignment for the revisions of
total ankle replacement procedures. The
requestor’s first option was to create a
new MS–DRG for the assignment of
revision of total ankle replacement
procedures. The requestor believed that
a new MS–DRG would be justified
based on the distinct costs, resources,
and utilization associated with ankle
joint revision cases. The requestor’s
second option was to reassign revision
of total ankle replacement procedures to
MS–DRGs 466, 467, and 468 (Revision
of Hip or Knee Replacement with MCC,
with CC, and without CC/MCC,
respectively) and rename MS–DRGs
466, 467, and 468 as ‘‘Revision of Hip,
Knee, or Ankle with MCC, with CC, and
without CC/MCC’’, respectively. The
requestor believed that this second
option would be justified because it is
a reasonable, temporary approach until
CMS has sufficient utilization and cost
data for revision of total ankle
replacement procedures based on the
reporting of the new and more specific
ICD–10–PCS procedure codes. The
requestor pointed out that the following
more specific ICD–10–PCS procedure
codes were implemented effective
October 1, 2015, with the
implementation of ICD–10. The
requestor stated that these new codes
will provide improved data on these
procedures that can be analyzed for
future MS–DRG updates.

Description
Revision of synthetic substitute in right ankle joint, open approach.
Revision of synthetic substitute in right ankle joint, percutaneous approach.
Revision of synthetic substitute in right ankle joint, percutaneous endoscopic approach.

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ICD–10–PCS
procedure code
0SWFXJZ
0SWG0JZ
0SWG3JZ
0SWG4JZ
0SWGXJZ

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

24993

Description
Revision
Revision
Revision
Revision
Revision

of
of
of
of
of

synthetic
synthetic
synthetic
synthetic
synthetic

substitute
substitute
substitute
substitute
substitute

We agree with the requestor that the
previous code used to identify revisions
of total ankle replacement procedures,
ICD–9–CM procedure code 81.59
(Revision of joint replacement of lower
extremity, not elsewhere classified), is
not as precise as the new ICD–10–PCS
procedure codes that were implemented
on October 1, 2015. As discussed in the
FY 2015 IPPS/LTCH PPS proposed rule

in
in
in
in
in

right ankle joint, external approach.
left ankle joint, open approach.
left ankle joint, percutaneous approach.
left ankle joint, percutaneous endoscopic approach.
left ankle joint, external approach.

and final rule, ICD–9–CM procedure
code 81.59 included procedures
involving revisions of joint
replacements of a variety of lower
extremity joints, including the ankle,
foot, and toe. Therefore, the ICD–9–CM
procedure code does not provide precise
information on the number of revisions
of total ankle replacement procedures as
do the ICD–10–PCS procedure codes

listed above. We also agree that the ICD–
10–PCS procedure codes will provide
more precise data on revisions of ankle
replacements.
We examined claims data from the
December 2015 update of the FY 2015
MedPAR file on cases reporting
procedure code 81.59 in MS–DRGs 515,
516, and 517. The table below shows
our findings.

REVISIONS OF JOINT REPLACEMENTS PROCEDURES
Number of
cases

MS–DRG

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

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

515—All cases ............................................................................................................
515—Cases reporting procedure code 81.59 .............................................................
516—All cases ............................................................................................................
516—Cases reporting procedure code 81.59 .............................................................
517—All cases ............................................................................................................
517—Cases reporting procedure code 81.59 .............................................................

As can be seen from the data in the
above table, there were only 68 total
cases reported with procedure code
81.59 among MS–DRGs 515, 516, and
517: 2 Cases in MS–DRG 515; 19 cases
in MS–DRG 516; and 47 in MS–DRG
517. We point out that while there were
68 total cases reported with procedure
code 81.59 in MS–DRGs 515, 516, and
517, we are unable to determine how
many of these cases were actually
revisions of ankle replacements versus
other revisions of joint replacement of
lower extremities such as those of the
foot or toe. This small number of cases
does not justify creating a new MS–DRG
as suggested by the requestor in its first
option.
While the average costs of cases
reporting procedure code 81.59 in MS–
DRG 515 were $36,983, compared to
$21,900 for all cases reported in MS–
DRG 515, there were only 2 cases
reporting procedure code 81.59 in MS–
DRG 515, of the 3,852 total cases
reported in MS–DRG 515. In MS–DRG
516, the average costs of the 19 cases
reporting procedure code 81.59 cases
were $14,957, which is very close to the
average costs of $14,839 for all 8,567
cases reported in MS–DRG 516. The
average costs for cases reporting
procedure code 81.59 in MS–DRG 517
were higher than the average costs for
all cases reported in MS–DRG 517

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($16,524 for cases reporting procedure
code 81.59 cases compared to $12,979
for all cases reported in MS–DRG 517).
While the average costs for cases
reporting procedure code 81.59 were
$3,545 higher than all cases reported in
MS–DRG 517, we point out that there
were only 47 cases that reported
procedure code 81.59 out of the 5,664
total cases reported in MS–DRG 517.
The relatively small number of cases
may have been impacted by other
factors. Several expensive cases could
impact the average costs for a very small
number of patients.
As stated by the requestor, we do not
yet have data using the more precise
ICD–10–PCS revisions of total ankle
replacement procedure codes that were
implemented on October 1, 2015. These
new codes will more precisely identify
the number of patients who had a
revision of total ankle replacement
procedure and the number of patients
who had revisions of other lower joint
replacement procedures such as the foot
or toe. The available clinical data from
the December 2015 update of the FY
2015 MedPAR file do not support the
creation of a new MS–DRG for the
assignment of revisions of total ankle
replacement procedures or the
reassignment of these cases to other
MS–DRGs, such as MS–DRGs 466, 467,
and 468, because there were so few

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3,852
2
8,567
19
5,664
47

Average
length of stay
8.54
7.00
5.24
3.74
3.20
1.89

Average costs
$21,900
36,983
14,839
14,957
12,979
16,524

cases and because we could not
determine how many of these cases
were revisions of ankle replacements.
Claims data on the ICD–10–PCS codes
will not be available until 2 years after
the implementation of the codes, which
was October 1, 2015.
Our clinical advisors reviewed this
issue and determined that the revision
of total ankle replacement procedures
are appropriately classified within MS–
DRGs 515, 516, and 517 along with
other orthopedic procedures captured
by nonspecific codes. They do not
support reassignment of the procedures
to MS–DRGs 466, 467, and 468 until
such time as detailed data for ICD–10–
PCS claims are available to evaluate
revision of total ankle replacement
procedures. Therefore, based on the
findings of our analysis of claims data
and the advice of our clinical advisors,
we are proposing to maintain the
current MS–DRG assignment for
revision of total ankle replacement
procedures for FY 2017.
We are inviting public comments on
our proposal.
(2) Combination Codes for Removal and
Replacement of Knee Joints
We received several requests asking
CMS to examine whether additional
combinations of procedure codes for the
removal and replacements of knee joints
should be added to MS–DRGs 466, 467,

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

and 468 (Revision of Hip or Knee
Replacement with MCC, with CC, and
without CC/MCC, respectively). This
topic was discussed in the FY 2016
IPPS/LTCH PPS proposed rule (80 FR

24379 through 24395) and the FY 2016
IPPS/LTCH PPS final rule (80 FR 49390
through 49406). One requestor stated
that the procedure codes in the
following table were not included in the

ICD–10–PCS
procedure code
0SPD08Z
0SPD38Z
0SPD48Z
0SPC08Z
0SPC38Z
0SPC48Z

Description

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

Removal
Removal
Removal
Removal
Removal
Removal

of
of
of
of
of
of

spacer
spacer
spacer
spacer
spacer
spacer

from
from
from
from
from
from

left knee joint, open approach.
left knee joint, percutaneous approach.
left knee joint, percutaneous endoscopic approach.
right knee joint, open approach.
right knee joint, percutaneous approach.
right knee joint, percutaneous approach.

Other requestors stated that the
procedure codes in the following table
are not included in the list of

combinations that group to MS–DRGs
466, 467, and 468 when reported in
conjunction with an ICD–10–PCS code

ICD–10–PCS
procedure code
0SRC0J9
0SRC0JA
0SRC0JZ
0SRC07Z
0SRC0KZ

code pairs that group to MS–DRGs 466,
467, and 468 in the ICD–10 MS–DRGs
Version 33.

for the removal of synthetic substitute
from the joint in the ICD–10 MS–DRGs
Version 33.

Description

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

Replacement
Replacement
Replacement
Replacement
Replacement

of
of
of
of
of

right
right
right
right
right

knee
knee
knee
knee
knee

We agree that the joint revision cases
involving the removal of a spacer and
subsequent insertion of a new knee joint
prosthesis should be assigned to MS–
DRGs 466, 467, and 468. We examined
knee joint revision combination codes
that are not currently assigned to MS–

joint
joint
joint
joint
joint

with
with
with
with
with

synthetic substitute, cemented, open approach.
synthetic substitute, uncemented, open approach.
synthetic substitute, open approach.
autologous tissue substitute, open approach.
nonautologous tissue substitute, open approach.

DRGs 466, 467, and 468 in ICD–10 MS–
DRGs Version 33 and identified 58
additional combinations that also
should be included so that the same
logic is used in the ICD–10 version of
the MS–DRGs as is used in the ICD–9–
CM version. We are proposing to add

the following 58 new code combinations
that capture the joint revisions to the
Version 34 MS DRG structure for MS–
DRGs 466, 467, and 468, effective
October 1, 2016.

ICD–10–PCS CODE PAIRS PROPOSED TO BE ADDED TO VERSION 34 ICD–10 MS–DRGS 466, 467, AND 468:
PROPOSED NEW KNEE REVISION ICD–10–PCS COMBINATIONS
Code
0SPC08Z .....

Code description
Replacement of Right Knee Joint with Synthetic
Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint with Synthetic
Substitute, Uncemented, Open Approach.
Replacement of Right Knee Joint with Synthetic
Substitute, Open Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Open Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Open Approach.
Replacement of Right Knee Joint with Synthetic
Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint with Synthetic
Substitute, Uncemented, Open Approach.
Replacement of Right Knee Joint with Synthetic
Substitute, Open Approach.

and

0SRC0J9 .....

from Right Knee Joint, Open

and

0SRC0JA ....

from Right Knee Joint, Open

and

0SRC0JZ .....

from Right Knee Joint, Open

and

0SRT0J9 .....

0SPC08Z .....

Removal of Spacer from Right Knee Joint, Open
Approach.

and

0SRT0JA .....

0SPC08Z .....

Removal of Spacer from Right Knee Joint, Open
Approach.
Removal of Spacer from Right Knee Joint, Open
Approach.

and

0SRT0JZ .....

and

0SRV0J9 .....

0SPC08Z .....

Removal of Spacer from Right Knee Joint, Open
Approach.

and

0SRV0JA .....

0SPC08Z .....

Removal of Spacer from Right Knee Joint,
Approach.
Removal of Spacer from Right Knee
Percutaneous Approach.
Removal of Spacer from Right Knee
Percutaneous Approach.
Removal of Spacer from Right Knee
Percutaneous Approach.

Open

and

0SRV0JZ .....

Joint,

and

0SRC0J9 .....

Joint,

and

0SRC0JA ....

Joint,

and

0SRC0JZ .....

0SPC08Z .....
0SPC08Z .....

0SPC08Z .....

0SPC38Z .....
0SPC38Z .....
0SPC38Z .....

VerDate Sep<11>2014

Removal of Spacer
Approach.
Removal of Spacer
Approach.
Removal of Spacer
Approach.
Removal of Spacer
Approach.

Code

from Right Knee Joint, Open

0SPC08Z .....

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Code description

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

24995

ICD–10–PCS CODE PAIRS PROPOSED TO BE ADDED TO VERSION 34 ICD–10 MS–DRGS 466, 467, AND 468:
PROPOSED NEW KNEE REVISION ICD–10–PCS COMBINATIONS—Continued
Code

Code description

Code

Code description

0SPC38Z .....

Removal of Spacer from Right Knee Joint,
Percutaneous Approach.

and

0SRT0J9 .....

Removal of Spacer from Right Knee Joint,
Percutaneous Approach.

and

0SRT0JA .....

Removal of Spacer from Right Knee Joint,
Percutaneous Approach.
Removal of Spacer from Right Knee Joint,
Percutaneous Approach.

and

0SRT0JZ .....

and

0SRV0J9 .....

0SPC38Z .....

Removal of Spacer from Right Knee Joint,
Percutaneous Approach.

and

0SRV0JA .....

0SPC38Z .....

Removal of Spacer from Right Knee
Percutaneous Approach.
Removal of Spacer from Right Knee
Percutaneous Endoscopic Approach.
Removal of Spacer from Right Knee
Percutaneous Endoscopic Approach.
Removal of Spacer from Right Knee
Percutaneous Endoscopic Approach.
Removal of Spacer from Right Knee
Percutaneous Endoscopic Approach.

Joint,

and

0SRV0JZ .....

Joint,

and

0SRC0J9 .....

Joint,

and

0SRC0JA ....

Joint,

and

0SRC0JZ .....

Joint,

and

0SRT0J9 .....

0SPC48Z .....

Removal of Spacer from Right Knee Joint,
Percutaneous Endoscopic Approach.

and

0SRT0JA .....

0SPC48Z .....

Removal of Spacer from Right Knee Joint,
Percutaneous Endoscopic Approach.
Removal of Spacer from Right Knee Joint,
Percutaneous Endoscopic Approach.

and

0SRT0JZ .....

and

0SRV0J9 .....

0SPC48Z .....

Removal of Spacer from Right Knee Joint,
Percutaneous Endoscopic Approach.

and

0SRV0JA .....

0SPC48Z .....

Removal of Spacer from Right Knee Joint,
Percutaneous Endoscopic Approach.
Removal of Synthetic Substitute from Right Knee
Joint, Percutaneous Endoscopic Approach.
Removal of Synthetic Substitute from Right Knee
Joint, Percutaneous Endoscopic Approach.
Removal of Spacer from Left Knee Joint, Open
Approach.
Removal of Spacer from Left Knee Joint, Open
Approach.
Removal of Spacer from Left Knee Joint, Open
Approach.
Removal of Spacer from Left Knee Joint, Open
Approach.

and

0SRV0JZ .....

and

0SRT0JZ .....

and

0SRV0JZ .....

and

0SRD0J9 .....

and

0SRD0JA ....

and

0SRD0JZ .....

and

0SRU0JA ....

0SPD08Z .....

Removal of Spacer from Left Knee Joint, Open
Approach.

and

0SRU0JA ....

0SPD08Z .....

Removal of Spacer from Left Knee Joint, Open
Approach.
Removal of Spacer from Left Knee Joint, Open
Approach.

and

0SRU0JZ .....

and

0SRW0J9 ....

0SPD08Z .....

Removal of Spacer from Left Knee Joint, Open
Approach.

and

0SRW0JA ....

0SPD08Z .....

Removal of Spacer from Left
Approach.
Removal of Spacer from
Percutaneous Approach.
Removal of Spacer from
Percutaneous Approach.
Removal of Spacer from
Percutaneous Approach.

Knee Joint, Open

and

0SRW0JZ ....

Left

Knee

Joint,

and

0SRD0J9 .....

Left

Knee

Joint,

and

0SRD0JA ....

Left

Knee

Joint,

and

0SRD0JZ .....

Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Open Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Open Approach.
Replacement of Right Knee Joint with Synthetic
Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint with Synthetic
Substitute, Uncemented, Open Approach.
Replacement of Right Knee Joint with Synthetic
Substitute, Open Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Open Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Open Approach.
Replacement of Right Knee Joint, Femoral Surface
with Synthetic Substitute, Open Approach.
Replacement of Right Knee Joint, Tibial Surface
with Synthetic Substitute, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Uncemented, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Open Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Open Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Uncemented, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Open Approach.

0SPC38Z .....
0SPC38Z .....
0SPC38Z .....

0SPC48Z .....
0SPC48Z .....
0SPC48Z .....
0SPC48Z .....

0SPC48Z .....

0SPC4JZ ......
0SPC4JZ ......
0SPD08Z .....
0SPD08Z .....
0SPD08Z .....
0SPD08Z .....

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

0SPD08Z .....

0SPD38Z .....
0SPD38Z .....
0SPD38Z .....

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24996

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

ICD–10–PCS CODE PAIRS PROPOSED TO BE ADDED TO VERSION 34 ICD–10 MS–DRGS 466, 467, AND 468:
PROPOSED NEW KNEE REVISION ICD–10–PCS COMBINATIONS—Continued
Code

Code description

Code description
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Open Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Uncemented, Open Approach.
Replacement of Left Knee Joint with Synthetic
Substitute, Open Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Open Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Cemented, Open Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Uncemented, Open
Approach.
Replacement of Left Knee Joint, Tibial Surface
with Synthetic Substitute, Open Approach.
Replacement of Left Knee Joint, Femoral Surface
with Synthetic Substitute, Open Approach.

0SPD38Z .....

Removal of Spacer from
Percutaneous Approach.

Left

Knee

Joint,

and

0SRU0JA ....

0SPD38Z .....

Removal of Spacer from
Percutaneous Approach.

Left

Knee

Joint,

and

0SRU0JA ....

0SPD38Z .....

Removal of Spacer from
Percutaneous Approach.
Removal of Spacer from
Percutaneous Approach.

Left

Knee

Joint,

and

0SRU0JZ .....

Left

Knee

Joint,

and

0SRW0J9 ....

0SPD38Z .....

Removal of Spacer from
Percutaneous Approach.

Left

Knee

Joint,

and

0SRW0JA ....

0SPD38Z .....

Removal of Spacer from Left Knee
Percutaneous Approach.
Removal of Spacer from Left Knee
Percutaneous Endoscopic Approach.
Removal of Spacer from Left Knee
Percutaneous Endoscopic Approach.
Removal of Spacer from Left Knee
Percutaneous Endoscopic Approach.
Removal of Spacer from Left Knee
Percutaneous Endoscopic Approach.

Joint,

and

0SRW0JZ ....

Joint,

and

0SRD0J9 .....

Joint,

and

0SRD0JA ....

Joint,

and

0SRD0JZ .....

Joint,

and

0SRU0JA ....

0SPD48Z .....

Removal of Spacer from Left Knee
Percutaneous Endoscopic Approach.

Joint,

and

0SRU0JA ....

0SPD48Z .....

Removal of Spacer from Left Knee
Percutaneous Endoscopic Approach.
Removal of Spacer from Left Knee
Percutaneous Endoscopic Approach.

Joint,

and

0SRU0JZ .....

Joint,

and

0SRW0J9 ....

0SPD48Z .....

Removal of Spacer from Left Knee
Percutaneous Endoscopic Approach.

Joint,

and

0SRW0JA ....

0SPD48Z .....

Removal of Spacer from Left Knee Joint,
Percutaneous Endoscopic Approach.
Removal of Synthetic Substitute from Left Knee
Joint, Percutaneous Endoscopic Approach.

and

0SRW0JZ ....

and

0SRU0JZ .....

0SPD38Z .....

0SPD48Z .....
0SPD48Z .....
0SPD48Z .....
0SPD48Z .....

0SPD48Z .....

0SPD4JZ ......

We are inviting public comments on
our proposal to add the joint revision
code combinations listed above to the
ICD–10 Version 34 MS–DRGs 466, 467,
and 468.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Code

c. Decompression Laminectomy
Currently, under ICD–10–PCS, the
procedure describing a decompression
laminectomy is coded for the ‘‘release’’
of a specified area of the spinal cord.
These decompression codes are
assigned to MS–DRGs 028, 029, and 030
(Spinal Procedures with MCC, with CC
or Spinal Neurostimulators, or without
CC/MCC, respectively) and to MS–DRGs
518, 519, and 520 (Back and Neck

Procedures Except Spinal Fusion with
MCC or Disc Device or Neurostimulator,
with CC, or without CC/MCC,
respectively) in the ICD–10 MS–DRGs
Version 33. A commenter brought to our
attention that codes describing release
of specific peripheral nerve are assigned
to MS–DRGs 515, 516, and 517 (Other
Musculoskeletal System and Connective
Tissue O.R. Procedures with MCC, with
CC, and without CC/MCC, respectively).
The commenter suggested that a subset
of these codes also be assigned to MS–
DRGs 028 through 030 and MS–DRGs
518 through 520 for clinical coherence
purposes. The commenter stated, for

ICD–10–PCS procedure
code
01N00ZZ
01N03ZZ
01N04ZZ
01N10ZZ
01N13ZZ

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

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18:46 Apr 26, 2016

example, that ICD–10–PCS procedure
code 00NY0ZZ (Release lumbar spinal
cord, open approach) is assigned to MS–
DRGs 028 through 030 and MS–DRGs
518 through 520. However, ICD–10–PCS
procedure code 01NB0ZZ (Release
lumbar nerve, open approach) is
assigned to MS–DRGs 515 through 517.
We agree with the commenter’s
suggestion. Therefore, for FY 2017, we
are proposing to reassign the ICD–10–
PCS procedure codes listed in the
following table from MS–DRGs 515
through 517 to MS–DRGs 028 through
030 and MS–DRGs 518 through 520
under the ICD–10 MS–DRGs Version 34.

Description
Release
Release
Release
Release
Release

cervical
cervical
cervical
cervical
cervical

Jkt 238001

plexus, open approach.
plexus, percutaneous approach.
plexus, percutaneous endoscopic approach.
nerve, open approach.
nerve, percutaneous approach.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
ICD–10–PCS procedure
code
01N14ZZ
01N80ZZ
01N83ZZ
01N84ZZ
01N90ZZ
01N93ZZ
01N94ZZ
01NA0ZZ
01NA3ZZ
01NA4ZZ
01NB0ZZ
01NB3ZZ
01NB4ZZ

Description

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

Release
Release
Release
Release
Release
Release
Release
Release
Release
Release
Release
Release
Release

cervical nerve, percutaneous endoscopic approach.
thoracic nerve, open approach.
thoracic nerve, percutaneous approach.
thoracic nerve, percutaneous endoscopic approach.
lumbar plexus, open approach.
lumbar plexus, percutaneous approach.
lumbar plexus, percutaneous endoscopic approach.
lumbosacral plexus, open approach.
lumbosacral plexus, percutaneous approach.
lumbosacral plexus, percutaneous approach.
lumbar nerve, open approach.
lumbar nerve, percutaneous approach.
lumbar nerve, percutaneous endoscopic approach.

We are inviting public comments on
our proposal.
d. Lordosis
An ICD–10 replication issue involving
four diagnosis codes related to lordosis
(excessive curvature of the lower spine)
was discovered in MS–DRGs 456, 457,
and 458 (Spinal Fusion Except Cervical
with Spinal Curvature or Malignancy or
Infection or Extensive Fusions with
MCC, with CC, and without CC/MCC).
These MS–DRGs contain specific logic
that requires a principal diagnosis
describing a spinal curvature, a
malignancy, or infection or a secondary
diagnosis that describes a spinal
curvature disorder related to another
condition.
Under the ICD–10 MS–DRGs Version
33, the following diagnosis codes were
listed on the principal diagnosis list and
the secondary diagnosis list for MS–
DRGs 456, 457, and 458:

• M40.50 (Lordosis, unspecified, site
unspecified);
• M40.55 (Lordosis, unspecified,
thoracolumbar region);
• M40.56 (Lordosis, unspecified,
lumbar region); and
• M40.57 (Lordosis, unspecified,
lumbosacral region).
We are proposing to remove the above
four diagnosis codes from the secondary
diagnosis list. We also are proposing to
maintain these same four codes in the
logic for the principal diagnosis list.
This proposed change for MS–DRGs
456, 457, and 458 would be effective
October 1, 2016, in the ICD–10 MS–
DRGs Version 34.
We are inviting public comments on
our proposals.
9. MDC 13 (Diseases and Disorders of
the Female Reproductive System):
Pelvic Evisceration
In the ICD–10 MS–DRG Definitions
Manual Version 33, the GROUPER logic

ICD–10–PCS
procedure code
in cluster

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

0TTB0ZZ
0TTD0ZZ
0UT20ZZ
0UT70ZZ
0UT90ZZ
0UTC0ZZ
0UTG0ZZ

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

for ICD–10 MS–DRGs 332, 333, and 334
(Rectal Resection with MCC, with CC
and without CC/MCC, respectively)
under MDC 6 (Diseases and Disorders of
the Digestive System) and the
GROUPER logic for MS–DRGs 734 and
735 (Pelvic Evisceration, Radical
Hysterectomy and Radical Vulvectomy
with CC/MCC and without CC/MCC,
respectively) under MDC 13 (Diseases
and Disorders of the Female
Reproductive System) include a
‘‘cluster’’ of ICD–10–PCS procedure
codes that describe pelvic evisceration.
A ‘‘cluster’’ is the term used to describe
a circumstance when a combination of
ICD–10–PCS procedure codes is needed
to fully satisfy the equivalent meaning
of an ICD–9–CM procedure code for it
to be considered a plausible code
translation. The code cluster in MS–
DRGs 332, 333, and 334 and MS–DRGs
734 and 735 is shown in the table
below.

Description
Resection
Resection
Resection
Resection
Resection
Resection
Resection

of
of
of
of
of
of
of

bladder, open approach.
urethra, open approach.
bilateral ovaries, open approach.
bilateral fallopian tubes, open approach.
uterus, open approach.
cervix, open approach.
vagina, open approach.

Pelvic evisceration (or exenteration) is
a procedure performed to treat
gynecologic cancers (cervical, uterine,
vulvar, and vaginal, among others) and
involves resection of pelvic structures
such as the procedures described by the
cluster of procedure codes listed above.
Under the ICD–9–CM MS–DRGs
Version 32, procedure code 68.8 (Pelvic
evisceration) was used to report pelvic
evisceration. ICD–9–CM procedure code
68.8 also was assigned to ICD–9–CM
MS–DRGs 332, 333, and 334 and MS–
DRGs 734 and 735 in MDCs 6 and 13,

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respectively. The inclusion term in the
ICD–9–CM Tabular List of Diseases for
pelvic evisceration (procedure code
68.8) was ‘‘Removal of ovaries, tubes,
uterus, vagina, bladder, and urethra
(with removal of sigmoid colon and
rectum).’’ In the ICD–9–CM Tabular
List, the terms shown in parentheses are
called a ‘‘non-essential modifier’’. A
‘‘non-essential modifier’’ is used in the
classification to identify a
supplementary word that may, or may
not, be present in the statement of a
disease or procedure. In other words,

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the terms in parentheses do not have to
be documented to report the code.
Because the removal of sigmoid colon
and the removal of rectum were
classified as non-essential modifiers
under ICD–9–CM, documentation that
identified that removal of those body
sites occurred was not required to report
the procedure code describing pelvic
evisceration (procedure code 68.8). In
other words, when a pelvic evisceration
procedure was performed and included
removal of other body sites (ovaries and
tubes, among others) listed in the

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inclusion term, absent the terms in
parentheses, procedure code 68.8 could
be reported and grouped appropriately
to MDC 13 under MS–DRGs 734 and
735. When a pelvic evisceration
procedure was performed and removal
of the body sites listed in the inclusion
term occurred, including the terms in
parentheses, procedure code 68.8 could
be reported and grouped appropriately
to MDC 6 under MS–DRGs 332 through
334.
Under ICD–10–PCS, users are
instructed to code separately the organs
or structures that are actually removed
and for which there is a distinctly
defined body part. Therefore, the case of
a patient who undergoes a pelvic
evisceration (exenteration) that involves
the removal of the sigmoid colon and
rectum would have each of those
procedure sites (sigmoid colon and
rectum) coded and reported separately
(in addition to the procedure codes
displayed in the cluster). In this
scenario, if the principal diagnosis is a
condition from the MDC 6 diagnosis list,
the case would group to MS–DRGs 332,
333, and 334, regardless of the code
cluster. In other words, it would not be
necessary to retain the code cluster
describing procedures performed on
female pelvic organs in MDC 6.
Therefore, for FY 2017, we are
proposing to remove the procedure code
cluster for pelvic evisceration
procedures from MDC 6 under the ICD–
10 MS–DRGs Version 34. The cluster
would remain in ICD–10 MDC 13 under
MS–DRGs 734 and 735 only. We are
inviting public comments on our
proposal.
10. MDC 19 (Mental Diseases and
Disorders): Proposed Modification of
Title of MS–DRG 884 (Organic
Disturbances and Mental Retardation)
We received a request to change the
title of MS–DRG 884 (Organic
Disturbances and Mental Retardation)
under MDC 19 (Mental Diseases and
Disorders) to ‘‘MS–DRG 884 (Organic
Disturbances and Intellectual
Disability)’’ to reflect more recent
terminology used to appropriately
describe the latter medical condition in
the MDC.
We agree with the requestor that the
reference to the phrase ‘‘Mental
Retardation’’ should be changed to
‘‘Intellectual Disability’’, to reflect the
current terminology used to describe the
condition. Therefore, we are proposing
to change the title of MS–DRG 884 as
requested by the requestor.
We are inviting public comments on
our proposal to change the title of MS–
DRG 884 from ‘‘Organic Disturbances
and Mental Retardation’’ to ‘‘Organic

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Disturbances and Intellectual
Disability’’, effective October 1, 2016, in
the ICD–10 MS–DRGs Version 34.
11. MDC 23 (Factors Influencing Health
Status and Other Contacts With Health
Services): Logic of MS–DRGs 945 and
946 (Rehabilitation With and Without
CC/MCC, Respectively)
We received several requests to
examine the MS–DRG logic for MS–
DRGs 945 and 946 (Rehabilitation with
CC/MCC and without CC/MCC,
respectively). The requestors were
concerned that ICD–9–CM codes that
clearly identified an encounter for
rehabilitation services such as
procedure codes V57.89 (Care involving
other specified rehabilitation procedure)
and V57.9 (Care involving unspecified
rehabilitation procedure) were not
included in ICD–10–CM Version 33. In
addition, the requestors pointed out that
ICD–10–CM has significantly changed
the guidelines for coding of admissions/
encounters for rehabilitation. The
requestors pointed out that under ICD–
9–CM, Section I.B.15. of the Official
Guidelines for Coding and Reporting
indicates that ‘‘when the purpose for the
admission/encounter is rehabilitation,
sequence the appropriate V code from
category V57, Care involving use of
rehabilitation procedures, as the
principal/first listed diagnosis.’’ The
requestors stated that the concept of the
ICD–9–CM category V57 codes is no
longer valid in ICD–10–CM and the
guidelines have been revised to provide
greater specificity. Instead, the
requestors added, the ICD–10–CM
guidelines state in Section II.K., ‘‘When
the purpose for the admission/
encounter is rehabilitation, sequence
first the code for the condition for
which the service is being performed.
For example, for an admission/
encounter for rehabilitation for rightsided dominant hemiplegia following a
cerebrovascular infarction, report code
I69.351, Hemiplegia and hemiparesis
following cerebral infarction affecting
right dominant side, as the first-listed or
principal diagnosis.’’
Given this lack of ICD–10–CM codes
to indicate that the reason for the
encounter was for rehabilitation, some
requesters asked that CMS review ICD–
10–CM codes for conditions requiring
rehabilitation (such as codes from
category I69) and add them to MS–DRGs
945 and 946 when rehabilitation
services are provided in order to
replicate the logic found in the ICD–9–
CM MS–DRG GROUPER. The requestors
did not suggest any specific ICD–10–CM
codes to add to MS–DRGs 945 and 946.
One requestor made a specific
recommendation for updating MS–DRGs

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945 and 946. The requestor previously
recommended that CMS review
diagnosis codes in ICD–10–CM category
I69 for possible addition to MS–DRGs
945 and 946. The requestor stated that,
upon further review, they believe that a
great number of diagnosis codes beyond
sequelae of stroke (ICD–10–CM category
I69) would need to be added in order to
replicate the logic of the ICD–9–CM
MS–DRGs. Therefore, they modified
their recommendation as follows:
• Designate MS–DRGs 945 and 946 as
pre-major diagnostic categories (PreMDC) MS–DRGs so that cases are
grouped to these MS–DRGs on the basis
of the procedure code rather than the
principal diagnosis. The requestor
stated that the ICD–10–PCS
rehabilitation codes (Section F, Physical
Rehabilitation and Diagnostic
Audiology, Body system 0,
Rehabilitation) should be used to group
cases to MS–DRGs 945 and 946 similar
to how the MS–DRG GROUPER logic
currently treats lung transplants and
tracheostomies. This would ensure that
the rehabilitation procedure codes drive
the MS–DRG assignment.
• Revise ICD–10–PCS Official
Guidelines for Coding and Reporting
and designate that the ICD–10–PCS
rehabilitation codes be used only for
admissions for rehabilitation therapy.
We acknowledge that ICD–10–CM
does not have clear diagnosis codes that
indicate the reason for the encounter
was for rehabilitation services. For that
reason, CMS had to modify the MS–
DRG logic using ICD–10–PCS procedure
codes to assign these cases to MS–DRGs
945 and 946. The logic used in MS–
DRGs 945 and 946 is shown in the
Definitions Manual Version 33, which is
posted on the CMS Web site at:
https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/FY2016-IPPS-FinalRule-Home-Page-Items/FY2016-IPPSFinal-Rule-Data-Files.html?DLPage=1&
DLEntries=10&DLSort=0&DLSortDir=
ascending. We also posted a Frequently
Asked Question section to explain how
inpatient admissions are assigned to
MS–DRGs 945 and 946, which is posted
on the CMS Web site at: https://
questions.cms.gov/faq.php?id=5005&
faqId=12548. As indicated in the
Frequently Asked Question section, the
ICD–10–CM codes required a different
approach to make sure the same cases
captured with ICD–9–CM codes would
be captured with ICD–10–CM codes. As
stated earlier, ICD–10–CM does not
contain specific codes for encounters for
rehabilitation such as ICD–9–CM
procedure codes V57.89 and V57.9. In
order to replicate the ICD–9–CM MS–
DRG logic using ICD–10–CM and ICD–

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10–PCS codes, CMS developed the new
logic included in the MS–DRG Version
33 Definitions Manual.
The Frequently Asked Question
section explains that, in order to be
assigned to ICD–10 MS–DRG 945 or 946,
a case must first have a principal
diagnosis from MDC 23 (Factors
Influencing Health Status and Other
Contacts with Health Services), where
MS–DRGs 945 and 946 are assigned.
This is currently the logic with the ICD–
9–CM MS–DRGs Version 33 where one
would first have to have a MDC 23
principal diagnosis. A complete list of
ICD–10–CM principal diagnoses for
MDC 23 can be found in the ICD–10
MS–DRGs Version 33 Definitions
Manual which is posted on the FY 2016
IPPS Final Rule Home Page under the
link for the FY 2016 Final Rule Data
Files at: https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/FY2016-IPPS-FinalRule-Home-Page-Items/FY2016-IPPSFinal-Rule-Data-Files.html. Look under
the Related Links section and select the
ICD–10–CM/PCS MS–DRG v33
Definitions Manual Table of Contents
Full Titles HTML Version file. Open
this file and the Table of Contents page
will appear. Click on the link for MDC
23 (Factors Influencing Health Status
and Other Contacts with Health
Services). On the next page that opens
(MDC 23), click on the link titled ‘‘MDC
23 Assignment of Diagnosis Codes’’ on
the upper left side of the screen. By
using the navigation arrows at the top
right hand side of the page, users can
review the 24 pages listing all of the
principal diagnosis codes assigned to
MDC 23, including many injury codes
for subsequent encounters.
Under the GROUPER Logic, cases are
assigned to MS–DRGs 945 and 946 in
one of two ways as described in the
Definitions Manual as follows:
• The encounter has a principal
diagnosis code Z44.8 (Encounter for
fitting and adjustment of other external
prosthetic devices) or Z44.9 (Encounter
for fitting and adjustment of unspecified
external prosthetic device). Both of
these codes are included in the list of
principal diagnosis codes assigned to
MDC 23.
• The encounter has an MDC 23
principal diagnosis code and one of the
rehabilitation procedure codes listed
under MS–DRGs 945 and 946.
If the case does not have a principal
diagnosis code from the MDC 23 list,
but does have a procedure code from the
list included under the Rehabilitation
Procedures for MS–DRGs 945 and 946,
the case will not be assigned to MS–
DRGs 945 or 946. The case will instead
be assigned to a MS–DRG within the

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MDC where the principal diagnosis
code is found.
Example: The encounter has a principal
diagnosis code of S02119D (Unspecified
fracture of occiput, subsequent encounter for
fracture with routine healing). This code is
included in MDC 8. Therefore, diagnosis
code S02119D and a procedure code from the
MS–DRG 945 and 946 Rehabilitation
Procedure list, such as procedure code
F0706GZ (Therapeutic Exercise Treatment of
Neurological System—Head and Neck using
Aerobic Endurance and Conditioning
Equipment) would not lead to assignment of
the case to MS–DRGs 945 and 946 because
the principal diagnosis code is not included
in MDC 23.

Diagnosis code S02119D is included
in MDC 8 as was the ICD–9–CM
predecessor code, V54.19 (Aftercare for
healing traumatic fracture of other
bone). Therefore, these cases would be
assigned to MS–DRGs 559, 560, and 561
(Aftercare, Musculoskeletal System and
Connective Tissue with MCC, with CC,
and without MCC/CC, respectively)
within MDC 8.
At this time, we do not have any
claims data that indicate how well this
MS–DRG logic is working. We are
hesitant to simply add more codes from
category I69 without evaluating the
impact of doing so using claims data.
We also do not have claims data to
indicate whether or not there have been
changes in the types or numbers of cases
assigned to MS–DRGs 945 and 946. We
welcome specific suggestions of codes
to be added to MS–DRGs 945 and 946
based on hospitals’ experience in coding
these cases. We would evaluate these
suggestions once we have claims data to
study the impact.
We have major concerns about the
recommendation to revise the ICD–10–
PCS Official Guidelines for Coding and
Reporting and designate that the ICD–
10–PCS rehabilitation codes be assigned
and reported only for admissions for
rehabilitation therapy. This would be a
major new precedent for developing
coding and reporting guidelines based
on one specific payer’s payment polices,
in this case Medicare inpatient acute
care prospective payment system
policies. Hospitals would need to know
who the payer was prior to knowing
whether or not they could assign a code
for a rehabilitation service that they
provided. If those payment policies
change, the hospital coder would need
to be aware of those changes in order to
determine whether or not they could
submit a code that captures the fact that
a rehabilitation service was provided.
CMS has worked with the Centers for
Disease Control and Prevention (CDC),
the American Hospital Association
(AHA), and the American Health

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Information Management Association
(AHIMA) to make ICD–10–PCS
guidelines generic and applicable to all
types of inpatient facilities and for all
payer types. The current ICD–10–PCS
Guidelines for Coding and Reporting do
not support this recommendation that
rehabilitation services could only be
coded and reported if the admission was
specifically for rehabilitation therapy.
The ICD–10–PCS codes were created to
accurately capture services provided.
We also have concerns about
designating MS–DRGs 945 and 946 as
pre-MDCs so that cases are grouped to
these MS–DRGs on the basis of a
rehabilitation procedure code rather
than a principal diagnosis. Pre-MDCs
were an addition to Version 8 of the
Diagnosis Related Groups. This was the
first departure from the use of principal
diagnosis as the initial variable in DRG
and subsequently MS–DRG assignment.
For Pre-MDC DRGs, the initial step in
DRG assignment was not the principal
diagnosis, but was instead certain
surgical procedures with extremely high
costs such as heart transplant, liver
transplant, bone marrow transplant, and
tracheostomies performed on patients
on long-term ventilation. These types of
services were viewed as being very
resource intensive. Recognizing these
resource intensive services and
assigning them to one of the high-cost
MS–DRGs assures appropriate payment
even if the patient is admitted for a
variety of principal diagnoses. We
believe it is inappropriate to consider
rehabilitation services in the same group
as high-cost procedures such as heart
transplants. There is the significant
potential of patients being classified out
of higher paying surgical MS–DRGs in
other MDCs and into the lower paying
MS–DRGs 945 and 946 based on the
reporting of a rehabilitation procedure
code if these MS–DRGs are moved to the
Pre-MDCs. We examined claims data for
cases reporting a rehabilitation therapy
code and found cases assigned to a wide
variety of both medical and surgical
MS–DRGs. The current coding and
reporting of rehabilitation procedure
codes for services provided suggest the
potential of significant payment
problems if MS–DRGs 945 and 946 were
assigned to the Pre-MDC section and the
reporting of cases with a rehabilitation
code led to an inappropriate
reassignment to the lower paying
medical MS–DRGs 945 and 946.
The following are only a few
examples of current claims data that
showed the hospital reported a
rehabilitation therapy procedure code
for services provided which did not
impact the MS–DRG assignment. Under
the suggested approach of making MS–

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DRGs 945 and 946 a Pre-MDC, these
cases would move from the
appropriately assigned MS–DRGs which
may have significantly higher average
costs, to MS–DRGs 945 and 946, which
have much lower average costs. Based
on claims data from the December 2015
update of the FY 2015 MedPAR file, the
average costs for cases reported in MS–
DRGs 945 and 946 were $8,531 and
$8,411, respectively.
Examples of cases reporting a
rehabilitation therapy code that would
move to MS–DRGs 945 and 946 based
on the suggested logic change are as
follows:
• An MS–DRG 460 (Spinal Fusion
Except Cervical with MCC) case with
average costs of $42,390;
• An MS–DRG 464 (Wound
Debridement and Skin Graft Excluding
Hand, for Musculoskeletal Tissue
Disease with CC) case with average costs
of $55,633;
• An MS–DRG 579 (Other Skin,
Subcutaneous Tissue and Breast
Procedure with MCC) case with average
costs of $63,834;
• An MS–DRG 854 (Infectious and
Parasitic Diseases with O.R. procedure
with MCC) case with average costs of
$62,455; and
• An MS–DRG 021 (Intracranial
Vascular Procedures with Principal
Diagnosis of Hemorrhage with CC) case
with average costs of $90,522.
Our clinical advisors reviewed this
issue and agreed that we should wait for
ICD–10 claims data to become available
prior to proposing updates to MS–DRGs
945 and 946. They did not support
adding MS–DRGs 945 and 946 to the
Pre-MDCs because the rehabilitation
services are not as resource intensive as
are the other MS–DRGs in the Pre-MDC
section.
Considering these ICD–10–PCS
guideline concerns, the structure of the
pre-MDC section, and the lack of any
ICD–10 claims data for MS–DRGs 945
and 946, we are proposing to maintain
the current structure of MS–DRGs 945
and 946 and reconsider the issue when
ICD–10 claims data become available
and prior to proposing any updates.
We are inviting public comments on
our proposal to maintain the current
structure of MS–DRGs 945 and 946.
12. Proposed Medicare Code Editor
(MCE) Changes
The Medicare Code Editor (MCE) is a
software program that detects and
reports errors in the coding of Medicare
claims data. Patient diagnoses,
procedure(s), and demographic
information are entered into the
Medicare claims processing systems and
are subjected to a series of automated

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screens. The MCE screens are designed
to identify cases that require further
review before classification into an MS–
DRG.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49409 through 49412), we
finalized the ICD–10 Definitions of
Medicare Code Edits (ICD–10 MCE)
Version 33. ICD–10 MCE Version 33 was
based on the FY 2015 ICD–9–CM MCE
Version 32 and the draft ICD–10 MCE
Version 32 that had been made publicly
available for comments in November
2014 on the ICD–10 MS–DRG
Conversion Project Web site at: https://
www.cms.gov/Medicare/Coding/ICD10/
ICD-10-MS-DRG-ConversionProject.html. In August 2015, we posted
the finalized FY 2016 ICD–10 MCE
Version 33 manual file and an ICD–9–
CM MCE Version 33.0A manual file (for
analysis purposes only). The links to
these MCE manual files, along with the
links to purchase the mainframe and
computer software for the MCE Version
33 (and ICD–10 MS–DRGs) were posted
on the CMS Web site through the FY
2016 IPPS Final Rule Home Page at:
https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/FY2016-IPPS-FinalRule-Home-Page.html?DLSort=0&
DLEntries=10&DLPage=1&DLSortDir=
ascending.
After implementation of the ICD–10
MCE Version 33, we received several
requests to examine specific code edit
lists that the requestors believed were
incorrect and that affected claims
processing functions. We received
requests to review the MCE relating
specifically to the Age conflict edit, the
Sex conflict edit, the Non-covered
procedure edit, and the Unacceptable
principal diagnosis code edit. We
discuss these code edit issues below.
a. Age Conflict Edit
In the MCE, the Age conflict edit
exists to detect inconsistencies between
a patient’s age and any diagnosis on the
patient’s record; for example, a 5-yearold patient with benign prostatic
hypertrophy or a 78-year-old patient
coded with a delivery. In these cases,
the diagnosis is clinically and virtually
impossible for a patient of the stated
age. Therefore, either the diagnosis or
the age is presumed to be incorrect.
Currently, in the MCE, the following
four age diagnosis categories appear
under the Age conflict edit and are
listed in the manual and written in the
software program:
• Newborn—Age of 0 years; a subset
of diagnoses intended only for
newborns and neonates (e.g., fetal
distress, perinatal jaundice).

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• Pediatric—Age is 0–17 years
inclusive (e.g., Reye’s syndrome, routine
child health exam).
• Maternity—Age range is 12–55
years inclusive (e.g., diabetes in
pregnancy, antepartum pulmonary
complication).
• Adult—Age range is 15–124 years
inclusive (e.g., senile delirium, mature
cataract).
(1) Newborn Diagnosis Category
Under the ICD–10–CM Official
Guidelines for Coding and Reporting
(available on the Web site at: https://
www.cms.gov/Medicare/Coding/ICD10/
2016-ICD-10-CM-and-GEMs.html), there
are general guidelines and chapterspecific coding guidelines. The chapterspecific guidelines state that diagnosis
codes from Chapter 16 (Certain
Conditions Originating in the Perinatal
Period) may be reported throughout the
life of the patient if the condition is still
present. The requestors noted that
several codes from this Chapter 16
appear on the ICD–10 MCE Version 33
Age conflict edit for the newborn
diagnosis category. Codes from this
chapter are included in the P00 through
P96 code range. Therefore, the
requestors believed that because the
chapter-specific guidelines state that
codes within this chapter may be
reported throughout the life of a patient,
all codes within this range (P00 through
P96) should be removed from the
newborn diagnosis category on the Age
conflict edit code list.
We examined the newborn diagnosis
category on the age conflict edit list in
the ICD–9–CM MCE Version 32 in
comparison to the ICD–9–CM chapterspecific guidelines. Under ICD–9–CM,
Chapter 15 (Certain Conditions
Originating in the Perinatal Period)
includes codes within the 760 through
779 range. We found that the same
chapter-specific guideline under ICD–10
exists under ICD–9–CM: Diagnosis
codes from Chapter 15 may be reported
throughout the life of the patient if the
condition is still present. Similar to the
ICD–10 MCE Version 33 newborn
diagnosis category in the Age conflict
edit code list, we noted that several
codes from this Chapter 15 appear on
the ICD–9–CM MCE Version 32 Age
conflict edit for the newborn diagnosis
category.
Because the full definition of the
chapter-specific guideline for ‘‘Certain
Conditions Originating in the Perinatal
Period’’ clearly states the codes within
the chapter may be reported throughout
the life of the patient if the condition is
still present, we believe that,
historically, under ICD–9–CM, this was
the rationale for inclusion of the

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diagnosis codes that were finalized for
the newborn diagnosis category under
the Age conflict edit (in code range 760
through 779). For example, under ICD–
9–CM, there are four diagnosis codes in
the 760.6x series that specifically
include the term ‘‘newborn’’ in the title.
These diagnosis codes are:
• 760.61 (Newborn affected by
amniocentesis);
• 760.62 (Newborn affected by other
in utero procedure);
• 760.63 (Newborn affected by other
surgical operations on mother during
pregnancy); and
• 760.64 (Newborn affected by
previous surgical procedure on mother
not associated with pregnancy).
Under the ICD–9–CM classification,
the chapter-specific guidelines in
Chapter 15 (Certain Conditions
Originating in the Perinatal Period) state
that, for coding and reporting purposes,
the perinatal period is defined as before
birth through the 28th day following
birth. As such, for coding and reporting
purposes, a patient that is beyond the
28th day of life is no longer considered
a newborn. Therefore, we believe that
the diagnosis codes listed on the
newborn diagnosis category in the Age
conflict edit code list are, in fact,
appropriate because they identify what
the title of Chapter 15 describes (certain
conditions specific to beginning in the
perinatal period); that is, a newborn.
The intent of the diagnosis codes
included on the Age conflict edit code
list is to identify claims where any one
of the listed diagnoses is reported for a
patient who is beyond the 28th day of
life. If that definition is met according
to the patient’s date of birth, the edit is
correctly triggered in those cases.
Transitioning to the ICD–10 MCE was
based on replication of the ICD–9–CM
based MCE (in parallel with the
transition to the ICD–10 MS–DRGs,
which was based on replication of the
ICD–9–CM MS–DRGs). Therefore, the
diagnosis codes included in the
newborn diagnosis category on the Age
conflict edit code list in the ICD–10
MCE are a replication of the diagnosis
code descriptions included on the
newborn diagnosis category on the Age
conflict edit code list under the ICD–9–
CM MCE. However, the chapter-specific
guideline in ICD–10–CM Chapter 16,
section C.16.e. (Low birth weight and
immaturity status), specifies that codes

within category P07 (Disorders of
newborn related to short gestation and
low birth weight, not elsewhere
classified) are for use for a child or adult
who was premature or had a low birth
weight as a newborn and this condition
is affecting the patient’s current health
status. Therefore, we agree that codes
within the range of P07.00 through
P07.39 should not be listed under
newborn diagnosis category on the Age
conflict edit code list in the ICD–10
MCE. It is unclear why this range of
codes within category P07 is
distinguished separately when under
the General Perinatal Rules for Chapter
16 (Certain Conditions Originating in
the Perinatal Period), section I.C.16.a.1.
states that diagnosis codes from Chapter
16 may be reported throughout the life
of the patient if the condition is still
present. In addition, the guideline at
section I.C.16.a.4. states that ‘‘should a
condition originate in the perinatal
period, and continue throughout the life
of the patient, the perinatal code should
continue to be used regardless of the
patient’s age.’’ According to these
general guidelines, we could assume
that potentially all codes within Chapter
16 in the code range of P00 through P96
should be considered for removal from
the newborn diagnosis category on the
Age conflict edit code list. However, a
subsequent section of Chapter 16,
section 1.C.16.c.2. (Codes for conditions
specified as having implication for
future health care needs), instructs users
to assign codes for conditions that have
been specified by the provider as having
implications for future health care
needs. Immediately below that
instruction is a note which states: ‘‘This
guideline should not be used for adult
patients.’’
The ICD–10–CM Official Guidelines
for Coding and Reporting are updated
separately from the IPPS rulemaking
process. Due to the confusion with the
chapter-specific guidelines for codes in
Chapter 16 and how they impact the
newborn diagnosis category on the Age
conflict edit code list, we believe it
would be beneficial to fully evaluate the
intent of these guidelines with the
Centers for Disease Control’s (CDC’s)
National Center for Health Statistics
(NCHS) because NCHS has the lead
responsibility for the ICD–10–CM
diagnosis codes.

ICD–10–CM
diagnosis
code

VerDate Sep<11>2014

In the meantime, to address claims
processing concerns related to the
newborn diagnosis category on the Age
conflict edit code list, we are proposing
to remove all the ICD–10–CM diagnoses
in the code range of P00 through P96
from the newborn diagnosis category in
the Age conflict code edit list for the
ICD–10 MCE for FY 2017. We are
inviting public comments on our
proposal. We also are soliciting public
comments on the appropriateness of the
other diagnosis codes currently listed
under the newborn diagnosis category
in the Age conflict edit in the ICD–10
MCE Version 33. We refer readers to
Table 6P.1a. associated with this
proposed rule (which is available via
the Internet on the CMs Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html) for
review of the diagnosis codes we are
proposing to remove. In addition, for FY
2017, we are examining the need to
revise the description for the newborn
diagnosis category in the Age conflict
edit under the MCE. The current
description as written, Newborn—Age
of 0 years; a subset of diagnoses
intended only for newborns and
neonates (e.g., fetal distress, perinatal
jaundice), is not consistent with the
instructions for reporting the diagnosis
codes in Chapter 16. We are inviting
public comments on our proposal to
revise the description of the newborn
diagnosis category in the Age conflict
edit under the MCE.
(2) Pediatric Diagnosis Category
Under the ICD–10 MCE Version 33,
the pediatric diagnosis category for the
Age conflict edit considers the age range
of 0 to 17 years inclusive. For that
reason, the diagnosis codes on this Age
conflict edit list would be expected to
apply to conditions or disorders specific
to that age group only. The code list for
the pediatric diagnosis category in the
Age conflict edit currently includes 12
diagnosis codes that fall within the F90
through F98 code range. These codes
were included as a result of replication
from the ICD–9–CM MCE Version 32
and the draft ICD–10 MCE Version 32.
We received a request to review the
12 ICD–10–CM diagnosis codes listed in
the following table because they appear
to conflict with guidance in the ICD–10–
CM classification:

Description

F93.0 ................
F93.8 ................
F93.9 ................

Separation anxiety disorder of childhood.
Other childhood emotional disorders.
Childhood emotional disorder, unspecified.

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ICD–10–CM
diagnosis
code

Description

F94.1 ................
F94.2 ................
F94.8 ................
F94.9 ................
F98.21 ..............
F98.29 ..............
F98.3 ................
F98.8 ................
F98.9 ................

Reactive attachment disorder of childhood.
Disinhibited attachment disorder of childhood.
Other childhood disorders of social functioning.
Childhood disorder of social functioning, unspecified.
Rumination disorder of infancy.
Other feeding disorders of infancy and early childhood.
Pica of infancy and childhood.
Other specified behavioral and emotional disorders with onset usually occurring in childhood and adolescence.
Unspecified behavioral and emotional disorders with onset usually occurring in childhood and adolescence.

Under the ICD–10–CM Tabular List of
Diseases and Injuries, Chapter 5
(Mental, Behavioral and
Neurodevelopmental Disorders)
contains a section titled ‘‘Behavioral
and emotional disorders with onset
usually occurring in childhood and
adolescence’’ which includes codes for
the F90 to F98 code range. At the
beginning of this tabular section is an
instructional ‘‘note’’ that states: ‘‘Codes
within categories F90–F98 may be used
regardless of the age of a patient. These
disorders generally have onset within
the childhood or adolescent years, but
may continue throughout life or not be
diagnosed until adulthood.’’

Because the note specifically states
that these codes may be used regardless
of the age of a patient, we believe they
should not be included on the pediatric
diagnosis category on the Age conflict
edit code list. Therefore, we are
proposing to remove the 12 codes that
fall within the F90 through F98 code
range currently listed for the pediatric
diagnosis category on the ICD–10 MCE
age conflict edit code list, effective
October 1, 2016, for FY 2017. We are
inviting public comments on our
proposal.
We also received a request to review
whether another group of diagnosis
codes is clinically incorrect for the ICD–

ICD–10–CM
diagnosis
code

Description

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H26.001 ............
H26.002 ............
H26.003 ............
H26.009 ............
H26.011 ............
H26.012 ............
H26.013 ............
H26.019 ............
H26.031 ............
H26.032 ............
H26.033 ............
H26.039 ............
H26.041 ............
H26.042 ............
H26.043 ............
H26.049 ............
H26.051 ............
H26.052 ............
H26.053 ............
H26.059 ............
H26.061 ............
H26.062 ............
H26.063 ............
H26.069 ............
H26.09 ..............

Unspecified infantile and juvenile cataract, right eye.
Unspecified infantile and juvenile cataract, left eye.
Unspecified infantile and juvenile cataract, bilateral.
Unspecified infantile and juvenile cataract, unspecified eye.
Infantile and juvenile cortical, lamellar, or zonular cataract, right eye.
Infantile and juvenile cortical, lamellar, or zonular cataract, left eye.
Infantile and juvenile cortical, lamellar, or zonular cataract, bilateral.
Infantile and juvenile cortical, lamellar, or zonular cataract, unspecified eye.
Infantile and juvenile nuclear cataract, right eye.
Infantile and juvenile nuclear cataract, left eye.
Infantile and juvenile nuclear cataract, bilateral.
Infantile and juvenile nuclear cataract, unspecified eye.
Anterior subcapsular polar infantile and juvenile cataract, right eye.
Anterior subcapsular polar infantile and juvenile cataract, left eye.
Anterior subcapsular polar infantile and juvenile cataract, bilateral.
Anterior subcapsular polar infantile and juvenile cataract, unspecified eye.
Posterior subcapsular polar infantile and juvenile cataract, right eye.
Posterior subcapsular polar infantile and juvenile cataract, left eye.
Posterior subcapsular polar infantile and juvenile cataract, bilateral.
Posterior subcapsular polar infantile and juvenile cataract, unspecified eye.
Combined forms of infantile and juvenile cataract, right eye.
Combined forms of infantile and juvenile cataract, left eye.
Combined forms of infantile and juvenile cataract, bilateral.
Combined forms of infantile and juvenile cataract, unspecified eye.
Other infantile and juvenile cataract.

Our clinical advisors reviewed the list
of diagnoses presented above and
confirmed that these diagnosis codes are
appropriate to include in the ICD–10
MCE for the pediatric diagnosis category
in the Age conflict edit because the
diseases described by these codes are
typically diagnosed in early childhood

VerDate Sep<11>2014

10 MCE Version 33 pediatric diagnosis
category in the Age conflict edit. The
requestor stated that ICD–10–CM
diagnosis codes describing infantile and
juvenile cataracts, by their titles, appear
to merit inclusion on the pediatric
diagnosis category on the Age conflict
edit code list. However, according to the
requestor, the diagnosis is not
constrained to a patient’s age, but rather
the ‘‘infantile’’ versus ‘‘juvenile’’
reference is specific to the type of
cataract the patient has. These diagnosis
codes that are currently listed for the
pediatric diagnosis category in the ICD–
10 MCE Age conflict edit code list are
as follows:

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and treated very rapidly to prevent
amblyopia. Therefore, for FY 2017, we
are not proposing to remove these codes
under the pediatric diagnosis category
in the Age conflict edit. We are
proposing to maintain this list in the
ICD–10 MCE Version 34, effective

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October 1, 2016. We are inviting public
comments on our proposal.
As stated earlier, for the pediatric
diagnosis category in the Age conflict
edit, the MCE considers the age range of
0 through 17 years inclusive. In the
ICD–10 MCE Version 33, there are four
diagnosis codes describing the body

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
mass index (BMI) for pediatric patients
in the pediatric diagnosis category on

the Age conflict edit code list. The four
ICD–10–CM diagnosis codes describing

ICD–10–CM
diagnosis
code

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Z68.51
Z68.52
Z68.53
Z68.54

the BMI percentiles for pediatric
patients are as follows:

Description

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

Body
Body
Body
Body

mass
mass
mass
mass

index
index
index
index

(BMI)
(BMI)
(BMI)
(BMI)

pediatric,
pediatric,
pediatric,
pediatric,

Under the ICD–10–CM Tabular List of
Diseases and Injuries, the BMI pediatric
diagnosis codes are designated for use
in persons 2 through 20 years of age.
The percentiles are based on the growth
charts published by the CDC. As a result
of the age discrepancy between the MCE
pediatric diagnosis category in the Age
conflict edit (ages 0 through 17) and the
Tabular reference for the BMI pediatric
codes (ages 2 through 20), we are
proposing to remove ICD–10 diagnosis
codes Z68.51, Z68.52, Z68.53, and
Z68.54 from the ICD–10 MCE pediatric
diagnosis category on the Age conflict
edit code list for Version 34, effective
FY 2017. We are inviting public
comments on our proposal.
One requestor also asked that CMS
review the ICD–10–CM diagnosis codes
currently included in ICD–10–CM
category R62 (Lack of expected normal
physiological development in childhood
and adults) series. Specifically, the
requestor noted that there are adult
patients diagnosed with the conditions
in subcategory R62.5 (Other and
unspecified lack of expected normal
physiological development in
childhood) and that three of these
conditions also were listed in the ICD–
10 MCE Version 33 pediatric diagnosis
category on the Age conflict edit code
list. These three diagnosis codes are:
• R62.50 (Unspecified lack of
expected normal physiological
development in childhood);
• R62.52 (Short stature (child)); and
• R62.59 (Other lack of expected
normal physiological development in
childhood).
We acknowledge that subcategory
R62.5 can be confusing with regard to
how to appropriately report a condition
diagnosed for an adult when the titles
reference the terms ‘‘child’’ or
‘‘childhood’’. Therefore, we consulted
with the ICD–10–CM classification staff
at the NCHS to determine the intended
use and reporting of the diagnosis codes
R62.50, R62.52, and R62.59. The NCHS
staff agreed that the three diagnosis
codes should not be restricted to the
pediatric ages as defined by the MCE.
The NCHS staff stated the codes are

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less than 5th percentile for age.
5th percentile to less than 85th percentile for age.
85th percentile to less than 95th percentile for age.
greater than or equal to 95th percentile for age.

appropriate to report for adult patients,
noting that if a patient is diagnosed with
short stature as a child, the patient
could very well carry over that
diagnosis into adulthood.
During our review of the issue relating
to the subcategory R62.5 pediatric
diagnosis category on the Age conflict
edit code list, we identified another
diagnosis code that also appeared
appropriate to report for an adult
patient. ICD–10–CM diagnosis code
Y93.6A (Activity, physical games
generally associated with school recess,
summer camp and children) is one of
several activity codes included in ICD–
10–CM Chapter 20 (External Causes of
Morbidity). This diagnosis code
includes games such as dodge ball and
captures the flag, which one can
reasonably expect an adult to be
engaged in for physical activity.
We discussed this diagnosis code
with the NCHS staff to receive their
input on the intent for coding and
reporting the code. They agreed that
ICD–10–CM diagnosis code Y93.6A is
applicable for adults as well as children.
Therefore, for FY 2017, we are
proposing to remove ICD–10–CM
diagnosis codes R62.50, R62.52, and
R62.59 in subcategory R62.5 and ICD–
10–CM diagnosis code Y93.6A from the
ICD–10 MCE pediatric diagnosis
category on the Age conflict edit code
list. We are inviting public comment on
our proposal.
b. Sex Conflict Edit
In the MCE, the Sex conflict edit
detects inconsistencies between a
patient’s sex and any diagnosis or
procedure on the patient’s record; for
example, a male patient with cervical
cancer (diagnosis) or a female patient
with a prostatectomy (procedure). In
both instances, the indicated diagnosis
or the procedure conflicts with the
stated sex of the patient. Therefore, the
patient’s diagnosis, procedure, or sex is
presumed to be incorrect.
We received a request to review ICD–
10–CM diagnosis code Z79.890
(Hormone replacement therapy
(postmenopausal)). This code is listed

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on the Diagnoses for females only edit
code list. Therefore, when the diagnosis
is reported for a male patient, the edit
will be triggered. However, the requester
noted that the term ‘‘postmenopausal’’
is enclosed in parentheses and is a
‘‘non-essential modifier.’’ A ‘‘nonessential modifier’’ is used in the ICD–
10–CM classification to identify a
supplementary word that may, or may
not be present in the statement of a
disease or procedure. In other words,
the term in parentheses does not have
to be documented to report the code. If
the medical record documentation states
a female patient is undergoing hormone
replacement therapy, the documentation
supports assignment of the case to ICD–
10–CM diagnosis code Z79.890
(Hormone replacement therapy
(postmenopausal)). There does not need
to be a diagnostic statement that the
patient is postmenopausal to assign the
code. The requester asked that CMS
review why this diagnosis code is being
classified as applicable to females only
because, in the absence of the nonessential modifier (postmenopausal), the
code could also apply to males.
We note that the ICD–9–CM
equivalent code, V07.4 Hormone
replacement therapy (postmenopausal)
has been on the female only edit since
October 1, 1992 in the ICD–9–CM MCE.
We consulted with the ICD–10–CM
classification staff at the NCHS to
determine the intended use and
reporting of this diagnosis code. The
staff at NCHS acknowledged that,
historically, the intent of the ICD–9–CM
diagnosis code was for females only.
However, they agreed that, under ICD–
10–CM, the diagnosis code Z79.890 can
be reported for both men and women.
Therefore, we are proposing to remove
this diagnosis code from the Diagnoses
for females only edit code list effective
October 1, 2016. We are inviting public
comments on our proposal.
We also considered the ICD–10–CM
diagnosis codes listed in the table below
that are included on the Diagnoses for
females only edit code list.

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ICD–10–CM
diagnosis
code

Description

Z44.30 ..............
Z44.31 ..............
Z44.32 ..............
Z45.811 ............
Z45.812 ............
Z45.819 ............

Encounter
Encounter
Encounter
Encounter
Encounter
Encounter

for
for
for
for
for
for

fitting and adjustment of external breast prosthesis, unspecified breast.
fitting and adjustment of external right breast prosthesis.
fitting and adjustment of external left breast prosthesis).
adjustment or removal of right breast implant.
adjustment or removal of left breast implant.
adjustment or removal of unspecified breast implant).

These codes describe encounters for
breast implants or prostheses. Our
clinical advisors and the NCHS staff
agree that diagnosis codes Z44.30,
Z44.31, Z44.32, Z45.811, Z45.812, and
Z45.819 are clinically appropriate to
report for male patients and should not
be restricted to females. Therefore, we
are proposing to remove these diagnosis
codes from the Diagnoses for females
only edit code list in the ICD–10 MCE,
effective October 1, 2016. We are
inviting public comments on our
proposal.
c. Non-Covered Procedure Edit
In the MCE, the Non-covered
procedure edit identifies procedures for
which Medicare does not provide
payment. Payment is not provided due
to specific criteria that are established in
the National Coverage Determination
(NCD) process. We refer readers to the
Web site at: https://www.cms.gov/
Medicare/Coverage/
DeterminationProcess/

howtorequestanNCD.html for additional
information on this process. In addition,
there are procedures that would
normally not be paid by Medicare but,
due to the presence of certain diagnoses,
are paid.
(1) Endovascular Mechanical
Thrombectomy
We received several requests to
review ICD–10–PCS procedure code
03CG3ZZ (Extirpation of matter from
intracranial artery, percutaneous
approach) which is currently listed as a
non-covered procedure in the ICD–10
MCE Non-covered procedure edit code
list. The comparable ICD–9–CM code
translations for ICD–10–PCS code
03CG3ZZ are ICD–9–CM codes 17.54
(Percutaneous atherectomy of
intracranial vessel(s)) and 39.74
(Endovascular removal of obstruction
from head and neck vessel(s)).
The requestors noted that, under ICD–
9–CM, endovascular mechanical
thrombectomy of a cerebral artery to

ICD–10–PCS
procedure code
037G34Z ...........
037G3DZ ..........
037G3ZZ ..........
037G44Z ...........
037G4DZ ..........
037G4ZZ ..........
057L3DZ ...........
057L4DZ ...........

Description
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation

of
of
of
of
of
of
of
of

intracranial
intracranial
intracranial
intracranial
intracranial
intracranial
intracranial
intracranial

artery with drug-eluting intraluminal device, percutaneous approach.
artery with intraluminal device, percutaneous approach.
artery, percutaneous approach.
artery with drug-eluting intraluminal device, percutaneous endoscopic approach.
artery with intraluminal device, percutaneous endoscopic approach.
artery, percutaneous endoscopic approach.
vein with intraluminal device, percutaneous approach.
vein with intraluminal device, percutaneous endoscopic approach.

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We discovered that a replication error
occurred due to an outdated ICD–9–CM
entry for procedure code 00.62. This
error led to ICD–10–PCS procedure
codes 03CG3ZZ (Extirpation of matter
from intracranial artery, percutaneous
approach) and 05CL3ZZ (Extirpation of

matter from intracranial vein,
percutaneous approach) being listed as
comparable translations for ICD–9–CM
code 00.62. As a result, ICD–10–PCS
procedure code 03CG3ZZ was included
on the ICD–10 MCE Version 33 Noncovered procedure edit code list.

ICD–10–PCS
procedure code
03CG3ZZ ..........
03CG4ZZ ..........
05CL3ZZ ...........
05CL4ZZ ...........

VerDate Sep<11>2014

remove a clot that is causing an
ischemic stroke was reported with
procedure code 39.74 (Endovascular
removal of obstruction from head and
neck vessel(s)) and is a well-recognized
procedure that has been covered by
Medicare. After implementation of ICD–
10 on October 1, 2015, claims that were
correctly submitted for endovascular
mechanical thrombectomy procedures
with ICD–10–PCS procedure code
03CG3ZZ were triggering the Noncovered procedure edit. The requestors
sought clarification as to whether there
was a change in coverage or if there was
a replication issue.
Under the ICD–9–CM MCE Version
32, procedure code 00.62 is listed on the
Non-covered procedure edit code list.
Percutaneous angioplasty of an
intracranial vessel procedure (with and
without stent) may be reported under
ICD–10 with the ICD–10–PCS procedure
codes listed in the following table:

For FY 2017, we are proposing to
remove the ICD–10–PCS procedure
codes listed in the following table from
the ICD–10 MCE Version 34.0 Noncovered procedure edit code list.

Description
Extirpation
Extirpation
Extirpation
Extirpation

of
of
of
of

18:46 Apr 26, 2016

matter
matter
matter
matter

from
from
from
from

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intracranial
intracranial
intracranial
intracranial

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artery, percutaneous approach.
artery, percutaneous endoscopic approach.
vein, percutaneous approach.
vein, percutaneous endoscopic approach.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
We are inviting public comments on
our proposal.
(2) Radical Prostatectomy
We received a request to review ICD–
10–PCS procedure codes related to a
radical prostatectomy. Specifically, the
requestor noted that when coding cases
where the removal of the vas deferens
is also performed, a Non-covered
procedure edit is triggered. The
requestor suggested that the edit for this
procedure may be intended for cases
where the removal of the vas deferens
is being performed for sterilization
(vasectomy) purposes. According to the
requester, removal of the vas deferens
also may be involved with removing the
prostate in the radical prostatectomy
procedure. The requestor suggested that
CMS address this issue by revising the
ICD–10 MCE Non-covered procedure
edit code list to reflect non-coverage of
the procedure codes when the removal
of vas deferens procedure is being
performed solely for sterilization
(vasectomy) purposes.

Because radical procedures can have
different meanings, depending on the
procedure, the term ‘‘radical’’ is not
always reliable information for coding
and reporting the procedure. Under
ICD–10–PCS, users are instructed to
code separately the organs or structures
that were actually removed and for
which there is a distinctly defined body
part. A radical prostatectomy is coded
as a ‘‘cluster’’ under ICD–10–PCS. A
‘‘cluster’’ is the term used to describe
the circumstance when a combination of
ICD–10–PCS procedure codes are
needed to fully satisfy the equivalent
meaning of an ICD–9–CM procedure
code for it to be considered a plausible
translation.
The cluster definition for a radical
prostatectomy in ICD–10–PCS currently
consists of the one of the following
codes:
• 0VT00ZZ (Resection of prostate,
open approach);
• 0VT04ZZ (Resection of prostate,
percutaneous endoscopic approach);

ICD–10–PCS
procedure code

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0V5Q0ZZ
0V5Q3ZZ
0V5Q4ZZ
0VBQ0ZZ
0VBQ3ZZ
0VBQ4ZZ
0VTQ0ZZ
0VTQ4ZZ

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

• 0VT07ZZ (Resection of prostate, via
natural or artificial opening); or
• 0VT08ZZ Resection of prostate, via
natural or artificial opening endoscopic;
in combination with one of the
following codes:
• 0VT30ZZ (Resection of bilateral
seminal vesicles, open approach); or
• 0VT34ZZ (Resection of bilateral
seminal vesicles, percutaneous
endoscopic approach).
As stated earlier, under ICD–10–PCS,
users are instructed to code separately
the organs or structures that were
actually removed and for which there is
a distinctly defined body part.
Therefore, a patient who undergoes a
radical prostatectomy that involves
removal of the vas deferens would have
this procedure reported separately, in
addition to the options displayed in the
‘‘cluster.’’
The ICD–10–PCS procedure codes
that may be reported for sterilization
and involve the bilateral vas deferens
include the following:

Description
Destruction of bilateral vas deferens, open approach.
Destruction of bilateral vas deferens, percutaneous approach.
Destruction of bilateral vas deferens, percutaneous endoscopic approach.
Excision of bilateral vas deferens, open approach.
Excision of bilateral vas deferens, percutaneous approach.
Excision of bilateral vas deferens, percutaneous endoscopic approach.
Resection of bilateral vas deferens, open approach.
Resection of bilateral vas deferens, percutaneous endoscopic approach.

The eight procedure codes listed
above describing various methods to
remove the bilateral vas deferens are
currently listed on the ICD–10 MCE
Version 33 Non-covered procedure edit
code list.
The requester is correct in stating that
the codes related to removal of the
bilateral vas deferens are included on
the ICD–10 MCE Version 33 Noncovered procedure edit code list to
reflect a sterilization procedure. While
the vast majority of sterilization
procedures will involve reporting the
bilateral procedure codes, there are
instances where one vas deferens may
have been previously removed for other
reasons and the remaining vas deferens
requires sterilization. Therefore, the
procedure codes describing removal of a
unilateral vas deferens are also included
on the ICD–10 MCE Version 33 Noncovered procedure edit code list to
reflect a sterilization procedure. We
agree that revising the language in the
edit will resolve the issue of covered
procedures being inappropriately
subject to the edit.

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In addition, while reviewing the Noncovered procedure edit list of codes that
may be reported to identify sterilization
procedures for males, we considered the
procedure codes that may be reported to
identify sterilization procedures for
females. We examined the list of ICD–
10–PCS procedure codes included on
the ICD–10 MCE Version 33 Noncovered procedure edit code list that
could reflect female sterilization
(removal of fallopian tubes) and
determined those codes also could be
reported for other conditions and could
be inappropriately subject to the current
edit as well.
Therefore, for FY 2017, we are
proposing to create a new ICD–10 MCE
Version 34 Non-covered procedure edit
to reflect that procedures performed on
males involving the unilateral or
bilateral vas deferens and procedures
performed on females involving the
fallopian tubes are not covered
procedures for sterilization purposes.
The proposed new ICD–10 MCE Version
34 Non-covered procedure edit would
be displayed as follows: ‘‘G. Non-

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covered procedure. The procedure
codes shown below are identified as
non-covered procedures only when
ICD–10–CM diagnosis code Z30.2
(Encounter for sterilization) is listed as
the principal diagnosis.’’
We refer readers to Table 6P.1b.
associated with this proposed rule
(which are available via the Internet on
the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html) to
review the proposed list of non-covered
procedure codes describing sterilization
procedures for males and females for
this proposed Non-covered procedure
edit. We are inviting public comments
on our proposal to create this new Noncovered procedure edit and also invite
public comments on the proposed list of
codes to describe sterilization
procedures for the proposed edit.
d. Unacceptable Principal Diagnosis
Edit
In the MCE, there are select codes that
describe a circumstance which
influences an individual’s health status

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but does not actually describe a current
illness or injury. There also are codes
that are not specific manifestations but
may be due to an underlying cause.
These codes are considered
unacceptable as a principal diagnosis. In
limited situations, there are a few codes
on the MCE Unacceptable principal
diagnosis edit code list that are
considered ‘‘acceptable’’ when a
specified secondary diagnosis is also
coded and reported on the claim.

(1) Liveborn Infant
We received a request to examine
ICD–10–CM diagnosis codes Z38.1
(Single liveborn infant, born outside
hospital), Z38.4 (Twin liveborn infant,
born outside hospital), and Z38.7 (Other
multiple liveborn infant, born outside
hospital), all of which are currently
listed on the Unacceptable principal
diagnosis edit code list for the ICD–10
MCE Version 33. The requestor believed
that these codes are listed in error and
suggested their removal.

ICD–9–CM
diagnosis code
V30.2
V31.2
V32.2
V33.2
V34.2
V35.2
V36.2
V37.2
V39.1
V39.2

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

Description
Single liveborn, born outside hospital and not hospitalized.
Twin birth, mate liveborn, born outside hospital and not hospitalized.
Twin birth, mate stillborn, born outside hospital and not hospitalized.
Twin birth, unspecified whether mate liveborn or stillborn, born outside hospital and not hospitalized.
Other multiple birth (three or more), mates all liveborn, born outside hospital and not hospitalized.
Other multiple birth (three or more), mates all stillborn, born outside of hospital and not hospitalized.
Other multiple birth (three or more), mates liveborn and stillborn, born outside hospital and not hospitalized.
Other multiple birth (three or more), unspecified whether mates liveborn or stillborn, born outside of hospital.
Liveborn, unspecified whether single, twin or multiple, born before admission to hospital.
Liveborn, unspecified whether single, twin or multiple, born outside hospital and not hospitalized.

For replication purposes, the
comparable ICD–10–CM diagnosis codes
for the above listed codes are: Z38.1
(Single liveborn infant, born outside
hospital); Z38.4 (Twin liveborn infant,
born outside hospital); and Z38.7 (Other
multiple liveborn infant, born outside
hospital). There are no other ICD–10–
CM diagnosis codes that describe a
liveborn infant born outside a hospital.
The liveborn infant codes are an
example of where a particular concept
involving the place of birth is not the
same between the ICD–9–CM and ICD–
10–CM classification systems. Because
the ICD–10–CM diagnosis codes do not
include the same concept as the ICD–9–
CM diagnosis codes regarding whether
the liveborn infant was hospitalized or

not, we agree it would not be
appropriate to continue to include the
ICD–10–CM diagnosis codes on the
Unacceptable principal diagnosis list.
For FY 2017, we are proposing to
remove ICD–10–CM diagnosis codes
Z38.1, Z38.4, and Z38.7 from the
Unacceptable principal diagnosis edit in
the ICD–10 MCE Version 34. We are
inviting public comments on our
proposal.
(2) Multiple Gestation
We received a request to review the
ICD–10–CM diagnosis codes related to
multiple gestation that are currently
listed on the ICD–10 MCE Version 33
Unacceptable principal diagnosis edit
code list. The requestor expressed
concern that these codes were included

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

ICD–9–CM
diagnosis code
V91.00
V91.01
V91.02
V91.03
V91.09
V91.10
V91.11
V91.12
V91.19
V91.20
V91.21
V91.22
V91.29
V91.90
V91.91
V91.92

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

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The ICD–10–CM diagnosis code
descriptions for liveborn infants differ
from the ICD–9–CM diagnosis code
descriptions for liveborn infants. The
ICD–9–CM codes differentiate between a
liveborn infant that was born prior to
admission and hospitalized versus a
liveborn infant that was born prior to
admission and not hospitalized. The
following codes in the ICD–9–CM MCE
Version 32 included on the
Unacceptable principal diagnosis edit
code list are those that describe a
liveborn infant that was born outside
the hospital and not hospitalized:

in the edit and suggested that CMS
evaluate further to determine if they
were appropriate.
In the ICD–10–CM classification, a
single diagnosis code describes a
multiple gestation and contains
information pertaining to the placenta.
This differs from the ICD–9–CM
classification, where two diagnosis
codes are required to separately report
(1) multiple gestation with a delivery or
complication and (2) multiple gestation
with the status of the placenta.
In the ICD–9–CM MCE Version 32,
only the ICD–9–CM diagnosis codes
describing the status of the placenta are
listed on the Unacceptable principal
diagnosis edit code list. These ICD–9–
CM diagnosis codes are:

Description
Twin gestation, unspecified number of placenta, unspecified number of amniotic sacs.
Twin gestation, monochorionic/monoamniotic (one placenta, one amniotic sac).
Twin gestation, monochorionic/diamniotic (one placenta, two amniotic sacs).
Twin gestation, dichorionic/diamniotic (two placentae, two amniotic sacs).
Twin gestation, unable to determine number of placenta and number of amniotic sacs.
Triplet gestation, unspecified number of placenta and unspecified number of amniotic sacs.
Triplet gestation, with two or more monochorionic fetuses.
Triplet gestation, with two or more monoamniotic fetuses.
Triplet gestation, unable to determine number of placenta and number of amniotic sacs.
(Quadruplet gestation, unspecified number of placenta and unspecified number of amniotic sacs.
Quadruplet gestation, with two or more monochorionic fetuses.
Quadruplet gestation, with two or more monoamniotic fetuses.
Quadruplet gestation, unable to determine number of placenta and number of amniotic sacs.
Other specified multiple gestation, unspecified number of placenta and unspecified number of amniotic sacs.
Other specified multiple gestation, with two or more monochorionic fetuses.
Other specified multiple gestation, with two or more monoamniotic fetuses.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
ICD–9–CM
diagnosis code
V91.99 ..............

Description
Other specified multiple gestation, unable to determine number of placenta and number of amniotic sacs.

There are 68 ICD–10–CM diagnosis
codes included on the ICD–10 MCE
Version 33 Unacceptable principal
diagnosis edit code list as comparable
translations that describe multiple
gestation and status of the placenta. The
list of these codes is included in Table
6P.1c. associated with this proposed
rule (which is available via the Internet
on the CMS Web site at: http://www.
cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
index.html).
Because only one, and not both,
concepts from the ICD–9–CM
classification was considered to be an
unacceptable principal diagnosis (status
of placenta) in the ICD–9–CM MCE, we
agree this was a replication error that
incorrectly included the ICD–10–CM
diagnosis codes that identify both
concepts (multiple gestation and status
of placenta) in a single code on the ICD–
10 MCE. The edit cannot isolate the
status of placenta for the ICD–10 MCE
because it is reported in combination
with the multiple gestation as a single
code. Therefore, it is inappropriate to
include these codes on the
Unacceptable principal diagnosis edit
code list.
For FY 2017, we are proposing to
remove the ICD–10–CM diagnosis codes
listed in Table 6P.1c. associated with
this proposed rule (which is available
via Internet on the CMS Web site at:

http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html) from the
ICD–10 MCE Version 34 Unacceptable
principal diagnosis list. We are inviting
public comments on our proposal.
(3) Supervision of High Risk Pregnancy
We received a request to review the
ICD–10–CM diagnosis codes related to
supervision of high risk pregnancy
(elderly primigravida and multigravida)
that are currently listed on the ICD–10
MCE Version 33 Unacceptable principal
diagnosis edit code list. The requestor
stated that these codes were not
included in the edit under the ICD–9–
CM MCE. According to the requester,
the codes describing these conditions
should be allowed for reporting as a
principal diagnosis based on the ICD–
10–CM Tabular List of Diseases
instructions for Chapter 15 (Certain
Conditions Originating in the Perinatal
Period). The chapter-specific guidelines
for ICD–10–CM state that ‘‘diagnosis
code O80 (Encounter for full-term
uncomplicated delivery) should be
assigned when a woman is admitted for
a full-term normal delivery and delivers
a single, healthy infant without any
complications antepartum, during the
delivery, or postpartum during the
delivery episode. Code O80 is always a
principal diagnosis. It is not to be used
if any other code from Chapter 15 is

ICD–9–CM
diagnosis code
V23.81 ..............
V23.82 ..............

Supervision of high-risk pregnancy with elderly primigravida
Supervision of high-risk pregnancy with elderly multigravida

Unacceptable principal diagnosis edit
code list. However, we display them

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

ICD–9–CM
diagnosis code
...............
...............
...............
...............
...............
...............

needed to describe a current
complication of the antenatal, delivery,
or perinatal period.’’ The requestor
stated that obstetric patients admitted as
inpatients often meet the definition of
an elderly primigravida or elderly
multigravida, 1 which is the appropriate
condition to be reported as the principal
diagnosis. However, because the codes
describing this condition are listed on
the Unacceptable principal diagnosis
edit code list, they are unable to be
reported.
The diagnosis codes describing highrisk patients admitted for delivery differ
between the ICD–10–CM and ICD–9–CM
classifications. Under ICD–9–CM, two
diagnosis codes are required to
separately report concept 1 of elderly
primigravida or elderly multigravida
and whether a delivery occurred and
concept 2 of supervision of high-risk
pregnancy with elderly primigravida or
elderly multigravida. We display the
codes that correspond to these concepts
below and titled them as Code List 1
and Code List 2. A code from each list
would be reported to fully describe the
circumstances of the admission and the
patient.
Code List 1—We note that the
following codes are listed on the ICD–
9–CM MCE Version 32 Unacceptable
principal diagnosis edit code list:

Description

Code List 2—We note that the
following codes are not listed on the
ICD–9–CM MCE Version 32

659.50
659.51
659.53
659.60
659.61
659.63

25007

here for the benefit of the reader in the
discussion that follows.

Description
Elderly
Elderly
Elderly
Elderly
Elderly
Elderly

primigravida, unspecified as to episode of care or not applicable
primigravida, delivered, with or without mention of antepartum condition
primigravida, antepartum condition or complication
multigravida, unspecified as to episode of care or not applicable
multigravida, delivered with or without mention of antepartum condition
multigravida, antepartum condition or complication

As noted above, in the ICD–9–CM
MCE Version 32, only the ICD–9–CM

diagnosis codes describing the
supervision of high-risk pregnancy are

listed on the Unacceptable principal
diagnosis edit code list.

1 The ICD–10–CM classification defines an
elderly primigravida or elderly multigravida as a

complication of the pregnancy since the

management and care of the expectant mother is
affected by the fact they are an older patient.

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There are eight ICD–10–CM diagnosis
codes included on the ICD–10 MCE
Version 33 Unacceptable principal
diagnosis edit code list that describe the

concept of elderly primigravida or
elderly multigravida and supervision of
high-risk pregnancy, in a single code. As
shown below, the concept of whether a

ICD–10–CM
diagnosis code
O09.511
O09.512
O09.513
O09.519
O09.521
O09.522
O09.523
O09.529

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

Description
Supervision
Supervision
Supervision
Supervision
Supervision
Supervision
Supervision
Supervision

of
of
of
of
of
of
of
of

elderly
elderly
elderly
elderly
elderly
elderly
elderly
elderly

primigravida, first trimester
primigravida, second trimester
primigravida, third trimester
primigravida, unspecified trimester
multigravida, first trimester
multigravida, second trimester
multigravida, third trimester
multigravida, unspecified trimester

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Because the concepts and coding
guidelines between the ICD–9–CM and
ICD–10–CM classifications differ greatly
in how they define this subset of
patients, we acknowledge that the eight
ICD–10–CM diagnosis codes listed
above should be removed from the ICD–
10 MCE Unacceptable principal
diagnosis edit code list to permit the
reporting of these codes as principal
diagnosis when the documentation
supports such assignment.
We also note that during our analysis
of the eight diagnosis codes describing
elderly primigravida and elderly
multigravida high risk pregnancy
patients, we found additional codes on
the ICD–10 MCE Version 33
Unacceptable principal diagnosis edit
code list related to high-risk pregnancy
that we believe should also be removed
so as to permit the reporting of these
codes as principal diagnosis when the
documentation supports such
assignment.
For FY 2017, we are proposing to
remove all the ICD–10–CM diagnosis
codes related to high-risk pregnancy
currently listed in Table 6P.1d.
associated with this proposed rule
(which is available via Internet on the
CMS Web site at: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html) from the ICD–10 MCE
Version 34 Unacceptable principal
diagnosis edit code list. We are inviting
public comment on our proposal.
e. Other MCE Issues
The following MCE discussion and
proposals are the result of internal
review of other MCE issues.
(1) Procedure Inconsistent With Length
of Stay Edit
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49411), we finalized a
revision for the language of the ICD–10
MCE Version 33 edit for ‘‘Procedure
inconsistent with length of stay’’ with
regard to ICD–10–PCS procedure code

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delivery occurred is not included in the
code description for the eight codes.

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5A1955Z (Respiratory ventilation,
greater than 96 consecutive hours). The
current description of the code edit
reads as follows: ‘‘The following
procedure code should only be coded
on claims with a length of stay greater
than four days.’’
As we strive to assist providers with
correct coding and reporting of this
service, we are proposing to further
revise the description of this code edit.
For FY 2017, we are proposing to
modify the edit description to read as
follows: ‘‘The following procedure code
should only be coded on claims when
the respiratory ventilation is provided
for greater than four consecutive days
during the length of stay.’’
We believe this modification will
further clarify the appropriate
circumstances in which ICD–10–PCS
code 5A1955Z may be reported. We are
inviting public comments on our
proposal.
Also, consistent with the discussion
in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49411 through 49412), we
believe it would be beneficial to revise
the title for ICD–10 MS–DRG 208
(Respiratory System Diagnosis with
Ventilator Support <96 Hours).
Currently, this ICD–10 MS–DRG title
references terminology for mechanical
ventilation ‘‘< 96 hours’’ based on the
GROUPER logic for MS–DRG 208,
which includes ICD–10–PCS codes
5A1935Z (Respiratory ventilation, less
than 24 consecutive hours) and
5A1945Z (Respiratory ventilation, 24–
96 consecutive hours). Because ICD–10–
PCS code 5A1945Z includes mechanical
ventilation up to and including 96
hours, we are proposing to modify the
title of MS–DRG 208 by adding an
‘‘equal’’ sign (=) after the ‘‘less than’’ (<)
sign to better reflect the GROUPER
logic. We are proposing to revise the
title of ICD–10 MS–DRG 208 as follows,
effective October 1, 2016: MS–DRG 208
(Respiratory System Diagnosis with
Ventilator Support <=96 Hours). We are

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inviting public comments on our
proposal.
(2) Maternity Diagnoses
We identified three ICD–10–CM
diagnosis codes that describe conditions
related to pregnancy or the puerperium
that are not currently listed on the ICD–
10 MCE Version 33 Age conflict edit
code list for maternity diagnoses. The
diagnosis codes include:
• C58 (Malignant neoplasm of
placenta);
• D39.2 (Neoplasm of uncertain
behavior of placenta); and
• F53 (Puerperal psychosis).
To be consistent with other related
conditions currently included on the
Age conflict edit code list for maternity
diagnoses, we are proposing to add ICD–
10–CM diagnosis codes C58, D39.2, and
F53 to the Age conflict edit code list for
maternity diagnoses.
We are inviting public comments on
our proposals for changes to the FY
2017 ICD–10 MCE Version 34.
(3) Manifestation Codes Not Allowed as
Principal Diagnosis Edit
Section I.A.13. of the FY 2016 ICD–
10–CM Official Guidelines for Coding
and Reporting states that certain
conditions have both an underlying
etiology and multiple body system
manifestations due to the underlying
etiology. For such conditions, the
classification has a coding convention
that requires the underlying condition
be sequenced first followed by the
manifestation. Wherever such a
combination exists, there is a ‘‘use
additional code’’ note at the etiology
code, and a ‘‘code first’’ note at the
manifestation code. These instructional
notes indicate proper sequencing order
of the codes, etiology followed by
manifestation.
We found that in the ICD–10–CM
Tabular List of Diseases at category
M02- (Postinfective and reactive
arthropathies), a ‘‘Code first underlying
disease’’ note exists. This would

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
indicate that there are codes in that
category that are manifestations of an
underlying etiology. We then examined
the ICD–10 MCE Version 33 to
determine if diagnosis codes from that
category were included on the
Manifestation codes not allowed as
principal diagnosis edit code list. Only
three ICD–10–CM diagnosis codes from
that category were listed:

• M02.88 (Other reactive
arthropathies, vertebrae);
• M02.89 (Other reactive
arthropathies, multiple sites); and
• M02.9 (Reactive arthropathy,
unspecified).
Based on the instructional note at the
M02- category level, the title at
subcategory M02.8 (Other reactive
arthropathies), and the three diagnosis
codes listed above on the current ICD–
10 MCE Version 33 Manifestation codes

ICD–10–CM
diagnosis code
M02.80 ..............
M02.811 ............
M02.812 ............
M02.819 ............
M02.821 ............
M02.822 ............
M02.829 ............
M02.831 ............
M02.832 ............
M02.839 ............
M02.841 ............
M02.842 ............
M02.849 ............
M02.851 ............
M02.852 ............
M02.859 ............
M02.861 ............
M02.862 ............
M02.869 ............
M02.871 ............
M02.872 ............
M02.879 ............

Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other

reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive
reactive

arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,
arthropathies,

(4) Questionable Admission Edit

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

not allowed as principal diagnosis edit
code list, it seems appropriate that all of
the diagnosis codes in subcategory
M02.8 should be identified as
manifestation codes.
We are proposing to add the ICD–10–
CM diagnosis codes listed in the
following table to the ICD–10 MCE
Version 34 Manifestation codes not
allowed as principal diagnosis edit code
list.

Description

We are inviting public comments on
our proposal.

In the MCE, some diagnoses are not
usually sufficient justification for
admission to an acute care hospital. For
example, if a patient is assigned ICD–
10–CM diagnosis code R03.0 (Elevated
blood pressure reading, without
diagnosis of hypertension), the patient
would have a questionable admission
because an elevated blood pressure
reading is not normally sufficient
justification for admission to a hospital.
Upon review of the ICD–10–CM
diagnosis codes listed under the ICD–10
MCE Version 33 Questionable
Admission edit, our clinical advisors
determined that certain diagnoses
clinically warrant hospital admission.
Therefore, we are proposing to remove
the following diagnosis codes from the
ICD–10 MCE Version 34.0 Questionable
admission edit.
• T81.81XA (Complication of
inhalation therapy, initial encounter);
• T88.4XXA (Failed or difficult
intubation, initial encounter);

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unspecified site.
right shoulder.
left shoulder.
unspecified shoulder.
right elbow.
left elbow.
unspecified elbow.
right wrist.
left wrist.
unspecified wrist.
right hand.
left hand.
unspecified hand.
right hip.
left hip.
unspecified hip.
right knee.
left knee.
unspecified knee.
right ankle and foot.
left ankle and foot.
unspecified ankle and foot.

• T88.7XXA (Unspecified adverse
effect of drug or medicament, initial
encounter);
• T88.8XXA (Other specified
complications of surgical and medical
care, not elsewhere classified, initial
encounter); and
• T88.9XXA (Complication of
surgical and medical care, unspecified,
initial encounter).
We are inviting public comments on
our proposal.
(5) Removal of Edits and Future
Enhancement
With the implementation of ICD–10, it
is clear that there are several concepts
that differ from the ICD–9–CM
classification. These differences are
evident in the MCE as discussed earlier
in this section. Looking ahead to the
needs and uses of coded data as the data
continue to evolve from the reporting,
collection, processing, coverage,
payment and analysis aspect, we believe
the need to ensure the accuracy of the
coded data becomes increasingly
significant.
The purpose of the MCE is to ensure
that errors and inconsistencies in the
coded data are recognized during

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Medicare claims processing. As shown
in the FY 2016 ICD–10 MCE Version 33
manual file and an ICD–9–CM MCE
Version 33.0A manual file (developed
for analysis only), an edit code list
exists according to the definition or
criteria set forth for each specified type
of edit. Over time, certain edits under
the ICD–9–CM MCE became
discontinued as they were no longer
needed. However, the MCE manual has
continued to make reference to these
discontinued edits, including through
the replication process with
transitioning to ICD–10.
Currently, the FY 2016 ICD–10 MCE
Version 33 manual file displays the
following edits:
• 12. Open biopsy check. Effective
October 1, 2010, the Open biopsy check
edit was discontinued and will appear
for claims processed using MCE Version
2.0–26.0 only.
• 13. Bilateral procedure. Effective
with the ICD–10 implementation, the
bilateral procedure edit will be
discontinued.
Because these edits are no longer
valid, we are proposing to remove the
reference to them, effective with the
ICD–10 MCE manual and software

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Version 34.0, for FY 2017. We are
inviting public comments on our
proposal.
As we continue to evaluate the
purpose and function of the MCE with
respect to the transition to ICD–10, we
encourage public input for future
discussion. For instance, we recognize a
need to further examine the current list
of edits and the definitions of those
edits. We encourage public comments
on whether there are additional
concerns with the current edits,
including specific edits or language that
should be removed or revised, edits that
should be combined, or new edits that
should be added to assist in detecting
errors or inaccuracies in the coded data.
13. Proposed Changes to Surgical
Hierarchies
Some inpatient stays entail multiple
surgical procedures, each one of which,
occurring by itself, could result in
assignment of the case to a different
MS–DRG within the MDC to which the
principal diagnosis is assigned.
Therefore, it is necessary to have a
decision rule within the GROUPER by
which these cases are assigned to a
single MS–DRG. The surgical hierarchy,
an ordering of surgical classes from
most resource-intensive to least
resource-intensive, performs that
function. Application of this hierarchy
ensures that cases involving multiple
surgical procedures are assigned to the
MS–DRG associated with the most
resource-intensive surgical class.
Because the relative resource intensity
of surgical classes can shift as a function
of MS–DRG reclassification and
recalibrations, for FY 2017, we reviewed
the surgical hierarchy of each MDC, as
we have for previous reclassifications
and recalibrations, to determine if the
ordering of classes coincides with the
intensity of resource utilization.
A surgical class can be composed of
one or more MS–DRGs. For example, in
MDC 11, the surgical class ‘‘kidney
transplant’’ consists of a single MS–DRG
(MS–DRG 652) and the class ‘‘major
bladder procedures’’ consists of three
MS–DRGs (MS–DRGs 653, 654, and
655). Consequently, in many cases, the
surgical hierarchy has an impact on
more than one MS–DRG. The
methodology for determining the most
resource-intensive surgical class
involves weighting the average
resources for each MS–DRG by
frequency to determine the weighted
average resources for each surgical class.
For example, assume surgical class A
includes MS–DRGs 001 and 002 and
surgical class B includes MS–DRGs 003,
004, and 005. Assume also that the
average costs of MS–DRG 001 are higher

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than that of MS–DRG 003, but the
average costs of MS–DRGs 004 and 005
are higher than the average costs of MS–
DRG 002. To determine whether
surgical class A should be higher or
lower than surgical class B in the
surgical hierarchy, we would weigh the
average costs of each MS–DRG in the
class by frequency (that is, by the
number of cases in the MS–DRG) to
determine average resource
consumption for the surgical class. The
surgical classes would then be ordered
from the class with the highest average
resource utilization to that with the
lowest, with the exception of ‘‘other
O.R. procedures’’ as discussed in this
rule.
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 with cases assigned to the MDC
with these diagnoses. Therefore,
assignment to these surgical classes
should only occur if no other surgical
class more closely related to the
diagnoses in the MDC is appropriate.
A second example occurs when the
difference between the average costs for
two surgical classes is very small. We
have found that small differences
generally do not warrant reordering of
the hierarchy because, as a result of
reassigning cases on the basis of the
hierarchy change, the average costs are
likely to shift such that the higherordered surgical class has lower average
costs than the class ordered below it.
Based on the changes that we are
proposing to make for FY 2017, as
discussed in section II.F.4.c. of the
preamble of this FY 2017 IPPS/LTCH
PPS proposed rule, we are proposing to

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maintain the existing surgical hierarchy
in MDC 5 for proposed revised MS–
DRGs 228 and 229 (Other
Cardiothoracic Procedures with MCC
and without MCC, respectively).
We are inviting public comments on
our proposals.
14. Proposed Changes to the MS–DRG
Diagnosis Codes for FY 2017
The tables identifying the proposed
additions and deletions to the MCC
severity levels list and the proposed
additions and deletions to the CC
severity levels list for FY 2017 are
available via the Internet on the CMS
Web site at: http://cms.hhs.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html
as follows:
• Table 6I.1—Proposed Additions to
the MCC List—FY 2017;
• Table 6I.2—Proposed Deletions to
the MCC List—FY 2017;
• Table 6J.1—Proposed Additions to
the CC List—FY 2017; and
• Table 6J.2—Proposed Deletions to
the CC List—FY 2017.
15. Proposed Complications or
Comorbidity (CC) Exclusions List
a. Background of the CC List and the CC
Exclusions List
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.
However, depending on the principal
diagnosis of the patient, some diagnoses
on the basic list of complications and
comorbidities may be excluded if they
are closely related to the principal
diagnosis. In FY 2008, we evaluated
each diagnosis code to determine its
impact on resource use and to
determine the most appropriate CC
subclassification (non-CC, CC, or MCC)
assignment. We refer readers to sections
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 47152
through 47171).

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

b. Proposed CC Exclusions List for FY
2017
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
previously indicated, 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 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; and
• 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. We refer readers to the FY 2014
IPPS/LTCH PPS final rule (78 FR 50541)
for detailed information regarding
revisions that were made to the CC
Exclusion Lists under the ICD–9–CM
MS–DRGs.
For FY 2017, we are proposing
changes to the ICD–10 MS–DRGs
Version 34 CC Exclusion List. Therefore,

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we have developed Table 6G.1.—
Proposed Secondary Diagnosis Order
Additions to the CC Exclusions List—
FY 2017; Table 6G.2.—Proposed
Principal Diagnosis Order Additions to
the CC Exclusions List—FY 2017; Table
6H.1.—Proposed Secondary Diagnosis
Order Deletions to the CC Exclusions
List—FY 2017; and Table 6H.2.—
Proposed Principal Diagnosis Order
Deletions to the CC Exclusions List—FY
2017. Each of these principal diagnosis
codes for which there is a CC exclusion
is shown in Table 6G.2. 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. Beginning
with discharges on or after October 1 of
each year, the indented diagnoses are
not recognized by the GROUPER as
valid CCs for the asterisked principal
diagnoses. Tables 6G and 6H associated
with this proposed rule are available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html.
To capture new and deleted diagnosis
and procedure codes, for FY 2017, we
have developed Table 6A.—New
Diagnosis Codes, Table 6B.—New
Procedure Codes, and Table 6C—Invalid
Diagnosis Codes to this proposed rule.
However, they are not published in the
Addendum to this proposed rule but are
available via the Internet on the CMS
Web site at: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html, as described in section VI.
of the Addendum to this proposed rule.
We note that while we did not
specifically develop a Table 6E.—
Revised Diagnosis Code Titles for this
proposed rule, a document containing
the FY 2017 revised diagnosis code
titles, as well as new diagnosis codes
that have been finalized to date since
implementation of the partial code
freeze, was made available in advance
in response to requests from the health
care industry. During the March 9–10,
2016 ICD–10 Coordination and
Maintenance Committee meeting, a
discussion regarding this document was
presented. Participants were informed
that the document titled ‘‘FY 2017 New
Released ICD–10–CM Codes’’ would
contain the information that would
otherwise be included for this table.
This document has been posted along
with the other March 9–10, 2016 ICD–
10 Coordination and Maintenance
Committee meeting materials on the
CDC Web site at: http://www.cdc.gov/
nchs/icd/icd9cm_maintenance.htm.
In addition, we did not specifically
develop a Table 6F.—Revised Procedure

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25011

Code Titles for this proposed rule.
However, a document containing the FY
2017 revised procedure code titles, as
well as new procedure codes that have
been finalized to date since
implementation of the partial code
freeze, was made available in advance
in response in response to requests from
the health care industry. During the
March 9–10, 2016 ICD–10 Coordination
and Maintenance Committee meeting, a
discussion regarding this document was
presented. Participants were informed
that the document titled ‘‘FY 2017 New
Revised ICD–10–PCS Codes’’ would
contain the information that would
otherwise be included for this table.
This document is posted on the CMS
Web site at: https://www.cms.gov/
Medicare/Coding/ICD9Provider
DiagnosticCodes/ICD-9-CM-C-and-MMeeting-Materials-Items/2016-03-09MeetingMaterials.html?DLPage=1&
DLEntries=10&DLSort=0&DLSortDir=
descending.
As mentioned in section II.F.14. of
this proposed rule, we are proposing
additions and deletions to the MS–DRG
MCC and CC Lists for FY 2017 based on
the creation of new ICD–10–CM codes.
This information is available in Tables
6I.1 (Proposed Additions to the MCC
List—FY 2017), 6I.2 (Proposed Deletions
to the MCC List—FY 2017), 6J.1
(Proposed Additions to the CC List—FY
2017), and 6J.2 (Proposed Deletions to
the CC List—FY 2017). However, they
are not published in the Addendum to
this proposed rule but are available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html, as
described in section VI. of the
Addendum to this proposed rule.
16. Review of Procedure Codes in MS
DRGs 981 Through 983; 984 Through
986; and 987 Through 989
Each year, we review cases assigned
to MS–DRGs 981, 982, and 983
(Extensive O.R. Procedure Unrelated to
Principal Diagnosis with MCC, with CC,
and without CC/MCC, respectively);
MS–DRGs 984, 985, and 986 (Prostatic
O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and
without CC/MCC, respectively); and
MS–DRGs 987, 988, and 989
(Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis with MCC, with
CC, and without CC/MCC, respectively)
to determine whether it would be
appropriate to change the procedures
assigned among these MS–DRGs. MS–
DRGs 981 through 983, 984 through 986,
and 987 through 989 are reserved for
those cases in which none of the O.R.
procedures performed are related to the

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principal diagnosis. These MS–DRGs
are intended to capture atypical cases,
that is, those cases not occurring with
sufficient frequency to represent a
distinct, recognizable clinical group.
Under ICD–9–CM, MS–DRGs 984
through 986 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); and
• 60.99 (Other operations on
prostate).
Under the ICD–10 MS–DRGs Version
33, the comparable ICD–10–PCS code
translations for the above list of codes
are available in Table 6P.2. associated
with this proposed rule (which is
available via the Internet on the CMS
Web site at: https://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html). 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.
We refer the reader to the FY 2014
IPPS/LTCH PPS final rule (78 FR 50544
through 50545) for detailed information
regarding modifications that were made
to the former ICD–9–CM CMS DRG 468
(MS–DRGs 981 through 983), CMS DRG
476 (MS–DRGs 984 through 986), and
CMS DRG 477 (MS–DRGs 987 through
989) with regard to the movement of
procedure codes. We note that no

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procedure codes were moved from these
DRGs from FY 2008 through FY 2016.
Our review of MedPAR claims data
showed that there are no cases that
merited movement or should logically
be reassigned from ICD–10 MS–DRGs
984 through 986 to any of the other
MDCs. Therefore, for FY 2017, we are
not proposing to change the procedures
assigned among these MS–DRGs. We are
inviting public comments on our
proposal to maintain the current
structure of these MS–DRGs.
a. Moving Procedure Codes From MS–
DRGs 981 Through 983 or MS–DRGs
987 Through 989 Into MDCs
We annually conduct a review of
procedures producing assignment to
MS–DRGs 981 through 983 (Extensive
O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and
without CC/MCC, respectively) or MS–
DRGs 987 through 989 (Nonextensive
O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and
without CC/MCC, respectively) on the
basis of volume, by procedure, to see if
it would be appropriate to move
procedure codes out of these MS–DRGs
into one of the surgical MS–DRGs for
the MDC into which the principal
diagnosis falls. The data are arrayed in
two ways for comparison purposes. We
look at a frequency count of each major
operative procedure code. We also
compare procedures across MDCs by
volume of procedure codes within each
MDC.
We identify those procedures
occurring in conjunction with certain
principal diagnoses with sufficient
frequency to justify adding them to one
of the surgical MS–DRGs for the MDC in
which the diagnosis falls. Upon review
of the claims data from the December
2015 update of the FY 2015 MedPAR
file, we did not find any cases that
merited movement or that should
logically be assigned to any of the other
MDCs. Therefore, for FY 2017, we are
not proposing to remove any procedures
from MS–DRGs 981 through 983 or MS–
DRGs 987 through 989 into one of the
surgical MS–DRGs for the MDC into
which the principal diagnosis is
assigned. We are inviting public
comments on our proposal to maintain
the current structure of these MS–DRGs.
b. Reassignment of Procedures Among
MS–DRGs 981 Through 983, 984
Through 986, and 987 Through 989
We also reviewed the list of ICD–10–
PCS procedures that, when in
combination with their principal
diagnosis code, result in assignment to
MS–DRGs 981 through 983, 984 through
986, or 987 through 989, to ascertain

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whether any of those procedures should
be reassigned from one of those three
groups of MS–DRGs to another of the
three groups of MS–DRGs based on
average costs and the length of stay. We
look at the data for trends such as shifts
in treatment practice or reporting
practice that would make the resulting
MS–DRG assignment illogical. If we find
these shifts, we would propose to move
cases to keep the MS–DRGs clinically
similar or to provide payment for the
cases in a similar manner. Generally, we
move only those procedures for which
we have an adequate number of
discharges to analyze the data.
There are 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 2017, we are
not proposing to move any procedure
codes among these MS–DRGs. We are
inviting public comments on our
proposal.
c. Adding Diagnosis or Procedure Codes
to MDCs
Based on the review of cases in the
MDCs, we are proposing to add multiple
diagnosis and procedure codes to MDCs
for FY 2017 to address replication
issues. We discuss each of these
proposals below.
(1) Angioplasty of Extracranial Vessel
In the ICD–9–CM MS–DRGs Version
32, procedures describing angioplasty of
an extracranial vessel were assigned to
MDC 1 (Diseases and Disorders of the
Nervous System) under MS–DRGs 037,
038, and 039 (Extracranial Procedures
with MCC, with CC, or without CC/
MCC, respectively). Under ICD–9–CM,
more than one ICD–9–CM code could be
reported for these procedures,
depending on the approach that was
documented. For example, ICD–9–CM
procedure code 00.61 (Percutaneous
angioplasty of extracranial vessel(s))
would have been appropriately reported
if the percutaneous approach was
documented, and procedure code 39.50
(Angioplasty of other non-coronary
vessel(s)) would have been
appropriately reported if a specified
approach was not documented.
A replication issue for 41 ICD–10–
PCS procedure codes describing
angioplasty with the open approach was
identified after implementation of the
ICD–10 MS–DRGs Version 33. In the
code translation, these 41 ICD–10–PCS
procedure codes were grouped and
assigned to ICD–10 MS–DRGs 981
through 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
MCC, with CC, and without CC/MCC,
respectively). However, these procedure
codes should have been grouped to
ICD–10 MS–DRGs 037 through 039

when a principal diagnosis was reported
under MDC 1.
To resolve this replication issue, we
are proposing to add the 41 ICD–10–PCS

ICD–10–PCS
procedure code
037H04Z ...........
037H0DZ ..........
037H0ZZ ...........
037J04Z ............
037J0DZ ...........
037J0ZZ ...........
037K04Z ...........
037K0DZ ..........
037K0ZZ ...........
037L04Z ...........
037L0DZ ...........
037L0ZZ ...........
037M04Z ..........
037M0DZ ..........
037M0ZZ ..........
037N04Z ...........
037N0DZ ..........
037N0ZZ ...........
037P04Z ...........
037P0DZ ..........
037P0ZZ ...........
037Q04Z ...........
037Q0DZ ..........
037Q0ZZ ..........
037Y04Z ...........
037Y0DZ ..........
037Y0ZZ ...........
057M0DZ ..........
057M0ZZ ..........
057N0DZ ..........
057N0ZZ ...........
057P0DZ ..........
057P0ZZ ...........
057Q0DZ ..........
057Q0ZZ ..........
057R0DZ ..........
057R0ZZ ...........
057S0DZ ..........
057S0ZZ ...........
057T0DZ ...........
057T0ZZ ...........

Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation
Dilation

of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
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of
of
of

right common carotid artery with drug-eluting intraluminal device, open approach.
right common carotid artery with intraluminal device, open approach.
right common carotid artery, open approach.
left common carotid artery with drug-eluting intraluminal device, open approach.
left common carotid artery with intraluminal device, open approach.
left common carotid artery, open approach.
right internal carotid artery with drug-eluting intraluminal device, open approach.
right internal carotid artery with intraluminal device, open approach.
right internal carotid artery, open approach.
left internal carotid artery with drug-eluting intraluminal device, open approach.
left internal carotid artery with intraluminal device, open approach.
left internal carotid artery, open approach.
right external carotid artery with drug-eluting intraluminal device, open approach.
right external carotid artery with intraluminal device, open approach.
right external carotid artery, open approach.
left external carotid artery with drug-eluting intraluminal device, open approach.
left external carotid artery with intraluminal device, open approach.
left external carotid artery, open approach.
right vertebral artery with drug-eluting intraluminal device, open approach.
right vertebral artery with intraluminal device, open approach.
right vertebral artery, open approach.
left vertebral artery with drug-eluting intraluminal device, open approach.
left vertebral artery with intraluminal device, open approach.
left vertebral artery, open approach.
upper artery with drug-eluting intraluminal device, open approach.
upper artery with intraluminal device, open approach.
upper artery, open approach.
right internal jugular vein with intraluminal device, open approach.
right internal jugular vein, open approach.
left internal jugular vein with intraluminal device, open approach.
left internal jugular vein, open approach.
right external jugular vein with intraluminal device, open approach.
right external jugular vein, open approach
left external jugular vein with intraluminal device, open approach.
left external jugular vein, open approach.
right vertebral vein with intraluminal device, open approach.
right vertebral vein, open approach.
left vertebral vein with intraluminal device, open approach.
left vertebral vein, open approach.
right face vein with intraluminal device, open approach.
right face vein, open approach.

(2) Excision of Abdominal Arteries
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

procedure codes listed in the following
table to ICD–10 MS–DRGs 037 through
039 under MDC 1.

Description

We are inviting public comments on
our proposal to add the above listed
codes to ICD–10 MS–DRGs 037, 038,
and 039 (Extracranial Procedures with
MCC, with CC, or without CC/MCC,
respectively) under MDC 1, effective
October 1, 2016, for the ICD–10 MS–
DRGs Version 34.

In the ICD–9–CM MS–DRGs Version
32, procedures involving excision of a
vessel and anastomosis, such as those
performed for the treatment of an
abdominal artery aneurysm
(aneurysmectomy), are identified with
procedure code 38.36 (Resection of
vessel with anastomosis, abdominal
arteries) and are assigned to the
following MDCs and MS–DRGs:

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• MDC 5 (Diseases and Disorders of
the Circulatory System): MS–DRGs 270
through 272 (Other Major
Cardiovascular Procedures with MCC,
with CC and without CC/MCC,
respectively);
• MDC 6 (Diseases and Disorders of
the Digestive System): MS–DRGs 356
through 358 (Other Digestive System
O.R. Procedures with MCC, with CC and
without CC/MCC, respectively);
• MDC 11 (Diseases and Disorders of
the Kidney and Urinary Tract): MS–
DRGs 673 through 675 (Other Kidney
and Urinary Tract Procedures with
MCC, with CC and without CC/MCC,
respectively);
• MDC 21 (Injuries, Poisonings and
Toxic Effects of Drugs): MS–DRGs 907
through 909 (Other O.R. Procedures for

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Sfmt 4702

Injuries with MCC, with CC, and
without CC/MCC, respectively); and
• MDC 24 (Multiple Significant
Trauma): MS–DRG 957 through 959
(Other O.R. Procedures for Multiple
Significant Trauma without CC/MCC).
A replication issue for 34 ICD–10–
PCS procedure codes describing
aneurysmectomy procedures with the
open and percutaneous endoscopic
approach was identified after
implementation of the ICD–10 MS–
DRGs Version 33. For example, cases
with a principal diagnosis of I72.2
(Aneurysm of renal artery) and
procedure code 04BA0ZZ (Excision of
left renal artery, open approach) are
resulting in assignment to ICD–10 MS–
DRGs 981 through 983 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and

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without CC/MCC, respectively) instead
of to MDC 11 in MS–DRGs 673 through
675 (Other Kidney and Urinary Tract
Procedures with MCC, with CC, and
without CC/MCC, respectively).

To resolve this replication issue, we
are proposing to add the 34 ICD–10–PCS
procedure codes listed in the following
table that are comparable translations of
ICD–9–CM procedure code 38.36 to

ICD–10–PCS
procedure code

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

04B10ZZ ...........
04B14ZZ ...........
04B20ZZ ...........
04B24ZZ ...........
04B30ZZ ...........
04B34ZZ ...........
04B40ZZ ...........
04B44ZZ ...........
04B50ZZ ...........
04B54ZZ ...........
04B60ZZ ...........
04B64ZZ ...........
04B70ZZ ...........
04B74ZZ ...........
04B80ZZ ...........
04B84ZZ ...........
04B90ZZ ...........
04B94ZZ ...........
04BA0ZZ ..........
04BA4ZZ ..........
04BB0ZZ ..........
04BB4ZZ ..........
04BC0ZZ ..........
04BC4ZZ ..........
04BD0ZZ ..........
04BD4ZZ ..........
04BE0ZZ ..........
04BE4ZZ ..........
04BF0ZZ ...........
04BF4ZZ ...........
04BH0ZZ ..........
04BH4ZZ ..........
04BJ0ZZ ...........
04BJ4ZZ ...........

Description
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision

of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of

celiac artery, open approach.
celiac artery, percutaneous endoscopic approach.
gastric artery, open approach.
gastric artery, percutaneous endoscopic approach.
hepatic artery, open approach.
hepatic artery, percutaneous endoscopic approach.
splenic artery, open approach.
splenic artery, percutaneous endoscopic approach.
superior mesenteric artery, open approach.
superior mesenteric artery, percutaneous endoscopic approach.
right colic artery, open approach.
right colic artery, percutaneous endoscopic approach.
left colic artery, open approach.
left colic artery, percutaneous endoscopic approach.
middle colic artery, open approach.
middle colic artery, percutaneous endoscopic approach.
right renal artery, open approach.
right renal artery, percutaneous endoscopic approach.
left renal artery, open approach.
left renal artery, percutaneous endoscopic approach.
inferior mesenteric artery, open approach.
inferior mesenteric artery, percutaneous endoscopic approach.
right common iliac artery, open approach.
right common iliac artery, percutaneous endoscopic approach.
left common iliac artery, open approach.
left common iliac artery, percutaneous endoscopic approach.
right internal iliac artery, open approach.
right internal iliac artery, percutaneous endoscopic approach.
left internal iliac artery, open approach.
left internal iliac artery, percutaneous endoscopic approach.
right external iliac artery, open approach.
right external iliac artery, percutaneous endoscopic approach.
left external iliac artery, open approach.
left external iliac artery, percutaneous endoscopic approach.

Adding these procedures to those
MDCs in the ICD–10 MS–DRGs Version
34 will result in a more accurate
replication for the same procedure
under the ICD–9–CM MS–DRGs Version
32. We also are proposing that these
procedure codes be assigned to the
corresponding MS–DRGs in each
respective MDC as listed above. The
proposed changes would eliminate
erroneous assignment to MS–DRGs 981
through 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC,
respectively) for these procedures.
We are inviting public comments on
our proposal to add the above listed
codes to MDCs 6, 11, 21, and 24 in the
corresponding MS–DRGs, effective
October 1, 2016, in the ICD–10 MS–
DRGs Version 34.
(3) Excision of Retroperitoneal Tissue
In the ICD–9–CM MS–DRGs Version
32, procedures involving excision of a
retroperitoneal lesion (or tissue), such as
those performed for the treatment of a

VerDate Sep<11>2014

ICD–10 MDCs 6, 11, 21, and 24. We note
that there is no replication issue related
to MDC 5 as the ICD–10–PCS procedure
codes listed in the table below group
there appropriately.

18:46 Apr 26, 2016

Jkt 238001

neoplasm, are identified with procedure
code 54.4 (Excision or destruction of
peritoneal tissue) and are assigned to a
number of MDCs and MS–DRGs across
a variety of body systems, some of
which include the following:
• MDC 6 (Diseases and Disorders of
the Digestive System): MS–DRGs 356
through 358 (Other Digestive System
O.R. Procedures with MCC, with CC,
and without CC/MCC, respectively);
• MDC 7 (Diseases and Disorders of
the Hepatobiliary System and Pancreas):
MS–DRGs 423 through 425 (Other
Hepatobiliary or Pancreas O.R.
Procedures with MCC, with CC, and
without CC/MCC, respectively); and
• MDC 10 (Endocrine, Nutritional
and Metabolic Diseases and Disorders):
MS–DRGs 628 through 630 (Other
Endocrine, Nutritional and Metabolic
O.R. Procedures with MCC, with CC,
and without CC/MCC, respectively).
A replication issue for the ICD–10–
PCS procedure codes describing
excision of retroperitoneum that
involves MDC 6 was identified after

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implementation of the ICD–10 MS–
DRGs Version 33. These procedure
codes are ICD–10–PCS codes 0WBH0ZZ
(Excision of retroperitoneum, open
approach), 0WBH3ZZ (Excision of
retroperitoneum, percutaneous
approach), and 0WBH4ZZ (Excision of
retroperitoneum, percutaneous
endoscopic approach). For example,
when an ICD–10–CM diagnosis code
such as D20.0 (Benign neoplasm of soft
tissue of retroperitoneum) is reported
with any one of these three ICD–10–PCS
procedure codes, the case is assigned to
MS–DRGs 981 through 983 (Extensive
O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and
without CC/MCC, respectively).
To resolve this replication issue, we
are proposing to add the three ICD–10–
PCS procedure codes to MDC 6 in MS–
DRGs 356 through 358 (Other Digestive
System O.R. Procedures with MCC, with
CC, and without CC/MCC, respectively).
This would result in a more accurate
replication of the comparable procedure
under the ICD–9–CM MS–DRGs Version

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32. The proposed changes also would
eliminate erroneous assignment to MS–
DRGs 981 through 983 for these
procedures.
We are inviting public comments on
our proposal to add the three ICD–10–
PCS codes describing excision of
retroperitoneum to MDC 6 in MS–DRGs
356 through 358, effective October 1,
2016, in the ICD–10 MS–DRGs Version
34.
(4) Occlusion of Vessels: Esophageal
Varices
In the ICD–9–CM MS–DRGs Version
32, procedures including ligation or
surgical occlusion of esophageal varices
are identified with procedure code
42.91 (Ligation of esophageal varices)
and are assigned to MDC 6 (Diseases
and Disorders of the Digestive System)
under MS–DRGs 326 through 328
(Stomach, Esophageal and Duodenal
Procedures with MCC, with CC, and
without CC/MCC, respectively) and
MDC 7 (Diseases and Disorders of the
Hepatobiliary System and Pancreas)
under MS–DRGs 423 through 425 (Other
Hepatobiliary or Pancreas O.R.
procedures with MCC, with CC, and
without CC/MCC, respectively).
A replication issue for MDC 7
involving ICD–10–PCS procedure codes
06L30CZ (Occlusion of esophageal vein
with extraluminal device, open
approach) and 06L30DZ (Occlusion of
esophageal vein with intraluminal
device, open approach) was identified
in the ICD–10 MS–DRGs Version 33
after implementation on October 1,
2015. For instance, when an ICD–10–
CM diagnosis code such as K70.30
(Alcoholic cirrhosis of liver without
ascites) is reported with either one of
the ICD–10–PCS procedure codes, it
results in assignment to MS–DRGs 981
through 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC,
respectively).
To resolve this replication issue, we
are proposing to add the two ICD–10–
PCS procedure codes describing
occlusion of esophageal vein to MDC 7
under MS–DRGs 423 through 425. This
will result in a more accurate
replication of the comparable procedure
under the ICD–9–CM MS–DRGs Version
32. The proposed changes also would
eliminate erroneous assignment to MS–
DRGs 981 through 983 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and
without CC/MCC, respectively) for these
procedures.
We are inviting public comments on
our proposal to add ICD–10–PCS
procedure codes 06L30CZ and 06L30DZ
to MDC 7 under MS–DRGs 423 through

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18:46 Apr 26, 2016

Jkt 238001

425, effective October 1, 2016, in the
ICD–10 MS–DRGs Version 34.
(5) Excision of Vulva
In the ICD–9–CM MS–DRGs Version
32, procedures involving excision of the
vulva are identified with procedure
code 71.3 (Other local excision or
destruction of vulva and perineum) and
are assigned to the following MDCs and
MS–DRGs:
• MDC 9 (Diseases & Disorders of the
Skin, Subcutaneous Tissue and Breast):
MS–DRGs 579 through 581 (Other Skin,
Subcutaneous Tissue and Breast
Procedures with MCC, with CC, and
without CC/MCC, respectively); and
• MDC 13 (Diseases & Disorders of
the Female Reproductive System): MS–
DRG 746 (Vagina, cervix and vulva
procedures with CC/MCC) and MS–DRG
747 (Vagina, Cervix and Vulva
procedures without CC/MCC).
A replication issue involving ICD–10–
PCS procedure code 0UBMXZZ
(Excision of vulva, external approach)
was identified after implementation of
the ICD–10 MS–DRGs Version 33. For
example, when cases with an ICD–10–
CM principal diagnosis of code D07.1
(Carcinoma in situ of vulva) are reported
with ICD–10–PCS procedure code
0UBMXZZ (Excision of vulva, external
approach), they are resulting in
assignment to MS–DRGs 981 through
983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC,
respectively).
To resolve this replication issue, we
are proposing to add ICD–10–PCS
procedure code 0UBMXZZ to MDC 13
under MS–DRGs 746 and 747. Adding
procedure code 0UBMXZZ to MDC 13
in MS–DRGs 746 and 747 would result
in a more accurate replication of the
comparable procedure under the ICD–9–
CM MS–DRGs Version 32. The proposed
changes also would eliminate erroneous
assignment to MS–DRGs 981 through
983 for these procedures. In addition,
the proposed changes would be
consistent with the assignment of other
clinically similar procedures, such as
ICD–10–PCS procedure code 0WBNXZZ
(Excision of female perineum, external
approach). Finally, we note that there is
no replication issue for MDC 9 regarding
this procedure code.
We are inviting public comment on
our proposal to add ICD–10–PCS
procedure code 0UBMXZZ to MDC 13
in MS–DRGs 746 and 747, effective
October 1, 2016, in the ICD–10 MS–
DRGs Version 34.
(6) Lymph Node Biopsy
In the ICD–9–CM MS–DRGs Version
32, procedures involving a lymph node

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25015

biopsy are identified with procedure
code 40.11 (Biopsy of lymphatic
structure), which may be assigned to
several MDCs representing various body
systems. Under the ICD–10 MS–DRGs
Version 33, this procedure has 114 ICD–
10–PCS procedure codes considered to
be comparable translations that describe
diagnostic drainage or excision of
specified lymphatic structures and also
warrant assignment to the same MDCs
across various body systems.
A replication issue for the lymph
node biopsy procedure involving MDC
4 (Diseases and Disorders of the
Respiratory System) under the ICD–10
MS–DRGs Version 33 was identified
after implementation on October 1,
2015. For example, when a respiratory
system diagnosis is reported with the
comparable ICD–10–PCS procedure
code 07B74ZX (Excision of thorax
lymphatic, percutaneous endoscopic
approach, diagnostic), the case is
assigned to MS–DRGs 987 through 989
(Non-Extensive O.R. Procedure
Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC,
respectively).
To resolve this replication issue, we
are proposing to add ICD–10–PCS
procedure code 07B74ZX to MDC 4
under MS–DRGs 166 through 168 (Other
Respiratory System O.R. Procedures
with MCC, with CC, and without CC/
MCC, respectively) to more accurately
replicate assignment of the comparable
procedure code under the ICD–9–CM
MS–DRGs Version 32.
While reviewing that specific
example, we also identified two other
comparable ICD–10–PCS procedure
code translations of ICD–9–CM
procedure code 40.11 (Biopsy of
lymphatic structure) describing
diagnostic excision of thoracic
lymphatic structures that were not
replicated consistent with the ICD–9–
CM MS–DRGs Version 32. These are
ICD–10–PCS procedure codes 07B70ZX
(Excision of thorax lymphatic, open
approach, diagnostic) and 07B73ZX
(Excision of thorax lymphatic,
percutaneous approach, diagnostic).
Therefore, we are proposing to add
these two ICD–10–PCS procedure codes
to MDC 4 in MS–DRGs 166 through 168
as well.
Adding ICD–10–PCS procedure codes
07B74ZX, 07B70ZX, and 07B73ZX that
describe diagnostic excision of thoracic
lymphatic structures to MDC 4 under
MS–DRGs 166 through 168 would result
in a more accurate replication of the
comparable procedure under ICD–9–CM
MS–DRGs Version 32. The proposed
changes would eliminate erroneous
assignment to MS–DRGs 987 through
989 for these procedures.

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We are inviting public comments on
our proposal to add ICD–10–PCS
procedure codes 07B74ZX, 07B70ZX,
and 07B73ZX to the ICD–10 MS–DRGs

Version 34 for MS–DRGs 166 through
168 in MDC 4, effective October 1, 2016.
(7) Obstetrical Laceration Repair
A replication issue for eight ICD–10–
PCS procedure codes describing

ICD–10–PCS
procedure
code
0DQQ0ZZ
0DQQ3ZZ
0DQQ4ZZ
0DQQ7ZZ
0DQQ8ZZ
0DQR0ZZ
0DQR3ZZ
0DQR4ZZ

Description

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

Repair
Repair
Repair
Repair
Repair
Repair
Repair
Repair

anus, open approach.
anus, percutaneous approach.
anus, percutaneous endoscopic approach.
anus, via natural or artificial opening.
anus, via natural or artificial opening endoscopic.
anal sphincter, open approach.
anal sphincter, percutaneous approach.
anal sphincter, percutaneous endoscopic approach.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

We discovered that the ICD–10 MDC
and MS–DRG assignment are not
consistent with other ICD–10–PCS
procedure codes that identify and
describe clinically similar procedures
for the repair of obstetrical lacerations
which are coded and reported based on
the extent of the tear. For example, ICD–
10–PCS procedure code 0DQP0ZZ
(Repair rectum, open approach) is
appropriately assigned to MDC 14
(Pregnancy, Childbirth and the
Puerperium) under MS–DRG 774
(Vaginal Delivery with Complicating
Diagnoses). This procedure may be
performed in the treatment of a fourthdegree perineal laceration involving the
rectal mucosa. In contrast, ICD–10–PCS
procedure code 0DQR0ZZ (Repair anal
sphincter, open approach), when
reported for repair of a perineal
laceration, currently results in
assignment to MS–DRGs 987 through
989 (Non-Extensive O.R. Procedure
Unrelated to Principal Diagnosis).
To resolve this replication issue, we
are proposing to add these eight ICD–
10–PCS procedure codes to MDC 14 in
MS–DRG 774. The proposed changes
would eliminate erroneous assignment
to MS–DRGs 987 through 989 for these
procedures.
We are inviting public comments on
our proposal to add the eight listed
codes to MDC 14 under MS–DRG 774,
effective October 1, 2016, in the ICD–10
MS–DRGs Version 34.
17. Proposed Changes to the ICD–10–
CM and ICD–10–PCS Coding Systems
a. ICD–10 Coordination and
Maintenance Committee
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

VerDate Sep<11>2014

procedures that may be performed for
the repair of obstetrical lacerations was
identified after implementation of the
ICD–10 MS–DRGs Version 33. These
codes are:

18:46 Apr 26, 2016

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Disease Control and Prevention, and
CMS, charged with maintaining and
updating the ICD–9–CM system. The
final update to ICD–9–CM codes was to
be made on October 1, 2013. Thereafter,
the name of the Committee was changed
to the ICD–10 Coordination and
Maintenance Committee, effective with
the March 19–20, 2014 meeting. The
ICD–10 Coordination and Maintenance
Committee addresses updates to the
ICD–10–CM and ICD–10–PCS coding
systems. The Committee is jointly
responsible for approving coding
changes, and developing errata,
addenda, and other modifications to the
coding systems to reflect newly
developed procedures and technologies
and newly identified diseases. The
Committee is also responsible for
promoting the use of Federal and nonFederal educational programs and other
communication techniques with a view
toward standardizing coding
applications and upgrading the quality
of the classification system.
The official list of ICD–9–CM
diagnosis and procedure codes by fiscal
year can be found on the CMS Web site
at: http://cms.hhs.gov/Medicare/Coding/
ICD9ProviderDiagnosticCodes/
codes.html. The official list of ICD–10–
CM and ICD–10–PCS codes can be
found on the CMS Web site at: http://
www.cms.gov/Medicare/Coding/ICD10/
index.html.
The NCHS has lead responsibility for
the ICD–10–CM and ICD–9–CM
diagnosis codes included in the Tabular
List and Alphabetic Index for Diseases,
while CMS has lead responsibility for
the ICD–10–PCS and ICD–9–CM
procedure codes included in the
Tabular List and Alphabetic Index for
Procedures.
The Committee encourages
participation in the previously
mentioned process by health-related
organizations. In this regard, the

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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 2017 at a public meeting held on
September 22–23, 2015, and finalized
the coding changes after consideration
of comments received at the meetings
and in writing by November 13, 2015.
The Committee held its 2016 meeting
on March 9–10, 2016. It was announced
at this meeting that any new ICD–10–
CM/PCS codes for which there was
consensus of public support and for
which complete tabular and indexing
changes would be made by May 2016
would be included in the October 1,
2016 update to ICD–10–CM/ICD–10–
PCS. As discussed in earlier sections of
this preamble, there are new and
deleted ICD–10–CM diagnosis codes
and ICD–10–PCS procedure codes that
are captured in Table 6A.—New
Diagnosis Codes, Table 6B.—New
Procedure Codes, and Table 6C.—
Invalid Diagnosis Codes for the
proposed rule, which are available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html. Because
of the length of these tables, they are not

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
published in the Addendum to this
proposed rule. Rather, they are available
via the Internet as discussed in section
VI. of the Addendum to this proposed
rule.
Live Webcast recordings of the
discussions of procedure codes at the
Committee’s September 22–23, 2015
meeting and March 9–10, 2016 meeting
can be obtained from the CMS Web site
at: http://cms.hhs.gov/Medicare/Coding/
ICD9ProviderDiagnosticCodes/index.
html?redirect=/icD9ProviderDiagnostic
Codes/03_meetings.asp. The minutes of
the discussions of diagnosis codes at the
September 23–24, 2015 meeting and
March 9–10, 2016 meeting are found at:
http://www.cdc.gov/nchs/icd/icd9cm_
maintenance.html. These Web sites also
provide detailed information about the
Committee, including information on
requesting a new code, attending a
Committee meeting, and timeline
requirements and meeting dates.
We encourage commenters to address
suggestions on coding issues involving
diagnosis codes to: Donna Pickett, CoChairperson, ICD–10 Coordination and
Maintenance Committee, NCHS, Room
2402, 3311 Toledo Road, Hyattsville,
MD 20782. Comments may be sent by
Email to: [email protected].
Questions and comments concerning
the procedure codes should be
addressed to: Patricia Brooks, CoChairperson, ICD–10 Coordination and
Maintenance Committee, CMS, Center
for Medicare Management, Hospital and
Ambulatory Policy Group, Division of
Acute Care, C4–08–06, 7500 Security
Boulevard, Baltimore, MD 21244–1850.
Comments may be sent by Email to:
ICDProcedureCodeRequest@
cms.hhs.gov.
In the September 7, 2001 final rule
implementing the IPPS new technology
add-on payments (66 FR 46906), we
indicated we would attempt to include
proposals for procedure codes that
would describe new technology
discussed and approved at the Spring
meeting as part of the code revisions
effective the following October.
Section 503(a) of Public Law 108–173
included a requirement for updating
diagnosis and procedure 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

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diagnosis-related group classification)
until the fiscal year that begins after
such date. This requirement improves
the recognition of new technologies
under the IPPS system by providing
information on these new technologies
at an earlier date. Data will be available
6 months earlier than would be possible
with updates occurring only once a year
on October 1.
While section 1886(d)(5)(K)(vii) of the
Act states that the addition of new
diagnosis and procedure codes on April
1 of each year shall not require the
Secretary to adjust the payment, or DRG
classification, under section 1886(d) of
the Act until the fiscal year that begins
after such date, we have to update the
DRG software and other systems in
order to recognize and accept the new
codes. We also publicize the code
changes and the need for a mid-year
systems update by providers to identify
the new codes. Hospitals also have to
obtain the new code books and encoder
updates, and make other system changes
in order to identify and report the new
codes.
The ICD–10 (previously 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 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.
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 diagnosis and
procedure coding changes, 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 Meeting minutes. The public
agreed that there was a need to hold the
fall meetings earlier, in September or
October, in order to meet the new
implementation dates. The public
provided comment that additional time
would be needed to update hospital

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25017

systems and obtain new code books and
coding software. There was considerable
concern expressed about the impact this
new April update would have on
providers.
In the FY 2005 IPPS final rule, we
implemented section 1886(d)(5)(K)(vii)
of the Act, as added by section 503(a)
of Public Law 108–173, by developing a
mechanism for approving, in time for
the April update, diagnosis and
procedure code revisions needed to
describe new technologies and medical
services for purposes of the new
technology add-on payment process. We
also established the following process
for making these determinations. Topics
considered during the Fall ICD–10
(previously 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, 2016 implementation of a code
at the September 22–23, 2015
Committee meeting. Therefore, there
were no new codes implemented on
April 1, 2016.
ICD–9–CM addendum and code title
information is published on the CMS
Web site at: http://www.cms.hhs.gov/
Medicare/Coding/ICD9Provider
DiagnosticCodes/index.html?redirect=/
icD9ProviderDiagnosticCodes/
01overview.asp#TopofPage. ICD–10–CM
and ICD–10–PCS addendum and code
title information is published on the
CMS Web site at: http://www.cms.gov/
Medicare/Coding/ICD10/index.html.
Information on ICD–10–CM diagnosis
codes, along with the Official ICD–10–
CM Coding Guidelines, can also be
found on the CDC Web site at: http://
www.cdc.gov/nchs/icd/icd10.htm.
Information on new, revised, and
deleted ICD–10–CM/ICD–10–PCS codes
is also provided to the AHA for
publication in the Coding Clinic for
ICD–10. AHA also distributes
information to publishers and software
vendors.
CMS also sends copies of all ICD–10–
CM and ICD–10–PCS coding changes to
its Medicare contractors for use in
updating their systems and providing
education to providers.

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The code titles are adopted as part of
the ICD–10 (previously ICD–9–CM)
Coordination and Maintenance
Committee process. Therefore, 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.
b. Code Freeze
In the January 16, 2009 ICD–10–CM
and ICD–10–PCS final rule (74 FR
3340), there was a discussion of the
need for a partial or total freeze in the
annual updates to both ICD–9–CM and
ICD–10–CM and ICD–10–PCS codes.
The public comment addressed in that
final rule stated that the annual code set
updates should cease l year prior to the
implementation of ICD–10. The
commenters stated that this freeze of
code updates would allow for
instructional and/or coding software
programs to be designed and purchased
early, without concern that an upgrade
would take place immediately before
the compliance date, necessitating
additional updates and purchases.
HHS responded to comments in the
ICD–10 final rule that the ICD–9–CM
Coordination and Maintenance
Committee has jurisdiction over any
action impacting the ICD–9–CM and
ICD–10 code sets. Therefore, HHS
indicated that the issue of consideration
of a moratorium on updates to the ICD–
9–CM, ICD–10–CM, and ICD–10–PCS
code sets in anticipation of the adoption
of ICD–10–CM and ICD–10–PCS would
be addressed through the Committee at
a future public meeting.
The code freeze was discussed at
multiple meetings of the ICD–9–CM
Coordination and Maintenance
Committee and public comment was
actively solicited. The Committee
evaluated all comments from
participants attending the Committee
meetings as well as written comments
that were received. The Committee also
considered the delay in implementation
of ICD–10 until October 1, 2014. There

was an announcement at the September
19, 2012 ICD–9–CM Coordination and
Maintenance Committee meeting that a
partial freeze of both ICD–9–CM and
ICD–10 codes will be implemented as
follows:
• The last regular annual update to
both ICD–9–CM and ICD–10 code sets
was made on October 1, 2011.
• On October 1, 2012 and October 1,
2013, there will be only limited code
updates to both ICD–9–CM and ICD–10
code sets to capture new technology and
new diseases.
• On October 1, 2014, there were to
be only limited code updates to ICD–10
code sets to capture new technology and
diagnoses as required by section 503(a)
of Public Law 108–173. There were to
be no updates to ICD–9–CM on October
1, 2014.
• On October 1, 2015, one year after
the originally scheduled
implementation of ICD–10, regular
updates to ICD–10 were to begin.
On May 15, 2014, CMS posted an
updated Partial Code Freeze schedule
on the CMS Web site at: http://www.
cms.gov/Medicare/Coding/ICD10/ICD-9CM-Coordination-and-MaintenanceCommittee-Meetings.html. This updated
schedule provided information on the
extension of the partial code freeze until
1 year after the implementation of ICD–
10. As stated earlier, on April 1, 2014,
the Protecting Access to Medicare Act of
2014 (PAMA) (Pub. L. 113–93) was
enacted, which specified that the
Secretary may not adopt ICD–10 prior to
October 1, 2015. On August 4, 2014, the
Department published a final rule with
a compliance date to require the use of
ICD–10 beginning October 1, 2015. The
final rule also required HIPAA-covered
entities to continue to use ICD–9–CM
through September 30, 2015.
Accordingly, the updated schedule for
the partial code freeze was as follows:
• The last regular annual updates to
both ICD–9–CM and ICD–10 code sets
were made on October 1, 2011.
• On October 1, 2012, October 1,
2013, and October 1, 2014, 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 1886(d)(5)(K) of
the Act.
• On October 1, 2015, there will be
only limited code updates to ICD–10
code sets to capture new technologies
and diagnoses as required by section
1886(d)(5)(K) of the Act. There will be
no updates to ICD–9–CM, as it will no
longer be used for reporting.
• On October 1, 2016 (1 year after
implementation of ICD–10), regular
updates to ICD–10 will begin.
The ICD–10 (previously 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
was 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 one year after the
implementation of ICD–10, 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–10 Coordination and
Maintenance Committee Web site at:
http://www.cms.hhs.gov/Medicare/
Coding/ICD9ProviderDiagnosticCodes/
meetings.html. A summary of the
September 19, 2012 Committee meeting,
along with both written and audio
transcripts of this meeting, is posted on
the Web site at: http://www.cms.
hhs.gov/Medicare/Coding/ICD9Provider
DiagnosticCodes/ICD-9-CM-C-and-MMeeting-Materials-Items/2012-09-19MeetingMaterials.html.
This partial code freeze dramatically
decreased the number of codes created
each year as shown by the following
information.

TOTAL NUMBER OF CODES AND CHANGES IN TOTAL NUMBER OF CODES PER FISCAL YEAR
ICD–9–CM Codes

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Fiscal year

Number

FY 2009 (October 1, 2008)
Diagnoses ..................................
Procedures ................................
FY 2010 (October 1, 2009)
Diagnoses ..................................
Procedures ................................
FY 2011 (October 1, 2010)
Diagnoses ..................................
Procedures ................................
FY 2012 (October 1, 2011)
Diagnoses ..................................

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ICD–10–CM and ICD–10–PCS Codes

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Change

14,025
3,824

348
56

14,315
3,838

290
14

14,432
3,859

117
21

14,567

135

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Fiscal year

Number

FY 2009
ICD–10–CM ..............................
ICD–10–PCS ............................
FY 2010
ICD–10–CM ..............................
ICD–10–PCS ............................
ICD–10–CM ..............................
ICD–10–PCS ............................
FY 2012
ICD–10–CM ..............................

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27APP2

Change

68,069
72,589

+5
¥14,327

69,099
71,957

+1,030
¥632

69,368
72,081

+269
+124

69,833

+465

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TOTAL NUMBER OF CODES AND CHANGES IN TOTAL NUMBER OF CODES PER FISCAL YEAR—Continued
ICD–9–CM Codes
Fiscal year

Number

Procedures ................................
FY 2013 (October 1, 2012)
Diagnoses ..................................
Procedures ................................
FY 2014 (October 1, 2013)
Diagnoses ..................................
Procedures ................................
FY 2015 (October 1, 2014)
Diagnoses ..................................
Procedures ................................
FY 2016 (October 1, 2015)
Diagnoses ..................................
Procedures ................................
Proposed FY 2017 (October 1,
2016)
Diagnoses ..................................
Procedures ................................

As mentioned previously, the public
is provided the opportunity to comment
on any requests for new diagnosis or
procedure codes discussed at the ICD–
10 Coordination and Maintenance
Committee meeting. The public has
supported only a limited number of new
codes during the partial code freeze, as
can be seen by previously shown data.
We have gone from creating several
hundred new codes each year to
creating only a limited number of new
ICD–9–CM and ICD–10 codes.
At the September 22–23, 2015 and
March 9–10, 2016 Committee meetings,
we discussed any requests we had
received for new ICD–10–CM diagnosis
codes and ICD–10–PCS procedure codes
that were to be implemented on October
1, 2016. We did not discuss ICD–9–CM
codes. Because the partial code freeze
will end on October 1, 2016, the public
no longer had to comment on whether
or not new ICD–10–CM and ICD–10–
PCS codes should be created based on
the partial code freeze criteria. We

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MDC
Pre-MDC ...
Pre-MDC ...
1 ................
1 ................
1 ................
1 ................
1 ................
1 ................
1 ................
1 ................
3 ................
3 ................
5 ................
5 ................
5 ................
5 ................
5 ................
5 ................

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ICD–10–CM and ICD–10–PCS Codes
Change

Fiscal year

3,877

18

14,567
3,878

0
1

14,567
3,882

0
4

14,567
3,882

0
0

14,567
3,882

0
0

14,567
3,882

0
0

001
002
023
024
025
026
027
040
041
042
129
130
215
216
217
218
219
220

ICD–10–PCS ............................
FY 2013
ICD–10–CM ..............................
ICD–10–PCS ............................
FY 2014
ICD–10–CM ..............................
ICD–10–PCS ............................
FY 2015
ICD–10–CM ..............................
ICD–10–PCS ............................
FY 2016
ICD–10–CM ..............................
ICD–10–PCS ............................
Proposed FY 2017
ICD–10–CM ..............................
ICD–10–PCS ............................

invited public comments on any code
requests discussed at the September 22–
23, 2015 and March 9–10, 2016
Committee meetings for implementation
as part of the October 1, 2016 update.
The deadline for commenting on code
proposals discussed at the September
22–23, 2015 Committee meeting was
November 13, 2015. The deadline for
commenting on code proposals
discussed at the March 9–10, 2016
Committee meeting was April 8, 2016.
18. Replaced Devices Offered Without
Cost or With a Credit
a. Background
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

MS–DRG

Number

Change

71,918

¥163

69,832
71,920

¥1
+2

69,823
71,924

¥9
+4

69,823
71,924

0
0

69,823
71,924

0
0

71,558
75,625

0
0

implantation of a device that has been
recalled determined the base MS–DRG
assignment. At that time, we specified
that we will reduce a hospital’s IPPS
payment for those MS–DRGs where the
hospital received a credit for a replaced
device equal to 50 percent or more of
the cost of the device.
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51556 through 51557), we
clarified this policy to state that the
policy applies if the hospital received a
credit equal to 50 percent or more of the
cost of the replacement device and
issued instructions to hospitals
accordingly.
b. Proposed Changes for FY 2017
For FY 2017 we are proposing not to
add any MS–DRGs to the policy for
replaced devices offered without cost or
with a credit. We are proposing to
continue to include the existing MS–
DRGs currently subject to the policy as
displayed in the table below.

MS–DRG Title
Heart Transplant or Implant of Heart Assist System with MCC.
Heart Transplant or Implant of Heart Assist System without MCC.
Craniotomy with Major Device Implant/Acute Complex CNS Principal Diagnosis with MCC or Chemo Implant.
Craniotomy with Major Device Implant/Acute Complex CNS Principal Diagnosis without MCC.
Craniotomy & Endovascular Intracranial Procedures with MCC.
Craniotomy & Endovascular Intracranial Procedures with CC.
Craniotomy & Endovascular Intracranial Procedures without CC/MCC.
Peripheral/Cranial Nerve & Other Nervous System Procedure with MCC.
Peripheral/Cranial Nerve & Other Nervous System Procedure with CC or Peripheral Neurostimulator.
Peripheral/Cranial Nerve & Other Nervous System Procedure without CC/MCC.
Major Head & Neck Procedures with CC/MCC or Major Device.
Major Head & Neck Procedures without CC/MCC.
Other Heart Assist System Implant.
Cardiac Valve & Other Major Cardiothoracic Procedure with Cardiac Catheter with MCC.
Cardiac Valve & Other Major Cardiothoracic Procedure with Cardiac Catheter with CC.
Cardiac Valve & Other Major Cardiothoracic Procedure with Cardiac Catheter without CC/MCC.
Cardiac Valve & Other Major Cardiothoracic Procedure without Cardiac Catheter with MCC.
Cardiac Valve & Other Major Cardiothoracic Procedure without Cardiac Catheter with CC.

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25020
MDC
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
8
8
8
8
8
8
8

................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
MS–DRG
221
222
223
224
225
226
227
242
243
244
245
258
259
260
261
262
266
267
268
269
270
271
272
461
462
466
467
468
469
470

MS–DRG Title
Cardiac Valve & Other Major Cardiothoracic Procedure without Cardiac Catheter without CC/MCC.
Cardiac Defibrillator Implant with Cardiac Catheter with AMI/Heart Failure/Shock with MCC.
Cardiac Defibrillator Implant with Cardiac Catheter with AMI/Heart Failure/Shock without MCC.
Cardiac Defibrillator Implant with Cardiac Catheter without AMI/Heart Failure/Shock with MCC.
Cardiac Defibrillator Implant with Cardiac Catheter without AMI/Heart Failure/Shock without MCC.
Cardiac Defibrillator Implant without Cardiac Catheter with MCC.
Cardiac Defibrillator Implant without Cardiac Catheter without MCC.
Permanent Cardiac Pacemaker Implant with MCC.
Permanent Cardiac Pacemaker Implant with CC.
Permanent Cardiac Pacemaker Implant without CC/MCC.
AICD Generator Procedures.
Cardiac Pacemaker Device Replacement with MCC.
Cardiac Pacemaker Device Replacement without MCC.
Cardiac Pacemaker Revision Except Device Replacement with MCC.
Cardiac Pacemaker Revision Except Device Replacement with CC.
Cardiac Pacemaker Revision Except Device Replacement without CC/MCC.
Endovascular Cardiac Valve Replacement with MCC.
Endovascular Cardiac Valve Replacement without MCC.
Aortic and Heart Assist Procedures Except Pulsation Balloon with MCC.
Aortic and Heart Assist Procedures Except Pulsation Balloon without MCC.
Other Major Cardiovascular Procedures with MCC.
Other Major Cardiovascular Procedures with CC.
Other Major Cardiovascular Procedures without CC/MCC.
Bilateral or Multiple Major Joint Procedures Of Lower Extremity with MCC.
Bilateral or Multiple Major Joint Procedures of Lower Extremity without MCC.
Revision of Hip or Knee Replacement with MCC.
Revision of Hip or Knee Replacement with CC.
Revision of Hip or Knee Replacement without CC/MCC.
Major Joint Replacement or Reattachment of Lower Extremity with MCC.
Major Joint Replacement or Reattachment of Lower Extremity without MCC.

We are soliciting public comments on
our proposal to continue to include the
existing MS–DRGs currently subject to
the policy and to not add any additional
MS–DRGs to the policy. The final list of
MS–DRGs subject to the policy for FY
2017 will be listed in the FY 2017 IPPS/
LTCH PPS final rule, as well as issued
to providers in the form of a Change
Request (CR).
19. Other Proposed Policy Changes
a. MS–DRG GROUPER Logic

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(1) Operations on Products of
Conception
In the ICD–9–CM MS–DRGs Version
32, intrauterine operations that may be
performed in an attempt to correct a
fetal abnormality are identified by ICD–
9–CM procedure code 75.36 (Correction
of fetal defect). This procedure code is
designated as an O.R. procedure and is
assigned to MDC 14 (Pregnancy,
Childbirth and the Puerperium) in MS–
DRG 768 (Vaginal Delivery with O.R.
Procedure Except Sterilization and/or
Dilation and Curettage).
A replication issue for 208 ICD–10–
PCS comparable code translations that
describe operations on the products of
conception (fetus) to correct fetal defects
was identified during an internal
review. These 208 procedure codes were
inadvertently omitted from the MDC 14
GROUPER logic for ICD–10 MS–DRG
768. To resolve this replication issue,

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we are proposing to add the 208 ICD–
10–PCS procedure codes shown in
Table 6P.3a. associated with this
proposed rule (which is available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index) to MDC 14 in
MS–DRG 768, effective October 1, 2016,
in ICD–10 MS–DRGs Version 34. We are
inviting public comments on our
proposal.
Separate from the replication issue
described above, during our internal
review, we also concluded that the
proposed MS–DRG logic for these
intrauterine procedures under ICD–10
may not accurately represent a subset of
the 208 ICD–10–PCS procedure codes
(listed in Table 6P.3a.). For example, the
GROUPER logic for MS–DRG 768
requires that a vaginal delivery occur
during the same episode of care in
which an intrauterine procedure is
performed. However, this scenario may
not be clinically consistent with all
pregnant patients who undergo fetal
surgery. For example, a pregnant patient
whose fetus is diagnosed with a
congenital diaphragmatic hernia (CDH)
may undergo a fetoscopic endoluminal
tracheal occlusion (FETO) procedure in
which the pregnant patient does not
subsequently deliver during the same
hospital stay. The goal of this specific
fetal surgery is to allow the fetus to
remain in utero until its lungs have

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developed to increase the chance of
survival. Therefore, this scenario of a
patient who has fetal surgery but does
not have a delivery during the same
hospital stay is not appropriately
captured in the GROUPER logic. We
believe that further analysis is
warranted regarding a future proposal
for a new MS–DRG to better recognize
this subset of patients.
In past rulemaking (72 FR 24700 and
24705), we have acknowledged that
CMS does not have the expertise or data
to maintain the DRGs in clinical areas
that have very low volume in the
Medicare population, including for
conditions associated with and/or
occurring in the maternal-fetal patient
population. Additional information is
needed to fully and accurately evaluate
all the possible fetal conditions that may
fall under similar scenarios to the one
described above before making a
specific proposal. Therefore, we are
soliciting public comments on two
clinical concepts for consideration for a
possible future proposal for the FY 2018
ICD–10 MS–DRGs Version 35: (1) The
ICD–10–CM diagnosis codes and ICD–
10–PCS procedure codes that describe
fetal abnormalities for which fetal
surgery may be performed in the
absence of a delivery during the same
hospital stay; and (2) the ICD–10–CM
diagnosis codes and ICD–10–PCS
procedure codes that describe fetal
abnormalities for which fetal surgery

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
may be performed with a subsequent
delivery during the same hospital stay.
This second concept is the structure of
current MS–DRG 768. Commenters
should submit their code
recommendations for these concepts to
the following email address
MSDRGClassificationChange@
cms.hhs.gov by December 7, 2016. We
encourage public comments as we
consider these enhancements for the FY
2018 ICD–10 MS–DRGs Version 35.
(2) Other Heart Revascularization
In the ICD–9–CM MS–DRGs Version
32, revascularization procedures that are

16 procedure codes were inadvertently
omitted from the MDC 5 GROUPER
logic for ICD–10 MS–DRGs 228 through
230. We note that, as discussed in
section II.F.5.d. of the preamble of this
proposed rule, we are proposing to
delete MS–DRG 230 and revise MS–
DRG 229. Accordingly, to resolve this
replication issue, we are proposing to
add the 16 ICD–10–PCS procedure
codes listed in the table below to MDC
5 in MS–DRG 228 and proposed revised
MS–DRG 229.

ICD–10–PCS
procedure code

Description

0210344 ............
02103D4 ...........
0210444 ............
02104D4 ...........
0211344 ............
02113D4 ...........
0211444 ............

Bypass coronary artery, one site from coronary vein with drug-eluting intraluminal device, percutaneous approach.
Bypass coronary artery, one site from coronary vein with intraluminal device, percutaneous approach.
Bypass coronary artery, one site from coronary vein with drug-eluting intraluminal device, percutaneous endoscopic approach.
Bypass coronary artery, one site from coronary vein with intraluminal device, percutaneous endoscopic approach.
Bypass coronary artery, two sites from coronary vein with drug-eluting intraluminal device, percutaneous approach.
Bypass coronary artery, two sites from coronary vein with intraluminal device, percutaneous approach.
Bypass coronary artery, two sites from coronary vein with drug-eluting intraluminal device, percutaneous endoscopic approach.
Bypass coronary artery, two sites from coronary vein with intraluminal device, percutaneous endoscopic approach.
Bypass coronary artery, three sites from coronary vein with drug-eluting intraluminal device, percutaneous approach.
Bypass coronary artery, three sites from coronary vein with intraluminal device, percutaneous approach.
Bypass coronary artery, three sites from coronary vein with drug-eluting intraluminal device, percutaneous endoscopic approach.
Bypass coronary artery, three sites from coronary vein with intraluminal device, percutaneous endoscopic approach.
Bypass coronary artery, four or more sites from coronary vein with drug-eluting intraluminal device, percutaneous approach.
Bypass coronary artery, four or more sites from coronary vein with intraluminal device, percutaneous approach.
Bypass coronary artery, four or more sites from coronary vein with drug-eluting intraluminal device, percutaneous endoscopic
approach.
Bypass coronary artery, four or more sites from coronary vein with intraluminal device, percutaneous endoscopic approach.

02114D4 ...........
0212344 ............
02123D4 ...........
0212444 ............
02124D4 ...........
0213344 ............
02133D4 ...........
0213444 ............
02134D4 ...........

We are inviting public comments on
our proposal to add the above listed
ICD–10–PCS procedure codes to MDC 5
in MS–DRG 228 and proposed revised
MS–DRG 229 (Other Cardiothoracic
Procedures with and without MCC,
respectively), effective October 1, 2016,
in ICD–10 MS–DRGs Version 34.

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performed to restore blood flow to the
heart are identified with procedure code
36.39 (Other heart revascularization).
This procedure code is designated as an
O.R. procedure and is assigned to MDC
5 (Diseases and Disorders of the
Circulatory System) in MS–DRGs 228
through 230 (Other Cardiothoracic
Procedures with MCC, with CC, and
without CC/MCC, respectively).
A replication issue for 16 ICD–10–
PCS comparable code translations that
describe revascularization procedures
was identified after implementation of
the ICD–10 MS–DRGs Version 33. These

25021

(3) Procedures on Vascular Bodies:
Chemoreceptors
In the ICD–9–CM MS–DRGs Version
32, procedures performed on the
sensory receptors are identified with
ICD–9–CM procedure code 39.89 (Other
operations on carotid body, carotid
sinus and other vascular bodies). This
procedure code is designated as an O.R.
procedure and is assigned to MDC 5
(Diseases and Disorders of the
Circulatory System) in MS–DRGs 252,
253, and 254 (Other Vascular
Procedures with MCC, with CC, and
without CC/MCC, respectively).
A replication issue for 234 ICD–10–
PCS comparable code translations that
describe these procedures was
identified after implementation of the
ICD–10 MS–DRGs Version 33. These
234 procedure codes were inadvertently

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omitted from the MDC 5 GROUPER
logic for ICD–10 MS–DRGs 252 through
254. To resolve this replication issue,
we are proposing to add the 234 ICD–
10–PCS procedure codes listed in Table
6P.3b. associated with this proposed
rule (which is available via the Internet
on the CMS Web site at: http://www.
cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
index) to MDC 5 in MS–DRG 252, 253,
and 254, effective October 1, 2016, in
ICD–10 MS–DRGs Version 34. We are
inviting public comments on our
proposal.
(4) Repair of the Intestine
In the ICD–9–CM MS–DRGs Version
32, the procedure for a repair to the
intestine may be identified with
procedure code 46.79 (Other repair of
intestine). This procedure code is
designated as an O.R. procedure and is
assigned to MDC 6 (Diseases and
Disorders of the Digestive System) in
MS–DRGs 329, 330, and 331 (Major
Small and Large Bowel Procedures with
MCC, with CC, and without CC/MCC,
respectively).

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A replication issue for four ICD–10–
PCS comparable code translations was
identified after implementation of the
ICD–10 MS–DRGs Version 33. These
four procedure codes are:
• 0DQF0ZZ (Repair right large
intestine, open approach);
• 0DQG0ZZ (Repair left large
intestine, open approach);
• 0DQL0ZZ (Repair transverse colon,
open approach); and
• 0DQM0ZZ (Repair descending
colon, open approach).
These four ICD–10–PCS codes were
inadvertently omitted from the MDC 6
GROUPER logic for ICD–10 MS–DRGs
329 through 331. To resolve this
replication issue, we are proposing to
add the four ICD–10–PCS procedure
codes to MDC 6 in MS–DRG 329, 230,
and 331, effective October 1, 2016, in
ICD–10 MS–DRGs Version 34. We are
inviting public comments on our
proposal.
(5) Insertion of Infusion Pump
In the ICD–9–CM MS–DRGs Version
32, the procedure for insertion of an
infusion pump is identified with
procedure code 86.06 (Insertion of

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totally implantable infusion pump),
which is designated as an O.R.
procedure and assigned to a number of
MDCs and MS–DRGs across various
body systems. We refer readers to the
ICD–9–CM MS–DRG Definitions Manual
Appendix E—Operating Room
Procedures and Procedure Code/MS–

DRG Index, which is available on the
CMS Web site at: https://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/FY2016IPPS-Final-Rule-Home-Page-Items/
FY2016-IPPS-Rule-Data-Files.html, for
the complete list of MDCs and MS–

ICD–10–PCS
procedure code
0JHD0VZ ..........
0JHD3VZ ..........
0JHF0VZ ..........
0JHF3VZ ..........
0JHG0VZ ..........
0JHG3VZ ..........
0JHH0VZ ..........
0JHH3VZ ..........
0JHL0VZ ...........
0JHL3VZ ...........
0JHM0VZ ..........
0JHM3VZ ..........
0JHN0VZ ..........
0JHN3VZ ..........
0JHP0VZ ..........
0JHP3VZ ..........

Description
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion
Insertion

of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of

infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion
infusion

pump
pump
pump
pump
pump
pump
pump
pump
pump
pump
pump
pump
pump
pump
pump
pump

into
into
into
into
into
into
into
into
into
into
into
into
into
into
into
into

These codes were inadvertently
omitted from the MDCs and MS–DRGs
to which they should be assigned
(consistent with the assignment of ICD–
9–CM procedure code 86.06) to
accurately replicate the ICD–9–CM MS–
DRG logic. To resolve this replication
issue, we are proposing to add the 16
ICD–10–PCS procedure codes listed
above to the corresponding MDCs and
MS–DRGs, as set forth in the ICD–9–CM
MS–DRG Definitions Manual—
Appendix E—Operating Room
Procedures and Procedure Code/MS–
DRG Index as described earlier, effective
October 1, 2016, in ICD–10 MS–DRGs
Version 34. We are inviting public
comments on our proposal.

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(6) Procedures on the Bursa
In the ICD–9–CM MS–DRGs Version
32, procedures that involve cutting into
the bursa are identified with procedure
code 83.03 (Bursotomy). This procedure
code is designated as an O.R. procedure
and is assigned to MDC 8 (Diseases and
Disorders of the Musculoskeletal System
and Connective Tissue) in MS–DRGs
500, 501, and 502 (Soft Tissue
Procedures with MCC, with CC, and
without CC/MCC, respectively).
A replication issue for six ICD–10–
PCS comparable code translations was
identified after implementation of the
ICD–10 MS–DRGs Version 33. These six
procedure codes are:
• 0M850ZZ (Division of right wrist
bursa and ligament, open approach);

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DRGs to which procedure code 86.06 is
assigned
A replication issue for 16 ICD–10–
PCS comparable code translations was
identified after implementation of the
ICD–10 MS–DRGs Version 33. These 16
procedure codes are listed in the table
below:

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right upper arm subcutaneous tissue and fascia, open approach.
right upper arm subcutaneous tissue and fascia, percutaneous approach.
left upper arm subcutaneous tissue and fascia, open approach.
left upper arm subcutaneous tissue and fascia, percutaneous approach.
right lower arm subcutaneous tissue and fascia, open approach.
right lower arm subcutaneous tissue and fascia, percutaneous approach.
left lower arm subcutaneous tissue and fascia, open approach.
left lower arm subcutaneous tissue and fascia, percutaneous approach.
right upper leg subcutaneous tissue and fascia, open approach.
right upper leg subcutaneous tissue and fascia, percutaneous approach.
left upper leg subcutaneous tissue and fascia, open approach.
left upper leg subcutaneous tissue and fascia, percutaneous approach.
right lower leg subcutaneous tissue and fascia, open approach.
right lower leg subcutaneous tissue and fascia, percutaneous approach.
left lower leg subcutaneous tissue and fascia, open approach.
left lower leg subcutaneous tissue and fascia, percutaneous approach.

• 0M853ZZ (Division of right wrist
bursa and ligament, percutaneous
approach);
• 0M854ZZ (Division of right wrist
bursa and ligament, percutaneous
endoscopic approach);
• 0M860ZZ (Division of left wrist
bursa and ligament, open approach);
• 0M863ZZ (Division of left wrist
bursa and ligament, percutaneous
approach); and
• 0M864ZZ (Division of left wrist
bursa and ligament, percutaneous
endoscopic approach).
These codes were inadvertently
omitted from the MDC 8 GROUPER
logic for ICD–10 MS–DRGs 500, 501,
and 502. To resolve this replication
issue, we are proposing to add the six
ICD–10–PCS procedure codes listed
above to MDC 8 in MS–DRGs 500, 501,
and 502, effective October 1, 2016, in
ICD–10 MS–DRGs Version 34. We are
inviting public comments on our
proposal.
(7) Procedures on the Breast
In the ICD–9–CM MS–DRGs Version
32, procedures performed for a simple
repair to the skin of the breast may be
identified with procedure code 86.59
(Closure of skin and subcutaneous
tissue of other sites). This procedure
code is designated as a non-O.R.
procedure. Therefore, this procedure
code does not have an impact on MS–
DRG assignment.
A replication issue for two ICD–10–
PCS comparable code translations was
identified after implementation of the

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ICD–10 MS–DRGs Version 33. These
two procedure codes are: 0HQVXZZ
(Repair bilateral breast, external
approach) and 0HQYXZZ (Repair
supernumerary breast, external
approach). These ICD–10–PCS
procedures codes were inadvertently
assigned to ICD–10 MS–DRGs 981, 982,
and 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with
MCC, with CC, and without CC,
respectively) in the ICD–10 MS–DRG
GROUPER logic. To resolve this
replication issue, we are proposing to
remove these two ICD–10–PCS
procedure codes from MS–DRG 981,
982, and 983, to designate them as nonO.R. procedures, effective October 1,
2016, in ICD–10 MS–DRGs Version 34.
We are inviting public comments on our
proposal.
(8) Excision of Subcutaneous Tissue and
Fascia
In the ICD–9–CM MS–DRGs Version
32, procedures involving excision of the
skin and subcutaneous tissue are
identified with procedure code 86.3
(Other local excision of lesion or tissue
of skin and subcutaneous tissue). This
procedure code is designated as a nonO.R. procedure that affects MS–DRG
assignment for MS–DRGs 579, 580, and
581 (Other Skin, Subcutaneous Tissue
and Breast Procedures with MCC, with
CC and without CC/MCC, respectively)
in MDC 9 (Diseases and Disorders of the
Skin, Subcutaneous Tissue and Breast).
A replication issue for 19 ICD–10–
PCS comparable code translations was

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identified after implementation of the
ICD–10 MS–DRGs Version 33. These 19

procedure codes are listed in the table
below:

ICD–10–PCS
code

Description

0JB03ZZ ...........
0JB43ZZ ...........
0JB53ZZ ...........
0JB63ZZ ...........
0JB73ZZ ...........
0JB83ZZ ...........
0JB93ZZ ...........
0JBB3ZZ ...........
0JBC3ZZ ..........
0JBD3ZZ ..........
0JBF3ZZ ...........
0JBG3ZZ ..........
0JBH3ZZ ..........
0JBL3ZZ ...........
0JBM3ZZ ..........
0JBN3ZZ ..........
0JBP3ZZ ...........
0JBQ3ZZ ..........
0JBR3ZZ ..........

Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision
Excision

of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of
of

scalp subcutaneous tissue and fascia, percutaneous approach.
anterior neck subcutaneous tissue and fascia, percutaneous approach.
posterior neck subcutaneous tissue and fascia, percutaneous approach.
chest subcutaneous tissue and fascia, percutaneous approach.
back subcutaneous tissue and fascia, percutaneous approach.
abdomen subcutaneous tissue and fascia, percutaneous approach.
buttock subcutaneous tissue and fascia, percutaneous approach.
perineum subcutaneous tissue and fascia, percutaneous approach.
pelvic region subcutaneous tissue and fascia, percutaneous approach.
right upper arm subcutaneous tissue and fascia, percutaneous approach.
left upper arm subcutaneous tissue and fascia, percutaneous approach.
right lower arm subcutaneous tissue and fascia, percutaneous approach.
left lower arm subcutaneous tissue and fascia, percutaneous approach.
right upper leg subcutaneous tissue and fascia, percutaneous approach.
left upper leg subcutaneous tissue and fascia, percutaneous approach.
right lower leg subcutaneous tissue and fascia, percutaneous approach.
left lower leg subcutaneous tissue and fascia, percutaneous approach.
right foot subcutaneous tissue and fascia, percutaneous approach.
left foot subcutaneous tissue and fascia, percutaneous approach.

These codes were inadvertently
omitted from the ICD–10 MS–DRG
GROUPER logic for MDC 9 in MS–DRGs
579, 580, and 581. To resolve this
replication issue, we are proposing to
add the 19 ICD–10–PCS procedure
codes listed in the table above to MDC
9 in MS–DRGs 579, 580, and 581,
effective October 1, 2016, in ICD–10
MS–DRGs Version 34. We are inviting
public comments on our proposal.

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(9) Shoulder Replacement
In the ICD–9–CM MS–DRGs Version
32, procedures that involve replacing a
component of bone from the upper arm
are identified with procedure code
78.42 (Other repair or plastic operations
on bone, humerus). This procedure code
is designated as an O.R. procedure and
is assigned to MDC 8 (Diseases and
Disorders of the Musculoskeletal System
and Connective Tissue) in MS–DRGs
492, 493, and 494 (Lower Extremity and
Humerus Procedures Except Hip, Foot
and Femur with MCC, with CC, and
without CC/MCC, respectively).
A replication issue for two ICD–10–
PCS comparable code translations was
identified after implementation of the
ICD–10 MS–DRGs Version 33. These
two procedure codes are: 0PRC0JZ
(Replacement of right humeral head
with synthetic substitute, open
approach) and 0PRD0JZ (Replacement
of left humeral head with synthetic
substitute, open approach). These two
codes were inadvertently omitted from
the ICD–10 MS–DRG GROUPER logic
for MDC 8 in MS–DRGs 492, 493, and
494. To resolve this replication issue,
we are proposing to add these two ICD–
10–PCS procedure codes to MDC 8 in

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MS–DRGs 492, 493, and 494, effective
October 1, 2016, in ICD–10 MS–DRGs
Version 34. We are inviting public
comments on our proposal.
(10) Reposition
In the ICD–9–CM MS–DRGs Version
32, procedures that involve the
percutaneous repositioning of an area in
the vertebra are identified with
procedure code 81.66 (Percutaneous
vertebral augmentation). This procedure
code is designated as an O.R. procedure
and is assigned to MDC 8 (Diseases and
Disorders of the Musculoskeletal System
and Connective Tissue) in MS–DRGs
515, 516, and 517 (Other
Musculoskeletal System and Connective
Tissue Procedures with MCC, with CC,
and without CC/MCC, respectively).
A replication issue for four ICD–10–
PCS comparable code translations was
identified after implementation of the
ICD–10 MS–DRGs Version 33. These
four procedure codes are:
• 0PS33ZZ (Reposition cervical
vertebra, percutaneous approach);
• 0PS43ZZ (Reposition thoracic
vertebra, percutaneous approach);
• 0QS03ZZ (Reposition lumbar
vertebra, percutaneous approach); and
• 0QS13ZZ (Reposition sacrum,
percutaneous approach).
These four ICD–10PCS procedure
codes were inadvertently omitted from
the ICD–10 MS–DRG GROUPER logic
for MDC 8 and MS–DRGs 515, 516, and
517. To resolve this replication issue,
we are proposing to add these four ICD–
10–PCS procedure codes to MDC 8 in
MS–DRGs 515, 516, and 517, effective
October 1, 2016, in ICD–10 MS–DRGs
Version 34. We are inviting public
comments on our proposal.

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(11) Insertion of Infusion Device
In the ICD–9–CM MS–DRGs Version
32, the procedure for insertion of an
infusion pump is identified with
procedure code 86.06 (Insertion of
totally implantable infusion pump)
which is designated as an O.R.
procedure and assigned to a number of
MDCs and MS–DRGs, one of which is
MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue) in MS–DRGs 515, 516, and 517
(Other Musculoskeletal System and
Connective Tissue O.R. Procedures with
MCC, with CC, and without CC/MCC,
respectively).
A replication issue for 49 ICD–10–
PCS comparable code translations that
describe insertion of an infusion device
into a joint or disc was identified after
implementation of the ICD–10 MS–
DRGs Version 33. These 49 procedure
codes appear to describe procedures
that utilize a specific type of infusion
device known as an infusion pump and
were inadvertently omitted from the
ICD–10 MS–DRG GROUPER logic for
MDC 8. To resolve this replication issue,
we are proposing to add the 49 ICD–10–
PCS procedure codes shown in Table
6P.3c. (which is available via the
Internet on the CMS Web site at: http://
www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/AcuteInpatient
PPS/index) to MDC 8 in MS–DRGs 515,
516, and 517, effective October 1, 2016,
in ICD–10 MS–DRGs Version 34. We are
inviting public comments on our
proposal.
(12) Bladder Neck Repair
In the ICD–9–CM MS–DRGs Version
32, a procedure involving a bladder

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repair is identified with procedure code
57.89 (Other repair of bladder) which is
designated as an O.R. procedure and
assigned to MDC 11 (Diseases and
Disorders of the Kidney and Urinary
Tract) in MS–DRGs 653, 654, and 655
(Major Bladder Procedures with MCC,
with CC, and without CC/MCC,
respectively) and MDC 13 (Diseases and
Disorders of the Female Reproductive
System) in MS–DRGs 749 and 750
(Other Female Reproductive System
O.R. Procedures with CC/MCC and
without CC/MCC, respectively).
A replication issue for five ICD–10–
PCS comparable code translations that
describe a bladder neck repair was
identified after implementation of the
ICD–10 MS–DRGs Version 33. These
five procedure codes are:
• 0TQC0ZZ (Repair Bladder Neck,
Open Approach);
• 0TQC3ZZ (Repair Bladder Neck,
Percutaneous Approach);
• 0TQC4ZZ (Repair Bladder Neck,
Percutaneous Endoscopic Approach);
• 0TQC7ZZ (Repair Bladder Neck,
Via Natural or Artificial Opening); and
• 0TQC8ZZ (Repair Bladder Neck,
Via Natural or Artificial Opening
Endoscopic).
These five ICD–10–PCS procedure
codes were inadvertently omitted from
the ICD–10 MS–DRG GROUPER logic
for MDC 11 in MS–DRGs 653, 654, and
655 and MDC 13 in MS–DRGs 749 and
750. To resolve this replication issue,
we are proposing to add these five ICD–
10–PCS procedure codes to MDC 11 in
MS–DRGs 653, 654, and 655 and MDC
13 in MS–DRGs 749 and 750, effective
October 1, 2016, in ICD–10 MS–DRGs
Version 34. We are inviting public
comments on our proposal.
(13) Future Consideration
We note that commenters have
suggested that there are a number of
procedure codes that may not appear to
be clinically feasible due to a specific
approach or device value in relation to
a unique body part in a given body
system. These commenters have not
identified a comprehensive list of codes
to be deleted. However, they have
suggested that CMS examine these
codes further. Due to the multiaxial
structure of ICD–10–PCS, the current
system allows for multiple possibilities
for a given procedure, some of which
may not currently be used. As our focus
to refine the ICD–10 MS–DRGs
continues, for FY 2018, we will begin to
conduct an analysis of where such ICD–
10–PCS codes may exist. We welcome
suggestions from the public of code
refinements that could address the issue
of current ICD–10–PCS codes that
capture procedures that would not

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18:46 Apr 26, 2016

Jkt 238001

reasonably be performed. Commenters
should submit their recommendations
for these code refinements to the
following email address:
MSDRGClassificationChanges@
cms.hhs.gov by December 7, 2016.
We also note that any suggestions that
are received by December 7, 2016 to
update ICD–10–PCS, including creating
new codes or deleting existing codes,
will be addressed by the ICD–10
Coordination and Maintenance
Committee. Proposals to address the
modification of any ICD–10–PCS codes
are discussed at the ICD–10
Coordination and Maintenance
Committee meetings held in March and
September of each year. We refer the
reader to section II.F.17. of the preamble
of this proposed rule for information
related to this process to request
updates to ICD–10–PCS.
b. Issues Relating to MS–DRG 999
(Ungroupable)
Under the ICD–9–CM MS–DRGs
Version 32, a diagnosis of complications
of an obstetric surgical wound after
delivery is identified with diagnosis
code 674.32 (Other complications of
obstetrical surgical wounds, delivered,
with mention of postpartum
complication) and is assigned to MDC
14 (Pregnancy, Childbirth and the
Puerperium) under MS–DRG 769
(Postpartum and Post Abortion
Diagnoses with O.R. Procedure) or MS–
DRG 776 (Postpartum and Post Abortion
Diagnoses without O.R. Procedure). A
replication issue under the ICD–10 MS–
DRGs Version 33 for this condition was
identified after implementation on
October 1, 2015. Under ICD–10–CM,
diagnosis code O90.2 (Hematoma of
obstetric wound) is the comparable
translation for ICD–9–CM diagnosis
code 674.32. We discovered that cases
where a patient has been readmitted to
the hospital after a delivery and ICD–
10–CM diagnosis code O90.2 is reported
as the principal diagnosis are resulting
in assignment to MS–DRG 999
(Ungroupable).
In the ICD–9–CM diagnosis code
description, the concept of ‘‘delivery’’ is
included in the code title. This concept
is not present in the ICD–10–CM
classification and has led to a
replication issue for patients who
delivered during a previous stay and are
subsequently readmitted for the
complication. To resolve this replication
issue, we are proposing to add ICD–10–
CM diagnosis code O90.2 to MDC 14
under MS–DRGs 769 and 776. This
refinement would be consistent with the
ICD–9–CM diagnosis code assignment
and result in a more accurate replication
of the ICD–9–CM MS–DRGs Version 32.

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We are inviting public comments on
our proposal to add ICD–10–CM
diagnosis code O90.2 to MS–DRG 769
and MS–DRG 776 in MDC 14, effective
October 1, 2016, in the ICD–10 MS–
DRGs Version 34.
c. Other Operating Room (O.R.) and
Non-O.R. Issues
(1) O.R. Procedures to Non-O.R.
Procedures
For this FY 2017 IPPS/LTCH PPS
proposed rule, we continued our efforts
to address the MS–DRG replication
issues between ICD–9–CM logic and
ICD–10 that were brought to our
attention. As a result of analyzing those
specific requests, we identified areas in
the ICD–10–PCS classification where
additional refinements could further
support our replication efforts. We
discuss these below.
We evaluated specific groups of ICD–
10–PCS procedure codes with respect to
their current operating room (O.R.)
designation that were determined to be
inconsistent with the ICD–9–CM
procedure codes from which the
designation was initially derived. Our
review demonstrated that these ICD–10–
PCS procedure codes should instead
have the attributes of a more logical
ICD–9–CM procedure code translation
for MS–DRG replication purposes. As
specified below, we are proposing to
change the status of ICD–10–PCS
procedure codes from being designated
as O.R. to non-O.R. for the ICD–10 MS–
DRGs Version 34. For each group
summarized below, the detailed code
lists are shown in Tables 6P.4a. through
6P.4k. (ICD–10–CM and ICD–10–PCS
Codes for Proposed MCE and MS–DRG
Changes—FY 2017) associated with this
proposed rule, which are available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html.
(a) Endoscopic/Transorifice Insertion
We found 72 ICD–10–PCS procedure
codes describing an endoscopic/
transorifice (via natural or artificial
opening) insertion of infusion and
monitoring devices into various tubular
body parts that, when coded under ICD–
9–CM, would reasonably correlate to
other noninvasive catheterization and
monitoring types of procedure codes
versus an ‘‘incision of [body part]’’ or
‘‘other operation on a [body part]’’
procedure code. We are proposing that
the 72 ICD–10–PCS procedure codes in
Table 6P.4a. associated with this
proposed rule (which is available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html) be
assigned the attributes of the ICD–9–CM
procedure code specified in column C.
The ICD–9–CM procedure codes and
descriptions in column C would replace
the ICD–9–CM procedure codes and
descriptions reflected in column D,
which are considered less accurate
correlations. We are inviting public
comments on this proposal.

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(b) Endoscopic/Transorifice Removal
We found 155 ICD–10–PCS procedure
codes describing an endoscopic/
transorifice (via natural or artificial
opening) removal of common devices
such as a drainage device, infusion
device, intraluminal device, or
monitoring device from various tubular
body parts that, when coded under ICD–
9–CM, would reasonably correlate to
other nonoperative removal of a wide
range of devices/appliances procedure
codes versus an ‘‘incision of [body
part]’’ or ‘‘other operation on a [body
part]’’ procedure code. We are
proposing that the 155 ICD–10–PCS
procedure codes in Table 6P.4b.
associated with this proposed rule
(which is available via the Internet on
the CMS Web site at: http://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html) be assigned the attributes of
the ICD–9–CM procedure code specified
in column C. The ICD–9–CM procedure
codes and descriptions in column C
would replace the ICD–9–CM procedure
codes and descriptions reflected in
column D, which are considered less
accurate correlations. We are inviting
public comments on this proposal.
(c) Tracheostomy Device Removal
We found five ICD–10–PCS procedure
codes describing removal of a
tracheostomy device with various
approaches such that, when coded
under ICD–9–CM, would reasonably
correlate to the nonoperative removal of
a tracheostomy device procedure code
versus an ‘‘incision of [body part]’’ or
‘‘other operation on a [body part]’’
procedure code. We acknowledge that,
under ICD–10–PCS, an ‘‘open’’
approach is defined as ‘‘cutting
through.’’ However, this procedure was
designated as non-O.R. under ICD–9–
CM. For replication purposes, we are
proposing that the five ICD–10–PCS
procedure codes in Table 6P.4c.
associated with this proposed rule
(which is available via the Internet on
the CMS Web site at: http://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html) be assigned the attributes of
the ICD–9–CM procedure code specified

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in column C. The ICD–9–CM procedure
codes and descriptions in column C
would replace the ICD–9–CM procedure
codes and descriptions reflected in
column D, which are considered less
accurate correlations. We are inviting
public comments on this proposal.
(d) Endoscopic/Percutaneous Insertion
We found 117 ICD–10–PCS procedure
codes describing the endoscopic/
percutaneous insertion of infusion and
monitoring devices into vascular and
musculoskeletal body parts that, when
coded under ICD–9–CM, would
reasonably correlate to other
noninvasive catheterization and
monitoring types of procedure codes
versus an ‘‘incision of [body part]’’ or
‘‘other operation on a [body part]’’
procedure code. We are proposing that
the 117 ICD–10–PCS procedure codes in
Table 6P.4d. associated with this
proposed rule (which is available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html be
assigned the attributes of the ICD–9–CM
procedure code specified in column C.
The ICD–9–CM procedure codes and
descriptions in column C would replace
the ICD–9–CM procedure codes and
descriptions reflected in column D,
which are less accurate correlations. We
are inviting public comments on this
proposal.
(e) Percutaneous Removal
We found 124 ICD–10–PCS procedure
codes describing the percutaneous
removal of drainage, infusion and
monitoring devices from vascular and
musculoskeletal body parts that, when
coded under ICD–9–CM, would
reasonably correlate to the nonoperative
removal of a wide range of devices/
appliances procedure codes versus an
‘‘incision of [body part]’’ or ‘‘other
operation on a [body part]’’ procedure
code. We are proposing that the 124
ICD–10–PCS procedure codes in Table
6P.4e. associated with this proposed
rule (which is available via the Internet
on the CMS Web site at: http://www.
cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
index.html) be assigned the attributes of
the ICD–9–CM procedure code specified
in column C. The ICD–9–CM procedure
codes and descriptions in column C
would replace the ICD–9–CM procedure
codes and descriptions reflected in
column D, which are considered less
accurate correlations. We are inviting
public comments on this proposal.

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25025

(f) Percutaneous Drainage
We found 518 ICD–10–PCS procedure
codes describing the percutaneous
therapeutic drainage of all body sites
that do not have specific percutaneous
drainage codes. The list includes
procedure codes for drainage with or
without placement of a drainage device.
Exceptions to this are cranial,
intracranial and the eye where small
incisions are the norm and
appropriately classified as O.R. These
518 ICD–10–PCS procedures codes,
when coded under ICD–9–CM, would
reasonably correlate to the nonoperative
puncture or drainage of various body
sites and other miscellaneous
procedures versus an ‘‘incision of [body
part]’’ procedure code. We are
proposing that the 518 ICD–10–PCS
procedure codes in Table 6P.4f.
associated with this proposed rule
(which is available via the Internet on
the CMS Web site at: http://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html) be assigned the attributes of
the ICD–9–CM procedure code specified
in column C. The ICD–9–CM procedure
codes and descriptions in column C
would replace the ICD–9–CM procedure
codes and descriptions reflected in
column D, which are considered less
accurate correlations. We are inviting
public comments on this proposal.
(g) Percutaneous Inspection
We found 131 ICD–10–PCS procedure
codes describing the percutaneous
inspection of body part sites, with the
exception of the cranial cavity and
brain, whose designation is not
consistent with other percutaneous
inspection codes. When coded under
ICD–9–CM, these procedure codes
would reasonably correlate to the ‘‘other
nonoperative examinations’’ and ‘‘other
diagnostic procedures on [body part]’’
codes where the approach is not
specified and the codes are designated
as non-O.R. We are proposing that the
131 ICD–10–PCS procedure codes in
Table 6P.4g. associated with this
proposed rule (which is available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html) be
assigned the attributes of the ICD–9–CM
procedure code specified in column C.
The ICD–9–CM procedure codes and
descriptions in column C would replace
the ICD–9–CM procedure codes and
descriptions reflected in column D,
which are considered less accurate
correlations. We are inviting public
comments on this proposal.

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(h) Inspection Without Incision
We found 40 ICD–10–PCS procedure
codes describing the inspection of
various body sites with endoscopic/
transorifice and external approaches.
Under ICD–9–CM, these codes would
reasonably correlate to ‘‘other diagnostic
procedures on [body part]’’ codes where
the approach is not specified and the
codes are designated as non-O.R. We are
proposing that the 40 ICD–10–PCS
codes in Table 6P.4h. associated with
this proposed rule (which is available
via the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html) be
assigned the attributes of the ICD–9–CM
code specified in column C. The ICD–
9–CM codes and descriptions in column
C would replace the ICD–9–CM codes
and descriptions reflected in column D,
which are considered less accurate
correlations. We are inviting public
comments on this proposal.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

(i) Dilation of Stomach
We found six ICD–10–PCS procedure
codes describing the dilation of stomach
and pylorus body sites with various
approaches whose designation is not
consistent with all other gastrointestinal
body parts dilation codes. Under ICD–
9–CM, where a unique dilation code
exists, the approach is not specified and
these codes are designated as non-O.R.
Therefore, we are proposing that the six
ICD–10–PCS procedure codes in Table
6P.4i. (which is available via the
Internet on the CMS Web site at: http://
www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/AcuteInpatient
PPS/index.html) be assigned the
attributes of the ICD–9–CM code
specified in column C. The ICD–9–CM
codes and descriptions in column C
would replace the ICD–9–CM codes and
descriptions reflected in column D,
which are considered less accurate
correlations. We are inviting public
comments on this proposal.
(j) Endoscopic/Percutaneous Occlusion
We found six ICD–10–PCS codes
describing percutaneous occlusion of
esophageal vein with and without a
device that, when coded under ICD–9–
CM would reasonably correlate to the
endoscopic excision or destruction of
the vessel versus an open surgical
procedure. We are proposing that the six
ICD–10–PCS procedure codes in Table

6P.4j. associated with this proposed rule
(which is available via the Internet on
the CMS Web site at: http://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html) be assigned the attributes of
the ICD–9–CM code specified in column
C. The ICD–9–CM codes and
descriptions in column C would replace
the ICD–9–CM codes and descriptions
reflected in column D, which are
considered less accurate correlations.
We are inviting public comments on
this proposal.
(k) Infusion Device
We found 82 ICD–10–PCS codes
describing the insertion of an infusion
device to various body parts that, when
coded under ICD–9–CM, would
reasonably correlate to the insertion of
a common infusion catheter versus the
insertion of a totally implantable
infusion pump. We are proposing that
the 82 ICD–10–PCS procedure codes in
Table 6P.4k. associated with this
proposed rule (which is available via
the Internet on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index) be assigned
the attributes of the ICD–9–CM code
specified in column C. The ICD–9–CM
codes and descriptions in column C
would replace the ICD–9–CM codes and
descriptions reflected in column D,
which are considered less accurate
correlations. We are inviting public
comments on this proposal.
(2) Non-O.R. Procedures to O.R.
Procedures
(a) Drainage of Pleural Cavity
In the ICD–9–CM MS–DRGs Version
32 Definitions Manual under Appendix
E—Operating Room Procedures and
Procedure Code/MS–DRG Index,
procedure code 34.06 (Thoracoscopic
drainage of pleural cavity) is designated
as an O.R. procedure code and is
assigned to MS–DRGs 166 through 168
(Other Respiratory System O.R.
Procedures with MCC, with CC, and
without CC/MCC, respectively) in MDC
4 (Diseases and Disorders of the
Respiratory System).
A replication issue regarding the
procedure code designation and MS–
DRG assignment for the comparable
code translations under the ICD–10 MS–
DRGs Version 33 was brought to our
attention after implementation on

ICD–10–PCS
procedure code
009130Z ...........
00913ZZ ...........
009140Z ...........

VerDate Sep<11>2014

October 1, 2015. The replication issue
involves the following four ICD–10–PCS
procedure codes:
• 0W9940Z (Drainage of right pleural
cavity with drainage device,
percutaneous endoscopic approach);
• 0W994ZZ (Drainage of right pleural
cavity, percutaneous endoscopic
approach);
• 0W9B40Z (Drainage of left pleural
cavity with drainage device,
percutaneous endoscopic approach);
and
• 0W9B4ZZ (Drainage of left pleural
cavity, percutaneous endoscopic
approach).
In the ICD–10 MS–DRGs Version 33,
these four ICD–10–PCS procedure codes
are not recognized as O.R. procedures
for purposes of MS–DRG assignment.
We agree that this was a replication
error and the designation and MS–DRG
assignment should be consistent with
the designation and MS–DRG
assignment of ICD–9–CM procedure
code 34.06.
To resolve this replication issue, we
are proposing to add ICD–10–PCS
procedure codes 0W9940Z, 0W994ZZ,
0W9B40Z, and 0W9B4ZZ to the FY
2017 ICD–10 MS–DRGs Version 34
Definitions Manual in Appendix E—
Operating Room Procedures and
Procedure Code/MS–DRG Index as O.R.
procedures assigned to MS–DRGs 166
through 168 in MDC 4. We are inviting
public comments on our proposal.
(b) Drainage of Cerebral Ventricle
In the ICD–9–CM MS–DRGs Version
32 Definitions Manual under Appendix
E—Operating Room Procedures and
Procedure Code/MS–DRG Index,
procedure code 02.22 (Intracranial
ventricular shunt or anastomosis) is
designated as an O.R. procedure code
and is assigned to MS–DRGs 023
through 027, collectively referred to as
the ‘‘Craniotomy’’ MS–DRGs, in MDC 1
(Diseases and Disorders of the Nervous
System).
A replication issue regarding the
procedure code designation and MS–
DRG assignment for the comparable
code translations under the ICD–10 MS–
DRGs Version 33 was brought to our
attention after implementation on
October 1, 2015. The replication issue
involves the following ICD–10–PCS
procedure codes:

Description
Drainage of cerebral meninges with drainage device, percutaneous approach.
Drainage of cerebral meninges, percutaneous approach.
Drainage of cerebral meninges with drainage device, percutaneous endoscopic approach.

18:46 Apr 26, 2016

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
ICD–10–PCS
procedure code
00914ZZ
009230Z
00923ZZ
009240Z
00924ZZ
009430Z
00943ZZ
009440Z
00944ZZ
009530Z
00953ZZ
009540Z
00954ZZ
00963ZZ
00964ZZ

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

Description
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage
Drainage

of
of
of
of
of
of
of
of
of
of
of
of
of
of
of

cerebral meninges with drainage device, percutaneous endoscopic approach.
dura mater with drainage device, percutaneous approach.
dura mater, percutaneous approach.
dura mater with drainage device, percutaneous endoscopic approach.
dura mater, percutaneous endoscopic approach.
subdural space with drainage device, percutaneous approach.
subdural space, percutaneous approach.
subdural space with drainage device, percutaneous endoscopic approach.
subdural space, percutaneous endoscopic approach.
subarachnoid space with drainage device, percutaneous approach.
subarachnoid space, percutaneous approach.
subarachnoid space with drainage device, percutaneous endoscopic approach.
subarachnoid space, percutaneous endoscopic approach.
cerebral ventricle, percutaneous approach.
cerebral ventricle, percutaneous endoscopic approach.

In the ICD–10 MS–DRGs Version 33,
these ICD–10–PCS procedure codes are
not recognized as O.R. procedures for
purposes of MS–DRG assignment. We
agree that this was a replication error
and their translation should be
consistent with the designation and
MS–DRG assignment of ICD–9–CM
procedure 02.22.
To resolve this replication issue, we
are proposing to add the ICD–10–PCS
procedure codes listed above to the FY
2017 ICD–10 MS–DRGs Version 34
Definitions Manual in Appendix E—
Operating Room Procedures and
Procedure Code/MS–DRG Index as O.R.
procedures assigned to MS–DRGs 023
through 027 in MDC 1. We are inviting
public comments on our proposal.
G. Recalibration of the Proposed FY
2017 MS–DRG Relative Weights

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

1. Data Sources for Developing the
Relative Weights
In developing the proposed FY 2017
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 2015
MedPAR data used in this proposed rule
include discharges occurring on October
1, 2014, through September 30, 2015,
based on bills received by CMS through
December 31, 2015, from all hospitals
subject to the IPPS and short-term, acute
care hospitals in Maryland (which at
that time were under a waiver from the
IPPS). The FY 2015 MedPAR file used
in calculating the proposed relative
weights includes data for approximately
9,706,869 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

VerDate Sep<11>2014

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18:46 Apr 26, 2016

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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 December 31, 2015 update
of the FY 2015 MedPAR file complies
with version 5010 of the X12 HIPAA
Transaction and Code Set Standards,
and includes a variable called ‘‘claim
type.’’ Claim type ‘‘60’’ indicates that
the claim was an inpatient claim paid as
fee-for-service. Claim types ‘‘61,’’ ‘‘62,’’
‘‘63,’’ and ‘‘64’’ relate to encounter
claims, Medicare Advantage IME
claims, and HMO no-pay claims.
Therefore, the calculation of the
proposed relative weights for FY 2017
also excludes claims with claim type
values not equal to ‘‘60.’’ The data
exclude CAHs, including hospitals that
subsequently became CAHs after the
period from which the data were taken.
We note that the proposed FY 2017
relative weights are based on the ICD–
9–CM diagnoses and procedures codes
from the FY 2015 MedPAR claims data,
grouped through the ICD–9–CM version
of the FY 2017 GROUPER (Version 34).
The second data source used in the
cost-based relative weighting
methodology is the Medicare cost report
data files from the HCRIS. Normally, we
use the HCRIS dataset that is 3 years
prior to the IPPS fiscal year.
Specifically, we used cost report data
from the December 31, 2015 update of
the FY 2014 HCRIS for calculating the
proposed FY 2017 cost-based relative
weights.

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2. Methodology for Calculation of the
Proposed Relative Weights
As we explain in section II.E.2. of the
preamble of this proposed rule, we
calculated the proposed FY 2017
relative weights based on 19 CCRs, as
we did for FY 2016. The methodology
we used to calculate the proposed FY
2017 MS–DRG cost-based relative
weights based on claims data in the FY
2015 MedPAR file and data from the FY
2014 Medicare cost reports is as follows:
• To the extent possible, all the
claims were regrouped using the
proposed FY 2017 MS–DRG
classifications discussed in sections II.B.
and II.F. of the preamble of this
proposed rule.
• The transplant cases that were used
to establish the relative weights for heart
and heart-lung, liver and/or intestinal,
and lung transplants (MS–DRGs 001,
002, 005, 006, and 007, respectively)
were limited to those Medicareapproved transplant centers that have
cases in the FY 2015 MedPAR file.
(Medicare coverage for heart, heart-lung,
liver and/or intestinal, and lung
transplants is limited to those facilities
that have received approval from CMS
as transplant centers.)
• Organ acquisition costs for kidney,
heart, heart-lung, liver, lung, pancreas,
and intestinal (or multivisceral organs)
transplants continue to be paid on a
reasonable cost basis. Because these
acquisition costs are paid separately
from the prospective payment rate, it is
necessary to subtract the acquisition
charges from the total charges on each
transplant bill that showed acquisition
charges before computing the average
cost for each MS–DRG and before
eliminating statistical outliers.
• Claims with total charges or total
lengths of stay less than or equal to zero
were deleted. Claims that had an
amount in the total charge field that
differed by more than $10.00 from the
sum of the routine day charges,

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

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 92.4 percent of the
providers in the MedPAR file had
charges for 14 of the 19 cost centers. All
claims of providers that did not have
charges greater than zero for at least 14
of the 19 cost centers were deleted. In
other words, a provider must have no
more than five blank cost centers. If a
provider did not have charges greater
than zero in more than five cost centers,
the claims for the provider were deleted.
• Statistical outliers were eliminated
by removing all cases that were beyond
3.0 standard deviations from the
geometric mean of the log distribution
of both the total charges per case and
the total charges per day for each MS–
DRG.
• Effective October 1, 2008, because
hospital inpatient claims include a POA
indicator field for each diagnosis
present on the claim, only for purposes
of relative weight-setting, the POA
indicator field was reset to ‘‘Y’’ for
‘‘Yes’’ for all claims that otherwise have
an ‘‘N’’ (No) or a ‘‘U’’ (documentation
insufficient to determine if the
condition was present at the time of
inpatient admission) in the POA field.
Under current payment policy, the
presence of specific HAC codes, as
indicated by the POA field values, can
generate a lower payment for the claim.
Specifically, if the particular condition
is present on admission (that is, a ‘‘Y’’
indicator is associated with the
diagnosis on the claim), it is not a HAC,
and the hospital is paid for the higher
severity (and, therefore, the higher
weighted MS–DRG). If the particular
condition is not present on admission
(that is, an ‘‘N’’ indicator is associated
with the diagnosis on the claim) and
there are no other complicating
conditions, the DRG GROUPER assigns
the claim to a lower severity (and,
therefore, the lower weighted MS–DRG)
as a penalty for allowing a Medicare
inpatient to contract a HAC. While the

Cost center group
name
(19 total)

Routine Days .........

VerDate Sep<11>2014

MedPAR charge
field

Private Room
Charges.

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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.
Therefore, 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 an ‘‘N’’ or a
‘‘U’’ in the POA field. This resetting
‘‘forced’’ the more costly HAC claims
into the higher severity MS–DRGs as
appropriate, and the relative weights
calculated for each MS–DRG more
closely reflect the true costs of those
cases.
In addition, in the FY 2013 IPPS/
LTCH PPS final rule, for FY 2013 and
subsequent fiscal years, we finalized a
policy to treat hospitals that participate
in the Bundled Payments for Care
Improvement (BPCI) initiative the same
as prior fiscal years for the IPPS
payment modeling and ratesetting
process without regard to hospitals’
participation within these bundled
payment models (that is, as if hospitals
were not participating in those models
under the BPCI initiative). The BPCI
initiative, developed under the
authority of section 3021 of the
Affordable Care Act (codified at section
1115A of the Act), is comprised of four
broadly defined models of care, which
link payments for multiple services
beneficiaries receive during an episode

Revenue codes
contained in
MedPAR charge
field
011X and 014X .....

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description

Adults & Pediatrics (General
Routine Care).

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of care. Under the BPCI initiative,
organizations enter into payment
arrangements that include financial and
performance accountability for episodes
of care. For FY 2017, we are proposing
to continue to include all applicable
data from subsection (d) hospitals
participating in BPCI Models 1, 2, and
4 in our IPPS payment modeling and
ratesetting calculations. We refer readers
to the FY 2013 IPPS/LTCH PPS final
rule for a complete discussion on our
final policy for the treatment of
hospitals participating in the BPCI
initiative in our ratesetting process. For
additional information on the BPCI
initiative, we refer readers to the CMS’
Center for Medicare and Medicaid
Innovation’s Web site at: http://
innovation.cms.gov/initiatives/BundledPayments/index.html and to section
IV.H.4. of the preamble of the FY 2013
IPPS/LTCH PPS final rule (77 FR 53341
through 53343).
Once the MedPAR data were trimmed
and the statistical outliers were
removed, the charges for each of the 19
cost groups for each claim were
standardized to remove the effects of
differences in area wage levels, IME and
DSH payments, and for hospitals
located in Alaska and Hawaii, the
applicable cost-of-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-ofliving adjustments, and DSH payments
under the capital IPPS as well. Charges
were then summed by MS–DRG for each
of the 19 cost groups so that each MS–
DRG had 19 standardized charge totals.
These charges were then adjusted to
cost by applying the national average
CCRs developed from the FY 2014 cost
report data.
The 19 cost centers that we used in
the proposed relative weight calculation
are shown in the following table. The
table shows the lines on the cost report
and the corresponding revenue codes
that we used to create the proposed 19
national cost center CCRs. If
stakeholders have comments about the
groupings in this table, we may consider
those comments as we finalize our
policy.

Cost from HCRIS
(worksheet C,
Part 1, column 5
and line number)
form CMS–2552–
10

Charges from
HCRIS (worksheet C, Part 1,
column 6 & 7 and
line number) form
CMS–2552–10

Medicare charges
from HCRIS
(worksheet D–3,
column & line
number) form
CMS–2552–10

C_1_C5_30 .........

C_1_C6_30 .........

D3_HOS_C2_30

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

Cost center group
name
(19 total)

MedPAR charge
field

Intensive Days .......

Semi-Private
Room Charges.
Ward Charges ....
Intensive Care
Charges.
Coronary Care
Charges.

Drugs .....................

Supplies and
Equipment.

Implantable Devices.
Therapy Services ...

Inhalation Therapy
Operating Room ....

Pharmacy
Charges.

Revenue codes
contained in
MedPAR charge
field
012X, 013X and
016X–019X.
015X.
020X ......................
021X ......................

025X, 026X and
063X.

Operating Room
Charges.

072X ......................

Anesthesia .............

Anesthesia
Charges.
Cardiology
Charges.
.............................
Laboratory
Charges.

030X, 031X, and
075X.

Cardiac Catheterization.
Laboratory ..............

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Radiology
Charges.

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Charges from
HCRIS (worksheet C, Part 1,
column 6 & 7 and
line number) form
CMS–2552–10

Medicare charges
from HCRIS
(worksheet D–3,
column & line
number) form
CMS–2552–10

C_1_C5_31 .........

C_1_C6_31 .........

D3_HOS_C2_31

C_1_C5_32 .........

C_1_C6_32 .........

D3_HOS_C2_32

C_1_C5_33 .........

C_1_C6_33 .........

D3_HOS_C2_33

C_1_C5_34 .........

C_1_C6_34 .........

D3_HOS_C2_34

C_1_C5_35 .........

C_1_C6_35 .........

D3_HOS_C2_35

C_1_C5_64 .........

C_1_C6_64 .........
C_1_C7_64
C_1_C6_73 .........
C_1_C7_73
C_1_C6_71 .........
C_1_C7_71

D3_HOS_C2_64

C_1_C5_73 .........
C_1_C5_71 .........

D3_HOS_C2_96

C_1_C5_97 .........

C_1_C6_97 .........
C_1_C7_97

D3_HOS_C2_97

C_1_C5_72 .........

C_1_C6_72 .........
C_1_C7_72

D3_HOS_C2_72

C_1_C5_66 .........

C_1_C6_66 .........
C_1_C7_66
C_1_C6_67 .........
C_1_C7_67

D3_HOS_C2_66

C_1_C5_67 .........
C_1_C5_68 .........
C_1_C5_65 .........
C_1_C5_50 .........
C_1_C5_51 .........

048X and 073X .....

Electro-cardiology

C_1_C5_69 .........

0481 .......................

Cardiac Catheterization.
Laboratory ...........

C_1_C5_59 .........

PBP Clinic Laboratory Services.
Electro-Encephalography.
Radiology—Diagnostic.
Radiology—
Therapeutic.

C_1_C5_61 .........

Radioisotope .......

C_1_C5_56 .........

Computed Tomography (CT)
Scan.

C_1_C5_57 .........

035X ......................

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D3_HOS_C2_71

C_1_C6_96 .........
C_1_C7_96

C_1_C5_53 .........

032X, 040X ............

D3_HOS_C2_73

C_1_C5_96 .........

037X ......................

028x, 0331, 0332,
0333, 0335,
0339, 0342.
0343 and 344 ........
Computed Tomography (CT) Scan.

Cost from HCRIS
(worksheet C,
Part 1, column 5
and line number)
form CMS–2552–
10

Delivery Room
and Labor
Room.
Anesthesiology ...

074X, 086X ............
Radiology ...............

Intensive Care
Unit.
Coronary Care
Unit.
Burn Intensive
Care Unit.
Surgical Intensive
Care Unit.
Other Special
Care Unit.
Intravenous Therapy.
Drugs Charged
To Patient.
Medical Supplies
Charged to Patients.

Medical/Surgical
0270, 0271, 0272,
Supply Charges.
0273, 0274,
0277, 0279, and
0621, 0622, 0623.
Durable Medical
0290, 0291, 0292
DME-Rented .......
Equipment
and 0294-0299.
Charges.
Used Durable
0293 ....................... DME-Sold ...........
Medical
Charges.
............................. 0275, 0276, 0278,
Implantable De0624.
vices Charged
to Patients.
Physical Therapy
042X ...................... Physical Therapy
Charges.
Occupational
043X ...................... Occupational
Therapy
Therapy.
Charges.
Speech Pathology 044X and 047X ..... Speech Pathology
Charges.
Inhalation Ther041X and 046X ..... Respiratory Therapy Charges.
apy.
Operating Room
036X ...................... Operating Room
Charges.
071X ...................... Recovery Room ..

Labor & Delivery ....

Cardiology ..............

Cost report line
description

25029

C_1_C5_52 .........

C_1_C5_60 .........

C_1_C5_70 .........
C_1_C5_54 .........
C_1_C5_55 .........

E:\FR\FM\27APP2.SGM

D3_HOS_C2_67

C_1_C6_68
C_1_C7_68
C_1_C6_65
C_1_C7_65
C_1_C6_50
C_1_C7_50
C_1_C6_51
C_1_C7_51
C_1_C6_52
C_1_C7_52

.........

D3_HOS_C2_68

.........

D3_HOS_C2_65

.........

D3_HOS_C2_50

.........

D3_HOS_C2_51

.........

D3_HOS_C2_52

C_1_C6_53
C_1_C7_53
C_1_C6_69
C_1_C7_69
C_1_C6_59
C_1_C7_59
C_1_C6_60
C_1_C7_60
C_1_C6_61
C_1_C7_61

.........

D3_HOS_C2_53

.........

D3_HOS_C2_69

.........

D3_HOS_C2_59

.........

D3_HOS_C2_60

.........

D3_HOS_C2_61

C_1_C6_70 .........
C_1_C7_70
C_1_C6_54 .........
C_1_C7_54
C_1_C6_55 .........

D3_HOS_C2_70

C_1_C6_56 .........
C_1_C7_56
C_1_C6_57 .........
C_1_C7_57

D3_HOS_C2_56

27APP2

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D3_HOS_C2_55

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Cost center group
name
(19 total)

MedPAR charge
field

Revenue codes
contained in
MedPAR charge
field

Magnetic Resonance Imaging
(MRI).
Emergency Room ..

MRI Charges ......

061X ......................

Emergency Room
Charges.
Blood Charges ....

045x .......................

Blood Storage/
Processing.

039x .......................

Other Service
Charge.

0002–0099, 022X,
023X, 024X,
052X, 053X.
055X–060X, 064X–
070X, 076X–
078X, 090X–
095X and 099X.
0800X ....................
080X and 082X–
088X.

Blood and Blood
Products.

Other Services .......

Renal Dialysis .....
ESRD Revenue
Setting
Charges.
Outpatient Service Charges.
Lithotripsy Charge
Clinic Visit
Charges.
Professional Fees
Charges.
Ambulance
Charges.

038x .......................

049X ......................

Cost report line
description

Magnetic Resonance Imaging
(MRI).
Emergency ..........

051X ......................

096X, 097X, and
098X.
054X ......................

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

We developed the national average
CCRs as follows:
Using the FY 2014 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

Jkt 238001

Medicare charges
from HCRIS
(worksheet D–3,
column & line
number) form
CMS–2552–10

C_1_C5_58 .........

C_1_C6_58 .........
C_1_C7_58

D3_HOS_C2_58

C_1_C5_91 .........

C_1_C6_91 .........
C_1_C7_91
C_1_C6_62 .........
C_1_C7_62

D3_HOS_C2_91

C_1_C5_62 .........
C_1_C5_63 .........

C_1_C6_63 .........
C_1_C7_63

D3_HOS_C2_63

Renal Dialysis .....

C_1_C5_74 .........

C_1_C6_74 .........
C_1_C7_74.

D3_HOS_C2_74

Home Program
Dialysis.
ASC (Non Distinct
Part).

C_1_C5_94 .........

C_1_C6_94 .........
C_1_C7_94
C_1_C6_75 .........
C_1_C7_75

D3_HOS_C2_94

Other Ancillary ....

C_1_C5_76 .........

D3_HOS_C2_76

Clinic ...................

C_1_C5_90 .........

Observation beds

C_1_C5_92.01 ....

Other Outpatient
Services.
Ambulance ..........

C_1_C5_93 .........

C_1_C6_76 .........
C_1_C7_76
C_1_C6_90 .........
C_1_C7_90
C_1_C6_92.01 ....
C_1_C7_92.01
C_1_C6_93 .........
C_1_C7_93
C_1_C6_95 .........
C_1_C7_95
C_1_C6_88 .........
C_1_C7_88
C_1_C6_89 .........
C_1_C7_89

C_1_C5_75 .........

D3_HOS_C2_62

D3_HOS_C2_75

079X.

3. Development of National Average
CCRs

18:46 Apr 26, 2016

Charges from
HCRIS (worksheet C, Part 1,
column 6 & 7 and
line number) form
CMS–2552–10

Whole Blood &
Packed Red
Blood Cells.
Blood Storing,
Processing, &
Transfusing.

Rural Health Clinic.
FQHC ..................

VerDate Sep<11>2014

Cost from HCRIS
(worksheet C,
Part 1, column 5
and line number)
form CMS–2552–
10

C_1_C5_95 .........
C_1_C5_88 .........
C_1_C5_89 .........

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–3 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–3. 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 19 cost

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D3_HOS_C2_90
D3_HOS_C2_
92.01
D3_HOS_C2_93
D3_HOS_C2_95
D3_HOS_C2_88
D3_HOS_C2_89

centers by the corresponding national
average CCR, we summed the 19 ‘‘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 proposed FY 2017 cost-based
relative weights were then normalized
by an adjustment factor of 1.690233 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

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
When we recalibrated the DRG
weights for previous years, we set a
threshold of 10 cases as the minimum
number of cases required to compute a
reasonable weight. For FY 2017, we are
Group
CCR
proposing to use that same case
threshold in recalibrating the MS–DRG
Routine Days ................................
0.459
Intensive Days ..............................
0.378 relative weights for FY 2017. Using data
Drugs ............................................
0.194 from the FY 2015 MedPAR file, there
Supplies & Equipment ..................
0.298 were 8 MS–DRGs that contain fewer
Implantable Devices .....................
0.336 than 10 cases. Under the MS–DRGs, we
Therapy Services ..........................
0.322 have fewer low-volume DRGs than
Laboratory .....................................
0.120 under the CMS DRGs because we no
Operating Room ...........................
0.192
Cardiology .....................................
0.113 longer have separate DRGs for patients
Cardiac Catheterization ................
0.119 aged 0 to 17 years. With the exception
Radiology ......................................
0.154 of newborns, we previously separated
MRIs .............................................
0.079 some DRGs based on whether the
CT Scans ......................................
0.039 patient was age 0 to 17 years or age 17
Emergency Room .........................
0.172 years and older. Other than the age split,
Blood and Blood Products ............
0.325 cases grouping to these DRGs are
Other Services ..............................
0.368
Labor & Delivery ...........................
0.411 identical. The DRGs for patients aged 0
Inhalation Therapy ........................
0.170 to 17 years generally have very low
Anesthesia ....................................
0.090 volumes because children are typically
ineligible for Medicare. In the past, we
Since FY 2009, the relative weights
have found that the low volume of cases
have been based on 100 percent cost
for the pediatric DRGs could lead to
weights based on our MS–DRG grouping significant year-to-year instability in
system.
their relative weights. Although we have
payments under the IPPS, as required by
section 1886(d)(4)(C)(iii) of the Act.
The proposed 19 national average
CCRs for FY 2017 are as follows:

Low-volume
MS–DRG

MS–DRG title

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

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

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

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

Prematurity without Major Problems .......

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

Full-Term Neonate with Major Problems

794 .....................

Neonate with Other Significant Problems

795 .....................

Normal Newborn .....................................

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

We are inviting public comments on
this proposal.
H. Proposed Add-On Payments for New
Services and Technologies for FY 2017

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

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

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25031

always encouraged non-Medicare payers
to develop weights applicable to their
own patient populations, we have
received frequent complaints from
providers about the use of the Medicare
relative weights in the pediatric
population. We believe that eliminating
this age split in the MS–DRGs will
provide more stable payment for
pediatric cases by determining their
payment using adult cases that are
much higher in total volume. Newborns
are unique and require separate MS–
DRGs that are not mirrored in the adult
population. Therefore, it remains
necessary to retain separate MS–DRGs
for newborns. All of the low-volume
MS–DRGs listed are for newborns. For
FY 2017, because we do not have
sufficient MedPAR data to set accurate
and stable cost relative weights for these
low-volume MS–DRGs, we are
proposing to compute relative weights
for the low-volume MS–DRGs by
adjusting their final FY 2016 relative
weights by the percentage change in the
average weight of the cases in other MS–
DRGs. The crosswalk table is shown:

Crosswalk to MS–DRG
Final FY 2016 relative weight (adjusted
the cases in other MS–DRGs).
Final FY 2016 relative weight (adjusted
the cases in other MS–DRGs).
Final FY 2016 relative weight (adjusted
the cases in other MS–DRGs).
Final FY 2016 relative weight (adjusted
the cases in other MS–DRGs).
Final FY 2016 relative weight (adjusted
the cases in other MS–DRGs).
Final FY 2016 relative weight (adjusted
the cases in other MS–DRGs).
Final FY 2016 relative weight (adjusted
the cases in other MS–DRGs).
Final FY 2016 relative weight (adjusted
the cases in other MS–DRGs).

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 at 42 CFR 412.87
implement these provisions and specify
three criteria for a new medical service
or technology to receive the additional
payment: (1) The medical service or
technology must be new; (2) the medical
service or technology must be costly
such that the DRG rate otherwise

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

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. Below
we highlight some of the major statutory
and regulatory provisions relevant to the
new technology add-on payment
criteria, as well as other information.
For a complete discussion on the new
technology add-on payment criteria, we
refer readers to the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51572 through
51574).
Under the first criterion, as reflected
in § 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

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until such time as Medicare data are
available to fully reflect the cost of the
technology in the MS–DRG weights
through recalibration. We note that we
do not consider a service or technology
to be new if it is substantially similar to
one or more existing technologies. That
is, even if a technology receives a new
FDA approval, it may not necessarily be
considered ‘‘new’’ for purposes of new
technology add-on payments if it is
‘‘substantially similar’’ to a technology
that was approved by FDA and has been
on the market for more than 2 to 3 years.
In the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43813 through 43814),
we established criteria for evaluating
whether a new technology is
substantially similar to an existing
technology, specifically: (1) Whether a
product uses the same or a similar
mechanism of action to achieve a
therapeutic outcome; (2) whether a
product is assigned to the same or a
different MS–DRG; and (3) whether the
new use of the technology involves the
treatment of the same or similar type of
disease and the same or similar patient
population. If a technology meets all
three of these criteria, it would be
considered substantially similar to an
existing technology and would not be
considered ‘‘new’’ for purposes of new
technology add-on payments. For a
detailed discussion of the criteria for
substantial similarity, we refer readers
to the FY 2006 IPPS final rule (70 FR
47351 through 47352), and the FY 2010
IPPS/LTCH PPS final rule (74 FR 43813
through 43814).
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,
consistent with the formula specified in
section 1886(d)(5)(K)(ii)(I) of the Act, 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. Table 10 that was released
with the FY 2016 IPPS/LTCH PPS final
rule contains the final thresholds that
we used to evaluate applications for
new medical service and new
technology add-on payments for FY
2017. We refer readers to the CMS Web
site at: https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/FY2016-IPPS-FinalRule-Home-Page-Items/FY2016-IPPS-

VerDate Sep<11>2014

18:46 Apr 26, 2016

Jkt 238001

Final-Rule-Tables.html to download and
view Table 10.
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 medical service
and new technology add-on payments.
We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51573) for
complete information on this issue.
Under the third criterion,
§ 412.87(b)(1) of our existing regulations
provides that a new technology is an
appropriate candidate for an additional
payment when it represents an advance
that substantially improves, relative to
technologies previously available, the
diagnosis or treatment of Medicare
beneficiaries. For example, a new
technology represents a substantial
clinical improvement when it reduces
mortality, decreases the number of
hospitalizations or physician visits, or
reduces recovery time compared to the
technologies previously available. (We
refer readers to the September 7, 2001
final rule for a more detailed discussion
of this criterion (66 FR 46902).)
The new medical service or
technology add-on payment policy
under the IPPS provides additional
payments for cases with relatively high
costs involving eligible new medical
services or technologies while
preserving some of the incentives
inherent under an average-based
prospective payment system. The
payment mechanism is based on the
cost to hospitals for the new medical
service or technology. Under § 412.88, if
the costs of the discharge (determined
by applying cost-to-charge ratios (CCRs)
as described in § 412.84(h)) exceed the
full DRG payment (including payments
for IME and DSH, but excluding outlier
payments), Medicare will make an addon payment equal to the lesser of: (1) 50
percent of the estimated costs of the
new technology or medical service (if
the estimated costs for the case
including the new technology or
medical service exceed Medicare’s
payment); or (2) 50 percent of the
difference between the full DRG
payment and the hospital’s estimated
cost for the case. Unless the discharge
qualifies for an outlier payment, the
additional Medicare payment is limited
to the full MS–DRG payment plus 50
percent of the estimated costs of the
new technology or new medical service.
Section 503(d)(2) of Public Law 108–
173 provides that there shall be no

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reduction or adjustment in aggregate
payments under the IPPS due to add-on
payments for new medical services and
technologies. Therefore, in accordance
with section 503(d)(2) of Public Law
108–173, add-on payments for new
medical services or technologies for FY
2005 and later years have not been
subjected to budget neutrality.
In the FY 2009 IPPS final rule (73 FR
48561 through 48563), we modified our
regulations at § 412.87 to codify our
longstanding practice of how CMS
evaluates the eligibility criteria for new
medical service or technology add-on
payment applications. That is, we first
determine whether a medical service or
technology meets the newness criterion,
and only if so, do we then make a
determination as to whether the
technology meets the cost threshold and
represents a substantial clinical
improvement over existing medical
services or technologies. We 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 and medical services
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 co-chaired by the
Director of the Center for Clinical
Standards and Quality (CCSQ) and the
Director of the Center for Medicare
(CM), who is also designated as the
CTI’s Executive Coordinator.
The specific processes for coverage,
coding, and payment are implemented
by CM, CCSQ, and the local claimspayment contractors (in the case of local
coverage and payment decisions). The
CTI supplements, rather than replaces,
these processes by working to assure
that all of these activities reflect the
agency-wide priority to promote highquality, innovative care. At the same
time, the CTI also works to streamline,
accelerate, and improve coordination of
these processes to ensure that they
remain up to date as new issues arise.
To achieve its goals, the CTI works to
streamline and create a more
transparent coding and payment
process, improve the quality of medical

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
decisions, and speed patient access to
effective new treatments. It is also
dedicated to supporting better decisions
by patients and doctors in using
Medicare-covered services through the
promotion of better evidence
development, which is critical for
improving the quality of care for
Medicare beneficiaries.
To improve the understanding of
CMS’ processes for coverage, coding,
and payment and how to access them,
the CTI has developed an ‘‘Innovator’s
Guide’’ to these processes. The intent is
to consolidate this information, much of
which is already available in a variety
of CMS documents and in various
places on the CMS Web site, in a userfriendly format. This guide was
published in 2010 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 services or 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 2018 must submit a
formal request, including a full
description of the clinical applications
of the medical service or technology and
the results of any clinical evaluations
demonstrating that the new medical
service or technology represents a
substantial clinical improvement, along
with a significant sample of data to
demonstrate that the medical service or
technology meets the high-cost
threshold. Complete application
information, along with final deadlines
for submitting a full application, will be
posted as it becomes available on the
CMS Web site at: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
newtech.html. To allow interested
parties to identify the new medical
services or technologies under review

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before the publication of the proposed
rule for FY 2018, the CMS Web site also
will post the tracking forms completed
by each applicant.
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
Section 1886(d)(5)(K)(viii) of the Act,
as amended by section 503(b)(2) of
Public Law 108–173, provides for a
mechanism for public input before
publication of a notice of proposed
rulemaking regarding whether a medical
service or technology represents a
substantial clinical improvement or
advancement. The process for
evaluating new medical service and
technology applications requires the
Secretary to—
• Provide, before publication of a
proposed rule, for public input
regarding whether a new service or
technology represents an advance in
medical technology that substantially
improves the diagnosis or treatment of
Medicare beneficiaries;
• Make public and periodically
update a list of the services and
technologies for which applications for
add-on payments are pending;
• Accept comments,
recommendations, and data from the
public regarding whether a service or
technology represents a substantial
clinical improvement; and
• Provide, before publication of a
proposed rule, for a meeting at which
organizations representing hospitals,
physicians, manufacturers, and any
other interested party may present
comments, recommendations, and data
regarding whether a new medical
service or technology represents a
substantial clinical improvement to the
clinical staff of CMS.
In order to provide an opportunity for
public input regarding add-on payments
for new medical services and
technologies for FY 2017 prior to
publication of the FY 2017 IPPS/LTCH
PPS proposed rule, we published a
notice in the Federal Register on
November 30, 2015 (80 FR 74774), and
held a town hall meeting at the CMS
Headquarters Office in Baltimore, MD,
on February 16, 2016. In the
announcement notice for the meeting,
we stated that the opinions and
presentations 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 2017 new medical service and
technology add-on payment
applications before the publication of
the FY 2017 IPPS/LTCH PPS proposed
rule.

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Approximately 76 individuals
registered to attend the town hall
meeting in person, while additional
individuals listened over an open
telephone line. We also live-streamed
the town hall meeting and posted the
town hall on the CMS YouTube Web
page at: https://www.youtube.com/
watch?v=dn-R5KGQu-M. We considered
each applicant’s presentation made at
the town hall meeting, as well as written
comments submitted on the
applications that were received by the
due date of February 26, 2016, in our
evaluation of the new technology addon payment applications for FY 2017 in
this proposed rule.
As indicated earlier in this section,
CMS is required to 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 recent years, CMS has
live-streamed the town hall meeting
through the CMS YouTube Web page
and later posted the recorded version of
the town hall meeting, in addition to
maintaining an open telephone line. We
are proposing to conduct future town
hall meetings entirely via teleconference
and Webcast using the same
technologies. Under this proposal, we
would continue to publish a notice
informing the public of the date of the
meeting, as well as requirements for the
submission of presentations. We also
would continue to maintain an open
telephone line, with an option for
participation in the Webcast. The
recording of the town hall meeting
would continue to be available on the
CMS You Tube Web page or other CMS
Web site following the meeting. This
recording would include closed
captioning of all presentations and
comments. In addition to submitting
materials for discussion at the town hall
meeting, individuals would continue to
be able to submit other written
comments after the town hall meeting
on whether the service or technology
represents a substantial clinical
improvement. We are inviting public
comments on this proposal.
In response to the published notice
and the February 16, 2016 New
Technology Town Hall meeting, we
received written comments regarding
the applications for FY 2017 new
technology add-on payments. We
summarize below a general comment
that does not relate to a specific
application for FY 2017 new technology

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add-on payments. We also summarize
comments regarding individual
applications, or, if applicable, indicate
that there were no comments received
in section II.H.5. of the preamble of this
proposed rule at the end of each
discussion of the individual
applications.
Comment: One commenter
recommended that CMS broaden the
criteria applied in making substantial
clinical improvement determinations to
require, in addition to existing criteria,
consideration of whether the new
technology or medical service meets one
or more of the following additional
suggested criteria: (1) Results in a
reduction of the length of a hospital
stay; (2) improves patient quality of life;
(3) creates long-term clinical efficiencies
in treatment; (3) addresses patientcentered objectives as defined by the
Secretary; or (4) meets such other
criteria as the Secretary may specify.
The commenter also suggested that an
entity that submits an application for
new technology add-on payments be
entitled to administrative review of an
adverse determination made by the
Secretary.
Response: We appreciate these
recommendations and suggestions and
will consider them in future
rulemaking.
We note that the commenter also
provided comments that were unrelated
to the substantial clinical improvement
criterion. As stated earlier, the purpose
of the new technology town hall
meeting is specifically to discuss the
substantial clinical improvement
criterion in regard to pending new
technology add-on payment
applications for FY 2017. Therefore, we
are not summarizing these additional
comments in this proposed rule.
However, the commenter is welcome to
resubmit its comments in response to
proposals presented in this proposed
rule.
3. ICD–10–PCS Section ‘‘X’’ Codes for
Certain New Medical Services and
Technologies
As discussed in the FY 2016 IPPS/
LTCH final rule (80 FR 49434), the ICD–
10–PCS includes a new section
containing the new Section ‘‘X’’ codes,
which began being used with discharges
occurring on or after October 1, 2015.
Decisions regarding changes to ICD–10–
PCS Section ‘‘X’’ codes will be handled
in the same manner as the decisions for
all of the other ICD–10–PCS code
changes. That is, proposals to create,
delete, or revise Section ‘‘X’’ codes
under the ICD–10–PCS structure will be
referred to the ICD–10 Coordination and
Maintenance Committee. In addition,

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several of the new medical services and
technologies that have been, or may be,
approved for new technology add-on
payments may now, and in the future,
be assigned a Section ‘‘X’’ code within
the structure of the ICD–10–PCS. We
posted ICD–10–PCS Guidelines on the
CMS Web site at: http://www.cms.gov/
Medicare/Coding/ICD10/2016-ICD-10PCS-and-GEMs.html, including
guidelines for ICD–10–PCS ‘‘X’’ codes.
We encourage providers to view the
material provided on ICD–10–PCS
Section ‘‘X’’ codes.
4. Proposed FY 2017 Status of
Technologies Approved for FY 2016
Add-On Payments
a. KcentraTM
CSL Behring submitted an application
for new technology add-on payments for
KcentraTM for FY 2014. KcentraTM is a
replacement therapy for fresh frozen
plasma (FFP) for patients with an
acquired coagulation factor deficiency
due to warfarin and who are
experiencing a severe bleed. KcentraTM
contains the Vitamin K dependent
coagulation factors II, VII, IX and X,
together known as the prothrombin
complex, and antithrombotic proteins C
and S. Factor IX is the lead factor for the
potency of the preparation. The product
is a heat-treated, non-activated, virus
filtered and lyophilized plasma protein
concentrate made from pooled human
plasma. KcentraTM is available as a
lyophilized powder that needs to be
reconstituted with sterile water prior to
administration via intravenous infusion.
The product is dosed based on Factor IX
units. Concurrent Vitamin K treatment
is recommended to maintain blood
clotting factor levels once the effects of
KcentraTM have diminished.
KcentraTM was approved by the FDA
on April 29, 2013. Under the ICD–10
coding system, KcentraTM is uniquely
identified by ICD–10–CM procedure
code 30283B1 (Transfusion of
nonautologous 4-factor prothrombin
complex concentrate into vein,
percutaneous approach).
After evaluation of the newness, cost,
and substantial clinical improvement
criteria for new technology add-on
payments for KcentraTM and
consideration of the public comments
we received in response to the FY 2014
IPPS/LTCH PPS proposed rule, we
approved KcentraTM for new technology
add-on payments for FY 2014 (78 FR
50575 through 50580). In the
application, the applicant estimated that
the average Medicare beneficiary would
require an average dosage of 2500
International Units (IU). Vials contain
500 IU at a cost of $635 per vial.

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Therefore, cases of KcentraTM would
incur an average cost per case of $3,175
($635 × 5). Under § 412.88(a)(2), we
limit new technology add-on payments
to the lesser of 50 percent of the average
cost of the technology or 50 percent of
the costs in excess of the MS–DRG
payment for the case. As a result, the
maximum add-on payment for a case of
KcentraTM was $1,587.50 for FY 2014.
We refer the reader to the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50579) for
complete details on the new technology
add-on payments for KcentraTM.
As stated above, the new technology
add-on payment regulations provide
that a medical service or technology
may be considered new within 2 or 3
years after the point at which data begin
to become available reflecting the ICD–
9–CM code assigned to the new service
or technology (§ 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 KcentraTM, we considered the
beginning of the newness period to
commence when KcentraTM was
approved by the FDA on April 29, 2013.
Because the 3-year anniversary date for
KcentraTM will occur in the latter half of
FY 2016 (April 29, 2016), in the FY
2016 IPPS/LTCH PPS final rule, we
continued new technology add-on
payments for this technology for FY
2016 (80 FR 49437). However, for FY
2017, the 3-year anniversary date of the
entry of KcentraTM on the U.S. market
(April 29, 2016) will occur prior to the
beginning of FY 2017. Therefore, we are
proposing to discontinue new
technology add-on payments for this
technology for FY 2017. We are inviting
public comments on this proposal.
b. Argus® II Retinal Prosthesis System
Second Sight Medical Products, Inc.
submitted an application for new
technology add-on payments for the
Argus® II Retinal Prosthesis System
(Argus® II System) for FY 2014. The
Argus® II System is an active
implantable medical device that is
intended to provide electrical
stimulation of the retina to induce
visual perception in patients who are
profoundly blind due to retinitis

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pigmentosa (RP). These patients have
bare or no light perception in both eyes.
The system employs electrical signals to
bypass dead photo-receptor cells and
stimulate the overlying neurons
according to a real-time video signal
that is wirelessly transmitted from an
externally worn video camera. The
Argus® II implant is intended to be
implanted in a single eye, typically the
worse-seeing eye. Currently, bilateral
implants are not intended for this
technology. According to the applicant,
the surgical implant procedure takes
approximately 4 hours and is performed
under general anesthesia.
With regard to the newness criterion,
the applicant received a Humanitarian
Device Exemption (HDE) approval from
the FDA on February 14, 2013.
However, in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 49924 through
49925), we discussed comments we had
received informing CMS that the Argus®
II System was not available on the U.S.
market until December 20, 2013. The
applicant explained that, as part of the
lengthy approval process, it was
required to submit a request to the
Federal Communications Commission
(FCC) for a waiver of section 15.209(a)
of the FCC rules that would allow the
applicant to apply for FCC authorization
to utilize this specific RF band. The FCC
approved the applicant’s waiver request
on November 30, 2011. After receiving
the FCC waiver of the section 15.209(a)
rules, the applicant requested and
obtained a required Grant of Equipment
Authorization to utilize the specific RF
band, which the FCC issued on
December 20, 2013. Therefore, the
applicant stated that the date the Argus®
II System first became available for
commercial sale in the United States
was December 20, 2013. We agreed with
the applicant that, due to the delay, the
date of newness for the Argus® II
System was December 20, 2013, instead
of February 14, 2013.
After evaluation of the new
technology add-on payment application
and consideration of public comments
received, we concluded that the Argus®
II System met all of the new technology
add-on payment policy criteria.
Therefore, we approved the Argus® II
System for new technology add-on
payments in FY 2014 (78 FR 50580
through 50583). Cases involving the
Argus® II System that are eligible for
new technology add-on payments
currently are identified when one of the
following ICD–10–PCS procedure codes
is reported: 08H005Z (Insertion of
epiretinal visual prosthesis into right
eye, open approach); or 08H105Z
(Insertion of epiretinal visual prosthesis
into left eye, open approach). In the

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application, the applicant provided a
breakdown of the costs of the Argus® II
System. The total operating cost of the
Argus® II System is $144,057.50. Under
§ 412.88(a)(2), we limit new technology
add-on payments 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 Argus® II
System for FY 2014 was $72,028.75.
With regard to the newness criterion
for the Argus® II System, we considered
the beginning of the newness period to
commence when the Argus® II System
became available on the U.S. market on
December 20, 2013. Because the 3-year
anniversary date for the Argus® II
System will occur after FY 2016
(December 20, 2016), in the FY 2016
IPPS/LTCH PPS final rule, we
continued new technology add-on
payments for this technology for FY
2016 (80 FR 49439). However, for FY
2017, the 3-year anniversary date of the
entry of the Argus® II System on the
U.S. market (December 20, 2016) will
occur in the first half of FY 2017. As
discussed previously in this section, in
general, we extend new technology addon payments for an additional year only
if the 3-year anniversary date of the
product’s entry on to the U.S. market
occurs in the latter half of the fiscal
year. Therefore, we are proposing to
discontinue new technology add-on
payments for this technology for FY
2017. We are inviting public comments
on this proposal.
c. CardioMEMSTM HF (Heart Failure)
Monitoring System
CardioMEMS, Inc. submitted an
application for new technology add-on
payment for FY 2015 for the
CardioMEMSTM HF (Heart Failure)
Monitoring System, which is an
implantable hemodynamic monitoring
system comprised of an implantable
sensor/monitor placed in the distal
pulmonary artery. Pulmonary artery
hemodynamic monitoring is used in the
management of heart failure. The
CardioMEMSTM HF Monitoring System
measures multiple pulmonary artery
pressure parameters for an ambulatory
patient to measure and transmit data via
a wireless sensor to a secure Web site.
The CardioMEMSTM HF Monitoring
System utilizes radiofrequency (RF)
energy to power the sensor and to
measure pulmonary artery (PA) pressure
and consists of three components: An
Implantable Sensor with Delivery
Catheter, an External Electronics Unit,
and a Pulmonary Artery Pressure
Database. The system provides the
physician with the patient’s PA pressure

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waveform (including systolic, diastolic,
and mean pressures) as well as heart
rate. The sensor is permanently
implanted in the distal pulmonary
artery using transcatheter techniques in
the catheterization laboratory where it is
calibrated using a Swan-Ganz catheter.
PA pressures are transmitted by the
patient at home in a supine position on
a padded antenna, pushing one button
which records an 18-second continuous
waveform. The data also can be
recorded from the hospital, physician’s
office or clinic.
The hemodynamic data, including a
detailed waveform, are transmitted to a
secure Web site that serves as the
Pulmonary Artery Pressure Database, so
that information regarding PA pressure
is available to the physician or nurse at
any time via the Internet. Interpretation
of trend data allows the clinician to
make adjustments to therapy and can be
used along with heart failure signs and
symptoms to adjust medications.
The applicant received FDA approval
on May 28, 2014.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
the CardioMEMSTM HF Monitoring
System and consideration of the public
comments we received in response to
the FY 2015 IPPS/LTCH PPS proposed
rule, we approved the CardioMEMSTM
HF Monitoring System for new
technology add-on payments for FY
2015 (79 FR 49940). Cases involving the
CardioMEMSTM HF Monitoring System
that are eligible for new technology addon payments are identified by either
ICD–10–PCS procedure code 02HQ30Z
(Insertion of pressure sensor monitoring
device into right pulmonary artery,
percutaneous approach) or ICD–10–PCS
procedure code 02HR30Z (Insertion of
pressure sensor monitoring device into
left pulmonary artery, percutaneous
approach). With the new technology
add-on payment application, the
applicant stated that the total operating
cost of the CardioMEMSTM HF
Monitoring System is $17,750. Under
§ 412.88(a)(2), we limit new technology
add-on payments 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 new technology
add-on payment for a case involving the
CardioMEMSTM HF Monitoring System
is $8,875.
With regard to the newness criterion
for the CardioMEMSTM HF Monitoring
System, we considered the beginning of
the newness period to commence when
the CardioMEMSTM HF Monitoring
System was approved by the FDA on
May 28, 2014. Because the 3-year

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anniversary date of the entry of the
CardioMEMSTM HF Monitoring System
on the U.S. market will occur in the
latter half of FY 2017 (May 28, 2017),
we are proposing to continue new
technology add-on payments for this
technology for FY 2017. The maximum
payment for a case involving the
CardioMEMSTM HF Monitoring System
would remain at $8,875 for FY 2017. We
are inviting public comments on our
proposal.
d. MitraClip® System
Abbott Vascular submitted an
application for new technology add-on
payments for the MitraClip® System for
FY 2015. The MitraClip® System is a
transcatheter mitral valve repair system
that includes a MitraClip® device
implant, a Steerable Guide Catheter, and
a Clip Delivery System. It is designed to
perform reconstruction of the
insufficient mitral valve for high-risk
patients who are not candidates for
conventional open mitral valve repair
surgery.
With regard to the newness criterion,
the MitraClip® System received a
premarket approval from the FDA on
October 24, 2013. The MitraClip®
System is indicated ‘‘for the
percutaneous reduction of significant
symptomatic mitral regurgitation (MR
>= 3+) due to primary abnormality of
the mitral apparatus (degenerative MR)
in patients who have been determined
to be at prohibitive risk for mitral valve
surgery by a heart team, which includes
a cardiac surgeon experienced in mitral
valve surgery and a cardiologist
experienced in mitral valve disease, and
in whom existing comorbidities would
not preclude the expected benefit from
reduction of the mitral regurgitation.’’
The MitraClip® System became
immediately available on the U.S.
market following FDA approval. The
MitraClip® System is a Class III device,
and has an investigational device
exemption (IDE) for the EVEREST study
(Endovascular Valve Edge-to-Edge
Repair Study)—IDE G030061, and for
the COAPT study (Cardiovascular
Outcomes Assessment of the MitraClip
Percutaneous Therapy for Health
Failure Patients with Functional Mitral
Regurgitation)—IDE G120024. Cases
involving the MitraClip® System are
identified using ICD–10–PCS procedure
code 02UG3JZ (Supplement mitral valve
with synthetic substitute, percutaneous
approach).
On August 7, 2014, CMS issued a
National Coverage Decision (NCD)
concerning Transcatheter Mitral Valve
Repair procedures. We refer readers to
the CMS Web site at: http://www.cms.
gov/medicare-coverage-database/

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details/nca-trackingsheet.aspx?NCAId=273 for information
related to this NCD.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
the MitraClip® System and
consideration of the public comments
we received in response to the FY 2015
IPPS/LTCH PPS proposed rule, we
approved the MitraClip® System for
new technology add-on payments for FY
2015 (79 FR 49946). As discussed in the
FY 2015 IPPS/LTCH PPS final rule, this
approval is on the basis of using the
MitraClip® consistent with the NCD.
The average cost of the MitraClip®
System is reported as $30,000. Under
section 412.88(a)(2), we limit new
technology add-on payments 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 new
technology add-on payment for a case
involving the MitraClip® System is
$15,000 for FY 2015.
With regard to the newness criterion
for the MitraClip® System, we
considered the beginning of the
newness period to commence when the
MitraClip® System was approved by the
FDA on October 24, 2013. Because the
3-year anniversary date of the entry of
the MitraClip® System on the U.S.
market (October 24, 2016) will occur
after FY 2016, in the FY 2016 IPPS/
LTCH PPS final rule, we continued new
technology add-on payments for this
technology for FY 2016 (80 FR 49442).
However, for FY 2017, the 3-year
anniversary date of the entry of
MitraClip® System on the U.S. market
(October 24, 2016) will occur in the first
half of FY 2017. As discussed
previously in this section, in general, we
extend new technology add-on
payments for an additional year only if
the 3-year anniversary date of the
product’s entry on to the U.S. market
occurs in the latter half of the fiscal
year. Therefore, we are proposing to
discontinue new technology add-on
payments for this technology for FY
2017. We are inviting public comments
on this proposal.
e. Responsive Neurostimulator (RNS®)
System
NeuroPace, Inc. submitted an
application for new technology add-on
payments for FY 2015 for the use of the
RNS® System. (We note that the
applicant submitted an application for
new technology add-on payments for FY
2014, but failed to receive FDA approval
prior to the July 1 deadline.) Seizures
occur when brain function is disrupted
by abnormal electrical activity. Epilepsy

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is a brain disorder characterized by
recurrent, unprovoked seizures.
According to the applicant, the RNS®
System is the first implantable medical
device (developed by NeuroPace, Inc.)
for treating persons diagnosed with
epilepsy whose partial onset seizures
have not been adequately controlled
with antiepileptic medications. The
applicant further stated that, the RNS®
System is the first closed-loop,
responsive system to treat partial onset
seizures. Responsive electrical
stimulation is delivered directly to the
seizure focus in the brain when
abnormal brain activity is detected. A
cranially implanted programmable
neurostimulator senses and records
brain activity through one or two
electrode-containing leads that are
placed at the patient’s seizure focus/
foci. The neurostimulator detects
electrographic patterns previously
identified by the physician as abnormal,
and then provides brief pulses of
electrical stimulation through the leads
to interrupt those patterns. Stimulation
is delivered only when abnormal
electrocorticographic activity is
detected. The typical patient is treated
with a total of 5 minutes of stimulation
a day. The RNS® System incorporates
remote monitoring, which allows
patients to share information with their
physicians remotely.
With regard to the newness criterion,
the applicant stated that some patients
diagnosed with partial onset seizures
that cannot be controlled with
antiepileptic medications may be
candidates for the vagus nerve
stimulator (VNS) or for surgical removal
of the seizure focus. According to the
applicant, these treatments are not
appropriate for, or helpful to, all
patients. Therefore, the applicant
believed that there is an unmet clinical
need for additional therapies for partial
onset seizures. The applicant further
stated that the RNS® System addresses
this unmet clinical need by providing a
novel treatment option for treating
persons diagnosed with medically
intractable partial onset seizures. The
applicant received FDA premarket
approval on November 14, 2013.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
the RNS® System and consideration of
the public comments we received in
response to the FY 2015 IPPS/LTCH
PPS proposed rule, we approved the
RNS® System for new technology addon payments for FY 2015 (79 FR 49950).
Cases involving the RNS® System that
are eligible for new technology add-on
payments are identified using the
following ICD–10–PCS procedure code

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combination: 0NH00NZ (Insertion of
neurostimulator generator into skull,
open approach) in combination with
00H00MZ (Insertion of neurostimulator
lead into brain, open approach).
According to the applicant, cases using
the RNS® System would incur an
anticipated cost per case of $36,950.
Under § 412.88(a)(2) of the regulations,
we limit new technology add-on
payments to the lesser of 50 percent of
the average costs of the device or 50
percent of the costs in excess of the MS–
DRG payment rate for the case. As a
result, the maximum new technology
add-on payment for cases involving the
RNS® System is $18,475.
With regard to the newness criterion
for the RNS® System, we considered the
beginning of the newness period to
commence when the RNS® System was
approved by the FDA on November 14,
2013. Because the 3-year anniversary
date of the entry of the RNS® System on
the U.S. market (November 14, 2016)
will occur after FY 2016, in the FY 2016
IPPS/LTCH PPS final rule, we
continued new technology add-on
payments for this technology for FY
2016 (80 FR 49443). However, for FY
2017, the 3-year anniversary date of the
entry of RNS® System on the U.S.
market (November 14, 2016) will occur
in the first half of FY 2017. As discussed
previously in this section, in general, we
extend new technology add-on
payments for an additional year only if
the 3-year anniversary date of the
product’s entry on to the U.S. market
occurs in the latter half of the fiscal
year. Therefore, we are proposing to
discontinue new technology add-on
payments for this technology for FY
2017. We are inviting public comments
on this proposal.
f. Blinatumomab (BLINCYTOTM Trade
Brand)
Amgen, Inc. submitted an application
for new technology add-on payments for
FY 2016 for Blinatumomab
(BLINCYTOTM), a bi-specific T-cell
engager (BiTE) used for the treatment of
Philadelphia chromosome-negative (Ph) relapsed or refractory (R/R) B-cell
precursor acute-lymphoblastic leukemia
(ALL), which is a rare aggressive cancer
of the blood and bone marrow.
Approximately 6,050 individuals are
diagnosed with Ph- R/R B-cell precursor
ALL in the United States each year, and
approximately 2,400 individuals,
representing 30 percent of all new cases,
are adults. Ph- R/R B-cell precursor ALL
occurs when there are malignant
transformations of B-cell or T-cell
progenitor cells, causing an
accumulation of lymphoblasts in the
blood, bone marrow, and occasionally

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throughout the body. As a bi-specific Tcell engager, the BLINCYTOTM
technology attaches to a molecule on the
surface of the tumorous cell, as well as
to a molecule on the surface of normal
T-cells, bringing the two into closer
proximity and allowing the normal Tcell to destroy the tumorous cell.
Specifically, the BLINCYTOTM
technology attaches to a cell identified
as CD19, which is present on all of the
cells of the malignant transformations
that cause Ph- R/R B-cell precursor ALL
and helps attract the cell into close
proximity of the T-cell CD3 with the
intent of getting close enough to allow
the T-cell to inject toxins that destroy
the cancerous cell. According to the
applicant, the BLINCYTOTM technology
is the first, and the only, bi-specific
CD19-directed CD3 T-cell engager
single-agent immunotherapy approved
by the FDA.
BLINCYTOTM is administered as a
continuous IV infusion delivered at a
constant flow rate using an infusion
pump. A single cycle of treatment
consists of 28 days of continuous
infusion, and each treatment cycle
followed by 2 weeks without treatment
prior to administering any further
treatments. A course of treatment would
consist of two phases. Phase 1 consists
of initial inductions or treatments
intended to achieve remission followed
by additional inductions and treatments
to maintain consolidation; or treatments
given after remission has been achieved
to prolong the duration. During phase 1
of a single treatment course, up to two
cycles of BLINCYTOTM are
administered, and up to three additional
cycles are administered during
consolidation. The recommended
dosage of BLINCYTOTM administered
during the first cycle of treatment is 9
mcg per day for the first 7 days of
treatment. The dosage is then increased
to 28 mcg per day for 3 weeks until
completion. During phase 2 of the
treatment course, all subsequent doses
are administered as 28 mcg per day
throughout the entire duration of the 28day treatment period.
With regard to the newness criterion,
the BLINCYTOTM technology received
FDA approval on December 3, 2014, for
the treatment of patients diagnosed with
Ph- R/R B-cell precursor ALL, and the
product gained entry onto the U.S.
market on December 17, 2014.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
BLINCYTOTM and consideration of the
public comments we received in
response to the FY 2016 IPPS/LTCH
PPS proposed rule, we approved
BLINCYTOTM for new technology add-

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25037

on payments for FY 2016 (80 FR 49449).
Cases involving BLINCYTOTM that are
eligible for new technology add-on
payments are identified using one of the
following ICD–10–PCS procedure codes:
XW03351 (Introduction of
Blinatumomab antineoplastic
immunotherapy into peripheral vein,
percutaneous approach, new technology
group 1) or XW04351 (Introduction of
Blinatumomab antineoplastic
immunotherapy into central vein,
percutaneous approach, new technology
group1).
As discussed in the FY 2016 IPPS/
LTCH final rule (80 FR 49449), the
applicant recommended that CMS
consider and use the cost of the full 28day inpatient treatment cycle as the
expected length of treatment when
determining the maximum new
technology add-on payment for cases
involving the BLINCYTOTM rather than
the average cost of lesser number of
days used as other variables. For the
reasons discussed, we disagreed with
the applicant and established the
maximum new technology add-on
payment amount for a case involving
the BLINCYTOTM technology for FY
2016 using the weighted average of the
cycle 1 and cycle 2 observed treatment
length. Specifically, in the Phase II trial,
the most recent data available, 92
patients received cycle 1 for an average
length of 21.2 days, and 52 patients
received cycle 2 for an average length of
10.2 days. The weighted average of
cycle 1 and 2 treatment length is 17
days. We noted that a small number of
patients also received 3 to 5 treatment
cycles. However, based on the data
provided, these cases do not appear to
be typical at this point and we excluded
them from this calculation. We noted
that, if we included all treatment cycles
in this calculation, the weighted average
number of days of treatment is much
lower, 10 days. Using the clinical data
provided by the applicant, we stated
that we believe that setting the
maximum new technology add-on
payment amount for a case involving
the BLINCYTOTM technology for FY
2016 based on a 17-day length of
treatment cycle is representative of
historical and current practice. We also
stated that, for FY 2017, if new data on
length of treatment are available, we
would consider any such data in
evaluating the maximum new
technology add-on payment amount.
However, we did not receive any new
data from the applicant to evaluate for
FY 2017.
In the application, the applicant
estimated that the average Medicare
beneficiary would require a dosage of
9mcg/day for the first 7 days under the

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first treatment cycle, followed by a
dosage of 28mcg/day for the duration of
the treatment cycle, as well as all days
included in subsequent cycles. All vials
contain 35mcg at a cost of $3,178.57 per
vial. The applicant noted that all vials
are single-use. Therefore, we
determined that cases involving the use
of the BLINCYTOTM technology would
incur an average cost per case of
$54,035.69 (1 vial/day × 17 days ×
$3,178.57/vial). Under 42 CFR
412.88(a)(2), we limit new technology
add-on payments to the lesser of 50
percent of the average cost of the
technology or 50 percent of the costs in
excess of the MS–DRG payment for the
case. As a result, the maximum new
technology add-on payment amount for
a case involving the use of the
BLINCYTOTM is $27,017.85 for FY 2016.
With regard to the newness criterion
for BLINCYTOTM, we considered the
beginning of the newness period to
commence when the product gained
entry onto the U.S. market on December
17, 2014. Because the 3-year anniversary
date of the entry of the BLINCYTOTM on
the U.S. market will occur after FY 2017
(December 17, 2017), we are proposing
to continue new technology add-on
payments for this technology for FY
2017. The maximum payment for a case
involving BLINCYTOTM would remain
at $27,017.85 for FY 2017. We are
inviting public comments on this
proposal.
g. Lutonix® Drug Coated Balloon PTA
Catheter and In.PACTTM AdmiralTM
Paclitaxel Coated Percutaneous
Transluminal Angioplasty (PTA)
Balloon Catheter

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Two manufacturers, CR Bard Inc. and
Medtronic, submitted applications for
new technology add-on payments for FY
2016 for LUTONIX® Drug-Coated
Balloon (DCB) Percutaneous
Transluminal Angioplasty (PTA)
Catheter (LUTONIX®) and IN.PACTTM
AdmiralTM Paclitaxel Coated
Percutaneous Transluminal Angioplasty
(PTA) Balloon Catheter (IN.PACTTM
AdmiralTM), respectively. Both of these
technologies are drug-coated balloon
angioplasty treatments for patients
diagnosed with peripheral artery disease

(PAD). Typical treatments for patients
with PAD include angioplasty, stenting,
atherectomy and vascular bypass
surgery. PAD most commonly occurs in
the femoropopliteal segment of the
peripheral arteries, is associated with
significant levels of morbidity and
impairment in quality of life, and
requires treatment to reduce symptoms
and prevent or treat ischemic events.2
Treatment options for symptomatic PAD
include noninvasive treatment such as
medication and life-style modification
(for example, exercise programs, diet,
and smoking cessation) and invasive
options which include endovascular
treatment and surgical bypass. The 2013
American College of Cardiology and
American Heart Association (ACC/
AHA) guidelines for the management of
PAD recommend endovascular therapy
as the first-line treatment for
femoropopliteal artery lesions in
patients suffering from claudication
(Class I, Level A recommendation).3
According to both applicants,
LUTONIX® and IN.PACTTM AdmiralTM
are the first drug coated balloons that
can be used for treatment of patients
who are diagnosed with PAD. In the FY
2016 IPPS/LTCH final rule, we stated
that because cases eligible for the two
devices would group to the same MS–
DRGs and we believe that these devices
are substantially similar to each other
(that is, they are intended to treat the
same or similar disease in the same or
similar patient population and are
purposed to achieve the same
therapeutic outcome using the same or
similar mechanism of action), we
evaluated both technologies as one
application for new technology add-on
payment under the IPPS. The applicants
submitted separate cost and clinical
data, and we reviewed and discussed
each set of data separately. However, we
made one determination regarding new
technology add-on payments that
applied to both devices. We believe that
this is consistent with our policy
statements in the past regarding
substantial similarity. Specifically, we
have noted that approval of new
technology add-on payments would
extend to all technologies that are
substantially similar (66 FR 46915), and

ICD–10–PCS
Code

Code description

047K041 ...........

Dilation of right femoral artery with drug-eluting intraluminal device using drug-coated balloon, open approach.

2 Tepe G, Zeller T, Albrecht T, Heller S,
Schwarzwalder U, Beregi JP, Claussen CD,
Oldenburg A, Scheller B, Speck U.: Local delivery
of paclitaxel to inhibit restenosis during angioplasty
of the leg. N Engl J Med 2008; 358: 689–99.

VerDate Sep<11>2014

that we believe that continuing our
current practice of extending a new
technology add-on payment without a
further application from the
manufacturer of the competing product
or a specific finding on cost and clinical
improvement if we make a finding of
substantial similarity among two
products is the better policy because we
avoid—
• Creating manufacturer-specific
codes for substantially similar products;
• Requiring different manufacturers
of substantially similar products from
having to submit separate new
technology applications;
• Having to compare the merits of
competing technologies on the basis of
substantial clinical improvement; and
• Bestowing an advantage to the first
applicant representing a particular new
technology to receive approval (70 FR
47351).
CR Bard, Inc. received FDA approval
for LUTONIX® on October 9, 2014.
Commercial sales in the U.S. market
began on October 10, 2014. Medtronic
received FDA approval for IN.PACTTM
AdmiralTM on December 30, 2014.
Commercial sales in the U.S. market
began on January 29, 2015.
In accordance with our policy, we
stated in the FY 2016 IPPS\LTCH final
rule (80 FR 49463) that we believe it is
appropriate to use the earliest market
availability date submitted as the
beginning of the newness period.
Accordingly, for both devices, we stated
that the beginning of the newness
period will be October 10, 2014.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
the LUTONIX® and IN.PACTTM
AdmiralTM technologies and
consideration of the public comments
we received in response to the FY 2016
IPPS/LTCH PPS proposed rule, we
approved the LUTONIX® and
IN.PACTTM AdmiralTM technologies for
new technology add-on payments for FY
2016 (80 FR 49469). Cases involving the
LUTONIX® and IN.PACTTM AdmiralTM
technologies that are eligible for new
technology add-on payments are
identified using one of the ICD–10–PCS
procedure codes in the following table:

18:46 Apr 26, 2016

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3 Anderson JL, Halperin JL, Albert NM, Bozkurt
B, Brindis RG, Curtis LH, DeMets D, Guyton RA,
Hochman JS, Kovacs RJ, Ohman EM, Pressler SJ,
Sellke FW, Shen WK.: Management of patients with
peripheral artery disease (compilation of 2005 and
2011 ACCF/AHA guideline recommendations): a

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report of the American College of Cardiology
Foundation/American Heart Association Task Force
on Practice Guidelines. J Am Coll Cardiol 2013;
61:1555–70. Available at: http://dx.doi.org/10.1016/
j.jacc.2013.01.004.

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ICD–10–PCS
Code
047K0D1
047K0Z1
047K341
047K3D1
047K3Z1
047K441

Code description

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

047K4D1 ...........
047K4Z1 ...........
047L041 ............
047L0D1 ...........
047L0Z1 ...........
047L341 ............
047L3D1 ...........
047L3Z1 ...........
047L441 ............
047L4D1 ...........
047L4Z1 ...........
047M041 ...........
047M0D1 ..........
047M0Z1 ..........
047M341 ...........
047M3D1 ..........
047M3Z1 ..........
047M441 ...........
047M4D1 ..........
047M4Z1 ..........
047N041 ...........
047N0D1 ..........
047N0Z1 ...........
047N341 ...........
047N3D1 ..........
047N3Z1 ...........
047N441 ...........

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

047N4D1 ..........
047N4Z1 ...........

Dilation of right femoral artery with intraluminal device using drug-coated balloon, open approach.
Dilation of right femoral artery using drug-coated balloon, open approach.
Dilation of right femoral artery with drug-eluting intraluminal device using drug-coated balloon, percutaneous approach.
Dilation of right femoral artery with intraluminal device using drug-coated balloon, percutaneous approach.
Dilation of right femoral artery using drug-coated balloon, percutaneous approach.
Dilation of right femoral artery with drug-eluting intraluminal device using drug-coated balloon, percutaneous endoscopic
proach.
Dilation of right femoral artery with intraluminal device using drug-coated balloon, percutaneous endoscopic approach.
Dilation of right femoral artery using drug-coated balloon, percutaneous endoscopic approach.
Dilation of left femoral artery with drug-eluting intraluminal device using drug-coated balloon, open approach.
Dilation of left femoral artery with intraluminal device using drug-coated balloon, open approach.
Dilation of left femoral artery using drug-coated balloon, open approach.
Dilation of left femoral artery with drug-eluting intraluminal device using drug-coated balloon, percutaneous approach.
Dilation of left femoral artery with intraluminal device using drug-coated balloon, percutaneous approach.
Dilation of left femoral artery using drug-coated balloon, percutaneous approach.
Dilation of left femoral artery with drug-eluting intraluminal device using drug-coated balloon, percutaneous endoscopic
proach.
Dilation of left femoral artery with intraluminal device using drug-coated balloon, percutaneous endoscopic approach.
Dilation of left femoral artery using drug-coated balloon, percutaneous endoscopic approach.
Dilation of right popliteal artery with drug-eluting intraluminal device using drug-coated balloon, open approach.
Dilation of right popliteal artery with intraluminal device using drug-coated balloon, open approach.
Dilation of right popliteal artery using drug-coated balloon, open approach.
Dilation of right popliteal artery with drug-eluting intraluminal device using drug-coated balloon, percutaneous approach.
Dilation of right popliteal artery with intraluminal device using drug-coated balloon, percutaneous approach.
Dilation of right popliteal artery using drug-coated balloon, percutaneous approach.
Dilation of right popliteal artery with drug-eluting intraluminal device using drug-coated balloon, percutaneous endoscopic
proach.
Dilation of right popliteal artery with intraluminal device using drug-coated balloon, percutaneous endoscopic approach.
Dilation of right popliteal artery using drug-coated balloon, percutaneous endoscopic approach.
Dilation of left popliteal artery with drug-eluting intraluminal device using drug-coated balloon, open approach.
Dilation of left popliteal artery with intraluminal device using drug-coated balloon, open approach.
Dilation of left popliteal artery using drug-coated balloon, open approach.
Dilation of left popliteal artery with drug-eluting intraluminal device using drug-coated balloon, percutaneous approach.
Dilation of left popliteal artery with intraluminal device using drug-coated balloon, percutaneous approach.
Dilation of left popliteal artery using drug-coated balloon, percutaneous approach.
Dilation of left popliteal artery with drug-eluting intraluminal device using drug-coated balloon, percutaneous endoscopic
proach.
Dilation of left popliteal artery with intraluminal device using drug-coated balloon, percutaneous endoscopic approach.
Dilation of left popliteal artery using drug-coated balloon, percutaneous endoscopic approach.

As discussed in the FY 2016 IPPS/
LTCH final rule (80 FR 49469), each of
the applicants submitted operating costs
for its DCB. The manufacturer of the
LUTONIX® stated that a mean of 1.37
drug-coated balloons was used during
the LEVANT 2 clinical trial. The
acquisition price for the hospital will be
$1,900 per drug-coated balloon, or
$2,603 per case (1.37 × $1,900). The
applicant projected that approximately
8,875 cases will involve use of the
LUTONIX® for FY 2016. The
manufacturer for the IN.PACTTM
AdmiralTM stated that a mean of 1.4
drug-coated balloons was used during
the IN.PACTTM AdmiralTM DCB arm.
The acquisition price for the hospital
will be $1,350 per drug-coated balloon,
or $1,890 per case (1.4 × $1,350). The
applicant projected that approximately
26,000 cases will involve use of the
IN.PACTTM AdmiralTM for FY 2016.
For FY 2016, we based the new
technology add-on payment for cases
involving these technologies on the
weighted average cost of the two DCBs
described by the ICD–10–PCS procedure

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18:46 Apr 26, 2016

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codes listed above (which are not
manufacturer specific). Because ICD–10
codes are not manufacturer specific, we
cannot set one new technology add-on
payment amount for IN.PACTTM
AdmiralTM and a different new
technology add-on payment amount for
LUTONIX®; both technologies will be
captured by using the same ICD–10–PCS
procedure code. As such, we stated that
we believe that the use of a weighted
average of the cost of the standard DCBs
based on the projected number of cases
involving each technology to determine
the maximum new technology add-on
payment would be most appropriate. To
compute the weighted cost average, we
summed the total number of projected
cases for each of the applicants, which
equaled 34,875 cases (26,000 plus
8,875). We then divided the number of
projected cases for each of the
applicants by the total number of cases,
which resulted in the following caseweighted percentages: 25 Percent for the
LUTONIX® and 75 percent for the
IN.PACTTM AdmiralTM. We then
multiplied the cost per case for the

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ap-

ap-

ap-

ap-

manufacturer specific DCB by the caseweighted percentage (0.25 *
$2,603=$662.41 for LUTONIX® and 0.75
* $1,890=$1,409.03 for the IN.PACTTM
AdmiralTM). This resulted in a caseweighted average cost of $2,071.45 for
DCBs. Under § 412.88(a)(2), we limit
new technology add-on payments 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
payment for a case involving the
LUTONIX® or IN.PACTTM AdmiralTM
DCBs is $1,035.72.
With regard to the newness criterion
for LUTONIX® and IN.PACTTM
AdmiralTM technologies, we considered
the beginning of the newness period to
commence when LUTONIX® gained
entry onto the U.S. market on October
10, 2014. Because the 3-year anniversary
date of the entry of LUTONIX® on the
U.S. market will occur after FY 2017
(October 10, 2017), we are proposing to
continue new technology add-on
payments for both the LUTONIX® and
IN.PACTTM AdmiralTM technologies for

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FY 2017. The maximum add-on
payment for a case involving
LUTONIX® and IN.PACTTM AdmiralTM
would remain at $1,035.72 for FY 2017.
We are inviting public comments on
this proposal.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

5. Proposed FY 2017 Applications for
New Technology Add-On Payments
We are reviewing nine applications
for new technology add-on payments for
FY 2017. In accordance with the
regulations under § 412.87(c), applicants
for new technology add-on payments
must have FDA approval by July 1 of
each year prior to the beginning of the
fiscal year that the application is being
considered. One applicant withdrew its
application prior to the issuance of this
proposed rule.
a. MAGEC® Spinal Bracing and
Distraction System (MAGEC® Spine)
Ellipse Technologies, Inc. submitted
an application for new technology addon payments for FY 2017 for the
MAGEC® Spine. According to the
applicant, the MAGEC® Spine has been
developed for use in the treatment of
children diagnosed with severe spinal
deformities, such as scoliosis. The
system can be used in the treatment of
skeletally immature patients less than
10 years of age who have been
diagnosed with severe progressive
spinal deformities associated with or at
risk of Thoracic Insufficiency Syndrome
(TIS). The MAGEC® Spine consists of a
(spinal growth) rod that can be
lengthened through the use of magnets
that are controlled by an external remote
controller (ERC). The rod(s) can be
implanted into children as young as 2
years of age. According to the applicant,
use of the MAGEC® Spine has proven to
be successfully used in the treatment of
patients diagnosed with scoliosis who
have not been responsive to other
treatments.
The MAGEC® Spine initially received
FDA approval for use of the predicate
device, which used a Harrington Rod on
February 27, 2014. Subsequent FDA
approval was granted for use of the
modified device, which uses a shorter
70 mm on September 18, 2014. After
minor modification of the product, the
MAGEC® Spine received its final FDA
approvals on March 24, 2015, and May
29, 2015, respectively. Currently, there
is no ICD–9–CM or ICD–10–PCS code to
uniquely describe procedures involving
the MAGEC® Spine.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43813 through
43814), we established criteria for
evaluating whether a new technology is
substantially similar to an existing
technology, specifically: (1) Whether a

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18:46 Apr 26, 2016

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product uses the same or a similar
mechanism of action to achieve a
therapeutic outcome; (2) whether a
product is assigned to the same or a
different MS–DRG; and (3) whether the
new use of the technology involves the
treatment of the same or similar type of
disease and the same or similar patient
population. If a technology meets all
three of these criteria, it would be
considered substantially similar to an
existing technology and would not be
considered ‘‘new’’ for purposes of new
technology add-on payments. For a
detailed discussion of the criteria for
substantial similarity, we refer readers
to the FY 2006 IPPS final rule (70 FR
47351 through 47352), and the FY 2010
IPPS/LTCH PPS final rule (74 FR 43813
through 43814).
With regard to the first criterion, the
applicant stated that the MAGEC®
Spine’s mechanism of action is
dependent upon growing rods used for
the treatment of patients diagnosed with
early onset scoliosis (EOS), and is
unique because the technique uses
magnetic distraction (lengthening),
which does not require the patients to
be subjected to the potential and
adverse effects of additional surgeries.
The applicant explained that
treatment of patients diagnosed with
EOS involves the implantation of
traditional growth rods (TGRs) followed
by surgery every 6 months to distract
the rods to accommodate the growing
spine until the patient reaches a level of
spinal maturity when the spine can then
be fused. The average number of
distraction surgeries per patient is 12
over the course of 6 years. Once spinal
alignment and maturity is reached, the
TGRs are surgically and permanently
removed. The applicant stated that,
while the most recent modification to
the MAGEC® Spine’s rods accomplish
the same goal as the predicate device,
Harrington rods, MAGEC® Spine rods
achieve the predetermined goal with
minimally invasive techniques after
implantation, which prevents the
patients from being subjected to the
potential and adverse effects of
numerous lengthening surgeries. The
applicant further noted that after the
MAGEC® Spine’s rod has been
implanted, the ERC is placed externally
over the patient’s spine at the location
of the magnet in the MAGEC® Spine’s
rod. Periodic, noninvasive distraction of
the rod is performed to lengthen the
spine and to provide adequate bracing
during growth. Routine X-ray or
ultrasound procedures are used to
confirm the position and amount of
distraction. The frequency of distraction
sessions is customized to the needs of

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the individual patient by the treating
surgeon.
With regard to the first criterion, we
are concerned that the MAGEC® Spine
uses the same mechanism of action,
spinal rod distraction, to achieve the
same therapeutic outcome of spinal
alignment as other currently available
technologies and treatment options for
Medicare beneficiaries. Specifically,
TGRs are implanted and affixed to the
immature spine in order to correct
spinal deformities. As a child grows, the
TGRs must be distracted to
accommodate spinal growth. The
common denominator between TGRs
and the MAGEC® Spine is that they
both are devices (rods) that use the same
mechanism of action to perform and
achieve spinal distraction, the
implantation of rods that are later
lengthened. While we acknowledge the
applicant noted that the MAGEC® Spine
does not require the patient to endure
the potential and adverse effects of
additional surgeries, this assertion
seems to be a component of substantial
clinical improvement rather than a basis
to distinguish the mechanism of action.
In consideration of the applicant’s
statements that the mechanism of action
of the MAGEC® Spine, which uses
growing rods in the treatment of
patients diagnosed with EOS, is unique
because the technique of using magnetic
distraction (lengthening) does not
require patients to endure the potential
and adverse effects of additional
surgeries, we note that there are other
technologies and products currently
available that achieve spinal growth
without the need to subject patients to
potential and adverse effects of
additional surgeries. For example, the
Shilla growth guidance system, which
received FDA approval in 2014, uses a
non-locking set screw at the proximal
and distal portions of the construct’s
rods. This specific feature is designed to
allow the rod to slide through the screw
heads as a child’s spine grows, while
still providing correction of the spinal
deformity. The Shilla technique also
eliminates the need for scheduled
distraction surgeries, as the applicant
pointed out are needed with the use of
TGRs. Therefore, we believe that the
MAGEC® Spine’s mechanism of action
may be similar to the mechanism of
action employed by the Shilla growth
guidance system because both
technologies achieve the same
therapeutic outcome and do not require
the patient to endure the potential and
adverse effects of additional surgeries.
With regard to the second criterion,
cases that may be eligible for treatment
involving the MAGEC® Spine map to
the following MS–DRGs: 456 (Spinal

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Fusion Except Cervical With Spinal
Curvature or Malignancy or Infection or
Extensive Fusions with MCC); 457
(Spinal Fusion Except Cervical with
Spinal Curvature or Malignancy or
Infection or Extensive Fusions with CC);
and 458 (Spinal Fusion Except Cervical
with Spinal Curvature or Malignancy or
Infection or Extensive Fusions without
CC/MCC). All cases involving
procedures describing spinal distraction
devices, including those that use TGRs
and the Shilla growth guidance system,
currently map to the same MS–DRGs.
With regard to the third criterion, we
believe that the MAGEC® Spine
technology involves the treatment of the
same or similar type of disease and the
same or similar patient population.
Although the applicant stated that the
MAGEC® Spine was developed for the
use in the treatment of children
diagnosed with severe spinal
deformities, the MAGEC® Spine treats
the same patient population as other
currently available spinal distraction
devices and technologies, including
those that use TGRs and the Shilla
growth guidance system. Because it
appears that the MAGEC® Spine is
substantially similar to these other
currently available devices used to treat
the same or similar types of diseases
and the same or similar patient
populations, we are concerned that the
technology may not be considered
‘‘new’’ for the purposes of new
technology add-on payments. We are
inviting public comments on whether
the MAGEC® Spine meets the newness
criterion.
With regard to the cost criterion, the
applicant maintained that there is an
insufficient number of cases in the
Medicare claims data to evaluate
because of the small number of potential
cases and cases reflecting patients who
were actually diagnosed with or who
experience early onset scoliosis (EOS)
requiring the implantation of growing
rods. Specifically, the majority of the
Medicare population is 65 years of age
and older, while patients who may be
eligible for the MAGEC® Spine are
typically less than 10 years of age.
Therefore, the applicant estimated the
number of EOS cases using internal
estimates for de novo cases (<10 year of
age), as well as cases that could
potentially convert to using the
MAGEC® Spine without searching the
MedPAR data file or any other data
source. The applicant estimated that a
total of 2,500 EOS cases may be eligible
for treatment using the MAGEC® Spine
in FY 2016. According to the applicant,
580 cases would map to MS–DRG 456,
870 cases would map to MS–DRG 457,
and 1,050 cases would map to MS–DRG

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458. The applicant based the
distribution of cases on data from its
medical advisors, customers, and
reimbursement support team.
The applicant used Medicare and
non-Medicare data for six providers that
used the MAGEC® Spine during CY
2016. This resulted in an average
unstandardized case-weighted charge
per case of $243,999. The applicant then
removed charges related to the predicate
technology. Using the Impact File
published with the FY 2016 IPPS/LTCH
PPS final rule, the applicant
standardized the charges and applied an
inflation factor of 10 percent. The
applicant computed an average CCR of
the six hospitals based on the overall
hospitals CCRs in the FY 2016 IPPS/
LTCH final rule Impact File. The
applicant then computed the charges for
the device by dividing the costs of the
device by the average CCR and added
these charges to determine the inflated
average standardized case-weighted
charge per case. The applicant noted
that the cost of the technology was
proprietary information. Based on the
FY 2016 IPPS/LTCH PPS Table 10
thresholds, the average case-weighted
threshold amount was $105,909. The
applicant computed an inflated average
standardized case-weighted charge per
case of $248,037. Because the inflated
average standardized case-weighted
charge per case exceeds the average
case-weighted threshold amount, the
applicant maintained that the
technology meets the cost criterion.
We have the following concerns
regarding the applicant’s cost analysis:
• The applicant did not specify how
many cases were the basis for the
average standardized case-weighted
charges per case. Therefore, we cannot
determine if the charges per case
represent a statistical sample relative to
the projected cases eligible for the
MAGEC® Spine for the upcoming fiscal
year.
• The applicant did not specify how
many cases included in the analysis
were Medicare and non-Medicare cases.
We typically rely on Medicare data and
understand the limitations of this
patient population in the Medicare data
(as the applicant explained above).
However, CMS would still like the
details regarding the numerical
representation of Medicare and nonMedicare cases the applicant used in its
analysis.
• The applicant did not explain the
methodology it used to remove the
charges for the predicate technology, as
well as the type of technology that the
charges replaced. Therefore, we are
unable to validate the accuracy of the
applicant’s methodology.

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• The applicant did not explain the
basis of using a 10-percent inflation
factor. Specifically, the applicant used
cases from CY 2016 and inflated the
costs to FY 2017 using a 10-percent
inflation factor. However, the 1-year
inflation factor in the FY 2016 IPPS/
LTCH final rule (80 FR 49784) is 3.7
percent. Therefore, we do not believe
that a 10-percent inflation factor is
appropriate.
The applicant used the average
overall CCR of the six hospitals to
convert the costs of the MAGEC® Spine
to charges. However, rather than using
an average CCR, to increase the
precision of determining the charges of
the MAGEC® Spine, the applicant could
have instead used each hospital’s
individual CCR or the implantable
device CCR of 0.337 as reported in the
FY 2016 IPPS/LTCH PPS final rule (80
FR 49429).
We are inviting public comments on
whether the MAGEC® Spine meets the
cost criterion, particularly with regard
to the concerns we have raised.
With regard to substantial clinical
improvement, the applicant stated that
use of the MAGEC® Spinal Bracing and
Distraction System significantly
improves clinical outcomes for the
pediatric patient population with spinal
deformities when compared to
technologies and treatment options that
employ TGRs by decreasing the number
of subsequent surgeries and potential
adverse effects following implantation.
The applicant provided results from a
study 4, which demonstrated that
patients receiving treatment using the
magnetically controlled growth rods
(MCGR) system had 57 fewer surgeries
as a whole than those patients receiving
treatment options using TGRs.
According to the applicant, the results
further projected decreased rates of
infection and attendant costs because
the need for additional distraction
(lengthening) surgeries is eliminated. In
addition, the applicant stated that 1,500
patients located around the world have
been successfully treated with the use of
this technology. The applicant indicated
that the results from another study 5
cited the following qualitative
outcomes: Minimal surgical scarring,
decreased psychological distress and
improved quality of life, improved
4 Akbarnia BA, Cheung K, Noordeen H et al.
Traditional rods versus magnetically controlled
growing rods in early onset scoliosis: a casematched two year study. 2013.
5 Cheng, KMC, Cheung JPY, Damartzis, D, Mak,
KC, Wong, WYC, Akbaria, BA, Luk KDK.
Magnetically controlled growing rods for sever
spinal curvature in young children. A prospective
study. Lancet 379 (830) 26 May–1 June 2012, pp.
1967–1974.

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pulmonary function tests (PFTs), and
capabilities to continuously monitor
neurological behaviors because the
patient is not exposed to anesthesia
during follow-up distractions.
We are concerned that the applicant’s
assertions that the MAGEC® Spine
technology leads to significantly better
clinical outcomes; specifically,
decreased rates of infection, when
compared to treatment options that use
TGRs has not been shown by the results
of the studies provided. The results of
the studies provided did not compare
rates of infection for patients receiving
treatment using the MAGEC® Spine
versus patients receiving treatment
using TGRs or other spinal growth rods.
Also, as previously mentioned, there are
other currently available technologies
and devices such as the Shilla growth
guidance system that also achieve the
same therapeutic outcome and do not
require the patient to be subjected to the
potential and adverse effects of
additional surgery. Therefore, we are
concerned that the MAGEC® Spine may
not represent a substantial clinical
improvement over existing technologies.
We are inviting public comments on
whether the MAGEC® Spine meets the
substantial clinical improvement
criterion.
We did not receive any written public
comments in response to the February
2016 New Technology Town Hall
meeting regarding this application for
new technology add-on payments.
b. MIRODERM Biologic Wound Matrix
(MIRODERM)
Miromatrix Medical, Inc. submitted
an application for new technology addon payments for FY 2017 for
MIRODERM. MIRODERM is a noncrosslinked acellular wound matrix that
is derived from the porcine liver and is
processed and stored in a phosphate
buffered aqueous solution. MIRODERM
is clinically indicated for the
management of wounds, including:
Partial and full-thickness wounds,
pressure ulcers, venous ulcers, chronic
vascular ulcers, diabetic ulcers, trauma
wounds, drainage wounds, and surgical
wounds. Typical decellularization
where tissues are immersed in a
decellularization solution is a diffusionbased process, and thereby limits the
ability to fully decellularize thick,
complex tissues such as the liver.
MIRODERM uses a perfusion
decellularization process that rapidly
removes cellular material while
maintaining the native architecture,
vasculature and tissue structure.
Following decellularization,
MIRODERM is isolated from partial
thickness liver sections following slight

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compression of the liver. This allows for
the retention of the native liver
structure, including the vasculature,
within MIRODERM. The applicant
noted that the MIRODERM is the only
acellular skin substitute product that is
derived from the liver.
According to the applicant,
MIRODERM is positioned to completely
contact the entire surface of the wound
bed and extend slightly beyond all
wound margins. As required, it is
securely anchored to the wound site
with a physician’s preferred fixation
method. An appropriate, primary nonadherent wound dressing is then
applied over the MIRODERM matrix. A
secondary dressing (multi-layer
compression bandage system), total
contact cast, or other appropriate
dressing that will manage the wound
exudate should be applied in order to
keep the MIRODERM matrix moist and
keep all layers securely in place.
Additional applications of MIRODERM
are applied as needed until the wound
closes.
MIRODERM received FDA approval
for its use on January 27, 2015.
Currently, there are no ICD–10–PCS
procedure codes to uniquely identify
the use of MIRODERM. The applicant
submitted a request for a unique ICD–
10–PCS procedure code that was
presented at the March 2016 ICD–10
Coordination and Maintenance
Committee meeting. If approved, the
procedure codes would become
effective on October 1, 2016 (FY 2017).
More information on this request can be
found on the CMS Web site located at:
http://www.cms.gov/Medicare/Coding/
ICD10ProviderDiagnosticCodes/ICD-10CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology
meets all three of the substantial
similarity criteria, it would be
considered substantially similar to an
existing technology and would not be
considered ‘‘new’’ for purposes of new
technology add-on payments.
With regard to the first substantial
similarity criterion, whether the product
uses the same or a similar mechanism
of action to achieve a therapeutic
outcome, the applicant stated that
current wound healing therapies are
provided in several different modalities,
which include hyperbaric oxygen
treatment, negative wound pressure
therapy, and treatment with other
bioengineered skin substitute products.
The applicant noted that other products
that have been commonly used for
similar procedures are Oasis Wound
Matrix, Primatrix Dermal Repair, and
Theraskin. The applicant asserted that
MIRODERM is different from these
other products because it is the only

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product sourced from porcine liver and
undergoes a unique, patented process of
perfusion decellularization that rapidly
removes cellular material, while
maintaining the native architecture,
vasculature and tissue structure. The
applicant explained that MIRODERM is
isolated from partial thickness liver
sections following slight compression of
the liver, which allows for the retention
of the native liver structure, including
the vasculature, within MIRODERM.
The applicant stated that partial
thickness allows for one surface of
MIRODERM to retain the native liver
capsule (an epithelial basement
membrane) and the other opposite
surface to be comprised of open liver
matrix. The applicant further stated that
case studies of the MIRODERM
demonstrated accelerated healing,
which is likely the result of the unique
perfusion decellularization technology
that retains a 3-dimensional
extracellular matrix that includes the
vasculature.
With regard to the first criterion,
similar to other current wound matrix
treatments, the MIRODERM uses a
collagen matrix for tissue repair and
regeneration. Therefore, we are
concerned that MIRODERM employs the
same mechanism of action as other
wound matrix treatments. Although the
applicant has described how the
MIRODERM differs from other wound
matrix treatments due to the perfusion
decellularization process, and is the first
product that is derived from the porcine
liver, we believe that the mechanism of
action of MIRODERM may be
substantially similar or the same as
those employed by other wound
treatment matrixes. With regard to the
second criterion, whether a product is
assigned to the same or a different MS–
DRG, cases that may be eligible for
treatment using MIRODERM map to the
same MS–DRGs as other currently
approved wound treatment matrixes.
With regard to the third criterion,
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, MIRODERM
is used to treat the same patient
population as other currently approved
wound treatment matrixes. Because it
appears that the MIRODERM may be
substantially similar to currently
approved wound treatment matrixes, we
are concerned that the technology may
not be considered ‘‘new’’ for the
purposes of new technology add-on
payments. We are inviting public
comments on whether MIRODERM
meets the newness criterion.
With regard to the cost criterion, the
applicant conducted the following

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analysis. The applicant began by
researching the 2014 Medicare Inpatient
Hospital Standard Analytical File (SAF)
file for cases primarily associated with
dermal regenerative grafts that may be
eligible for treatment using MIRODERM.
The applicant searched for claims that
reported ICD–9–CM procedure code
86.67 (Dermal regenerative graft) that
mapped to one of the following MS–
DRGs: 463, 464, and 465 (Wound
Debridement and Skin Graft Except
Hand for Musculoskeletal System and
Connective Tissue Disorders with MCC,
with CC, or without CC/MCC,
respectively); 573, 574, and 575 (Skin
Graft for Skin Ulcer or Cellulitis with
MCC, with CC, or without CC/MCC,
respectively); 576, 577, and 578 (Skin
Graft Except for Skin Ulcer or Cellulitis
with MCC, with CC, or without CC/
MCC, respectively); 622, 623, and 624
(Skin Grafts and Wound Debridement
for Endocrine, Nutritional and
Metabolic Diseases with MCC, with CC
or without CC/MCC, respectively); and
904 and 905 (Skin Grafts for Injuries
with CC/MCC or without CC/MCC,
respectively). As a result, the applicant
identified 1,130 cases across the MS–
DRGs listed, which resulted in an
average case-weighted charge per case of
$83,059.
Included in the average case-weighted
charge per case were charges for other
previously used dermal regenerative
grafts. According to the applicant, the
MIRODERM would replace the need for
other dermal regenerative grafts and,
therefore, the applicant removed
charges related to the use of other
currently used dermal regenerative
grafts from the average case-weighted
charge per case. Specifically, using the
January 2016 CMS Part B Drug Pricing
File, the applicant first computed an
average cost per square centimeter for
currently used dermal regenerative
grafts (Apligraf $31.207/cm2, Oasis
$10.676/cm2, Integra DRT $21.585/cm2,
Dermagraft $32.858/cm2, Integra skin
substitute $35.627/cm2, Primatrix
$37.590/cm2, and Theraskin $38.474/
cm2), which equaled $29.72/cm2. To
determine the average amount of square
centimeters of the other dermal
regenerative grafts used for each case
within the MS–DRG, given the vast
complexity and variation in wounds,
the applicant used clinical judgment
based on experience, observation and
typical sizes and depths of wounds that
would present on different parts of the
body. For an example, wounds on the
hand would typically be smaller than
those located on the lower extremities.
The applicant also assumed that other
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three applications to close a wound as
opposed to treatment using
MIRODERM, which requires only two
applications. Based on this assumption,
the applicant noted that it assumed that
the first application required 100
percent of the amount of skin substitute
required to treat the original wound
area, the second application required 70
percent, and the third application
required 40 percent, totaling 210
percent. To compute the total amount of
square centimeters used for each case
within the MS–DRG, the applicant
multiplied this percentage (210 percent)
by the amount of square centimeters
used for the first application for each
case within the MS–DRG. The applicant
then multiplied the average cost of the
other previously used dermal
regenerative grafts ($29.72/cm2) by the
average amount of centimeters used for
each case within the MS–DRG to
determine the average cost of the other
previously used dermal regenerative
grafts for each case within the MS–DRG.
To convert the costs to charges, the
applicant computed an average CCR for
each MS–DRG using CCRs from the FY
2014 Standardizing File of the hospitals
indicated on each of the claims for each
case within the MS–DRG. The applicant
then divided the average cost of the
other previously used dermal
regenerative grafts for each MS–DRG by
the average CCR for each MS–DRG to
determine the average charges of the
other previously used dermal
regenerative grafts for each MS–DRG.
The applicant also reduced the charges
for the number of days of
hospitalization by 30 percent because
the applicant believed that MIRODERM
heals patients faster than the other
currently used dermal regenerative
grafts, resulting in a reduction in the
average lengths of stay. The applicant
then deducted the charges related to the
other previously used dermal
regenerative grafts and the charges for
the reduction in the average lengths of
stay from the average case-weighted
charge per case and then standardized
the charges, which resulted in an
average standardized case-weighted
charge per case of $34,279. The
applicant then inflated the average
standardized case-weighted charge per
case by 7.7 percent, the same inflation
factor used by CMS to update the FY
2016 outlier threshold (80 FR 49784).
After inflating the charges it was
necessary to add the associated charges
for the use of MIRODERM. The
applicant conducted a similar
calculation to compute the charges for
MIRODERM. Specifically, the applicant
used clinical judgment based on

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experience, observation, and typical
sizes and depths of wounds that would
be present on different parts of the body.
The applicant stated that because
MIRODERM has shown greater efficacy
in wound closure based on their case
series, the applicant modeled for only
two applications with 50 percent
closure of the wound after the first
application and full closure of the
wound after the second application.
Based on this assumption, the applicant
noted that it assumed that the first
application required 100 percent of the
amount of skin substitute required to
treat the original wound area and the
second application required 50 percent,
totaling 150 percent. To compute the
total amount of square centimeters used
for each MS–DRG, the applicant
multiplied this percentage (150 percent)
by the amount of square centimeters
used for the first application for each
MS–DRG. The applicant then multiplied
the cost per square centimeter for
MIRODERM by the average amount of
centimeters used for each case within
the MS–DRG to determine the average
cost of MIRODERM grafts used for each
MS–DRG. Similar to above, to convert
the costs to charges, the applicant used
the same average CCRs for each MS–
DRG and divided the average cost of
MIRODERM for each MS–DRG by the
average CCR for each MS–DRG to
determine the average charges of
MIRODERM for each MS–DRG. The
applicant then added charges related to
the use of MIRODERM to the inflated
average standardized charges and
determined a final inflated average
standardized case-weighted charge per
case of $94,009. Using the FY 2016 IPPS
Table 10 thresholds, the average caseweighted threshold amount was $67,559
(all calculations above were performed
using unrounded numbers). Because the
final inflated average standardized caseweighted charge per case exceeds the
average case-weighted threshold
amount, the applicant maintained that
the technology meets the cost criterion.
We are inviting public comments on
whether the MIRODERM technology
meets the cost criterion.
With regard to substantial clinical
improvement, the applicant believed
that the technology represents a
substantial clinical improvement over
existing technologies because patients
treated with the MIRODERM for
complicated wounds heal quicker and
avoid additional surgeries. To
demonstrate that the technology meets
the substantial clinical improvement
criterion, the applicant submitted the
results of two actual case studies of a
complicated wound from necrotizing
fasciitis that was treated with the

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MIRODERM. According to the
applicant, one case study involved a
complicated wound that would
typically be treated with a diverting
colostomy. The applicant noted that that
the patient was discharged with intact
anoplasty and good sphincter control
after 35 days and four applications for
MIRODERM. The applicant further
stated that the use of MIRODERM
demonstrated rapid healing and likely
avoided at least two major debilitating
surgeries, as well as the emotional and
physical impact of a colostomy for 3 to
6 months. In the second case study,
according to the applicant, the attending
physician estimated the wound would
likely take greater than 90 days to close
using traditional wound care matrixes.
The applicant stated that after 12 days
and two applications of MIRODERM the
patient was discharged and after 21 days
the wound was sutured closed.
The applicant noted that additional
patients have been treated with
MIRODERM. According to the
applicant, given the recent product
launch, the case studies have not been
completed, but similar results have been
communicated to the applicant.
We are concerned that the clinical
data the applicant submitted is from a
very small sample with no comparisons
to other currently approved wound
treatment matrixes. Specifically, the
applicant submitted data from only two
case studies. Also, the applicant
compared the use of MIRODERM to the
use of other treatments, such as
diverting colostomy. While MIRODERM
may represent an improvement in
treatment options compared to the other
treatment options such as diverting
colostomy, we are unable to determine
if use of MIRODERM represents a
substantial clinical improvement when
compared to other wound treatment
matrixes of other currently approved
treatments. We are inviting public
comments on whether MIRODERM
meets the substantial clinical
improvement criterion.
We did not receive any written public
comments in response to the February
2016 New Technology Town Hall
meeting regarding this application for
new technology add-on payments.
c. Idarucizumab
Boehringer Ingelheim
Pharmaceuticals, Inc. submitted an
application for new technology add-on
payments for FY 2017 for Idarucizumab;
a product developed as an antidote to
reverse the effects of PRADAXA®
(Dabigatran), which is also
manufactured by Boehringer Ingelheim
Pharmaceuticals, Inc. (We note that the
applicant submitted an application for

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new technology add-on payments for FY
2016, but failed to obtain FDA approval
prior to the July 1 deadline.) Dabigatran
is an oral direct thrombin inhibitor
currently indicated to: (1) Reduce the
risk of stroke and systemic embolism in
patients who have been diagnosed with
nonvalvular atrial fibrillation (NVAF);
(2) treat deep venous thrombosis (DVT)
and pulmonary embolism (PE) in
patients who have been administered a
parenteral anticoagulant for 5 to 10
days; and (3) reduce the risk of
recurrence of DVT and PE in patients
who have been previously diagnosed
with NVAF. Currently, unlike the
anticoagulant Warfarin, there is no
specific way to reverse the anticoagulant
effect of Dabigatran in the event of a
major bleeding episode.
Idarucizumab is a humanized
fragment antigen binding (Fab)
molecule, which specifically binds to
Dabigatran to deactivate the
anticoagulant effect, thereby allowing
thrombin to act in blood clot formation.
The applicant stated that Idarucizumab
represents a new pharmacologic
approach to neutralizing the specific
anticoagulant effect of Dabigatran in
emergency situations. Idarucizumab was
approved by the FDA on October 16,
2015. The applicant noted that
Idarucizumab is the only FDA-approved
therapy available to neutralize the
anticoagulant effect of Dabigatran.
Before the FDA approval of
Idarucizumab, the approach for the
management of the anticoagulant effect
of Dabigatran prior to an invasive
procedure was to withhold
administration of Dabigatran, when
possible, for a certain duration of time
prior to the procedure to allow
sufficient time for the patient’s kidneys
to flush out the medication. The
duration of time needed to flush out the
medication prior to the surgical
procedure is based on the patient’s
kidney function. According to the
applicant, if surgery cannot be delayed
to allow the kidneys the necessary time
to flush out the traces of Dabigatran,
there is an increased risk of bleeding.
Based on the FDA indication for
Idarucizumab, the product can be used
in the treatment of patients who have
been diagnosed with NVAF and
administered Dabigatran to reverse lifethreatening bleeding events, or who
require emergency surgery or medical
procedures and rapid reversal of the
anticoagulant effects of Dabigatran is
necessary and desired. The applicant
received a unique ICD–10–PCS
procedure code that became effective
October 1, 2015. The approved
procedure code is XW03331
(Introduction of Idarucizumab,

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Dabigatran reversal agent into central
vein, percutaneous approach, New
Technology Group 1). We are inviting
public comments on whether
Idarucizumab meets the newness
criterion.
With regard to the cost criterion, the
applicant conducted two analyses. The
applicant began by researching claims
data in the FY 2014 MedPAR file for
cases that may be eligible for
Idarucizumab using a combination of
ICD–9–CM diagnosis and procedure
codes. Specifically, the applicant
searched the database for cases
reporting anticoagulant therapy
diagnosis code E934.2 (Agents primarily
affecting blood constituents,
anticoagulants) or V58.61 (Long-term
(current) use of anticoagulants) in
combination with either current
standard of care procedure code 99.03
(Other transfusion of whole blood),
99.04 (Transfusion of packed cells),
99.05 (Transfusion of platelets), 99.06
(Transfusion of coagulation factors),
99.07 (Transfusion of other serum), or
39.95 (Hemodialysis), and Dabigatran
indication diagnosis code 427.31 (Atrial
fibrillation), 453.40 (Acute venous
embolism and thrombosis of
unspecified deep vessels of lower
extremity), 453.41 (Acute venous
embolism and thrombosis of deep
vessels of proximal lower extremity),
453.42 (Acute venous embolism and
thrombosis of deep vessels of distal
lower extremity), 453.50 (Chronic
venous embolism and thrombosis of
unspecified deep vessels of lower
extremity), 453.51 (Chronic venous
embolism and thrombosis of deep
vessels of proximal lower extremity),
453.52 (Chronic venous embolism and
thrombosis of deep vessels of distal
lower extremity), 415.11 (Iatrogenic
pulmonary embolism and infarction),
415.12 (Septic pulmonary embolism),
415.13 (Saddle embolus of pulmonary
artery), 415.19 (Other pulmonary
embolism and infarction), 416.2
(Chronic pulmonary embolism), V12.51
(Personal history of venous thrombosis
and embolism), or V12.55 (Personal
history of pulmonary embolism).
To further target potential cases that
may be eligible for Idarucizumab, the
applicant also excluded specific cases
based on Dabigatran contraindications,
including all cases representing patients
who have been diagnosed with chronic
kidney disease (CKD) stage V (diagnosis
code 585.5), end-stage renal disease
(diagnosis code 585.6), prosthetic heart
valves (diagnosis code V43.3), and cases
representing patients who have been
diagnosed with both CKD stage IV
(diagnosis code 585.4) and either DVT
or PE (using the same ICD–9–CM

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diagnosis codes listed above). As a
result, the applicant identified 84,224
cases that mapped to 684 MS–DRGs.
The applicant standardized the charges
and computed an average case-weighted
standardized charge per case of $60,089.
The applicant then identified hospital
charges potentially associated with the
current treatments to reverse
anticoagulation, specifically charges
associated with pharmacy services,
dialysis services, and laboratory services
for blood work. Due to limitations
associated with the claims data, the
applicant was unable to determine the
specific drugs used to reverse
anticoagulation and if these cases
represented patients who required
laboratory services for blood work or
dialysis services unrelated to the
reversal of anticoagulation. Therefore,
the applicant subtracted 40 percent of
the charges related to these three
categories from the standardized charge
per case, based on the estimation that
the full amount of charges associated
with these services would not be
incurred by hospitals when
Idarucizumab is administered for use in
the treatment of patients who have been
diagnosed with NVAF and Dabigatran is
administered during treatment. The
applicant then inflated the standardized
charge per case by 7.665 percent, the
same inflation factor used by CMS to
update the FY 2016 outlier threshold
(80 FR 49784) and added charges for
Idarucizumab. This resulted in an
inflated average case-weighted
standardized charge per case of $67,617.
Using the FY 2016 IPPS Table 10
thresholds, the average case-weighted
threshold amount across all 684 MS–
DRGs is $55,586 (all calculations above
were performed using unrounded
numbers). Because the inflated average
case-weighted standardized charge per
case exceeds the average case-weighted
threshold amount, the applicant
maintained that the technology meets
the cost criterion under this analysis.
Further, the applicant conducted an
additional analysis using the same data
from the FY 2014 MedPAR file and
variables used in the previous analysis.
However, instead of using potentially
eligible cases that mapped to 100
percent of the 684 MS–DRGs identified,
the applicant used potentially eligible
cases that mapped to the top 75 percent
of the 684 MS–DRGs identified. By
applying this limitation, the applicant
identified 63,033 cases that mapped to
87 MS–DRGs. The applicant computed
an inflated average case-weighted
standardized charge per case of $55,872.
Using the FY 2016 IPPS Table 10
thresholds, the average case-weighted
threshold amount across all 87 MS–

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DRGs is $63,323 (all calculations above
were performed using unrounded
numbers). Because the inflated average
case-weighted standardized charge per
case exceeds the average case-weighted
threshold amount, the applicant
maintained that the technology also
meets the cost criterion under this
analysis. We are inviting public
comments regarding the applicant’s
analyses with regard to the cost
criterion.
With regard to substantial clinical
improvement, according to the
applicant, aside from Idarucizumab,
there are no other FDA-approved
antidotes to reverse the anticoagulant
effects of Dabigatran. Management of the
treatment of patients who have been
diagnosed with NVAF and administered
Dabigatran and experience bleeding may
often include supportive care such as
Hemodialysis and the use of fresh
frozen plasma, blood factor products
such as prothrombin complex
concentrates (PCC), activated
prothrombin complex concentrates, and
recombinant factor VIIa or delayed
intervention. Protamine sulfate and
Vitamin K are typically used to reverse
the effects of Heparin and Warfarin,
respectively. However, due to the
mechanism of action in Dabigatran, the
applicant maintained that the use of
protamine sulfate and Vitamin K may
not be effective to reverse the
anticoagulant effect of Dabigatran.
The applicant provided information
regarding the management of major
bleeding events experienced by patients
who were administered Dabigatran and
Warfarin during the RE–LY trial.6
During this study, most major bleeding
events were only managed by
supportive care. Patients who were
administered 150 mg of Dabigatran were
transfused with pack red blood cells
more often when compared to patients
who were administered Warfarin (61.4
percent versus 49.9 percent,
respectively). However, patients who
were administered Warfarin were
transfused with plasma more often
when compared to patients who were
administered 150 mg of Dabigatran (30.2
percent versus 21.6 percent,
respectively). In addition, the use of
Vitamin K in the treatment of patients
who were administered Warfarin was
more frequent when compared to the
frequency of use in the treatment of
patients who were administered 150 mg
of Dabigatran (27.3 percent versus 10.3
6 Healy, et al.: Periprocedural bleeding and
thromboembolic events with dabigatran compared
with Warfarin: results from the randomized
evaluation of long-term anticoagulation therapy
(RE–LY) randomized trial, Circulation, 2012;
126:343–348.

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percent, respectively). The use of PCCs,
recombinant factor VIIa and other
coagulation factor replacements in the
treatment of patients who were
administered both Warfarin and 150 mg
of Dabigatran was minimal, and did not
significantly differ in frequency when
compared among patients assigned to
either group. Hemodialysis was used in
a single case.
The applicant reported that, currently,
it is recommended that the
administration of Dabigatran be
discontinued 1 to 2 days (CrCl ≥50 ml/
min) or 3 to 5 days (CrCl <50 ml/min),
if possible, before invasive or surgical
procedures because of the increased risk
of bleeding.7 A longer period of
discontinuation time should be
considered for patients undergoing
major surgery, spinal puncture, or
placement of a spinal or epidural
catheter or port, if complete hemostasis
is required. The applicant stated that
delaying emergency medical or surgical
procedures can cause urgent conditions
to become more severe if intervention is
not initiated. The applicant further
maintained that delaying emergency
medical or surgical procedures for an
extended period of time can ultimately
lead to negative healthcare outcomes
and increased healthcare costs. The
applicant asserted that rapidly reversing
the anticoagulant effect of Dabigatran
administered to patients that require an
urgent medical procedure or surgery
allows the medical procedure or surgery
to be performed in a timely manner,
which in turn may decrease
complications and minimize the need
for more costly therapies.
The applicant also provided interim
data from an ongoing Phase III trial 8 9 in
patients who may have life-threatening
bleeding, or require emergency
procedures. The applicant noted that
published results of the interim data
based on 90 patients suggested the
following: Reversal of the Dabigatran
anticoagulant effect, which was evident
immediately after administration;
reversal was 100 percent in the first 4
hours and greater than 89 percent of
patients achieved complete reversal;
hemostasis in 35 patients in Group A
was restored at a median of 11.4 hours.
Also, the 5 gram dose of Idarucizumab
was calculated to reverse the total body
load of Dabigatran that was associated
7 Pradaxa® (Dabigatran Etexilate Mesylate)
prescribing information. Ridgefield, CT: Boehringer
Ingelheim; 2014.
8 Pollack C, et al. Design and rationale for RE–
VERSE AD: A phase 3 study of idarucizumab, a
specific reversal agent for dabigatran. Thromb
Haemost. 2015 Jul; 114(1):198–205.
9 Pollack C, et al. Idarucizumab for Dabigatran
Reversal. N Engl J Med. 2015 Aug 6; 373(6):511–20.

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with the 99th percentile of the
Dabigatran levels measured in the RE–
LY trial.
The applicant provided safety data
from three Phase I studies and interim
data from the Phase III study. In the
Phase I study, 110 healthy male patients
enrolled in the study were administered
dosages of Idarucizumab that ranged
from 20 mg to 8 grams. In this study,
135 patients received placebo. The
applicant reported that adverse events
were generally mild in intensity and
nonspecific. Healthy human volunteers
enrolled in the Phase I study were
administered Idarucizumab in dosages
of 2 and 4 grams, which resulted in
immediate and complete reversal of the
anticoagulant effect of Dabigatran that
was sustained for several hours. In the
Phase III study, five thrombotic events
occurred. One occurred 2 days after
treatment and the remainder occurred 7,
9, 13, and 26 days after treatment. These
patients were not receiving
antithrombotic therapy when the events
occurred, and complications or adverse
effects can be attributed to patients’
underlying medical conditions. Twentyone patients (13 in Group A and 8 in
Group B) had a serious adverse event.
The most frequently reported adverse
reactions in greater than or equal to 5
percent of the patients treated with
Idarucizumab were hypokalemia,
delirium, constipation, pyrexia, and
pneumonia. The applicant concluded
that the data from these studies
demonstrated that Idarucizumab
effectively, safely, and potently reverses
the anticoagulant effect of Dabigatran.
We are inviting public comments on
whether Idarucizumab meets the
substantial clinical improvement
criterion.
We did not receive any written public
comments in response to the February
2016 New Technology Town Hall
meeting regarding this application for
new technology add-on payments.
d. Titan Spine (Titan Spine
Endoskeleton® nanoLOCKTM Interbody
Device)
Titan Spine submitted an application
for new technology add-on payments for
the Titan Spine Endoskeleton®
nanoLOCKTM Interbody Device (the
Titan Spine nanoLOCKTM) for FY 2017.
The Titan Spine nanoLOCKTM is a
nanotechnology-based interbody
medical device with a dual acid-etched
titanium interbody system used to treat
patients diagnosed with degenerative
disc disease (DDD). One of the key
distinguishing features of the device is
the surface manufacturing technique
and materials, which produce macro,
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According to the applicant, the
combination of surface topographies
enables initial implant fixation, mimics
an osteoclastic pit for bone growth, and
produces the nano-scale features that
interface with the integrins on the
outside of the cellular membrane.
Further, the applicant noted that these
features generate better osteogenic and
angiogenic responses that enhance bone
growth, fusion, and stability. The
applicant asserted that the Titan Spine
nanoLOCKTM’s clinical features also
reduce pain, improve recovery time, and
produces lower rates of device
complications such as debris and
inflammation.
On October 27, 2014, the Titan Spine
nanoLOCKTM received FDA approval for
the use of five lumbar interbody devices
and one cervical interbody device: The
nanoLOCKTM TA-Sterile Packaged
Lumbar ALIF Interbody Fusion Device
with nanoLOCKTM surface, available in
multiple sizes to accommodate
anatomy; the nanoLOCKTM TAS-Sterile
Packaged Lumbar ALIF Stand Alone
Interbody Fusion Device with
nanoLOCKTM surface, available in
multiple sizes to accommodate
anatomy; the nanoLOCKTM TL-Sterile
Packaged Lumbar Lateral Approach
Interbody Fusion Device with
nanoLOCKTM surface, available in
multiple sizes to accommodate
anatomy; the nanoLOCKTM TO-Sterile
Packaged Lumbar Oblique/PLIF
Approach Interbody Fusion Device with
nanoLOCKTM surface, available in
multiple sizes to accommodate
anatomy; the nanoLOCKTM TT-Sterile
Packaged Lumbar TLIF Interbody
Fusion Device with nanoLOCKTM
surface, available in multiple sizes to
accommodate anatomy and the
nanoLOCKTM TC-Sterile Packaged
Cervical Interbody Fusion Device with
nanoLOCKTM surface, available in
multiple sizes to accommodate
anatomy. The applicant received FDA
approval on December 14, 2015, for the
nanoLOCKTM TCS-Sterile Package
Cervical Stand Alone Interbody Fusion
Device with nanoLOCKTM surface,
available in multiple sizes to
accommodate anatomy. Currently, there
are no ICD–10–PCS procedure codes
that uniquely describe procedures
involving use of the Titan Spine
nanoLOCKTM surface technology.
We note that cases reporting
procedures involving lumbar and
cervical interbody devices map to
different MS–DRGs. As discussed in the
Inpatient New Technology Add-On
Payment Final Rule (66 FR 46915), two
separate reviews and evaluations of the
technologies are necessary in this
instance because cases representing

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patients receiving treatment for
diagnoses associated with lumbar
procedures that may be eligible for use
of the technology under the first
indication are not expected to be
assigned to the same MS–DRGs as
patients receiving treatment for
diagnoses associated with cervical
procedures using the technology under
the second indication. Specifically,
cases representing patients who have
been diagnosed with lumbar DDD and
received treatment that involved
implanting a lumbar device map to MS–
DRGs 028 (Spinal Procedures with
MCC), 029 (Spinal Procedures with CC
or Spinal Neurostimulators), 030 (Spinal
Procedures without CC/MCC), 453
(Combined Anterior/Posterior Spinal
Fusion with MCC), 454 (Combined
Anterior/Posterior Spinal Fusion with
CC), 455 (Combined Anterior/Posterior
Spinal Fusion without CC/MCC), 456
(Spinal Fusion Except Cervical with
Spinal Curvature or Malignancy or
Infection or Extensive Fusions with
MCC), 457 (Spinal Fusion Except
Cervical with Spinal Curvature or
Malignancy or Infection or Extensive
Fusion without MCC), 458 (Spinal
Fusion Except Cervical with Spinal
Curvature or Malignancy or Infection or
Extensive Fusions without CC/MCC),
459 (Spinal Fusion Except Cervical with
MCC), and 460 (Spinal Fusion Except
Cervical without MCC), while cases
representing patients who have been
diagnosed with cervical DDD and
received treatment that involved
implanting a cervical interbody device
map to MS–DRGs 471 (Cervical Spinal
Fusion with MCC), 472 (Cervical Spinal
Fusion with CC), and 473 (Cervical
Spinal Fusion without CC/MCC).
Procedures involving the lumbar and
cervical interbody devices are assigned
to separate MS–DRGs. Therefore, the
devices categorized as lumbar devices
and the devices categorized as cervical
devices must distinctively (each
category) meet the cost criterion and the
substantial clinical improvement
criterion in order to be eligible for new
technology add-on payments beginning
in FY 2017. We discuss application of
these criteria following discussion of the
newness criterion.
As discussed previously in this
section, if a technology meets all three
of the substantial similarity criteria, it
would be considered substantially
similar to an existing technology and
would not be considered ‘‘new’’ for the
purposes of new technology add-on
payments. We note that the substantial
similarity discussion is applicable to
both the lumbar and the cervical devices

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because all of the devices use the Titan
Spine nanLOCKTM technology.
With regard to the first criterion,
whether a product uses the same or a
similar mechanism of action to achieve
a therapeutic outcome, the applicant
stated that, for both interbody devices
(the lumbar and the cervical interbody
device), the Titan Spine nanoLOCKTM’s
surface stimulates osteogenic cellular
response to assist in bone formation
during fusion. During the manufacturing
process, the surface produces macro,
micro, and nano-surface textures. The
applicant believed that this unique
combination and use of these surface
topographies represents a new approach
to stimulating osteogenic cellular
response. The applicant asserted that
the macro-scale textured features are
important for initial implant fixation.
The micro-scale textured features mimic
an osteoclastic pit for supporting bone
growth. The nano-scale textured
features interface with the integrins on
the outside of the cellular membrane,
which generates the osteogenic and
angiogenic (mRNA) responses necessary
to promote healthy bone growth and
fusion. The applicant provided the
results from in vitro studies, using
human mesenchymal cells (MSCs),
which showed positive effects on bone
growth related to cellular signaling
achieved by using the device’s surface,
and osteoblasts exhibited a more
differentiated phenotype and increased
bone morphogenetic protein (BMP)
production using titanium alloy
substrates as opposed to poly-etherether-ketone (PEEK) substrates. The
applicant stated that Titan Spine’s
proprietary and unique surface
technology, the Titan Spine
nanoLOCKTM interbody devices, contain
optimized nano-surface characteristics,
which generate the distinct cellular
responses necessary for improved bone
growth, fusion, and stability. The
applicant further stated that the Titan
Spine nanoLOCKTM’s surface engages
with the strongest portion of the
endplate, which enables better
resistance to subsidence because a
unique dual acid-etched titanium
surface promotes earlier bone in-growth.
The Titan Spine nanoLOCKTM’s surface
is created by using a reductive process
of the titanium itself. The applicant
asserted that use of the Titan Spine
nanoLOCKTM significantly reduces the
potential for debris generated during
impaction when compared to treatments
using PEEK-based implants coated with
titanium. According to the results of an
in vitro study 10 provided by the
10 Olivares-Navarrete R, Hyzy S, Gittens R.
Titanium Alloys Regulate Osteoblast Production of

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applicant, which compared angiogenic
factor production using PEEK-based
versus titanium alloy surfaces,
osteogenic production levels were
greater with the use of rough titanium
alloy surfaces than the levels produced
using smooth titanium alloy surfaces.
The results of an additional study 11
provided by the applicant examined
whether inflammatory
microenvironment generated by cells as
a result of use of titanium aluminumvanadium (Ti-alloy, TiAlV) surfaces is
effected by surface microtexture, and
whether it differs from the effects
generated by PEEK-based substrates.
The applicant noted that the use of
microtextured surfaces has
demonstrated greater promotion of
osteoblast differentiation when
compared to use of PEEK-based
surfaces.
With regard to the second criterion,
whether a product is assigned to the
same or a different MS–DRG, cases that
may be eligible for treatment involving
the Titan Spine nanoLOCKTM map to
the same MS–DRGs as other (lumbar
and cervical) interbody devices
currently available to Medicare
beneficiaries and also are used for the
treatment of patients who have been
diagnosed with DDD (lumbar or
cervical).
With regard to the third criterion,
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, the applicant
stated that the Titan Spine nanoLOCKTM
can be used in the treatment of patients
diagnosed with similar types of
diseases, such as DDD, and for a similar
patient population receiving treatment
involving both lumbar and cervical
interbody devices.
In summary, the applicant maintained
that the Titan Spine nanoLOCKTM
technology has a different mechanism of
action when compared to other spinal
fusion devices. Therefore, the applicant
did not believe that the Titan Spine
nanoLOCKTM technology is
substantially similar to existing
technologies.
After reviewing the applicant’s
statements regarding nonsubstantial
similarity of its technology with other
existing technologies, we are still
concerned that there are other titanium
surfaced devices currently available on
the U.S. market. While these devices do
not use the Titan Spine nanoLOCKTM
Angiogenic Factors. The Spine Journal, 2013, ep.13.
1563–1570.
11 Olivares-Navrrete R, Hyzy s, Slosar P, et al.
Implant Materials Generate Different Peri-implant
Inflammatory Factors. SPINE. 2015: 40:6:339–404.

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technology, their surfaces also are made
of titanium. Therefore, we believe that
the Titan Spine nanoLOCKTM interbody
devices may be substantially similar to
currently available titanium interbody
devices.
We are seeking public comments on
whether the Titan Spine Endoskeleton®
nanoLOCKTM Interbody Devices are
substantially similar to existing
technologies and whether these devices
meet the newness criterion.
(1) Titan Spine Endoskeleton®
nanoLOCKTM Interbody Device for
Lumbar DDD
As previously mentioned, the Titan
Spine nanoLOCKTM received FDA
approval for the use of five lumbar
interbody devices on October 27, 2014.
To demonstrate that the Titan Spine
nanoLOCKTM for Lumbar DDD
technology meets the cost criterion, the
applicant researched claims data in the
FY 2014 MedPAR file for cases assigned
to MS–DRGs 028, 029, 030, 453, 454,
and 455 reporting any of the ICD–9–CM
procedure codes within the code series
81.xx (Repair and plastic operations on
joint structures) or code series 084.6x
(Replacement of spinal disk), excluding
cases reporting the following ICD–9–CM
procedure codes describing cervical
fusion: 81.01 (Atlas-axis spinal fusion),
81.02 (Other cervical fusion, anterior
technique), 81.03 (Other cervical fusion,
posterior technique), 81.31 (Refusion of
atlas-axis spine), 81.32 (Refusion of
other cervical spine, anterior technique),
or 81.33 (Refusion of other cervical
spine, posterior technique). As a result,
the applicant found that all cases
potentially eligible for treatment using
the technology mapped to MS–DRGs
456, 457, 458, 459, and 460. However,
the applicant focused its analyses on
MS–DRGs 028 through 030, 453 through
455, and 456 through 460 because these
are the MS–DRGs to which cases treated
with interbody fusion devices for
degenerative disc disease would most
likely be assigned. The applicant
applied CMS’ relative weight filtering
process as described in the FY 2016
IPPS/LTCH PPS final rule (80 FR 49424)
to ensure the correct claim types were
used and the charge details across the
cost centers were appropriate.
According to the applicant, 78.03
percent of the 96,281 cases found in the
FY 2014 MedPAR file mapped to MS–
DRG 460, while the remaining 21.97
percent of cases mapped to MS–DRGs
028 through 030, 453 through 455, and
456 through 459. This resulted in an
average case-weighted charge per case of
$127,082. The applicant then removed
$15,766 for associated charges for other
previously used spinal devices. The

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applicant determined the associated
charges to be removed for other
previously used devices based on
current Titan Spine sales data for the
Titan Spine nanolockTM for Lumbar
DDD various sizes. The applicant
computed the associated charges by
multiplying the weighted sales mix by
the average sales price for each product
in the Titan Spine nanoLOCKTM for
Lumbar DDD product line. After the
charges for other previously used
technologies were removed, the
applicant standardized the charges for
all cases using the FY 2014
standardizing file posted on the CMS
Web site. The applicant excluded all
cases without standardized charges,
resulting in a total of 96,281 cases. The
applicant then inflated the average
standardized case-weighted charges
from 2014 to 2016 by applying a 2-year
rate of inflation factor of 7.7 percent,
which is the same inflation factor used
by CMS to update the FY 2016 outlier
threshold (80 FR 49784).
To calculate the appropriate charges
for the Titan Spine nanoLOCKTM for
Lumbar DDD, the applicant used a caseweighted charge because the devices
implanted are produced and made
available in different sizes. To calculate
the case-weighted charge for different
lumbar device sizes, the applicant
determined the average cost to the
hospital per device and divided that
amount by the national average CCR for
implantable devices (0.337) published
in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49429). Based on sales data,
the applicant then applied a factor of 1.5
per patient to the case-weighted charge
by dividing the total number of products
sold in the United States by the total
invoices generated; with one invoice
being the equivalent to one patient and
a single surgery. The applicant then
added the device-related charges to the
inflated average standardized charge per
case, which resulted in an inflated
average standardized case-weighted
charge per case of $167,197. Using the
FY 2016 IPPS Table 10 thresholds, the
average case-weighted threshold amount
was $112,825 (all calculations above
were performed using unrounded
numbers). Because the final inflated
average standardized case-weighted
charge per case exceeds the average
case-weighted threshold amount, the
applicant maintained that the
technology meets the cost criterion.
We are inviting public comments on
whether the Titan Spine nanoLOCKTM
for Lumbar DDD meets the cost
criterion, particularly with regard to the
assumptions and methodology used in
the applicant’s analyses.

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(2) Titan Spine Endoskeleton®
nanoLOCKTM Interbody Device for
Cervical DDD
As previously mentioned, Titan Spine
received FDA approval for the use of the
nanoLOCKTM TC-Sterile Packaged
Cervical Interbody Fusion Device with
nanoLOCKTM surface on October 27,
2014, and the nanoLOCKTM TCS-Sterile
Package Cervical Interbody Fusion
Device with nanoLOCKTM surface on
December 14, 2015. To demonstrate that
the Titan Spine nanoLOCKTM for
Cervical DDD meets the cost criterion,
the applicant researched claims data in
the FY 2014 MedPAR file for cases
assigned to MS–DRGs 028, 029, 030,
453, 454, and 455 reporting any of the
following ICD–9–CM cervical fusion
procedure codes: 81.01, 81.02, 81.03,
81.32, 81.33. The applicant found that
all of the cases mapped to MS–DRGs
471, 472, and 473. However, the
applicant focused its analysis on MS–
DRGs 028 through 030, 453 through 455,
and 471 through 473 because these are
the MS–DRGs to which cases treated
with the implantation of cervical spinal
devices for degenerative disc disease
would most likely be assigned. Similar
to the sensitivity analysis submitted for
the Titan Spine nanoLOCKTM for
Lumbar DDD, the applicant applied
CMS’ relative weight filtering process as
described in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49424) to ensure
the correct claim types were used and
the charge details across the cost centers
were appropriate.
According to the applicant, 59.47
percent of the 48,187 cases mapped to
MS–DRG 473 and 25.65 percent of the
cases mapped to MS–DRG 472, while
the remaining 14.88 percent of the cases
mapped to MS–DRGs 028 through 030,
453 through 455, and 471. This resulted
in an average case-weighted charge per
case of $83,841. Using the same
methodology described above, the
applicant removed $4,423 for associated
charges for other previously used
technologies from the average caseweighted charge per case using current
Titan Spine sales data for cervical
device sizes and then standardized the
charges. The applicant then inflated the
average standardized case-weighted
charges from 2014 to 2016 by applying
the same 2-year rate of inflation factor
used above (7.7 percent). Similar to the
methodology described above, the
applicant calculated $36,023 for
associated device related charges for the
Titan Spine nanoLOCKTM for Cervical
DDD and added this amount to the
inflated average standardized caseweighted charge per case, which
resulted in a final inflated average

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standardized case-weighted charge per
case of $114,472. Using the FY 2016
IPPS Table 10 thresholds, the average
case-weighted threshold amount was
$79,827 (all calculations above were
performed using unrounded numbers).
Because the final inflated average
standardized case-weighted charge per
case exceeds the average case-weighted
threshold amount, the applicant
maintained that the technology meets
the cost criterion.
We are inviting public comments on
whether the Titan Spine nanoLOCKTM
for Cervical DDD meets the cost
criterion.
With regard to the substantial clinical
improvement criterion for the Titan
Spine Endoskeleton® nanoLOCKTM
Interbody Device for Lumbar and
Cervical DDD, the applicant asserted
that the Titan Spine nanoLOCKTM
substantially improves the treatment of
Medicare beneficiaries who have been
diagnosed with and receive treatment
for serious spinal pathologies, such as
DDD, compared to the currently
available technologies and treatment
options, especially in terms of improved
fusion, decreased pain, greater stability,
faster recovery times, and lower rates of
interbody device related complications,
such as debris and inflammation.
The applicant noted that the cellular
process that occurs after implantation of
the Titan Spine nanoLOCKTM induces
the body to produce and regulate its
own bone morphogenetic proteins
(BMP), which help stimulate bone
growth naturally in the human body.
According to the applicant, this result
supports new bone growth without
requiring use of exogenous BMP. The
applicant explained that exogenous
rhBMPs trigger a significant cytokine
related anti-inflammatory reaction that
has resulted in adverse side effects. The
applicant stated that the Titan Spine
nanoLOCKTM’s proprietary surface and
use promotes endogenous production of
osteogenic growth factors, such as BMP–
2, BMP–4, BMP–7, and TGF–b1.2,
which produce only the physiologic
amounts necessary for bone production
without the concomitant cytokine
related to anti-inflammatory reaction.
The applicant also stated that the
unique surface of the TitanSpine
nanoLOCKTM differentiates the
technology from existing interbody
devices, which use materials such as
PEEK-based or ceramic surfaces. The
applicant explained that these materials
cause stem cells to flatten on the surface
of the implant and primarily
differentiate into fibroblasts (fiberproducing cells). This result is avoided
by using the Titan Spine nanoLOCKTM
because the nano-textured surface

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promotes differentiation of osteoblasts
(bone-forming cells), which increases
bone production around the implant site
and increases the potential for a faster
and more robust fusion. The applicant
further stated that use of titanium and
titanium alloy surfaces with rough
microtopography demonstrate greater
bone apposition, but use of
macrotextured titanium and titanium
alloy surfaces, such as the Titan Spine
nanoLOCKTM, promotes osteoblast
differentiation and productions of
factors that favor bone formation,
whereas PEEK-based surfaces do not.
As previously noted, the applicant
provided results from in vitro studies,
using human MSCs, which showed
positive effects on bone growth related
to cellular signaling achieved from use
of the device’s surface, and osteoblasts
exhibited a more differentiated
phenotype and increased bone
morphogenetic protein BMP production
using titanium alloy substrates as
opposed to PEEK-based substrates. The
applicant believed that the Titan Spine
nanoLOCKTM substantially improves the
treatment of Medicare beneficiaries
diagnosed with and receiving treatment
for serious spinal pathologies, such as
DDD, compared to currently available
technologies and treatment options for
Medicare beneficiaries, especially in
terms of improved fusion, decreased
pain, greater stability, faster recovery
times, and lower rates of interbody
device related complications, such as
debris and inflammation.
We are concerned that the results of
the in vitro studies may not necessarily
correlate with the clinical results
specified by the applicant. Specifically,
because the applicant has only
conducted in vitro studies without
obtaining any clinical data from live
subjects during a specific clinical trial,
we are unable to substantiate the
clinical results that the applicant
believed the technology achieved from a
clinical standpoint based on the results
of the studies provided. As a result, we
are concerned that the results of the
studies provided by the applicant do not
demonstrate that the Titan Spine
nanoLOCKTM technologies meet the
substantial clinical improvement
criterion. We are inviting public
comments on whether the Titan Spine
nanoLOCKTM technologies meet the
substantial clinical improvement
criterion.
We did not receive any written public
comments in response to the February
2016 New Technology Town Hall
meeting regarding this application for
new technology add-on payments.

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e. Andexanet Alfa
Portola Pharmaceuticals, Inc. (Portola)
submitted an application for new
technology add-on payments for FY
2017 for use of Andexanet Alfa, an
antidote used to treat patients who are
receiving treatment with an oral Factor
Xa inhibitor who suffer a major bleeding
episode and require urgent reversal of
direct and indirect Factor Xa
anticoagulation. Patients at high risk for
thrombosis, including those who have
been diagnosed with atrial fibrillation
(AF) and venous thrombosis (VTE),
typically receive treatment using longterm oral anticoagulation agents, such as
Warfarin. Factor Xa inhibitors are
included in a new class of
anticoagulants. Factor Xa inhibitors are
oral anticoagulants used to prevent
stroke and systemic embolism in
patients who have been diagnosed with
AF. These oral anticoagulants are also
used to treat patients diagnosed with
deep-vein thrombosis (DVT) and its
complications, pulmonary embolism
(PE), and patients who have undergone
knee, hip, or abdominal surgery.
Rivarobaxan (Xarelto®), apixaban
(Eliqis®), and edoxaban (Savaysa®) also
are included in the new class of Factor
Xa inhibitors, and are often referred to
as ‘‘novel oral anticoagulants’’ (NOACs)
or ‘‘non-vitamin K antagonist oral
anticoagulants.’’ Although these
anticoagulants have been commercially
available since 2010, there is no FDAapproved therapy used for the urgent
reversal of any Factor Xa inhibitor as a
result of serious bleeding episodes.
Andexanet Alfa has not received FDA
approval at the time of the development
of this proposed rule. The applicant
anticipates receiving FDA approval for
use of the technology in approximately
June of 2016. Currently, there are no
ICD–10–PCS procedure codes that
uniquely identify the use of and
administration of Andexanet Alfa. We
note that the applicant submitted a
request for unique ICD–10–PCS
procedure codes that was presented at
the March 2016 ICD–10 Coordination
and Maintenance Committee meeting. If
approved, the procedure codes would
become effective on October 1, 2016 (FY
2017). More information on this request
can be found on the CMS Web site
located at: http://www.cms.gov/
Medicare/Coding/ICD10Provider
DiagnosticCodes/ICD-10-CM-C-and-MMeeting-Materials.html.
As discussed earlier, if a technology
meets all three of the substantial
similarity criteria, it would be
considered substantially similar to an
existing technology and would not be

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considered ‘‘new’’ for purposes of new
technology add-on payments.
The applicant believed that, if
approved, Andexanet Alfa would be the
first and only antidote available used to
treat patients receiving treatment with
an oral Factor Xa inhibitor who suffer a
major bleeding episode and require
urgent reversal of direct and indirect
Factor Xa anticoagulation. Therefore,
the applicant asserted that the
technology is not substantially similar
to any other currently approved and
available treatment options for Medicare
beneficiaries.
With regard to the first criterion,
whether a product uses the same or a
similar mechanism of action to achieve
a therapeutic outcome, Andexanet Alfa,
if approved, would be the first reversal
agent that binds to direct Factor Xa
inhibitors with high affinity,
sequestering the inhibitors, and
consequently rapidly reducing free
plasma concentration of Factor Xa
inhibitors and neutralizing the
inhibitors’ anticoagulant effect, which
allows for the restoration of normal
hemostasis. Andexanet Alfa also binds
to and sequesters antithrombin III
molecules that are complexed with
indirect inhibitor molecules, disrupting
the capacity of the antithrombin
complex to bind to native Factor Xa
inhibitors. According to the applicant,
Andexanet Alfa represents a significant
therapeutic advance by providing rapid
reversal of anticoagulation therapy in
the event of a serious bleeding episode.
Other reversal agents, such as KcentraTM
and Idarucizumab, do not reverse the
effects of Factor Xa inhibitors.
With regard to the second criterion,
whether a product is assigned to the
same or a different MS–DRG, Andexanet
Alfa would be the first FDA approved
reversal agent for Factor Xa inhibitors.
Therefore, the MS–DRGs do not contain
cases representing patients that have
been treated with any reversal agents for
Factor Xa inhibitors.
With regard to the third criterion,
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, Andexanet
Alfa, if approved, would be the only
reversal agent available for treating
patients receiving direct or indirect
Factor Xa therapy who experience
serious, uncontrolled bleeding events or
who require emergency surgery.
Therefore, Andexanet Alfa would be the
first type of treatment option available
to this patient population, As a result,
it appears that Andexanet Alfa is not
substantially similar to any existing
technologies. We are inviting public
comments on whether Andexanet Alfa

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meets the substantial similarity criteria
and whether Andexanet Alfa meets the
newness criterion.
With regard to the cost criterion, the
applicant researched the FY 2014
MedPAR claims data file for cases that
may be eligible for treatment using
Andexanet Alfa. The applicant used

three sets of ICD–9–CM codes to
identify these cases: (1) Codes
identifying cases of patients who were
treated with an anticoagulant and,
therefore, are at risk of bleeding; (2)
Codes identifying cases of patients with
a history of conditions that were treated
with Factor Xa inhibitors; and (3) codes

ICD–9–CM
codes applicable

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

V12.50 ..............
V12.51 ..............
V12.52 ..............
V12.54 ..............
V12.55 ..............
V12.59 ..............
V43.64 ..............
V43.65 ..............
V58.43 ..............
V58.49 ..............
V58.73 ..............
V58.75 ..............
V58.61 ..............
E934.2 ..............
99.00 .................
99.01 .................
99.02 .................
99.03 .................
99.04 .................
99.05 .................
99.06 .................
99.07 .................

Applicable ICD–9–CM code description
Personal history of unspecified circulatory disease.
Personal history of venous thrombosis and embolism.
Personal history of thrombophlebitis.
Personal history of transient ischemic attack (TIA), and cerebral infarction without residual deficits.
Personal history of pulmonary embolism.
Personal history of other diseases of circulatory system.
Hip joint replacement.
Knee joint replacement.
Aftercare following surgery for injury and trauma.
Other specified aftercare following surgery.
Aftercare following surgery of the circulatory system, NEC.
Aftercare following surgery of the teeth, oral cavity and digestive system, NEC.
Long-term (current) use of anticoagulants.
Anticoagulants causing adverse effects in therapeutic use.
Perioperative autologous transfusion of whole blood or blood components.
Exchange transfusion.
Transfusion of previously collected autologous blood.
Other transfusion of whole blood.
Transfusion of packed cells.
Transfusion of platelets.
Transfusion of coagulation factors.
Transfusion of other serum.

The applicant identified a total of
54,200 cases that mapped to 680 MS–
DRGs, resulting in an average caseweighted charge per case of $67,197.
The applicant also provided an analysis
limited to 80 percent of all cases (47,273
cases), which mapped to the top 147
MS–DRGs. Under this analysis, the
average case-weighted charge per case
was $64,095. Under each of these two
analyses, the applicant also provided
sensitivity analyses based on variables
representing two areas of uncertainty:
(1) Whether to remove 40 percent or 60
percent of blood and blood
administration charges; and (2) whether
to remove pharmacy charges based on
the ceiling price of factor eight inhibitor
bypass activity (FEIBA), a branded antiinhibitor coagulant complex, or on the
pharmacy indicator 5 (PI5) in the
MedPAR data file, which correlates to
cases utilizing generic coagulation
factors. Overall, the applicant
conducted eight sensitivity analyses,
and provided the following rationales:
• The applicant chose to remove 40
percent and 60 percent of blood and
blood administration charges because
patients who require Andexanet Alfa for
Factor Xa reversal may still require
blood and blood products to treat other
conditions. Therefore, it would be
inappropriate to remove all of the
charges associated with blood and blood

VerDate Sep<11>2014

identifying cases of patients who
experienced bleeding episodes as the
reason for the current admission. The
applicant included with its application
the following table displaying a
complete list of ICD–9–CM codes that
met its selection criteria:

18:46 Apr 26, 2016

Jkt 238001

administration because all of the
charges cannot be attributed to Factor
Xa reversal. The applicant maintained
that the amounts of blood and blood
products required for treatment vary
according to the severity of the bleeding.
Therefore, the use of Andexanet Alfa
may replace 60 percent of blood and
blood product administration charges
for cases with less severity of bleeding,
but only 40 percent of charges for cases
with more severe bleeding.
• The applicant maintained that
FEIBA is the highest priced clotting
factor used for Factor Xa inhibitor
reversal, and it is unlikely that
pharmacy charges for Factor Xa reversal
would exceed the FEIBA ceiling price of
$10,570. Therefore, the applicant
capped the charges to be removed at
$10,570, which in many cases removed
100 percent of the pharmacy charges.
The applicant also considered an
alternative scenario in which charges
associated with pharmacy indicator 5
(PI5) were removed from the costs of
cases that included this indicator in the
MedPAR data. On average, charges
removed from the costs of cases
utilizing generic coagulation factors
were much lower than the total
pharmacy charges.
The applicant noted that, in all eight
scenarios, the average standardized
case-weighted charge per case for cases

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eligible for treatment using Andexanet
Alfa would exceed the average caseweighted threshold amounts in Table 10
of the FY 2016 IPPS/LTCH PPS final
rule by approximately $3,247 to $7,844,
depending on the results determined by
using the combination of variables of
the two areas of uncertainty and the
number of MS–DRGs analyzed.
The applicant’s order of operations
used for each analysis follows: (1)
Removing 60 percent or 40 percent of
blood and blood administration charges
and up to 100 percent of pharmacy
charges for PI5 or FEIBA from the
average unstandardized case-weighted
charge per case; (2) standardizing the
charges per cases using the Impact File
published with the FY 2014 IPPS/LTCH
PPS final rule. After removing the
charges for the prior technology and
standardizing charges, the applicant
applied an inflation factor of 1.076647,
which is the 2-year inflation factor in
the FY 2016 IPPS/LTCH final rule (80
FR 49784) to update the charges from
FY 2014 to FY 2016. The applicant
noted that it did not add charges for
Andexanet Alfa and related services.
Under each scenario, the applicant
stated that the inflated average
standardized case-weighted charge per
case exceeded the average caseweighted threshold (based on the FY
2016 IPPS Table 10 thresholds). Below

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we provide a table for all eight scenarios
that the applicant indicated demonstrate

that the technology meets the cost
criterion.

Scenario

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

100 Percent of Cases, FEIBA, 60 Percent Removal of Blood and Blood Administration Costs ...........................
100 Percent of Cases, PI5, 60 Percent Removal of Blood and Blood Administration Costs ................................
100 Percent of Cases, FEIBA, 40 Percent Removal of Blood and Blood Administration Costs ...........................
100 Percent of Cases, PI5, 40 Percent Removal of Blood and Blood Administration Costs ................................
80 Percent of Cases, FEIBA, 60 Percent Removal of Blood and Blood Administration Costs .............................
80 Percent of Cases, PI5, 60 Percent Removal of Blood and Blood Administration Costs ..................................
80 Percent of Cases, FEIBA, 40 Percent Removal of Blood and Blood Administration Costs .............................
80 Percent of Cases, PI5, 40 Percent Removal of Blood and Blood Administration Costs ..................................

The applicant noted that 25 percent of
the total volume of cases map to the
following 10 MS–DRGs: MS–DRG 378
(Gastrointestinal Hemorrhage with CC),
7.56 percent of all cases; MS–DRG 812
(Red Blood Cell Disorders without
MCC), 3.13 percent of all cases; MS–
DRG 377 (Gastrointestinal Hemorrhage
with MCC), 2.68 percent of all cases;
MS–DRG 470 (Major Joint Replacement
or Reattachment of Lower Extremity
without MCC), 2.32 percent of all cases);
MS–DRG 871 (Septicemia or Severe
Sepsis without Mechanical Ventilation
>96 hours with MCC), 2.26 percent of
all cases; MS–DRG 481 (Hip & Femur
Procedures, Except Major Joint with
CC), 2.08 percent of all cases; MS–DRG
811 (Red Blood Cell Disorders with
MCC), 1.70 percent of all cases; MS–
DRG 291 (Heart Failure and Shock with
MCC), 1.22 percent of all cases; MS–
DRG 379 (Gastro intestinal Hemorrhage
without CC/MCC), 1.12 percent of all
cases; and MS–DRG 683 (Renal Failure
with CC), 1.06 percent of all cases. We
are concerned that the applicant did not
include sensitivity analyses for this
subset of cases.
We are inviting public comments on
whether Andexanet Alfa meets the cost
criterion, including with regard to the
concern we have raised.
With regard to the substantial clinical
improvement criterion, the applicant
asserted that Andexanet Alfa represents
a substantial clinical improvement for
the treatment of patients receiving direct
or indirect Factor Xa therapy who
experience serious, uncontrolled
bleeding events or who require
emergency surgery because it addresses
an unmet medical need for a universal
antidote to direct and indirect Factor Xa
inhibitors; if approved, would be the
only agent shown in prospective clinical
trials to rapidly (within 2–5 minutes)
and sustainably reverse the
anticoagulation activity of Factor Xa
inhibitors; is potentially non-

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25051

thrombogenic, as no serious adverse
effects of thrombosis were observed in
clinical trials; and could supplant
current treatments for bleeding from
anti-Factor Xa treatment, which have
not been shown to be effective in the
treatment of all patients.
With regard to addressing an unmet
need for a universal antidote to direct
and indirect Factor Xa inhibitors, the
applicant asserted that the use of any
anticoagulant is associated with an
increased risk of bleeding, and bleeding
complications can be life-threatening.
Bleeding is especially concerning in
patients treated with Factor Xa
inhibitors because there are currently no
antidotes to Factor Xa inhibitors
available. The applicant stated that
Andexanet Alfa has a unique
mechanism of action and represents a
new biological approach to the
treatment of patients who have been
diagnosed with acute severe bleeding
who require immediate reversal of the
Factor Xa inhibitor therapy. The
applicant explained that although
Andexanet Alfa is structurally very
similar to native Factor Xa inhibitors, it
has undergone several modifications
that restrict its biological activity to
reversing the effects of Factor Xa
inhibitors by binding with and
sequestering direct or indirect Factor Xa
inhibitors, which allows native Factor
Xa inhibitors to dictate the normal
coagulation and hemostasis process. As
a result, the applicant maintained that
Andexanet Alfa represents a safe and
effective therapy for the management of
bleeding in a fragile patient population
and a substantial clinical improvement
over existing technologies and reversal
strategies.
The applicant noted the following: On
average, patients with a bleeding
complication were hospitalized for 6.3
to 7.4 days; the most common therapies
currently used to manage bleeding
events in patients undergoing

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Inflated
average
standardized
case-weighted
charge per
case

Average
case-weighted
threshold
amount

$60,231
63,643
61,651
64,203
57,686
60,994
59,096
61,558

$55,799
55,799
55,799
55,799
54,413
54,413
54,413
54,413

anticoagulant treatment are blood
transfusions, most frequently with
packed red blood cells or fresh frozen
plasma; and Vitamin K therapy was
used only in 1 percent of Medicare
beneficiaries who were receiving
treatment with the indirect Factor Xa
inhibitor enoxaparin.
The applicant asserted that laboratory
studies have failed to provide consistent
evidence of ‘‘reversal’’ of the
anticoagulant effect of Factor Xa
inhibitors across a range of different
PCC products and concentrations.
Results of thrombin generation assays
have varied depending on the format of
the assay. Despite years of experience
with low molecular weight heparins and
pentasaccharide anticoagulants, neither
PCCs nor factor eight inhibitor
bypassing activity are recognized as safe
and effective reversal agents for these
Factor Xa inhibitors. Unlike patients
taking Vitamin K antagonists, patients
receiving treatment with oral Factor Xa
inhibitor drugs have normal levels of
clotting factors. Therefore, a strategy
based on ‘‘repleting’’ factor levels is of
uncertain foundation and could result
in supra-normal levels of coagulation
factors after rapid metabolism and
clearance of the oral anticoagulant.
The applicant provided results from
two Phase III studies 12 13 in which older
healthy volunteers pretreated with
direct or indirect Factor Xa inhibitors
(apixaban, edoxaban, rivaroxaban, and
enoxaparin) demonstrated the
following: Rapid and sustainable
reversal of anticoagulation; reduced
Factor Xa inhibitor free plasma levels by
at least 80 percent below a calculated
no-effect level; and reduced anti-Factor
Xa activity to the lowest level of
detection within 2 to 5 minutes of
12 Conners, J.M. Antidote for Factor Xa
Anticoagulants. N Engl J Med. 2015 Nov 13.
13 Siegal DM, Curnutte JT, Connolly SJ, et al.
Andexanet Alfa for the Reversal of Factor Xa
Inhibitor Activity. N Engl J Med. 2015 Nov 11.

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infusion. The applicant noted that
decreased Factor Xa inhibitor levels
have been shown to correspond to
decreased bleeding complications,
reconstitution of activity of coagulation
factors, and correction of coagulation.
The applicant stated that the results
from the two Phase III studies and
previous proof-of-concept Phase II dosefinding studies 2 showed that use of
Andexanet Alfa can rapidly reverse
anticoagulation activity of Factor Xa
inhibitors and sustain that reversal.
Therefore, the applicant asserted that
Andexanet Alfa has the potential to
successfully treat patients who only
need short-duration reversal of the
Factor Xa inhibitor anticoagulant, as
well as patients who require longerduration reversal, such as patients
experiencing a severe intracranial
hemorrhage or requiring emergency
surgery. Furthermore, the applicant
noted that its technology’s duration of
action allows for a gradual return of
Factor Xa inhibitor concentrations to
placebo control levels within 2 hours
following the end of infusion.
With regard to Andexanet Alfa’s nonthrombogenic nature, as no serious
adverse effects of thrombosis were
observed in clinical trials, the applicant
provided clinical trial data which
revealed participants in Phase II and
Phase III trials had no thrombotic events
and there were no serious or severe
adverse events reported. Results also
showed that use of Andexanet Alfa has
a much lower risk of thrombosis than
typical procoagulants because it lacks
the region responsible for inducing
coagulation. Furthermore, the applicant
asserted that Andexanet Alfa is not
associated with the known
complications seen with red blood cell
transfusions.
The applicant asserted that, while the
Phase II and Phase III trials and studies
measured physiological hallmarks of
reversal of NOACs, it is expected that
the availability of a safe and reliable
Factor Xa reversal will result in an
overall better prognosis for patients—
potentially leading to a reduction in
length of hospital stay, fewer
complications, and decreased mortality
associated with unexpected bleeding
episodes.
The applicant also stated that use of
Andexanet Alfa can supplant currently
available treatments used for reversing
bleeding from anti-Factor Xa treatments,
which have not been shown to be
effective in the treatment of all patients.
With regard to PCCs, NOACs, and FFP,
the applicant stated that there is a lack
of clinical evidence available for
patients taking Factor Xa inhibitors that
experience bleeding events. The

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applicant noted that the case reports
provide a snapshot of emergent
treatment of these often medically
complex anti-Factor Xa-treated patients
with major bleeds. However, the
applicant stated that these analyses
reveal the inconsistent approach in
assessing the degree of anticoagulation
in the patient and the variability in
treatment strategy. The applicant
explained that little or no assessment of
efficacy in restoring coagulation in the
patients was performed, and the major
outcomes measures were bleeding
cessation or mortality. The applicant
concluded that overall, there is very
little evidence for the efficacy suggested
in some guidelines, and the evidence is
insufficient to draw any conclusions.
We are inviting public comments on
whether Andexanet Alfa meets the
substantial clinical improvement
criterion.
Below is a summary of the written
comments we received on the
Andexanet Alfa application in response
to the February 2016 New Technology
Town Hall meeting and our response:
Comment: Two commenters
supported the approval of new
technology add-on payments for
Andexanet Alfa. According to the
commenters, Andexanet Alfa is a
significant clinical improvement over
existing therapies used to reverse major
bleeding in patients receiving treatment
using Factor Xa inhibitors. One
commenter stated that Andexanet Alfa
would be the first and only antidote to
treat patients receiving an oral Factor Xa
inhibitor who have suffered a major
bleeding episode and require urgent
reversal of Factor Xa anticoagulation.
Based on professional experience as a
first line clinician charged with
stabilizing and treating patients with
bleeding events or trauma such as
assaults and motor vehicle accidents,
the commenter stated that patients on
anticoagulation therapy present a
difficult scenario and they often have
comorbidities, which complicate the
effectiveness of medical care and put
them at risk for complications. The
commenter stated that major bleeding is
observed in approximately five percent
of patients receiving treatment using
Factor Xa inhibitors, but only a small
subset of those patients require urgent
reversal of anti-Factor Xa activity. The
commenter believed that, in spite of oral
Factor Xa inhibitor’s short half-life (7 to
9 hours) and similar or even lower
bleeding rates than with warfarin or low
molecular weight heparin, the lack of a
targeted antidote that is safe for Factor
Xa inhibitors is believed to limit these
anticoagulants, which do not have a
monitoring requirement, nor any dietary

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restrictions. The commenter believed
that a significant disadvantage of Factor
Xa inhibitors is the lack of an effective
strategy to rapidly reverse the
anticoagulant effects in patients
requiring emergency surgery or
presenting with an emergent bleed.
There is currently no agent indicated or
proven to be effective for the treatment
of patients with Factor Xa inhibitor
related bleeding. The commenter
believed that Andexanet Alfa would
provide clinicians and their patients the
ability to restore homeostasis in critical
emergency settings for the broad range
of bleeds experienced by patients
receiving treatment using Factor Xa
inhibitors. The commenter compared
Andexanet Alfa to KcentraTM and
FEIBA, and noted that both work
upstream in the coagulation cascade and
thus cannot overcome the effects of the
Factor Xa inhibitors. The commenter
further stated that human plasmaderived clotting factors were not
designed to reverse Factor Xa inhibitors.
The commenter also believed that it is
well recognized among clinicians that
there is a critical need for a reversal
agent for the new oral anticoagulants
(NOAC) that will rapidly restore normal
coagulation, and stated that Andexanet
Alfa represents a significant clinical
improvement over existing therapies
that should be approved for the new
technology add-on payments.
Another commenter also believed that
Andexanet Alfa represents a significant
clinical improvement over existing
therapies. The commenter stated that, in
the dire moment that a patient presents
a critical care team with a lifethreatening bleed, reversing coagulation
immediately provides the foundation for
stabilizing the patient, which is needed
to prevent further morbidity and
mortality. The commenter also noted
KcentraTM’s and FEIBA’s inability to
affect Factor Xa inhibitors because they
act on upstream coagulation cascade
factors. The commenter further believed
that Andexanet Alfa’s mechanism of
action is different from the mechanism
of action of existing treatments.
Response: We appreciate the
commenters’ input. We will take these
comments into consideration when
deciding whether to approve new
technology add-on payments for
Andexanet Alfa for FY 2017.
f. Defitelio® (Defibrotide)
Jazz Pharmaceuticals submitted an
application for new technology add-on
payments for FY 2017 for Defibrotide
(Defitelio®), a treatment for patients
diagnosed with hepatic veno-occlusive
disease (VOD) with evidence of multiorgan dysfunction. VOD is a potentially

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life-threatening complication resulting
from hematopoietic stem cell
transplantation (HSCT), with an
incidence rate of 8 percent to 15 percent
of patients experiencing its effects after
HSCT. Diagnoses of VOD range in
severity from what has been classically
defined as a disease limited to the liver
(mild) and reversible, to a severe
syndrome associated with multi-organ
dysfunction or failure and death.
Patients treated with HSCT who
develop VOD with evidence of multiorgan dysfunction face an immediate
risk of death, with a mortality rate of
more than 80 percent when only
supportive care is used.
VOD is believed to be the result of
endothelial cell damage and
hepatocellular injury from high-dose
conditioning regimens administered
prior to receiving treatment with HSCT.
Preclinical data suggest that Defitelio®
stabilizes endothelial cells by reducing
endothelial cell activation and by
protecting endothelial cells from further
damage. Defitelio® is administered as a
2-hour intravenous infusion every 6
hours. The recommended dosage is 6.25
mg/kg body weight (25mg/kg/day).
Defitelio® should be administered for a
minimum of 21 days. If after 21 days the
signs and symptoms associated with
hepatic VOD are not resolved, the
administration of Defitelio® should be
continued until clinical resolution.
With regard to the newness criterion,
according to the manufacturer,
Defitelio® received FDA approval in
March 30, 2016 and is expected to be
commercially available on the U.S.
market on April 6, 2016. At this time,
the applicant has not submitted any
specific information to establish that the
technology was not available on the U.S.
market as of the FDA approval date or
to describe the reasons for a delay of
availability until the first week of April
2016. Therefore, we believe the newness
period for Defitelio® would begin on
March 30, 2016, the date of FDA
approval.
There are currently no ICD–10–PCS
codes to uniquely identify the
intravenous administration of
Defitelio®. The applicant submitted an
application for the March 9–10, 2016
meeting of the ICD–10 Coordination and
Maintenance Committee for a unique
ICD–10–PCS procedure code to identify
the use of Defitelio. If approved, the
procedure code would become effective
on October 1, 2016 (FY 2017). More
information on this request can be
found on the CMS Web site located at:
http://www.cms.gov/Medicare/Coding/

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ICD10ProviderDiagnosticCodes/ICD-10CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology
meets all three of the criteria for
substantial similarity, it would be
considered substantially similar to an
existing technology and would not be
considered ‘‘new’’ for purposes of new
technology add-on payments.
With regard to the first criterion,
whether the product uses the same or
similar mechanism of action to achieve
a therapeutic outcome, the applicant
maintained that Defitelio® has a unique
mechanism of action that is not shared
by any other drug on the market used
to treat patients diagnosed with VOD
with evidence of multi-organ failure.
According to the applicant, there are no
FDA-approved treatments for VOD other
than supportive care. Anticoagulants
such as heparin, antithrombin, and
tissue plasminogen factor have been
used to treat patients diagnosed with
VOD, but there is a lack of conclusive
evidence that these treatments are
effective and they also present a high
risk of bleeding. The applicant
maintained that Defitelio® addresses the
underlying pathology of VOD with
evidence of multi-organ failure and its
use is effective as a treatment for this
form of the disease. According to the
applicant, it is speculated that the
mechanism of action of the Defitelio®
revolves around the stabilization of
endothelial cells because endothelial
cell damage is believed to be a major
contributing factor to the development
of VOD. However, we are concerned
that this mechanism of action is not
well understood by the manufacturer
and we are unable to determine whether
Defitelio® is substantially similar to the
other drugs on the market without full
understanding of its distinct mechanism
of action.
With regard to the second criterion,
whether a product is assigned to the
same or a different MS–DRG, the
applicant maintained that cases
potentially eligible for treatment using
Defitelio® and representing the target
patient population mainly group to two
MS–DRGs: MS–DRG 014 (Allogeneic
Bone Marrow Transplant) and MS–DRG
016 (Autologous Bone Marrow
Transplant with CC/MCC). We believe
that these are the same MS–DRGs that
identify cases of patients treated with
supportive care for VOD with multiorgan failure.
With regard to the third criterion,
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, the applicant
asserted that there are no FDA-approved

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25053

treatments for VOD other than
supportive care, such as dialysis or
ventilation. In addition, the applicant
stated that poor outcomes have been
reported for patients treated with
nonapproved pharmacological
treatments for VOD. These treatments
have largely been discontinued because
of the high incidence of hemorrhagic
complications, particularly among
patients diagnosed with multi-organ
failure. According to the applicant,
Defitelio® would be the first and only
FDA-approved treatment for VOD with
evidence of multi-organ failure.
However, we are concerned that the
applicant did not include in its
application data comparing the
outcomes of patients treated with
Defitelio® to outcomes of patients
treated only for supportive care. We are
concerned that Defitelio® may not
produce outcomes that are significantly
different than the outcomes of patients
treated with supportive care.
We are inviting public comments on
whether Defitelio® is substantially
similar to existing technologies and
whether it meets the newness criterion.
With regard to the cost criterion, the
applicant conducted sensitivity analyses
using claims data from 2012 through
2014 and determined the results in
aggregate and by year. The applicant
researched 100 percent of the 2012
through 2014 Inpatient Standard
Analytic Files (SAFs) for cases eligible
for Defitelio®. Because an ICD–9–CM
code specific to treatment for VOD does
not exist, the applicant used an
algorithm to identify cases to use in its
sensitivity analyses. The most
appropriate ICD–9–CM diagnosis codes
were identified based on clinical criteria
used to diagnose VOD and were used to
identify cohorts of patients diagnosed
with VOD and VOD with multi-organ
dysfunction. The applicant first
identified claims with an ICD–9–CM
procedure code indicating an HSCT
(Group A) within a 30-day window;
VOD most commonly occurs after
receipt of HSCT. The applicant then
looked for cases with ICD–9–CM
diagnosis codes related to liver injury
(Group B) or clinical evidence of
suspected VOD symptoms based on at
least two relevant ICD–9 diagnosis
codes (Group C). Lastly, the applicant
filtered out cases that did not show
clinical evidence of multi-organ
dysfunction based on at least one
relevant ICD–9–CM code (Group D).
The applicant submitted the following
table indicating the ICD–9–CM codes
used for each category of the algorithm.

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TABLE 12—ICD–9 CODES USED FOR THE PREMIER VOD ALGORITHM

Group

ICD–9–CM
Code

Title

A ...........

Hematopoietic Stem Cell
Transplant (HSCT) (at
least one code).

B ...........

Liver Injury (at least one
code).

C ...........

VOD Symptoms (at least
two codes).

D ...........

Multi-Organ Dysfunction (at
least one code).

41.00
41.01
41.02
41.03
41.04
41.05
41.06
41.07
41.08
41.09
453.xx
570.xx
573.8
573.9
459.89
277.4
782.4
789.1
783.1
789.5
518.8x
786.09

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799.02
518.81
V46.2
96.7x
93.90, 93.91,
93.93, 93.99
584.X
586.X
593.9
39.27, 39.42,
39.95, 54.98

Using the above algorithm, the
applicant identified a total of 267
patient cases of VOD with multi-organ
dysfunction in the 2012–2014 Inpatient
SAFs, with 78 patient cases in 2012, 102
patient cases in 2013, and 87 patient
cases in 2014, or an average annual
patient case volume of 89. The applicant
determined that these cases grouped
mainly into two MS–DRGs: 014 and
016. The applicant noted that there were
no cases in the data from MS–DRG 017
(Autologous Bone Marrow Transplant
without CC/MCC). The applicant further
noted that there were no cases from
MS–DRG 017 because the ICD–9–CM
codes identifying VOD with multi-organ
dysfunction include serious medical
conditions that are listed on the MCC
and CC lists. In total, 38 MS–DRGs were
represented in the patient cohort, with
27 percent of cases mapping to MS–DRG
014 and 42 percent of cases mapping to
MS–DRG 016. The remaining cases
mapped to 1 of the 36 remaining MS–
DRGs with fewer than 11 cases.
For results in the aggregate, the
applicant calculated an average caseweighted charge per case of $427,440
across 267 cases representing diagnoses
of VOD with multi-organ dysfunction

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Description
Bone marrow transplant, not otherwise specified.
Autologous bone marrow transplant without purging.
Allogeneic bone marrow transplant with purging.
Allogeneic bone marrow transplant without purging.
Autologous hematopoietic stem cell transplant without purging.
Allogeneic hematopoietic stem cell transplant without purging.
Cord blood stem cell transplant.
Autologous hematopoietic stem cell transplant with purging.
Allogeneic hematopoietic stem cell transplant.
Autologous bone marrow transplant with purging.
Other venous embolism and thrombosis.
Acute and subacute necrosis of liver.
Other specified disorders of liver.
Unspecified disorder of liver.
Other specified disorders of the circulatory system.
Disorders of bilirubin excretion.
Hyperbilirubinemia.
Hepatomegaly.
Abnormal weight gain.
Ascites.
Acute/Chronic Respiratory Failure.
Other respiratory abnormalities (respiratory distress, except that associated with trauma/surgery in adults, or with RDS in newborns).
Hypoxemia.
Acute respiratory failure.
Other dependence on machines, supplemental oxygen.
Other continuous invasive mechanical ventilation.
Non-invasive mechanical ventilation.
Acute renal failure.
Renal failure unspecified.
Renal Failure.
Dialysis, including hemodialysis, peritoneal dialysis, hemofiltration.

from 2012 through 2014. The applicant
assumed there would be a reduction in
the use of selected drugs as a result of
using Defitelio® and removed 50
percent of the estimated charges for
heparin, furosemide, and
spironolactone. The charges for these
drugs were estimated based on pricing
taken from the Medispan PriceRx
database, whose costs were marked up
according to the inverse of CCRs from
cost center 073 (Drugs Charged to
Patients) obtained from providers’ 2012,
2013, and 2014 cost reports. The
applicant matched these CCRs with the
provider numbers on each claim. The
applicant removed an average of $2,631
in charges for these drugs from the
overall unstandardized charges for
Defitelio®.
The applicant then standardized the
charges and calculated an average
standardized case-weighted charge per
case of $310,651. To update the charge
data to the current fiscal year, the
applicant inflated the charges based on
the charge inflation factor of 1.048116 in
the FY 2016 IPPS/LTCH final rule (80
FR 49779). The 1-year inflation factor
was applied four times to FY 2012
claims, three times to FY 2013 claims,

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and twice to FY 2014 claims to inflate
all charges to 2016. The applicant
computed an inflated average
standardized case-weighted charge per
case of $356,015. Using the FY 2016
IPPS Table 10 thresholds, the average
case-weighted threshold amount was
$157,951 (all calculations above were
performed using unrounded numbers).
Because the inflated average
standardized case-weighted charge per
case exceeds the average case-weighted
threshold amount, the applicant
maintained that the technology meets
the cost criterion. The applicant noted
that it did not include charges for
Defitelio® in the inflated average
standardized case-weighted charge per
case because the inflated average
standardized case-weighted charge per
case exceeded the average caseweighted threshold amount without
charges for Defitelio®.
The applicant provided a similar
analysis for each individual year of the
SAF data rather than combining all the
data from all 3 years into one analysis.
Under the other three analyses, the
applicant noted that the average
standardized case-weighted charge per
case exceeded the average case-

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weighted threshold amount (as shown
in the table below) without inflating the

charges and without adding any charges
for Defitelio®. We are inviting public

comments on whether Defitelio® meets
the cost criterion.

SAF year

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

2012 .........................................................................................................................................................................
2013 .........................................................................................................................................................................
2014 .........................................................................................................................................................................

With regard to the substantial clinical
improvement criterion, the applicant
maintained that Defitelio® is an
effective treatment for VOD as an early
onset cause of mortality following
HSCT. According to the applicant,
patients treated with Defitelio® have
improved survival and efficacy rates
compared to patients who were not
treated with Defitelio®. In increasing the
chances of post-HSCT survival,
Defitelio® affords the transplant patient
the opportunity for engraftment, which
could be a potential cure for the
underlying disease that required HSCT.
The applicant supported these
assertions with clinical evidence from
pivotal trial 2005–01, a Phase III
historical control study in which
patients with VOD with multi-organ
failure were given Defitelio® in doses of
25/mg/kg/day for the recommended
minimum treatment duration of 21 days.
Patients in the historical control group
were selected by an independent
medical review committee (MRC) from
a pool of 6,867 medical charts of
patients receiving HSCT that were
hospitalized from January 1995 through
November 2007. The trial consisted of
102 patients in the Defitelio® treated
group and 32 patients in the historical
control group. The trial used the
survival rate and rate of Complete
Response (CR) at Day+100 as clinical
endpoints. The observed survival rate at
Day+100 in the Defitelio® treated group
was 38.2 percent compared to 25
percent in the historical control group.
Moreover, the rate of CR by Day+100
post-HSCT for the Defitelio® treated
group was 25.5 percent compared to
12.5 percent in the historical control
group. The applicant conducted
additional analyses that showed
improvements in survival outcomes
among subgroups of patients with
baseline prognostic factors related to
worse outcomes.
According to the applicant, running a
controlled, blinded, and randomized
trial in a patient population with high
mortality rates would be unethical. We
are concerned that there are limitations
to the historical control group used in

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pivotal trial 2005–01. We believe that
the discrepancy between the size of the
treatment group (N=102) and the
historical control group (N=32) may
skew the trial results in favor of the
treatment group. We also are uncertain,
given the small sample size and
historical data used, whether the
historical control group is representative
of patients with VOD with multi-organ
failure. According to the applicant,
patients in the historical control group
were hospitalized between January 1995
and November 2007. Because of
advancements in medicine within this
timeframe, we are concerned that the
patients in the historical control group
cannot be appropriately compared to
patients in the treatment group.
Moreover, we believe that it is difficult
to attribute improved survival and CR
rates only to Defitelio® treatment.
We are inviting public comments on
whether Defitelio® meets the substantial
clinical improvement criterion.
We did not receive any written public
comments in response to the February
2016 New Technology Town Hall
meeting regarding this application for
new technology add-on payments.
g. EDWARDS INTUITY EliteTM Valve
System
Edwards Lifesciences submitted an
application for new technology add-on
payments for the EDWARDS INTUITY
EliteTM Valve System (INTUITY) for FY
2017. The device uses a rapid
deployment valve system and serves as
a prosthetic aortic valve, which is
inserted using surgical aortic valve
replacement (AVR). The device replaces
the diseased native valve in patients
with aortic valve disease, including
aortic stenosis. The components of the
device are: (1) A bovine pericardial
aortic bioprosthetic valve; (2) a balloon
expandable stainless steel frame; and (3)
a textured sealing cloth. The INTUITY
valve shares many basic features with
other tissue, bioprosthetic valves. The
leaflets are made of bovine pericardium,
rather than porcine valve tissue, or
purely mechanical elements.
With regard to the newness criterion,
the applicant submitted an application

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25055

Average
case-weighted
threshold
amount

Average
standardized
case-weighted
charge per
case

$161,469
150,585
163,434

$347,910
326,445
404,883

to the FDA for pre-market approval of
the INTUITY valve and anticipates FDA
approval prior to July 1, 2016. The
applicant indicated that the device
would be available on the market
shortly after approval. The applicant
submitted a request for a unique ICD–
10–PCS code for consideration at the
March 2016 ICD–10 Coordination and
Maintenance Committee meeting. If
approved, the codes will be effective on
October 1, 2016 (FY 2017). More
information on this request can be
found on the CMS Web site located at:
http://www.cms.gov/Medicare/Coding/
ICD10ProviderDiagnosticCodes/ICD-10CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology
meets all three of the substantial
similarity criteria, it would be
considered substantially similar to an
existing technology and would not be
considered ‘‘new’’ for purposes of new
technology add-on payments.
With regard to the first criterion,
whether a product uses the same or a
similar mechanism of action to achieve
a therapeutic outcome, the applicant
described three aspects of the valve
system that are unique relative to
existing devices. First, the valve system
has a deployment mechanism that
allows for rapid deployment and only
requires 3 sutures, as opposed to 12 to
18 sutures used in standard valve
replacement procedures. Second, the
flexible deployment arm allows
improved surgical access and
visualization, making the surgery less
challenging for the surgeon, which
improves the likelihood that the surgeon
can use a minimally invasive approach.
Third, the assembly of the device only
allows the correct valve size to be fitted,
which ensures that the valve does not
slip or migrate, which prevents
paravalvular leaks and patient
prosthetic mismatch. The applicant
maintained that the INTUITY has a
different mechanism of action than
other prosthetic aortic valves and,
therefore, is not substantially similar to
those used in standard aortic valve
replacement procedures.
With regard to the second and third
criteria, the device is used in the same

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patient population and would be
assigned to the same MS–DRGs as cases
involving other prosthetic aortic valves.
We also received information about the
Perceval aortic valve (LivaNova), which
received FDA approval in January 2016
and which appears to be a substantially
similar aortic valve. If the INTUITY
valve were to receive approval for new
technology add-on payments, we would
consider whether the INTUITY valve is
substantially similar to the device that
has already received FDA approval. If
we determine that it is substantially
similar, we note that the start date for
determining the duration of new
technology add-on payments would be
the date of FDA approval for the
Perceval aortic valve.
After reviewing the information
provided by the applicant with regard to

the substantial similarity criteria
discussed above, we have the following
concerns. First, it appears that this
device uses a similar mechanism of
action as standard aortic valves; the
differences described in the application,
with respect to how the valve is placed
and secured, and the number of sutures
required, do not readily distinguish the
mechanism of action from other aortic
valves. Second, the MS–DRGs to which
cases using the INTUITY would be
assigned, as indicated in the
application, are the same MS–DRGs to
which cases involving standard aortic
valves would be assigned. Third, the
device is used to treat the same disease
and patient population as standard
aortic valves. In light of these concerns,
we believe that this device appears to be
substantially similar to other valves

ICD–9–CM code

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

36.10
36.11
36.12
36.13
36.14
36.15
36.16
36.17

Code description

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

Aortocoronary bypass for heart revascularization, not otherwise specified.
(Aorto)coronary bypass of one coronary artery.
(Aorto)coronary bypass of two coronary arteries.
(Aorto)coronary bypass of three coronary arteries.
(Aorto)coronary bypass of four or more coronary arteries.
Single internal mammary-coronary artery bypass.
Double internal mammary-coronary artery bypass.
Abdominal-coronary artery bypass.

The applicant identified a total of
15,291 cases that mapped to MS–DRGs
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). The applicant calculated an
average unstandardized charge per case
of $178,608 for all cases. The applicant
then removed 100 percent of the charges
for pacemakers, investigational devices,
and other implants that would not be
required for patients receiving treatment
using the INTUITY.
The applicant standardized the
charges and then applied an inflation
factor of 1.076647, which is the 2-year
inflation factor in the FY 2016 IPPS/
LTCH final rule (80 FR 49784), to
update the charges from FY 2014 to FY
2016. Because the price of the INTUITY
has yet to be determined, the applicant

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used in aortic valve replacement. We are
inviting public comments on whether
the INTUITY meets the newness
criterion.
With regard to the cost criterion, the
applicant researched the FY 2014
MedPAR claims data file to identify
cases of patients who represent
potential recipients of treatment using
the INTUITY. The applicant identified
claims that had an ICD–9–CM diagnosis
code of 424.1 (Aortic valve disorder) in
combination with an ICD–9–CM
procedure code of 35.21 (Replacement
of aortic valve with tissue) or 35.22
(Open and other replacement of aortic
valve). The applicant also identified
cases with or without a coronary artery
bypass graft (CABG) using the ICD–9–
CM procedure codes in the table below.

Jkt 238001

calculated the average expected charge
using the same price as charged in the
recent IDE trial. Although the applicant
submitted data that related to the
estimated clinical trial cost of the
INTUITY, the applicant noted that the
cost of the technology was proprietary
information. To add charges for the new
technology, the applicant assumed a
hospital mark-up of approximately 3.0
percent, based on the current average
CCR for implantable devices (0.337) as
reported in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49429). Based on the
FY 2016 IPPS/LTCH PPS Table 10
thresholds, the average case-weighted
threshold amount was $163,173. The
applicant computed an inflated average
standardized case-weighted charge per
case of $185,982, which is $22,809
above the average case-weighted
threshold amount. Because the inflated
average standardized case-weighted
charge per case exceeds the average
case-weighted threshold amount, the
applicant maintained that the
technology meets the cost criterion.
We are concerned that the number of
individual cases that were identified
and provided by the applicant indicated
a total of 26,520 cases that would be
eligible for treatment using the
INTUITY, but the applicant only
included 15,291 cases in the final
sensitivity analysis. We would like more

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information from the applicant
regarding how it decided upon which
cases to include in the sensitivity
analysis, as well as further details about
how and on what basis the applicant
weighted CABG and non-CABG cases.
We are inviting public comments on
whether the INTUITY meets the cost
criterion, including with regard to the
concerns we have raised.
With regard to the substantial clinical
improvement criterion, the applicant
stated that the device improves clinical
outcomes for patients undergoing
minimally invasive AVR and fullsternotomy AVR. The applicant also
stated that the rapid deployment
technology enables reduced operative
time, specifically cross-clamp time,
thereby reducing the period of
myocardial ischemia. The applicant also
indicated that the flexible deployment
arm increases the likelihood that a
minimally invasive approach can be
used. In addition, the applicant
suggested that the device offers a
reduction in operative time for fullsternotomy AVR. The applicant noted
that clinical results demonstrated
significant patient outcome and
utilization improvements, including
improved patient satisfaction, faster
return to normal activity, decreased
post-operative pain, reduced mortality
and decreased complications, including

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need for reoperation due to bleeding,
reduced recovery time, and reduced
length of stay.
According to the applicant, the valve
has been tested clinically in several
programs. In the TRITON trial (Kocher
et al., 2013 14), 287 patients with aortic
stenosis underwent surgery in 1 of 6
European centers. The first 149 patients
received the first generation Model
8300A valve, and the next 138 patients
received the second generation Model
8300AB. The average age of the patients
was 75.7 years. Early, 30-day mortality
was 1.7 percent (5/287), the postoperative valve gradient was low, and
75 percent of the patients improved
functionally. A total of four valves were
explanted in the final 30 days due to
bleeding, and three were explanted later
for paravalvular leak, endocarditis, and
aortic root aneurysms. Follow-up
extended to 3 years (mean 1.8 years).
Implantation of the INTUITY using
minimally invasive surgery was
compared with conventional aortic
valve replacement in the CADENCE–
MIS randomized trial (Borger et al.,
2015 15) of 100 patients treated in 1 of
5 centers in Germany (3). Aortic crossclamp time was reduced from 54.0 to
41.3 minutes (p<0.0001), and
cardiopulmonary bypass time was
reduced from 74.4 to 68.8 minutes
(p=0.21). Early clinical outcomes were
similar: Two deaths in the MIS group
versus one death in the conventional
surgery group (p = 0.53), reoperation in
one patient in each group, and no
differences in other clinical outcomes.
The aortic valve gradient was
significantly lower in the MIS group: 8.5
vs. 10.3 mmHg.
The applicant also provided
information referring to unpublished
data about the preliminary outcomes of
the Transform trial; this trial included a
study arm that compared MIS surgery
with the INTUITY valve to historical
comparators that involved MIS surgery
with another valve. The applicant
indicated that key findings of this trial
included reduced procedure times and
cross-clamp times, reduced reoperations
and 30-day mortality, and reduced
length of stay for the INTUITY valve
relative to historical comparators that
involved another valve. The applicant
14 Kocher AA, Laufer G, Haverich A, et al. Oneyear outcomes of the surgical treatment of aortic
stenosis with a next generation surgical aortic valve
(TRITON) trial: A prospective multicenter study of
rapid-deployment aortic valve replacement with the
EDWARDS INTUITY valve system. J Thorac
Cardiovasc Surg. 2013; 145:110–116.
15 Borger MA, Moustafine V, Conradi L, et al. A
randomized multicenter trial of minimally invasive
rapid deployment versus conventional full
sternotomy aortic valve replacement. Ann Thorac
Surg 2015; 99:17–25.

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did not provide any details about these
outcomes, stating that the data would be
submitted for publication after FDA
review.
After reviewing the information
provided by the applicant, we have the
following concerns. We are concerned
that the INTUITY does not have
sufficient advantages over other
alternative surgically implanted valve
systems to constitute a substantial
clinical improvement. While the studies
included with the application
demonstrate reduced aortic cross-clamp
time, conventional aortic valve
replacement was used in the
comparison group; therefore, it is
unclear whether the reduced aortic
cross-clamp time is associated with the
INTUITY valve or with MIS surgery in
general. We understand that this issue is
currently being studied in the
Transform trial, which is in progress.
We also note that, there have been no
conducted trials of the INTUITY valve,
implanted using minimally invasive
surgery, versus traditional transcatheter
aortic valve replacement (TAVR)
procedures, which we believe would be
the most relevant comparison. We also
do not believe that the applicant
provided evidence to support its
assertion that the use of the INTUITY
valve increase the likelihood of MIS
surgery being performed. We are
inviting public comments on whether
the INTUITY valve meets the substantial
clinical improvement criterion.
Below is a summary of the written
comments we received on the INTUITY
valve in response to the February 2016
New Technology Town Hall meeting
and our response.
Comment: One commenter stated that
the Perceval bioprothesis is
substantially similar to the INTUITY
valve, in that they both map to the same
MS–DRGs 219, 220, and 221; they
utilize the same ICD–10 code 02RF8Z
(Replacement of aortic valve with
zooplastic tissue, open approach); they
are intended to treat the same or similar
disease and patient population; they are
intended to achieve the same
therapeutic outcome; and they are both
considered to be sutureless/rapid
deployment aortic heart valves used for
the replacement of diseased, damaged,
or malfunctioning native or prosthetic
aortic valves. The commenter cited
several meta-analyses that include both
the Perceval and INTUITY valves and
consider them clinically equivalent
technologies. The commenter also cited
excerpts from articles as well as a
description of the ongoing Perceval IDE
study to provide support for the
substantial clinical improvement of
sutureless/rapid deployment heart

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valves. The applicant requested that
Perceval and INTUITY valves be
considered in the same category for the
new technology add-on payment.
Response: We appreciate the
commenter’s input. We welcome
additional input from the public and
will take these comments into
consideration when deciding whether to
approve new technology add-on
payments for the INTUITY valve for FY
2017.
h. GORE® EXCLUDER® Iliac Branch
Endoprosthesis (IBE)
W.L. Gore and Associates, Inc.
submitted an application for new
technology add-on payments for the
GORE® EXCLUDER® Iliac Branch
Endoprosthesis (GORE IBE device) for
FY 2017. The device consists of two
components: The Iliac Branch
Component (IBC) and the Internal Iliac
Component (IIC). The applicant
indicated that each endoprosthesis is
pre-mounted on a customized delivery
and deployment system allowing for
controlled endovascular delivery via
bilateral femoral access. According to
the applicant, the device is designed to
be used in conjunction with the GORE®
EXCLUDER® AAA Endoprosthesis for
the treatment of patients requiring
repair of common iliac or aortoiliac
aneurysms. When deployed, the GORE
IBE device excludes the common iliac
aneurysm from systemic blood flow,
while preserving blood flow in the
external and internal iliac arteries.
With regard to the newness criterion,
the applicant submitted an application
to the FDA for pre-market approval of
the GORE IBE device, but has not yet
received FDA approval. The applicant
submitted a request for a unique ICD–
10–PCS code that was presented at the
March 2016 ICD–10 Coordination and
Maintenance Committee meeting. If
approved, the code will be effective on
October 1, 2016 (FY 2017). More
information on this request can be
found on the CMS Web site at: http://
www.cms.gov/Medicare/Coding/
ICD10ProviderDiagnosticCodes/ICD-10CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology
meets all three of the substantial
similarity criteria, it would be
considered substantially similar to an
existing technology and would not be
considered ‘‘new’’ for purposes of new
technology add-on payments.
With regard to the first criterion,
whether a product uses the same or a
similar mechanism of action to achieve
a therapeutic outcome, the applicant
indicated that the GORE IBE device is
based on the same design principles as
other endovascular repair devices, and

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its use differs because of the specific
target site for implantation.
Consequently, it has a different shape
and method of delivery from other
endovascular devices. The GORE IBE
device is similar to the GORE®
EXCLUDER® AAA Endoprosthesis,
primarily differing in device dimensions
to fit within the iliac artery anatomy.
With regard to the first criterion, we are
concerned that the GORE IBE device has
a similar mechanism of action to other
stenting grafts used to treat patients
with abdominal aortic aneurysms
(AAAs) because it repairs the abdominal
aortoiliac aneurysm from the inside and
is inserted in a similar manner to other
abdominal aortoiliac endovascular
aneurysm repair devices.
With regard to the second criterion,
whether a product is assigned to the
same or a different MS–DRG, the
applicant indicated that cases using the
GORE IBE device would map to the
same MS–DRGs as cases involving other
stent-grafts used to treat patients with
AAAs. Specifically, similar to cases
involving other stent-grafts used to treat
AAAs, cases involving the GORE IBE
device would be assigned to MS–DRG
268 (Aortic and Heart Assist Procedures
except Pulsation Balloon with MCC)
and MS–DRG 269 (Aortic and Heart
Assist Procedures except Pulsation
Balloon without MCC).
With regard to the third criterion,
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, the applicant
indicated that the GORE IBE device is
intended to be used in the treatment of
patients requiring repair of common
iliac or aortoiliac aneurysms. The
applicant stated that this device, if
approved, would be the first purposebuilt endovascular device for patients
whose conditions (common iliac or
aortoiliac aneurysm) put them at risk for
negative clinical outcomes due to
limitations of current treatment
methods, which may not preserve
internal iliac artery perfusion. The
applicant described current repair
options for these patients as: (a)
Intentional occlusion and coverage of
the internal iliac artery; (b) undergoing
a more extensive surgical operation to
place a bypass graft; or (c) use of
combinations of devices in a
nonindicated, variable, and inconsistent
manner. With regard to the third
criterion, we are concerned that this
device appears to treat a similar type of
disease to existing stent grafts.
Based on the statements above, the
applicant maintained that the GORE IBE
device is not substantially similar to
other stent-grafts used to treat patients

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with AAAs. We are inviting public
comments on whether Gore IBE device
is substantially similar to existing
technologies and whether the
technology meets the newness criterion.
With regard to the cost criterion, the
applicant researched the FY 2014
MedPAR claims data to identify patients
who may be eligible for treatment using
the GORE IBE device. The applicant
noted that cases eligible for the GORE
IBE device would map to MS–DRGs 268
(Aortic and Heart Assist Procedures
Except Pulsation Balloon with MCC)
and 269 (Aortic and Heart Assist
Procedures Except Pulsation Balloon
without MCC). The applicant provided
two analyses. The first analysis searched
for cases that may be potentially eligible
for the GORE IBE device by identifying
cases with endovascular aneurysm
repair (EVAR) with iliac diagnoses. To
identify these cases, the applicant
searched for cases that had an ICD–9–
CM primary procedure code of 39.71
(Endovascular implantation of other
graft in abdominal aorta) in combination
with a primary diagnosis code of 441.4
(Abdominal aneurysm without mention
of rupture) or 441.02 (Dissection of
aorta, abdominal). The applicant
excluded cases with a diagnosis code of
441.3 (Abdominal aneurysm, ruptured),
and cases with atherosclerosis of the
lower extremities (ICD–9–CM diagnosis
code 440.20 through 440.28). The
applicant then identified a subset of
cases (1,615 cases) with significant iliac
involvement (which indicated use of the
prior technology as well as disease
extent where the new technology could
be used) by searching for cases with a
secondary ICD–9–CM diagnosis code of
442.2 (Aneurysm of iliac artery) or
443.22 (Dissection of iliac artery). This
subset of cases was used in the analysis
with 205 cases that mapped to MS–DRG
268 and 1,410 cases that mapped to
MS–DRG 269. As discussed below, the
remaining cases (11,926 cases) were
used to help evaluate and compare
subsequent offset charge calculations
(base EVAR cases).
Using the 1,615 cases, the applicant
calculated an average unstandardized
case-weighted charge per case of
$121,527. Charges for the prior
technology (implants), which would be
offset by the new technology were
established by subtracting the average
implant charge in the 1,615 cases from
the average implant charge in the base
EVAR sample. The excess implant
charge represents current implant
charges being used in EVAR cases with
iliac involvement, and was subtracted
from the average unstandardized caseweighted charge per case.

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The applicant compared the average
unstandardized O.R. and radiology
charges associated with the new
technology from the clinical trial data
with the unstandardized O.R. and
radiology charges associated with the
prior technology from the MedPAR data
and noted that O.R. and radiology
charges for resources related to the new
technology and the prior technology
were similar. However, with regard to
charges in the intensive care unit (ICU),
there was a reduction of 56 percent in
ICU associated charges for the new
technology. Therefore, the applicant
offset the ICU associated charge by 56
percent and deducted this amount from
the average unstandardized caseweighted charge per case. The applicant
then standardized the charges, but noted
that it did not inflate the charges. The
applicant added charges for the GORE
IBE device by converting the costs of the
device to charges using the average CCR
for implantable devices (0.337) as
reported in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49429). The applicant
noted that the cost of the technology
was proprietary information. Based on
the FY 2016 IPPS/LTCH PPS Table 10
thresholds, the average case-weighted
threshold amount was $109,241. The
applicant computed an average
standardized case-weighted charge per
case of $124,129. Because the average
standardized case-weighted charge per
case exceeds the average case-weighted
threshold amount, the applicant
maintained that the technology meets
the cost criterion.
The second analysis was similar to
the first analysis, but searched the
MedPAR claims data file for cases with
an EVAR with an iliac diagnosis and
procedure instead of cases with EVAR
and only an iliac diagnosis. The
applicant used the same ICD–9–CM
procedure and diagnoses codes as used
in the first analysis, but used the
following ICD–9–CM procedure codes to
identify cases that had an iliac
procedure: 39.79 (Other endovascular
procedures on other vessels) in
combination with 39.29 (Other
(peripheral) vascular shunt or bypass),
39.79 in combination with 39.90
(Insertion of non-drug-eluting
peripheral (non-coronary) vessel
stent(s)) without 39.29, 39.90 in
combination with 00.41 (Procedure on
two vessels), 00.46 (Insertion of two
vascular stents), and 00.47 (Insertion of
three vascular stents) without 39.79 and
39.29. The applicant noted that the
expected distribution of cases for the
GORE IBE device is that 20 percent of
the cases would map to MS–DRG 268
and 80 percent of the cases would map

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to MS–DRG 269. Because this analysis
represents cases that had an actual iliac
procedure, the applicant applied this
distribution to the cases. The applicant
then followed the same methodology
above and removed charges for the prior
technology and resources related to the
prior technology, standardized the
charges, and then added charges related
to the GORE IBE device. Based on the
FY 2016 IPPS/LTCH PPS Table 10
thresholds, the average case-weighted
threshold amount was $113,015. The
applicant computed an inflated average
standardized case-weighted charge per
case of $138,179. Because the inflated
average standardized case-weighted
charge per case exceeds the average
case-weighted threshold amount, the
applicant maintained that the
technology meets the cost criterion.
With regard to the second analysis,
the applicant imputed the distribution
of cases. We are not sure how the
applicant determined which cases
would map to MS–DRG 268 or MS–DRG
269, if the distribution was imputed.
Also, the applicant did not disclose how
many cases were found in the claims
data after filtering the case volume using
ICD–9–CM procedure codes identifying
cases that had an iliac procedure. We
are inviting public comments on
whether the GORE IBE device meets the
cost criterion, including with regard to
the concerns we have raised.
With regard to the substantial clinical
improvement criterion, the applicant
indicated that current treatment
approaches have substantial risks of
complications that can negatively
impact quality of life. Available
treatment methods that do not preserve
internal iliac artery perfusion increase
risks for negative clinical outcomes;
compared to methods that preserve the
internal iliac artery, those that use
contralateral hypogastric embolization
result in a higher incidence of buttock
claudication (15–55 percent), sexual
dysfunction (5–45 percent), ischemia of
the colon (2.6 percent), and rarely,
ischemia of the spine. The applicant
cited the ‘‘12–04’’ study,16 which the
applicant suggested showed the GORE
IBE device to have 0 percent rates of
buttock claudication, new onset erectile
dysfunction, colonic ischemia, and
spinal cord ischemia. The applicant also
suggested that the 12–04 study showed
the GORE IBE device to have reduced
procedure time, reduced fluoroscopy
time, reduced reintervention rates, and
16 DeRubertis BG, Quinones-Baldrich WJ,
Greenberg JI, Jimenez JC, Lee JT. Results of a
double-barrel technique with commercially
available devices for hypogastric preservation
during aortoilac endovascular abdominal aortic
aneurysm repair. J Vasc Surg 2012;56:1252–1259.

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increased patency rates. The applicant
asserted that because the GORE IBE
device preserves flow to the internal
iliac artery, the risk of complications is
reduced, which represents a substantial
clinical improvement relative to current
treatment approaches. The applicant
also stated that, compared with
historical data for procedures done
using contralateral hypogastric
embolization, the GORE IBE device is
associated with reduced procedure time,
reduced fluoroscopy time, reduced
reintervention rates, reduced incidence
of aneurysm enlargement, and improved
patency rates.
The applicant submitted several
research articles with its application,
which consisted of a few very small case
series of 23 total patients
published,17 18 19 as well as some
abstracts of other case series. These
publications describe the procedural
results of using the device, with
angiographic endpoints, and
demonstrate the feasibility of insertion.
The applicant also indicated that other
treatment approaches, including open
surgery, are done infrequently, while
other approaches are not approved for
this purpose. Therefore, the applicant
indicated that it would be impractical to
conduct comparative studies.
After reviewing the information
provided by the applicant, we have the
following concerns: We are concerned
about the lack of clinical studies
comparing the GORE IBE device with
alternative methods of treatment, and
note that the application did not
provide data that supported its
assertions that the GORE IBE device is
associated with reduced procedure time,
reduced fluoroscopy time, reduced
reintervention rates, reduced incidence
of aneurysm enlargement, and improved
patency rates. We also note that the
applicant’s assertions about decreased
rates of complications appear to
compare a small number of published
cases of the use of the GORE IBE device
with complication rates cited in the
literature, which does not indicate
whether there is a valid basis for
comparison. We are inviting public
comments on whether the GORE IBE
17 DeRubertis BG, Quinones-Baldrich WJ,
Greenberg JI, Jimenez JC, Lee JT. Results of a
double-barrel technique with commercially
available devices for hypogastric preservation
during aortoilac endovascular abdominal aortic
aneurysm repair. J Vasc Surg 2012;56:1252–1259.
18 Ferrer C, De Crescenzo F, Coscarella C, Cao P.
Early experience with the Excluder(R) iliac branch
endoprosthesis. J Cardiovasc Surg 2014;55:679–683.
19 Scho
¨ nhofer S, Mansour R, Ghotbi R. Initial
results of the management of aortoiliac aneurysms
with GORE(R) Excluder(R) iliac branched
endoprosthesis. J Cardiovasc Surg 2015;56:883–888.

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device meets the substantial clinical
improvement criterion.
We did not receive any written public
comments in response to the February
2016 New Technology Town Hall
meeting regarding this application for
new technology add-on payments.
i. VistogardTM (Uridine Triacetate)
BTG International Inc., submitted an
application for new technology add-on
payments for the VistogardTM for FY
2017. VistogardTM (Uridine Triacetate)
was developed as an antidote to
Fluorouracil toxicity. Chemotherapeutic
agent 5-fluorouracil (5–FU) is used to
treat specific solid tumors. It acts upon
deoxyribonucleic acid (DNA) and
ribonucleic acid (RNA) in the body, as
uracil is a naturally occurring building
block for genetic material. Fluorouracil
is a fluorinated pyrimidine. As a
chemotherapy agent, Fluorouracil is
absorbed up by cells and causes the cell
to metabolize into byproducts that are
toxic and used to destroy cancerous
cells. The byproducts fluorodoxyuridine
monophosphate (F-dUMP) and
floxuridine triphosphate (FUTP) are
believed to do the following: Reduce
DNA synthesis, lead to DNA
fragmentation, and disrupt RNA
synthesis. Fluorouracil is used to treat a
variety of solid tumors such as
colorectal, head and neck, breast, and
ovarian cancer. With different tumor
treatments, different dosages, and
different dosing schedules, there is a
risk for toxicity in these patients.
Patients may suffer from fluorouracil
toxicity/death if 5–FU is delivered in
slight excess or at faster infusion rates
than prescribed. The cause of overdose
can happen for a variety of reasons
including: Pump malfunction, incorrect
pump programming or miscalculated
doses, and accidental or intentional
ingestion.
According to the applicant, current
treatment for fluorouracil toxicity is
supportive care, including
discontinuation of the drug, hydration,
filgrastim for neutropenia, as well as
antibiotics, antiemetics, and treatments
that are required for potential
gastrointestinal and cardiovascular
compromise. VistogardTM is an antidote
to Fluorouracil toxicity and is a prodrug of uridine. Once the drug is
metabolized into uridine, it competes
with the toxic byproduct FUTP in
binding to RNA, thus reducing the
impact FUTP has on cell death.
With regard to the newness criterion,
VistogardTM received FDA approval on
December 11, 2015. The applicant noted
that VistogardTM is the first FDA
approved antidote used to reverse
fluorouracil toxicity. Currently, there

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are no ICD–10–CM procedure codes that
uniquely identify the use of
VistogardTM. The applicant presented an
application at the March 9–10, 2016
meeting of the ICD–10 Coordination and
Maintenance Committee for a unique
ICD–10–PCS procedure code to identify
the use of VistogardTM. If approved, the
code will be effective on October 1,
2016 (FY 2017). More information on
this request can be found on the CMS
Web site at: http://www.cms.gov/
Medicare/Coding/
ICD10ProviderDiagnosticCodes/ICD-10CM-C-and-M-Meeting-Materials.html.
As discussed earlier, if a technology
meets all three of the substantial
similarity criteria, it would be
considered substantially similar to an
existing technology and would not be
considered ‘‘new’’ for purposes of new
technology add-on payments.
With regard to the first criterion,
whether the product uses the same or a
similar mechanism of action to achieve
a therapeutic outcome, the applicant
stated that VistogardTM is the first FDAapproved antidote used to reverse
fluorouracil toxicity. The applicant
maintained that VistogardTM has a
unique mechanism of action that is not
comparable to any other drug’s
mechanism of action that is currently
available on the U.S. market. The
applicant described in technical detail
how the novel and unique mechanism
of action provides bioavailable uridine,
a direct biochemical antagonist of 5–FU
toxicity; quickly absorbs into the
gastrointestinal tract due to its
lipophilic nature; in normal cells, stops
the process of cell damage and cell
destruction caused by 5–FU and
counteracts the effects of 5–FU toxicity;
protects normal cells and allows
recovery from damage caused by 5–FU,
without interfering with the primary
antitumor mechanism of 5–FU; and uses
uridine derived from VistogardTM to
convert it into uridine triphosphate

(UTP), which competes with FUTP for
incorporation into RNA, preventing
further cell destruction and doselimiting toxicities.
With regard to the second criterion,
whether the product is assigned to the
same or a different MS–DRG, the
applicant noted that Xuriden (uridine
triacetate) was also approved by the
FDA on September 8, 2015, as a
pyrimidine analog for uridine
replacement indicated for the treatment
of hereditary orotic aciduria (HOA).
According to the applicant, HOA is a
rare, potentially life-threatening, genetic
disorder in which patients (primarily
pediatric patients) lack the ability to
synthesize adequate amounts of uridine
and consequently can suffer from
hematologic abnormalities, failure to
thrive, a range of developmental delays,
and episodes of crystalluria leading to
obstructive uropathy. The applicant
stated that, although Xuriden is
approved as a chronic, once daily
medication (not to exceed 8 grams) that
is administered orally in the patient’s
home and also used to replace uridine,
Xuriden is not administered in a
hospital setting and cases involving the
use of Xuriden would not be assigned to
the same MS–DRGs associated with the
use of VistogardTM in the treatment of
patients experiencing 5–FU overdose or
severe toxicity. Therefore, the applicant
maintained that no other technology
similar to VistogardTM would map to the
same MS–DRGs as cases involving the
use of VistogardTM.
With regard to the third criterion,
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, similar to
above, the applicant maintained that
VistogardTM is the first FDA approved
antidote to reverse fluorouracil toxicity
and, therefore, no other technology
treats this disease or patient population
to reverse fluorouracil toxicity.

Therefore, the applicant believed that
VistogardTM is not substantially similar
to any other currently approved
technology. We are inviting public
comments on whether VistogardTM is
substantially similar to existing
technologies and whether it meets the
newness criterion.
With regard to the cost criterion, the
applicant searched the claims data from
the 2013 and 2014 Inpatient SAFs for
cases that may be eligible for treatment
involving VistogardTM. Specifically, the
applicant searched for cases reporting a
primary ICD–9–CM diagnosis code for
colorectal cancer, head and neck cancer,
gastric cancers and pancreatic cancer.
The applicant further narrowed the
potential target patient population by
identifying cases reporting toxicity due
to an antineoplastic. In order to include
only patients diagnosed with severe
toxicity that would be eligible for
treatment using VistogardTM, using
revenue center codes and ICD–9–CM V
codes, the applicant included an
additional cohort of cases representing
patients admitted from the emergency
department, an observation unit,
another short-term, acute care hospital,
or who have received chemotherapy
treatment during the inpatient stay
included on the claim. Because 5–FU
toxicity is associated with a high
mortality rate, the applicant identified a
subgroup of patients diagnosed with
chemotherapy toxicity who expired
during their inpatient visit or within 7
days of discharge. The applicant
provided two analyses to determine that
the technology meets the cost criterion:
One analysis of patients that
experienced toxicity with mortality and
a second analysis using the broader
chemotherapy toxicity cohort, which
includes patients who did not expire.
The table below provides the diagnosis
codes and information the applicant
used to identify cases for both of these
analyses.

Criterion

ICD–9 code

Description

Colorectal, head and neck, gastric, or pancreatic cancer (at
least one code).

153.x .................
154.x .................

Malignant neoplasm of colon.
Malignant neoplasm of rectum, rectosigmoid junction, and
anus.
Malignant neoplasm of head, face, and neck.
Malignant neoplasm of stomach.
Malignant neoplasm of pancreas.
Poisoning by antineoplastic and immunosuppressive drugs.
Antineoplastic and immunosuppressive drugs causing adverse effects in therapeutic use.
Revenue Center Codes 450, 451, 452, 456, 459.
Revenue Center Codes 760, 761, 762, 769.
Source of admission code = ‘‘4’’ ‘‘Transfer from hospital (Different facility)’’.
Encounter or admission for radiation.
Encounter for antineoplastic chemotherapy.
Encounter for antineoplastic immunotherapy (Must be primary diagnosis on the claim).

Toxicity due to an antineoplastic (at least one code) ................

171.0 ................
151.x .................
157.x .................
963.1 ................
E933.1 ..............

Admission to Inpatient Setting Admitted from ED .....................
or observation unit ..............................................................
or short-term, acute care hospital ......................................

Revenue Center
Revenue Center
N/A ...................

or received chemotherapy during inpatient stay ................

V58.0 ................
V58.11 ..............
V58.12 ..............

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25061

Criterion

ICD–9 code

Description

Expired during inpatient stay or within seven days of discharge (at least one code) a.

N/A ...................
N/A ...................

Determined by patient discharge status code.
If date of death in 100 percent Denominator File pertaining to
the year of the claim was within 7 days of claim discharge
date.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

a Required only for toxicity with mortality cohort.
Source: KNG Health analysis of 2013–2014 100% Inpatient Standard Analytic Files and 2013–2014 100% Denominator Files.

Under the first analysis, the applicant
found 76 cases with 18.42 percent of
those cases mapping to MS–DRG 871
(Septicemia or Severe Sepsis without
Mechanical Ventilation > 96 hours with
MCC), and the remaining number of
cases mapping to MS–DRGs with less
than 11 cases. According to the
applicant, the results of the analysis of
the MS–DRGs with less than 11 cases
could not be discussed separately
because of the small sample sizes. The
applicant believed that it was
unnecessary to remove any charges for
other previously used technologies
because although VistogardTM is
singular in its ability to treat 5–FU
toxicity, the associated charges for
palliative care would continue to be
necessary to treat the symptoms of the
toxicity, even though it is possible that
the use of VistogardTM may reduce a
patient’s hospital length of stay. To
update the charge data to the current
fiscal year, the applicant inflated the
charges based on the charge inflation
factor of 1.048116 in the FY 2016 IPPS/
LTCH proposed rule (80 FR 24632). A
1-year inflation factor was applied three
times for FY 2013 claims and two times
for FY 2014 claims, inflating all claims
to FY 2016. This resulted in an inflated
average standardized case-weighted
charge per case of $51,451. Using the FY
2016 IPPS Table 10 thresholds, the
average case-weighted threshold amount
was $46,233 (all calculations above
were performed using unrounded
numbers). The applicant noted that the
inflated average standardized caseweighted charge per case exceeded the
average case-weighted threshold amount
without including charges for
VistogardTM. Therefore, because the
inflated average standardized caseweighted charge per case exceeds the
average case-weighted threshold
amount, the applicant maintained that
the technology meets the cost criterion.
Under the second analysis, the
applicant used the same methodology it
used in its first analysis, except that the
analysis included cases representing
patients who did not expire. The
applicant found 879 cases with 8.53
percent of those cases mapping to MS–
DRG 392 (Esophagitis, Gastroenteritis
and Miscellaneous Digestive System
Disorders without MCC), and the

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remaining number of cases spread
across several MS–DRGs. The inflated
average standardized case-weighted
charge per case was $42,708. Using the
FY 2016 IPPS Table 10 thresholds, the
average case-weighted threshold amount
was $42,377 (all calculations above
were performed using unrounded
numbers). Similar to the results of the
first analysis, the applicant noted that
the inflated average standardized caseweighted charge per case exceeded the
average case-weighted threshold amount
without including charges for
VistogardTM. Therefore, because the
inflated average standardized caseweighted charge per case exceeds the
average case-weighted threshold
amount, the applicant maintained that
the technology also meets the cost
criterion under the second analysis.
We note that the applicant used the
inflation factor of 1.048116 from the FY
2016 IPPS/LTCH proposed rule instead
of the inflation factor of 1.037616 from
the FY 2016 IPPS/LTCH final rule (80
FR 49784). We believe that the applicant
should use the most recent data
available, which is the inflation factor
from the final rule. The inflation factor
from the FY 2016 IPPS/LTCH final rule
is lower than the inflation factor from
the proposed rule. However, the
difference between these two factors is
marginal. Also, as the applicant noted,
it did not include charges for
VistogardTM in its analysis. Therefore,
we believe that it is likely that the
applicant would still meet the cost
criterion under both analyses even if it
used the lower inflation factor from the
FY 2016 final rule. We are inviting
public comments on whether
VistogardTM meets the cost criterion
under both analyses.
With regard to substantial clinical
improvement, the applicant maintained
that VistogardTM represents a substantial
clinical improvement. The applicant
noted that VistogardTM is the first and
only antidote indicated to treat adult
and pediatric patients following a
fluorouracil overdose, regardless of the
presence of symptoms or whether a
patient exhibits early-onset, severe or
life-threatening toxicity within 96 hours
following the conclusion of fluorouracil
or capecitabine administration. The
applicant provided data from two

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studies (Study 1, an open-label, single
arm, multi-center expanded access
study and Study 2, an open-label, single
arm, multi-center emergency use study),
which combined enrolled 135 patients.
The applicant noted that 130 patients
treated with VistogardTM survived
through the 30-day treatment and
observation period (95 percent
Confidence Interval: 0.92, 0.99). Of the
135 patients, 30 percent were 65 years
old and older, including 11 percent of
patients who were 75 years old and
older.
According to the applicant, the
studies’ results demonstrate that
VistogardTM reduced the incidence,
severity and virulence of toxicities
associated with 5–FU toxicity due to
overdose or rapid onset. Specifically,
the applicant noted the following
results:
• VistogardTM ameliorated the
progression of mucositis, leukopenia
and thrombocytopenia; leukopenia and
thrombocytopenia were resolved in
almost all patients by the 4th week,
indicating recovery of the hematopoietic
system; mucositis also was resolved in
almost all patients within the 30-day
observation period with the incidence of
serious (Grade 3 or 4) mucositis being
very low; and no grade 4 mucositis was
observed in any patients who received
treatment using VistogardTM within 96
hours after 5–FU.
• Thirty-eight percent of patients who
experienced 5–FU overdose were able to
resume chemotherapy treatment in less
than 30 days after 5–FU toxicity, with
the majority of these patients resuming
treatment within 21 days. According to
the applicant, 21 percent of the patients
who presented with rapid onset of
serious toxicities resumed
chemotherapy treatment (typically with
a different agent than 5–FU) in less than
30 days, with an overall median time to
resumption of chemotherapy of 19 days.
• The safety and tolerability profile of
VistogardTM is consistent with what
would be expected for patients
diagnosed with cancer following 5–FU
chemotherapy treatment, but is
generally less in severity and incidence
when compared to what would be
expected with patients who experience
a 5–FU overdose. Specifically, during
Study 1, there were no patients that

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discontinued uridine triacetate
treatment as a result of adverse events,
and during Study 2, three patients
discontinued uridine triacetate
treatment as a result of adverse events,
one of which was considered possibly
related to uridine triacetate (nausea and
vomiting).
We are inviting public comments on
whether VistogardTM meets the
substantial clinical improvement
criterion.
We did not receive any written public
comments in response to the February
2016 New Technology Town Hall
meeting regarding this application for
new technology add-on payments.
III. Proposed Changes to the Hospital
Wage Index for Acute Care Hospitals

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

A. Background
1. Legislative Authority
Section 1886(d)(3)(E) of the Act
requires that, as part of the methodology
for determining prospective payments to
hospitals, the Secretary 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. We
currently define hospital labor market
areas based on the delineations of
statistical areas established by the Office
of Management and Budget (OMB). A
discussion of the proposed FY 2017
hospital wage index based on the
statistical areas appears under sections
III.A.2. and G. of the preamble of this
proposed rule.
Section 1886(d)(3)(E) of the Act
requires the Secretary to update the
wage index annually and to base the
update on a survey of wages and wagerelated costs of short-term, acute care
hospitals. (CMS collects these data on
the Medicare cost report, CMS Form
2552–10, Worksheet S–3, Parts II, III,
and IV. The OMB control number for
approved collection of this information
is 0938–0050.) This provision also
requires that any updates or adjustments
to the wage index be made in a manner
that ensures that aggregate payments to
hospitals are not affected by the change
in the wage index. The proposed
adjustment for FY 2017 is discussed in
section II.B. of the Addendum to this
proposed rule.
As discussed in section III.J. of the
preamble of this proposed rule, 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.

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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), 1886(d)(8)(C),
and 1886(d)(10) of the Act are equal to
the aggregate prospective payments that
would have been made absent these
provisions. The proposed budget
neutrality adjustment for FY 2017 is
discussed in section II.A.4.b. of the
Addendum to this proposed 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 proposing to apply to the FY 2017
wage index, appears under sections
III.E.3. and F. of the preamble of this
proposed rule.
2. Core-Based Statistical Areas (CBSAs)
Revisions for the Proposed FY 2017
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. Under section 1886(d)(3)(E)
of the Act, beginning with FY 2005, we
delineate hospital labor market areas
based on OMB-established Core-Based
Statistical Areas (CBSAs). The current
statistical areas (which were
implemented beginning with FY 2015)
are based on revised OMB delineations
issued on February 28, 2013, in OMB
Bulletin No. 13–01. OMB Bulletin No.
13–01 established revised delineations
for Metropolitan Statistical Areas,
Micropolitan Statistical Areas, and
Combined Statistical Areas in the
United States and Puerto Rico based on
the 2010 Census, and provided guidance
on the use of the delineations of these
statistical areas using standards
published on June 28, 2010 in the
Federal Register (75 FR 37246 through
37252). We refer readers to the FY 2015
IPPS/LTCH PPS final rule (79 FR 49951
through 49963) for a full discussion of
our implementation of the new OMB
labor market area delineations
beginning with the FY 2015 wage index.
Generally, OMB issues major
revisions to statistical areas every 10
years, based on the results of the
decennial census. However, OMB
occasionally issues minor updates and
revisions to statistical areas in the years
between the decennial censuses. On
July 15, 2015, OMB issued OMB
Bulletin No. 15–01, which provides
updates to and supersedes OMB

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Bulletin No. 13–01 that was issued on
February 28, 2013. The attachment to
OMB Bulletin No. 15–01 provides
detailed information on the update to
statistical areas since February 28, 2013.
The updates provided in OMB Bulletin
No. 15–01 are based on the application
of the 2010 Standards for Delineating
Metropolitan and Micropolitan
Statistical Areas to Census Bureau
population estimates for July 1, 2012
and July 1, 2013. The complete list of
statistical areas incorporating these
changes is provided in the attachment to
OMB Bulletin No. 15–01. According to
OMB, ‘‘[t]his bulletin establishes revised
delineations for the Nation’s
Metropolitan Statistical Areas,
Micropolitan Statistical Areas, and
Combined Statistical Areas. The bulletin
also provides delineations of
Metropolitan Divisions as well as
delineations of New England City and
Town Areas.’’ A copy of this bulletin
may be obtained on the Web site at:
https://www.whitehouse.gov/omb/
bulletins_default.
OMB Bulletin No. 15–01 made the
following changes that are relevant to
the IPPS wage index:
• Garfield County, OK, with principal
city Enid, OK, which was a
Micropolitan (geographically rural) area,
now qualifies as an urban new CBSA
21420 called Enid, OK.
• The county of Bedford City, VA, a
component of the Lynchburg, VA CBSA
31340, changed to town status and is
added to Bedford County. Therefore, the
county of Bedford City (SSA State
county code 49088, FIPS State County
Code 51515) is now part of the county
of Bedford, VA (SSA State county code
49090, FIPS State County Code 51019).
However, the CBSA remains Lynchburg,
VA, 31340.
• The name of Macon, GA, CBSA
31420, as well as a principal city of the
Macon-Warner Robins, GA combined
statistical area, is now Macon-Bibb
County, GA. The CBSA code remains as
31420.
We believe that it is important for the
IPPS to use the latest labor market area
delineations available as soon as is
reasonably possible in order to maintain
a more accurate and up-to-date payment
system that reflects the reality of
population shifts and labor market
conditions (79 FR 28055). Therefore, we
are proposing to implement these
revisions, effective October 1, 2016,
beginning with the FY 2017 wage
indexes. We are proposing to use these
new definitions to calculate area wage
indexes in a manner that is generally
consistent with the CBSA-based
methodologies finalized in the FY 2005
and the FY 2015 IPPS final rules. For FY

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2017, Tables 2 and 3 for this proposed
rule and the County to CBSA Crosswalk
File and Urban CBSAs and Constituent
Counties for Acute Care Hospitals File
posted on the CMS Web site reflect
these CBSA changes. We are inviting
public comments on these proposals.
B. Worksheet S–3 Wage Data for the
Proposed FY 2017 Wage Index
The proposed FY 2017 wage index
values are based on the data collected
from the Medicare cost reports
submitted by hospitals for cost reporting
periods beginning in FY 2013 (the FY
2016 wage indexes were based on data
from cost reporting periods beginning
during FY 2012).

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

1. Included Categories of Costs
The proposed FY 2017 wage index
includes all of the following categories
of data associated with costs paid under
the IPPS (as well as outpatient costs):
• Salaries and hours from short-term,
acute care hospitals (including paid
lunch hours and hours associated with
military leave and jury duty);
• Home office costs and hours;
• Certain contract labor costs and
hours, which include direct patient
care, certain top management,
pharmacy, laboratory, and nonteaching
physician Part A services, and certain
contract indirect patient care services
(as discussed in the FY 2008 final rule
with comment period (72 FR 47315
through 47317)); and
• Wage-related costs, including
pension costs (based on policies
adopted in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51586 through 51590))
and other deferred compensation costs.
2. Excluded Categories of Costs
Consistent with the wage index
methodology for FY 2016, the proposed
wage index for FY 2017 also excludes
the direct and overhead salaries and
hours for services not subject to IPPS
payment, such as skilled nursing facility
(SNF) services, home health services,
costs related to GME (teaching
physicians and residents) and certified
registered nurse anesthetists (CRNAs),
and other subprovider components that
are not paid under the IPPS. The
proposed FY 2017 wage index also
excludes the salaries, hours, and wagerelated 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 wagerelated costs of CAHs are excluded from
the wage index for the reasons
explained in the FY 2004 IPPS final rule
(68 FR 45397 through 45398).

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3. Use of Wage Index Data by Suppliers
and Providers Other Than Acute Care
Hospitals Under the IPPS
Data collected for the IPPS wage
index also are currently used to
calculate wage indexes applicable to
suppliers and other providers, such as
SNFs, home health agencies (HHAs),
ambulatory surgical centers (ASCs), 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 indexes of any supplier or
provider except IPPS providers and
LTCHs. Such comments should be made
in response to separate proposed rules
for those suppliers and providers.
C. Verification of Worksheet S–3 Wage
Data
The wage data for the proposed FY
2017 wage index were obtained from
Worksheet S–3, Parts II and III of the
Medicare cost report (Form CMS–2552–
10, OMB control number 0938–0050) for
cost reporting periods beginning on or
after October 1, 2012, and before
October 1, 2013. For wage index
purposes, we refer to cost reports during
this period as the ‘‘FY 2013 cost report,’’
the ‘‘FY 2013 wage data,’’ or the ‘‘FY
2013 data.’’ Instructions for completing
the wage index sections of Worksheet
S–3 are included in the Provider
Reimbursement Manual (PRM), Part 2
(Pub. No. 15–2), Chapter 40, Sections
4005.2 through 4005.4. The data file
used to construct the proposed FY 2017
wage index includes FY 2013 data
submitted to us as of February 29, 2016.
As in past years, we performed an
extensive review of the wage data,
mostly through the use of edits for
reasonableness designed to identify
aberrant data.
We asked our MACs to revise or verify
data elements that result in specific edit
failures. For the proposed FY 2017 wage
index, we identified and excluded 62
providers with aberrant data that should
not be included in the proposed wage
index. Of these 62 providers that we
excluded from the proposed wage
index, 47 have data that we do not
expect to change such that the data
would be included in the final wage
index (for example, among the reasons
these providers were excluded is they
are low Medicare utilization providers,
they closed and failed edits for
reasonableness, or they have extremely
high or low average hourly wages that
are atypical for their CBSAs). If data
elements for some of these providers are
corrected, we intend to include those
providers in the calculation of the final

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25063

FY 2017 wage index. We also adjusted
certain aberrant data and included these
data in the proposed wage index. For
example, in situations where a hospital
did not have documentable salaries,
wages, and hours for housekeeping and
dietary services, we imputed estimates,
in accordance with policies established
in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49965 through 49967).
In constructing the proposed FY 2017
wage index, we included the wage data
for facilities that were IPPS hospitals in
FY 2013, 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 believed 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 through 45398). For the
this proposed rule, we removed 3
hospitals that converted to CAH status
on or after February 5, 2015, the cut-off
date for CAH exclusion from the FY
2016 wage index, and through and
including January 22, 2016, the cut-off
date for CAH exclusion from the FY
2017 wage index. After removing
hospitals that converted to CAH status,
we calculated the proposed FY 2017
wage index based on 3,345 hospitals.
For the proposed FY 2017 wage
index, we allotted the wages and hours
data for a multicampus hospital among
the different labor market areas where
its campuses are located in the same
manner that we allotted such hospitals’
data in the FY 2016 wage index (80 FR
49489 through 49491). Table 2, which
contains the proposed FY 2017 wage
index associated with proposed rule
(available via the Internet on the CMS
Web site), includes separate wage data
for the campuses of 9 multicampus
hospitals.
D. Method for Computing the Proposed
FY 2017 Unadjusted Wage Index
The method used to compute the
proposed FY 2017 wage index without
an occupational mix adjustment follows
the same methodology that we used to
compute the FY 2012, FY 2013, FY
2014, FY 2015, and FY 2016 final wage
indexes without an occupational mix
adjustment (76 FR 51591 through 51593,
77 FR 53366 through 53367, 78 FR
50587 through 50588, 79 FR 49967 and

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80 FR 49491 through 49492,
respectively).
As discussed in the FY 2012 IPPS/
LTCH PPS final rule, in ‘‘Step 5,’’ for
each hospital, we adjust the total
salaries plus wage-related costs to a
common period to determine total
adjusted salaries plus wage-related
costs. To make the wage adjustment, we
estimate the percentage change in the
employment cost index (ECI) for
compensation for each 30-day
increment from October 14, 2012,
through April 15, 2014, for private
industry hospital workers from the BLS’
Compensation and Working Conditions.
We have consistently used the ECI as
the data source for our wages and
salaries and other price proxies in the
IPPS market basket, and we are not
proposing any changes to the usage for
FY 2017. The factors used to adjust the
hospital’s data were based on the
midpoint of the cost reporting period, as
indicated in the following table.

MIDPOINT OF COST REPORTING
PERIOD
After

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

10/14/2012
11/14/2012
12/14/2012
01/14/2013
02/14/2013
03/14/2013
04/14/2013
05/14/2013
06/14/2013
07/14/2013
08/14/2013
09/14/2013
10/14/2013
11/14/2013
12/14/2013
01/14/2014
02/14/2014
03/14/2014

Adjustment
factor

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

11/15/2012
12/15/2012
01/15/2013
02/15/2013
03/15/2013
04/15/2013
05/15/2013
06/15/2013
07/15/2013
08/15/2013
09/15/2013
10/15/2013
11/15/2013
12/15/2013
01/15/2014
02/15/2014
03/15/2014
04/15/2014

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

1.02321
1.02183
1.02040
1.01894
1.01743
1.01592
1.01443
1.01297
1.01152
1.01006
1.00859
1.00711
1.00561
1.00408
1.00260
1.00124
1.00000
0.99878

For example, the midpoint of a cost
reporting period beginning January 1,
2013, and ending December 31, 2013, is
June 30, 2013. An adjustment factor of
1.01152 would be applied to the wages
of a hospital with such a cost reporting
period.
Using the data as previously
described, the proposed FY 2017
national average hourly wage
(unadjusted for occupational mix) is
$41.1026.
Previously, we would also provide a
Puerto Rico overall average hourly
wage. As discussed in section IV.A. of
the preamble of this proposed rule, prior
to January 1, 2016, Puerto Rico hospitals
were paid based on 75 percent of the
national standardized amount and 25

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percent of the Puerto Rico-specific
standardized amount. As a result, we
calculated a Puerto Rico-specific wage
index that was applied to the labor
share of the Puerto Rico-specific
standardized amount. Section 601 of the
Consolidated Appropriations Act, 2016
(Pub. L. 114–113), enacted on December
18, 2015, amended section 1886(d)(9)(E)
of the Act to specify that the payment
calculation with respect to operating
costs of inpatient hospital services of a
subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after
January 1, 2016, shall use 100 percent
of the national standardized amount.
Because Puerto Rico hospitals are no
longer paid with a Puerto Rico-specific
standardized amount as of January 1,
2016, under section 1886(d)(9)(E) of the
Act, as amended by section 601 of the
Consolidated Appropriations Act, 2016,
there is no longer a need to calculate a
Puerto Rico-specific average hourly
wage and wage index. Hospitals in
Puerto Rico are now paid 100 percent of
the national standardized amount and,
therefore, are subject to the national
average hourly wage (unadjusted for
occupational mix) (which would be
$41.1026 for this FY 2017 proposed
rule) and the national wage index,
which is applied to the national labor
share of the national standardized
amount. Accordingly, for FY 2017, we
are not proposing a Puerto Rico-specific
overall average hourly wage or wage
index.
E. Proposed Occupational Mix
Adjustment to the FY 2017 Wage Index
As stated earlier, section 1886(d)(3)(E)
of the Act provides for the collection of
data every 3 years on the occupational
mix of employees for each short-term,
acute care hospital participating in the
Medicare program, in order to construct
an occupational mix adjustment to the
wage index, for application beginning
October 1, 2004 (the FY 2005 wage
index). The purpose of the occupational
mix adjustment is to control for the
effect of hospitals’ employment choices
on the wage index. For example,
hospitals may choose to employ
different combinations of registered
nurses, licensed practical nurses,
nursing aides, and medical assistants for
the purpose of providing nursing care to
their patients. The varying labor costs
associated with these choices reflect
hospital management decisions rather
than geographic differences in the costs
of labor.
1. Use of 2013 Occupational Mix Survey
for the FY 2017 Proposed Wage Index
Section 304(c) of Public Law 106–554
amended section 1886(d)(3)(E) of the

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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 collected data in
2013 to compute the occupational mix
adjustment for the FY 2016, FY 2017,
and FY 2018 wage indexes. A new
measurement of occupational mix is
required for FY 2019.
The 2013 survey included the same
data elements and definitions as the
previous 2010 survey and provided for
the collection of hospital-specific wages
and hours data for nursing employees
for calendar year 2013 (that is, payroll
periods ending between January 1, 2013
and December 31, 2013). We published
the 2013 survey in the Federal Register
on February 28, 2013 (78 FR 13679
through 13680). This survey was
approved by OMB on May 14, 2013, and
is available on the CMS Web site at:
https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Wage-Index-FilesItems/Medicare-Wage-IndexOccupational-Mix-Survey2013.html.
The 2013 Occupational Mix Survey
Hospital Reporting Form CMS–10079
for the Wage Index Beginning FY 2016
(in Excel format) is available on the
CMS Web site at: https://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files-Items/Medicare-WageIndex-Occupational-MixSurvey2013.html. Hospitals were
required to submit their completed 2013
surveys to their MACs by July 1, 2014.
The preliminary, unaudited 2013 survey
data were posted on the CMS Web site
on July 11, 2014. As with the Worksheet
S–3, Parts II and III cost report wage
data, we asked our MACs to revise or
verify data elements in hospitals’
occupational mix surveys that result in
certain edit failures.
2. Development of the 2016 Medicare
Wage Index Occupational Mix Survey
for the FY 2019 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 collected data in 2013 to compute
the occupational mix adjustment for the
FY 2016, FY 2017, and FY 2018 wage
indexes. A new measurement of
occupational mix is required for FY
2019. The FY 2019 occupational mix
adjustment will be based on a new
calendar year (CY) 2016 survey. The CY
2016 survey (CMS Form CMS–10079) is
currently awaiting approval by OMB,

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and can be accessed at http://
www.reginfo.gov/public/do/
PRAViewICR?ref_nbr=201512-0938-011.
3. Calculation of the Proposed
Occupational Mix Adjustment for FY
2017
For FY 2017, we are proposing to
calculate the occupational mix
adjustment factor using the same
methodology that we used for the FY
2012, FY 2013, FY 2014, FY 2015, and
FY 2016 wage indexes (76 FR 51582
through 51586, 77 FR 53367 through
53368, 78 FR 50588 through 50589, 79
FR 49968, and 80 FR 49492 through
49493, respectively) and to apply the
occupational mix adjustment to 100
percent of the FY 2017 wage index.
Because the statute requires that the
Secretary measure the earnings and paid
hours of employment by occupational
category not less than once every 3
years, 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 2017 wage index. For the FY
2017 wage index, we are using the
Worksheet S–3, Parts II and III wage
data of 3,345 hospitals, and we are using
the occupational mix surveys of 3,143
hospitals for which we also have
Worksheet S–3 wage data, which
represents a ‘‘response’’ rate of 94
percent (3,143/3,345). For the proposed
FY 2017 wage index in this proposed
rule, we applied proxy data for
noncompliant hospitals, new hospitals,

or hospitals that submitted erroneous or
aberrant data in the same manner that
we applied proxy data for such
hospitals in the FY 2012 wage index
occupational mix adjustment (76 FR
51586).
F. Analysis and Implementation of the
Proposed Occupational Mix Adjustment
and the Proposed FY 2017 Occupational
Mix Adjusted Wage Index
1. Analysis of the Occupational Mix
Adjustment and the Occupational Mix
Adjusted Wage Index
As discussed in section III.E. of the
preamble of this proposed rule, for FY
2017, we are proposing to apply the
occupational mix adjustment to 100
percent of the FY 2017 wage index. We
calculated the proposed occupational
mix adjustment using data from the
2013 occupational mix survey data,
using the methodology described in the
FY 2012 IPPS/LTCH PPS final rule (76
FR 51582 through 51586).
Using the occupational mix survey
data and applying the occupational mix
adjustment to 100 percent of the FY
2017 wage index results in a proposed
national average hourly wage of
$41.0651. Previously, we would also
provide a Puerto Rico overall average
hourly wage. As discussed in section
IV.A. of the preamble of this proposed
rule, prior to January 1, 2016, Puerto
Rico hospitals were paid based on 75
percent of the national standardized
amount and 25 percent of the Puerto
Rico-specific standardized amount. As a
result, we calculated a Puerto Ricospecific wage index that was applied to

the labor-related share of the Puerto
Rico-specific standardized amount.
Section 601 of the Consolidated
Appropriations Act, 2016 (Pub. L. 114–
113), enacted on December 18, 2015,
amended section 1886(d)(9)(E) of the
Act to specify that the payment
calculation with respect to operating
costs of inpatient hospital services of a
subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after
January 1, 2016, shall use 100 percent
of the national standardized amount.
Because Puerto Rico hospitals are no
longer paid with a Puerto Rico-specific
standardized amount as of January 1,
2016 under section 1886(d)(9)(E) of the
Act, as amended by section 601 of the
Consolidated Appropriations Act, 2016,
there is no longer a need to calculate a
Puerto Rico-specific average hourly
wage and wage index. Hospitals in
Puerto Rico are now paid 100 percent of
the national standardized amount and,
therefore, are subject to the national
average hourly wage (adjusted for
occupational mix) (which would be
$41.0651 for this FY 2017 IPPS
proposed rule) and the national wage
index, which is applied to the national
labor share of the national standardized
amount. Accordingly, for FY 2017, we
are not proposing a Puerto Rico-specific
overall average hourly wage or wage
index.
The proposed FY 2017 national
average hourly wages for each
occupational mix nursing subcategory
as calculated in Step 2 of the
occupational mix calculation are as
follows:
Average hourly
wage

Occupational mix nursing subcategory

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National
National
National
National
National

RN .....................................................................................................................................................................................
LPN and Surgical Technician ............................................................................................................................................
Nurse Aide, Orderly, and Attendant ..................................................................................................................................
Medical Assistant ..............................................................................................................................................................
Nurse Category .................................................................................................................................................................

The proposed national average hourly
wage for the entire nurse category as
computed in Step 5 of the occupational
mix calculation is $32.844074591.
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.

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Based on the 2013 occupational mix
survey data, we determined (in Step 7
of the occupational mix calculation) that
the national percentage of hospital
employees in the nurse category is 42.6
percent, and the national percentage of
hospital employees in the all other
occupations category is 57.4 percent. At
the CBSA level, the percentage of
hospital employees in the nurse
category ranged from a low of 25.6
percent in one CBSA to a high of 80.5
percent in another CBSA.
We compared the proposed FY 2017
occupational mix adjusted wage indexes
for each CBSA to the proposed

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$38.814164598
22.733613839
15.94875556
18.058859076
32.844074591

unadjusted wage indexes for each
CBSA. As a result of applying the
occupational mix adjustment to the
wage data, the proposed wage index
values for 221 (54.2 percent) urban areas
and 24 (51.1 percent) rural areas would
increase. One hundred and three (25.2
percent) urban areas would increase by
greater than or equal to 1 percent but
less than 5 percent, and 6 (1.5 percent)
urban areas would increase by 5 percent
or more. Nine (19.1 percent) rural areas
would increase by greater than or equal
to 1 percent but less than 5 percent, and
no rural areas would increase by 5
percent or more. However, the proposed

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wage index values for 185 (45.3 percent)
urban areas and 23 (48.9 percent) rural
areas would decrease. Eighty-nine (21.8
percent) urban areas would decrease by
greater than or equal to 1 percent but
less than 5 percent, and no urban area
would decrease by 5 percent or more.
Seven (14.9 percent) rural areas would
decrease by greater than or equal to 1
percent and less than 5 percent, and no
rural areas would decrease by 5 percent
or more. The largest positive impacts
would be 17.4 percent for an urban area
and 2.9 percent for a rural area. The
largest negative impacts would be 4.9
percent for an urban area and 2.1
percent for a rural area. Two urban
areas’ wage indexes, but no rural area
wage indexes, would remain unchanged
by application of the proposed
occupational mix adjustment. These
results indicate that a larger percentage
of urban areas (54.2 percent) would
benefit from the proposed occupational
mix adjustment than would rural areas
(51.1 percent).

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G. Transitional Wage Indexes
1. Background
In the FY 2015 IPPS/LTCH PPS
proposed rule and final rule (79 FR
28060 and 49957, respectively), we
stated that, overall, we believed
implementing the new OMB labor
market area delineations would result in
wage index values being more
representative of the actual costs of
labor in a given area. However, we
recognized that some hospitals would
experience decreases in wage index
values as a result of the implementation
of these new OMB labor market area
delineations. We also realized that some
hospitals would have higher wage index
values due to the implementation of the
new OMB labor market area
delineations.
The FY 2015 IPPS/LTCH PPS final
rule (79 FR 49957) explained the
methodology utilized in implementing
prior transition periods when adopting
changes that have significant payment
implications, particularly large negative
impacts. Specifically, for FY 2005, in
the FY 2005 IPPS final rule (69 FR
49032 through 49034), we provided
transitional wage indexes when the
OMB definitions were implemented
after the 2000 Census. The FY 2015
IPPS/LTCH PPS final rule (79 FR 49957
through 49962) established similar
transition methodologies to mitigate any
negative payment impacts experienced
by hospitals due to our adoption of the
new OMB labor market area
delineations for FY 2015.
As finalized in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 49957

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through 49960) and as discussed below,
for FY 2017, we will be in the third and
final year of two 3-year transition
periods for wage index (1) for hospitals
that, for FY 2014, were located in an
urban county that became rural under
the new OMB delineations, and had no
form of wage index reclassification or
redesignation in place for FY 2015 (that
is, MGCRB reclassifications under
section 1886(d)(10) of the Act,
redesignations under section
1886(d)(8)(B) of the Act, or rural
reclassifications under section
1886(d)(8)(E) of the Act); and (2) for
hospitals deemed urban under section
1886(d)(8)(B) of the Act where the urban
area became rural under the new OMB
delineations.
2. Transition for Hospitals in Urban
Areas That Became Rural
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49957 through 49959), for
hospitals that, for FY 2014, were located
in an urban county that became rural
under the new OMB delineations, and
had no form of wage index
reclassification or redesignation in place
for FY 2015 (that is, MGCRB
reclassifications under section
1886(d)(10) of the Act, redesignations
under section 1886(d)(8)(B) of the Act,
or rural reclassifications under section
1886(d)(8)(E) of the Act), we adopted a
policy to assign them the urban wage
index value of the CBSA in which they
were physically located for FY 2014 for
a period of 3 fiscal years (with the rural
and imputed floors applied and with the
rural floor budget neutrality adjustment
applied to the area wage index). FY
2017 will be the third year of this
transition policy, and we are not
proposing any changes to this policy in
this proposed rule. In the FY 2015 IPPS/
LTCH PPS final rule (79 FR 49957) and
the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49495), we stated our belief that
it is appropriate to apply a 3-year
transition period for hospitals located in
urban counties that would become rural
under the new OMB delineations, given
the potentially significant payment
impacts for these hospitals. We continue
to believe that assigning the wage index
of the hospitals’ FY 2014 area for a 3year transition is the simplest and most
effective method for mitigating negative
payment impacts due to the adoption of
the new OMB delineations.
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49959), we noted that there
were situations where a hospital could
not be assigned the wage index value of
the CBSA in which it geographically
was located in FY 2014 because that
CBSA split and no longer exists and
some or all of the constituent counties

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were added to another urban labor
market area under the new OMB
delineations. If the hospital could not be
assigned the wage index value of the
CBSA in which it was geographically
located in FY 2014 because that CBSA
split apart and no longer exists, and
some or all of its constituent counties
were added to another urban labor
market area under the new OMB
delineations, we established that
hospitals located in such counties that
became rural under the new OMB
delineations were assigned the wage
index of the urban labor market area
that contained the urban county in their
FY 2014 CBSA to which they were
closest (with the rural and imputed
floors applied and with the rural floor
budget neutrality adjustment applied).
Any such assignment made in FY 2015
and continued in FY 2016 will continue
for FY 2017, except as discussed later in
this section. We continue to believe this
approach minimizes the negative effects
of the change in the OMB delineations.
Under the policy adopted in the FY
2015 IPPS/LTCH PPS final rule, if a
hospital for FY 2014 was located in an
urban county that became rural for FY
2015 under the new OMB delineations
and such hospital sought and was
granted reclassification or redesignation
for FY 2015 or FY 2016, or such hospital
seeks and is granted any reclassification
or redesignation for FY 2017, the
hospital will permanently lose its 3-year
transitional assigned wage index status,
and will not be eligible to reinstate it.
We established the transition policy to
assist hospitals if they experience a
negative payment impact specifically
due to the adoption of the new OMB
delineations in FY 2015. If a hospital
chooses to forego this transition
adjustment by obtaining some form of
reclassification or redesignation, we do
not believe reinstatement of this
transition adjustment would be
appropriate. The purpose of the
transition adjustment policy is to assist
hospitals that may be negatively
impacted by the new OMB delineations
in transitioning to a wage index based
on these delineations. By obtaining a
reclassification or redesignation, we
believe that the hospital has made the
determination that the transition
adjustment is not necessary because it
has other viable options for mitigating
the impact of the transition to the new
OMB delineations.
As we did for FY 2015 (79 FR 49959)
and FY 2016 (80 FR 49495), with
respect to the wage index computation
for FY 2017, we will follow our existing
policy regarding the inclusion of a
hospital’s wage index data in the CBSA
in which it is geographically located (we

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refer readers to Step 6 of the method for
computing the unadjusted wage index
in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51592)). Accordingly, for FY
2017, the wage data of all hospitals
receiving this type of 3-year transition
adjustment will be included in the
statewide rural area in which they are
geographically located under the new
OMB labor market area delineations.
After the 3-year transition period,
beginning in FY 2018, these formerly
urban hospitals will receive their
statewide rural wage index, absent any
reclassification or redesignation.
In addition, we established in the FY
2015 IPPS/LTCH PPS final rule (79 FR
49959) that the hospitals receiving this
3-year transition because they are in
counties that were urban under the FY
2014 CBSA definitions, but are rural
under the new OMB delineations, will
not be considered urban hospitals.
Rather, they will maintain their status as
rural hospitals for other payment
considerations. This is because our
application of a 3-year transitional wage
index for these newly rural hospitals
only applies for the purpose of
calculating the wage index under our
adoption of the new OMB delineations.
3. Transition for Hospitals Deemed
Urban Under Section 1886(d)(8)(B) of
the Act Where the Urban Area Became
Rural Under the New OMB Delineations
As discussed in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 49959
through 49960) and FY 2016 IPPS/LTCH
PPS final rule (80 FR 49495 through
49496), there were some hospitals that,
for FY 2014, were geographically
located in rural areas but were deemed
to be urban under section 1886(d)(8)(B)
of the Act. For FY 2015, some of these
hospitals redesignated under section
1886(d)(8)(B) of the Act were no longer
eligible for deemed urban status under
the new OMB delineations, as discussed
in detail in section III.H.3. of the
preamble of the FY 2015 IPPS/LTCH
PPS final rule. Similar to the policy
implemented in the FY 2005 IPPS final
rule (69 FR 49059), and consistent with
the FY 2015 policy we established for
other hospitals in counties that were
urban and became rural under the new
OMB delineations, we finalized a policy
to apply a 3-year transition to these
hospitals redesignated to urban areas
under section 1886(d)(8)(B) of the Act
for FY 2014 that are no longer deemed
urban under the new OMB delineations
and revert to being rural.
For FY 2017, we are not proposing
any changes to this policy and will
continue the third and final year of the
implementation of our policy to provide
a 3-year transition adjustment to

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hospitals that are deemed urban under
section 1886(d)(8)(B) of the Act under
the FY 2014 labor market area
delineations, but are considered rural
under the new OMB delineations,
assuming no other form of wage index
reclassification or redesignation is
granted. We assign these hospitals the
area wage index value of hospitals
reclassified to the urban CBSA (that is,
the attaching wage index) to which they
were redesignated in FY 2014 (with the
rural and imputed floors applied and
with the rural floor budget neutrality
adjustment applied). If the hospital
cannot be assigned the reclassified wage
index value of the CBSA to which it was
redesignated in FY 2014 because that
CBSA was split apart and no longer
exists, and some or all of its constituent
counties were added to another urban
labor market area under the new OMB
delineations, such hospitals are
assigned the wage index of the hospitals
reclassified to the urban labor market
area that contained the urban county in
their FY 2014 redesignated CBSA to
which they were closest. We assign
these hospitals the area wage index of
hospitals reclassified to a CBSA because
hospitals deemed urban under section
1886(d)(8)(B) of the Act are treated as
reclassified under current policy, under
which such hospitals receive an area
wage index that includes wage data of
all hospitals reclassified to the area.
This wage index assignment will be
forfeited if the hospital obtains any form
of wage index reclassification or
redesignation.
4. Budget Neutrality
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50372 through 50373), for
FY 2015, and in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49496), for
FY 2016, we applied the 3-year
transition wage index adjustments in a
budget neutral manner. For FY 2017, we
are proposing to apply the 3-year
transition adjustments in a budget
neutral manner. We are proposing to
make an adjustment to the standardized
amount to ensure that the total
payments, including the effect of the
transition provisions, would equal what
payments would have been if we would
not be providing for any transitional
wage indexes under the new OMB
delineations. For a complete discussion
on the proposed budget neutrality
adjustment for FY 2017, we refer readers
to section II.A.4.b. of the Addendum to
this proposed rule.

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H. Proposed Application of the
Proposed Rural, Imputed, and Frontier
Floors
1. Proposed Rural Floor
Section 4410(a) 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. This provision is referred to as the
‘‘rural floor.’’ Section 3141 of Public
Law 111–148 also requires that a
national budget neutrality adjustment be
applied in implementing the rural floor.
Based on the proposed FY 2017 wage
index associated with this proposed rule
(which is available via the Internet on
the CMS Web site), we estimated that
371 hospitals would receive an increase
in their FY 2017 proposed wage index
due to the application of the rural floor.
2. Proposed Imputed Floor for FY 2017
In the FY 2005 IPPS final rule (69 FR
49109 through 49111), we adopted the
‘‘imputed floor’’ policy as a temporary
3-year regulatory measure to address
concerns from hospitals in all-urban
States that have argued that they are
disadvantaged by the absence of rural
hospitals to set a wage index floor for
those States. Since its initial
implementation, we have extended the
imputed floor policy six times, the last
of which was adopted in the FY 2016
IPPS/LTCH PPS final rule and is set to
expire on September 30, 2016. (We refer
readers to further discussions of the
imputed floor in the FY 2014, FY 2015,
and FY 2016 IPPS/LTCH PPS final rules
(78 FR 50589 through 50590, 79 FR
49969 through 49970, and 80 FR 49497
through 49498, respectively) and to the
regulations at 42 CFR 412.64(h)(4).)
Currently, there are three all-urban
States—Delaware, New Jersey, and
Rhode Island—with a range of wage
indexes assigned to hospitals in these
States, including through
reclassification or redesignation. (We
refer readers to discussions of
geographic reclassifications and
redesignations in section III.J. of the
preamble of this proposed rule.)
In computing the imputed floor for an
all-urban State under the original
methodology, which was established
beginning in FY 2005, we calculated the
ratio of the lowest-to-highest CBSA
wage index for each all-urban State as
well as the average of the ratios of
lowest-to-highest CBSA wage indexes of
those all-urban States. We then
compared the State’s own ratio to the
average ratio for all-urban States and
whichever is higher is multiplied by the

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highest CBSA wage index value in the
State—the product of which established
the imputed floor for the State. As of FY
2012, there were only two all-urban
States—New Jersey and Rhode Island—
and only New Jersey benefitted under
this methodology. Under the previous
OMB labor market area delineations,
Rhode Island had only one CBSA
(Providence-New Bedford-Fall River,
RI–MA) and New Jersey had 10 CBSAs.
Therefore, under the original
methodology, Rhode Island’s own ratio
equaled 1.0, and its imputed floor was
equal to its original CBSA wage index
value. However, because the average
ratio of New Jersey and Rhode Island
was higher than New Jersey’s own ratio,
this methodology provided a benefit for
New Jersey, but not for Rhode Island.
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53368 through 53369), we
retained the imputed floor calculated
under the original methodology as
discussed above, and established an
alternative methodology for computing
the imputed floor wage index to address
the concern that the original imputed
floor methodology guaranteed a benefit
for one all-urban State with multiple
wage indexes (New Jersey) but could not
benefit the other all-urban State (Rhode
Island). The alternative methodology for
calculating the imputed floor was
established using data from the
application of the rural floor policy for
FY 2013. Under the alternative
methodology, we first determined the
average percentage difference between
the post-reclassified, pre-floor area wage
index and the post-reclassified, rural
floor wage index (without rural floor
budget neutrality applied) for all CBSAs
receiving the rural floor. (Table 4D
associated with the FY 2013 IPPS/LTCH
PPS final rule (which is available via the
Internet on the CMS Web site) included
the CBSAs receiving a State’s rural floor
wage index.) The lowest postreclassified wage index assigned to a
hospital in an all-urban State having a
range of such values then is increased
by this factor, the result of which
establishes the State’s alternative
imputed floor. We amended
§ 412.64(h)(4) of the regulations to add
new paragraphs to incorporate the
finalized alternative methodology, and
to make reference and date changes. In
summary, for the FY 2013 wage index,
we did not make any changes to the
original imputed floor methodology at
§ 412.64(h)(4) and, therefore, made no
changes to the New Jersey imputed floor
computation for FY 2013. Instead, for
FY 2013, we adopted a second,
alternative methodology for use in cases
where an all-urban State has a range of

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wage indexes assigned to its hospitals,
but the State cannot benefit under the
original methodology.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50589 through 50590), we
extended the imputed floor policy (both
the original methodology and the
alternative methodology) for 1
additional year, through September 30,
2014, while we continued to explore
potential wage index reforms.
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49969 through 49970), for
FY 2015, we adopted a policy to extend
the imputed floor policy (both the
original methodology and alternative
methodology) for another year, through
September 30, 2015, as we continued to
explore potential wage index reforms. In
that final rule, we revised the
regulations at § 412.64(h)(4) and
(h)(4)(vi) to reflect the 1-year extension
of the imputed floor.
As discussed in section III.B. of the
preamble of that FY 2015 final rule, we
adopted the new OMB labor market area
delineations beginning in FY 2015.
Under the new OMB delineations,
Delaware became an all-urban State,
along with New Jersey and Rhode
Island. Under the new OMB
delineations, Delaware has three CBSAs,
New Jersey has seven CBSAs, and
Rhode Island continues to have only
one CBSA (Providence-Warwick, RIMA). We refer readers to a detailed
discussion of our adoption of the new
OMB labor market area delineations in
section III.B. of the preamble of the FY
2015 IPPS/LTCH PPS final rule.
Therefore, under the adopted new OMB
delineations discussed in section III.B.
of the preamble of the FY 2015 IPPS/
LTCH PPS final rule, Delaware became
an all-urban State and was subject to an
imputed floor as well for FY 2015.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49497 through 49498), for
FY 2016, we extended the imputed floor
policy (under both the original
methodology and the alternative
methodology) for 1 additional year,
through September 30, 2016. In that
final rule, we revised the regulations at
§ 412.64(h)(4) and (h)(4)(vi) to reflect
this additional 1-year extension.
For FY 2017, we are proposing to
extend the imputed floor policy (under
both the original methodology and the
alternative methodology) for 1
additional year, through September 30,
2017, while we continue to explore
potential wage index reforms. We are
proposing to revise the regulations at
§ 412.64(h)(4) and (h)(4)(vi) to reflect
this proposed additional 1-year
extension. We are inviting public
comments on the proposed additional 1year extension of the imputed floor

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through September 30, 2017. The wage
index and impact tables associated with
this FY 2017 IPPS/LTCH PPS proposed
rule (which are available on the Internet
via the CMS Web site) reflect the
proposed continued application of the
imputed floor policy at § 412.64(h)(4)
and a proposed national budget
neutrality adjustment for the imputed
floor for FY 2017. There are 20
providers in New Jersey that would
receive an increase in their proposed FY
2017 wage index due to the proposed
continued application of the imputed
floor policy under the original
methodology, and 10 hospitals in Rhode
Island that would benefit under the
alternative methodology. No providers
in Delaware would benefit under the
original methodology or the alternative
methodology.
3. Proposed State Frontier Floor for FY
2017
Section 10324 of Public Law 111–148
requires that hospitals in frontier States
cannot be assigned a wage index of less
than 1.0000 (we refer readers to
regulations at 42 CFR 412.64(m) and to
a discussion of the implementation of
this provision in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50160
through 50161)). Fifty hospitals would
receive the frontier floor value of 1.0000
for their FY 2017 wage index in this
proposed rule. These hospitals are
located in Montana, Nevada, North
Dakota, South Dakota, and Wyoming.
We are not proposing any changes to
the frontier floor policy for FY 2017.
The areas affected by the proposed
rural, imputed, and frontier floor
policies for the proposed FY 2017 wage
index are identified in Table 2
associated with this proposed rule,
which is available via the Internet on
the CMS Web site.
I. Proposed FY 2017 Wage Index Tables
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49498 and 49807 through
49808), we finalized a proposal to
streamline and consolidate the wage
index tables associated with the IPPS
proposed and final rules for FY 2016
and subsequent fiscal years. Prior to FY
2016, the wage index tables had
consisted of 12 tables (Tables 2, 3A, 3B,
4A, 4B, 4C, 4D, 4E, 4F, 4J, 9A, and 9C)
that were made available via the
Internet on the CMS Web site. Effective
beginning FY 2016, with the exception
of Table 4E, we streamlined and
consolidated 11 tables (Tables 2, 3A, 3B,
4A, 4B, 4C, 4D, 4F, 4J, 9A, and 9C) into
2 tables (Tables 2 and 3). We refer
readers to section VI. of the Addendum
to this proposed rule for a discussion of

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the proposed wage index tables for FY
2017.
J. Proposed Revisions to the Wage Index
Based on Hospital Redesignations and
Reclassifications
1. General Policies and Effects of
Reclassification and Redesignation
Under section 1886(d)(10) of the Act,
the Medicare Geographic Classification
Review Board (MGCRB) considers
applications by hospitals for geographic
reclassification for purposes of payment
under the IPPS. Hospitals must apply to
the MGCRB to reclassify not later than
13 months prior to the start of the fiscal
year for which reclassification is sought
(usually 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 in the FY 2002 IPPS final
rule (66 FR 39874 and 39875) regarding
how the MGCRB defines mileage for
purposes of the proximity
requirements.) The general policies for
reclassifications and redesignations that
we are proposing for FY 2017, and the
policies for the effects of hospitals’
reclassifications and redesignations on
the wage index, are the same as those
discussed in the FY 2012 IPPS/LTCH
PPS final rule for the FY 2012 final
wage index (76 FR 51595 and 51596). In
addition, in the FY 2012 IPPS/LTCH
PPS final rule, we discussed the effects
on the wage index of urban hospitals
reclassifying to rural areas under 42 CFR
412.103. Hospitals that are
geographically located in States without
any rural areas are ineligible to apply for
rural reclassification in accordance with
the provisions of 42 CFR 412.103.

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2. MGCRB Reclassification and
Redesignation Issues for FY 2017
a. FY 2017 Reclassification
Requirements and Approvals
Under section 1886(d)(10) of the Act,
the MGCRB considers applications by
hospitals for geographic reclassification
for purposes of payment under the IPPS.
The specific procedures and rules that
apply to the geographic reclassification
process are outlined in regulations
under 42 CFR 412.230 through 412.280.
At the time this proposed rule was
constructed, the MGCRB had completed
its review of FY 2017 reclassification

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requests. Based on such reviews, there
are 299 hospitals approved for wage
index reclassifications by the MGCRB
starting in FY 2017. Because MGCRB
wage index reclassifications are
effective for 3 years, for FY 2017,
hospitals reclassified beginning in FY
2015 or FY 2016 are eligible to continue
to be reclassified to a particular labor
market area based on such prior
reclassifications for the remainder of
their 3-year period. There were 302
hospitals approved for wage index
reclassifications in FY 2015 that will
continue for FY 2017, and 266 hospitals
approved for wage index
reclassifications in FY 2016 that will
continue for FY 2017. Of all the
hospitals approved for reclassification
for FY 2015, FY 2016, and FY 2017,
based upon the review at the time of
this proposed rule, 867 hospitals are in
a reclassification status for FY 2017.
Under the regulations at 42 CFR
412.273, hospitals that have been
reclassified by the MGCRB are
permitted to withdraw their
applications within 45 days of the
publication of a proposed rule. For
information about withdrawing,
terminating, or canceling a previous
withdrawal or termination of a 3-year
reclassification for wage index
purposes, we refer readers to 42 CFR
412.273, as well as the FY 2002 IPPS
final rule (66 FR 39887 through 39888)
and the FY 2003 IPPS final rule (67 FR
50065 through 50066). 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
2017 will be incorporated into the wage
index values published in the FY 2017
IPPS/LTCH PPS final rule. These
changes affect not only the wage index
value for specific geographic areas, but
also the wage index value that
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.

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b. Requirements for FY 2018
Applications and Proposed Revisions
Regarding Paper Application
Requirements
Applications for FY 2018
reclassifications are due to the MGCRB
by September 1, 2016 (the first working
day of September 2016). 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 2016, via the
Internet on the CMS Web site at
https://www.cms.gov/Regulations-andGuidance/Review-Boards/MGCRB/
index.html, 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.
Under existing regulations at 42 CFR
412.256(a)(1), applications for
reclassification must be mailed or
delivered to the MGCRB, with a copy to
CMS, and may not be submitted through
the facsimile (FAX) process or by other
electronic means. While existing
regulations exclusively require paper
applications, we believe this policy to
be outdated and overly restrictive.
Therefore, to promote ease of
application for FY 2018 and subsequent
years, we are proposing to revise this
policy to require applications and
supporting documentation to be
submitted via the method prescribed in
instructions by the MGCRB, with an
electronic copy to CMS. Therefore, we
are proposing to revise § 412.256(a)(1) to
specify that an application must be
submitted to the MGCRB according to
the method prescribed by the MGCRB,
with an electronic copy of the
application sent to CMS. We are
specifying that CMS copies should be
sent via email to wageindex@
cms.hhs.gov. We are inviting public
comments on this proposal.
c. Other Policy Regarding
Reclassifications for Terminated
Hospitals
Under longstanding CMS policy, if a
hospital that has an approved
reclassification by the MGCRB
terminates its CMS certification number
(CCN), we terminate the reclassification
status for that hospital when calculating
the wage index, because the CCN is no
longer active, and because the MGCRB
makes its reclassification decisions
based on CCNs. We believe this policy
results in more accurate reclassifications
when compiling CBSA labor market
wage data, as it is often the case that

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hospitals that have terminated their
CCNs have also terminated operations,
and can no longer make timely and
informed decisions regarding
reclassification statuses, which could
have ramifications for various wage
index floors and labor market values.
However, as discussed in response to
a comment in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49499 through
49500), in the case of a merger or
acquisition where the acquiring hospital
accepted the Medicare provider
agreement of the acquired hospital
located in a different market area that
has an existing MGCRB reclassification,
we do believe that the acquiring
hospital should be able to make
determinations regarding the
reclassification status of the subordinate
campus. While the original CCN for the
acquired hospital would be considered
terminated or ‘‘tied out’’ by CMS, in the
specific situations where a hospital
merges with or acquires another
hospital located in a different labor
market area to create a ‘‘multicampus’’
hospital and accepts the Medicare
provider agreement of the acquired
hospital, the reclassification status of
the subordinate campus remains in
effect. The acquired campus (that is, the
hospital whose CCN is no longer active)
may continue to receive its previously
approved reclassification status, and the
acquiring hospital is authorized to make
timely requests to terminate, withdraw,
or reinstate any reclassification for the
subordinate campus for any remaining
years of the reclassification. We believe
this policy is consistent with existing
regulations regarding reclassification
status of ‘‘multicampus’’ hospitals at
§ 412.230(d)(2)(v). Hospitals should take
care to review their status on Table 2
associated with this proposed rule
(which is available via the Internet on
the CMS Web site) and notify CMS if
they believe a reclassification for a
hospital was mistakenly terminated by
CMS.
3. Redesignation of Hospitals Under
Section 1886(d)(8)(B) of the Act
Section 1886(d)(8)(B)(i) 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 urban MSA to which the greatest
number of workers in the county
commute if certain adjacency and
commuting criteria are met. The criteria
utilize standards for designating MSAs
published in the Federal Register by the
Director of the Office of Management
and Budget (OMB) based on the most
recently available decennial population
data. Effective beginning FY 2015, we
use the OMB delineations based on the

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2010 Decennial Census 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
are referred to as ‘‘Lugar’’ hospitals and
the counties themselves are often
referred to as ‘‘Lugar’’ counties. The
chart for this FY 2017 proposed rule
with the listing of the rural counties
containing the hospitals designated as
urban under section 1886(d)(8)(B) of the
Act is available via the Internet on the
CMS Web site.
In an interim final rule with comment
period (IFC) (CMS–1664–IFC) that
appeared elsewhere in this issue of the
Federal Register, CMS made regulatory
changes in order to implement the
decisions in Geisinger Community
Medical Center v. Secretary, United
States Department of Health and
Human Services, 794 F.3d 383 (3d Cir.
2015) and Lawrence + Memorial
Hospital v. Burwell, No. 15–164, 2016
WL 423702 (2d Cir. Feb. 4, 2015) in a
nationally consistent manner.
Specifically, the IFC revises the
regulations at § 412.230(a)(5)(ii) and
removes the regulatory provision at
§ 412.230(a)(5)(iii) to allow hospitals
nationwide to reclassify based on their
acquired rural status, effective with
reclassifications beginning with FY
2018. The IFC also gives hospitals with
an existing MGCRB reclassification the
opportunity to seek rural reclassification
for IPPS payment and other purposes
under § 412.103 and keep their existing
MGCRB reclassification.
As a consequence of the regulatory
changes in the IFC that allow a hospital
to have more than one reclassification
simultaneously, we are clarifying in this
proposed rule that a hospital with Lugar
status may simultaneously receive an
urban to rural reclassification under
§ 412.103. The IFC provides that when
there is both a § 412.103 reclassification
and an MGCRB reclassification, the
MGCRB reclassification controls for
wage index calculation and payment
purposes (the IFC can be downloaded
from the CMS Web site at: https://www.
cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
IPPS-Regulations-and-Notices.html).
Similarly, in this proposed rule, we are
clarifying that we are treating the wage
data of hospitals with simultaneous
Lugar status and § 412.103
reclassification as Lugar for wage index
calculation and wage index payment
purposes. We believe it is appropriate to
apply a similar policy for simultaneous
MGCRB reclassification and § 412.103
reclassifications, and simultaneous
Lugar and § 412.103 reclassifications,
because CMS treats Lugar status as a

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reclassification for purposes of
calculating the wage index in
accordance with section
1886(d)(8)(C)(iii) of the Act. (Section
1886(d)(8)(C)(iii) of the Act states that
the application of section 1886(d)(8)(B)
of the Act or a decision of the MGCRB
or the Secretary under section
1886(d)(10) of the Act may not result in
the reduction of any county’s wage
index to a level below the wage index
for rural areas in the State in which the
county is located.) The wage index
associated with the Lugar status, and
not the wage index associated with the
§ 412.103 reclassification, is reflected
accordingly in Table 2 associated with
this proposed rule (which is available
via the Internet on the CMS Web site).
We note that, for payment purposes
other than the wage index, a hospital
with simultaneous § 412.103 status and
Lugar reclassification receives payment
as a rural hospital.
4. Waiving Lugar Redesignation for the
Out-Migration Adjustment
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51599 through 51600), we
adopted the policy that, beginning with
FY 2012, an eligible hospital that waives
its Lugar status in order to receive the
out-migration adjustment has effectively
waived its deemed urban status and,
thus, is rural for all purposes under the
IPPS, including being considered rural
for the DSH payment adjustment,
effective for the fiscal year in which the
hospital receives the out-migration
adjustment. (We refer readers to a
discussion of DSH payment adjustment
under section IV.F. of the preamble of
this proposed rule.)
In addition, we adopted a minor
procedural change in that rule that
allows a Lugar hospital that qualifies for
and accepts the out-migration
adjustment (through written notification
to CMS within 45 days from the
publication of the proposed rule) to
waive its urban status for the full 3-year
period for which its out-migration
adjustment is effective. By doing so,
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 out-migration
adjustment. Therefore, under the
procedural change, a Lugar hospital that
requests to waive its urban status in
order to receive the rural wage index in
addition to the out-migration
adjustment would be deemed to have
accepted the 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

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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. If the hospital does notify
CMS that it is electing to return to its
deemed urban status, it would again be
treated as urban for all IPPS payment
purposes.
We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51599
through 51600) for a detailed discussion
of the policy and process for waiving
Lugar status for the out-migration
adjustment.

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K. Proposed Out-Migration Adjustment
Based on Commuting Patterns of
Hospital Employees for FY 2017
In accordance with 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.
Section 1886(d)(13)(B) of the Act
requires the Secretary to use data the
Secretary determines to be appropriate
to establish the qualifying counties.
When the provision of section
1886(d)(13) of the Act was implemented
for the FY 2005 wage index, we
analyzed commuting data compiled by
the U.S. Census Bureau that were
derived from a special tabulation of the
2000 Census journey-to-work data for all
industries (CMS extracted data
applicable to hospitals). These data
were compiled from responses to the
‘‘long-form’’ survey, which the Census
Bureau used at the time and which
contained questions on where residents
in each county worked (69 FR 49062).
However, the 2010 Census was ‘‘short
form’’ only; information on where
residents in each county worked was
not collected as part of the 2010 Census.
The Census Bureau worked with CMS to
provide an alternative dataset based on
the latest available data on where
residents in each county worked in
2010, for use in developing a new outmigration adjustment based on new
commuting patterns developed from the

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2010 Census data beginning with FY
2016.
To determine the out-migration
adjustments and applicable counties for
FY 2016, we analyzed commuting data
compiled by the Census Bureau that
were derived from a custom tabulation
of the American Community Survey
(ACS), an official Census Bureau survey,
utilizing 2008 through 2012 (5-Year)
Microdata. The data were compiled
from responses to the ACS questions
regarding the county where workers
reside and the county to which workers
commute. As we discussed in the FY
2016 IPPS/LTCH PPS final rule (80 FR
49501), the same policies, procedures,
and computation that were used for the
FY 2012 out-migration adjustment were
applicable for FY 2016, and we are
proposing to use them again for FY
2017. We have applied the same
policies, procedures, and computations
since FY 2012, and we believe they
continue to be appropriate for FY 2017.
We refer readers to the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49500
through 49502) for a full explanation of
the revised data source.
For FY 2017, until such time that
CMS finalizes out-migration
adjustments based on the next Census,
the out-migration adjustment continues
to be based on the data derived from the
custom tabulation of the ACS utilizing
2008 through 2012 (5-Year) Microdata.
For FY 2017, we are not proposing any
changes to the methodology or data
source that we used for FY 2016. (We
refer readers to a full discussion of the
out-migration adjustment, including
rules on deeming hospitals reclassified
under section 1886(d)(8) or section
1886(d)(10) of the Act to have waived
the out-migration adjustment, in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51601 through 51602).) Table 2
associated with this proposed rule
(which is available via the Internet on
the CMS Web site) includes the
proposed out-migration adjustments for
the FY 2017 wage index.
L. Notification Regarding Proposed CMS
‘‘Lock-In’’ Date for Urban to Rural
Reclassifications Under § 412.103
Under section 1886(d)(8)(E) of the
Act, a qualifying prospective payment
hospital located in an urban area may
apply for rural status for payment
purposes separate from reclassification
through the MGCRB. Specifically,
section 1886(d)(8)(E) of the Act provides
that, not later than 60 days after the
receipt of an application (in a form and
manner determined by the Secretary)
from a subsection (d) hospital that
satisfies certain criteria, the Secretary
shall treat the hospital as being located

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in the rural area (as defined in
paragraph (2)(D)) of the State in which
the hospital is located. We refer readers
to the regulations at 42 CFR 412.103 for
the general criteria and application
requirements for a subsection (d)
hospital to reclassify from urban to rural
status in accordance with section
1886(d)(8)(E) of the Act. The FY 2012
IPPS/LTCH PPS final rule (76 FR 51595
through 51596) includes our policies
regarding the effect of wage data from
reclassified or redesignated hospitals.
Hospitals must meet the criteria to be
reclassified from urban to rural status
under § 412.103, as well as fulfill the
requirements for the application
process. However, under existing
§ 412.103(b), there is no timeframe
requirement as to when hospitals must
apply for the urban to rural
reclassification. Therefore, a hospital
can apply for the urban to rural
reclassification at any time, and under
§ 412.103(d), the effective date of the
hospital’s rural status, once approved, is
the filing date of the application.
There may be one or more reasons
that a hospital applies for the urban to
rural reclassification, and the timeframe
that a hospital submits an application is
often dependent on those reason(s).
Because there are no timeframes for
when a hospital must submit its
application under § 412.103, it is the
hospital’s prerogative as to when it files
the application with the CMS Regional
Office. Because the wage index is part
of the methodology for determining the
prospective payments to hospitals for
each fiscal year, we believe there should
be a definitive timeframe within which
a hospital should apply for rural status
in order for the reclassification to be
reflected in the next Federal fiscal year’s
wage data used for setting payment
rates. As hospitals are aware, the IPPS
ratesetting process that CMS undergoes
each proposed and final rulemaking is
complex and labor-intensive, and
subject to a compressed timeframe in
order to issue the final rule each year
within the timeframes for publication.
Accordingly, CMS must ensure that it
receives, in a timely fashion, the
necessary data, including, but not
limited to, the list of hospitals that are
reclassified from urban to rural status
under § 412.103, in order to calculate
the wage indexes and other IPPS rates.
Therefore, in this proposed rule, we
are proposing a date by when we would
‘‘lock in’’ the list of hospitals that are
reclassified from urban to rural status
under § 412.103 in order to include
them in the upcoming Federal fiscal
year’s wage index calculation provided
for at § 412.64(h) and budget neutrality
calculations provided for at

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§§ 412.64(e)(1)(ii), (e)(2), and (e)(4) that
are part of the ratesetting process). The
ratesetting process is described in the
Addendum of the annual proposed and
final rules and includes the budget
neutrality adjustments in accordance
with the regulations at
§§ 412.64(e)(1)(ii), (e)(2), and (e)(4), as
well as adjustments for differences in
area wage levels provided for at
§ 412.64(h). We believe that this
proposal would introduce additional
transparency and predictability
regarding the timing of accounting for
urban or rural status in the IPPS
ratesetting each Federal fiscal year. We
are proposing that this date for ‘‘locking
in’’ the list of hospitals with rural status
achieved under § 412.103 would be the
second Monday in June of each year.
Therefore, if a hospital is applying for
an urban to rural reclassification under
§ 412.103 for the purpose and
expectation that its rural status be
reflected in the wage index and budget
neutrality calculations for setting
payment rates for the next Federal fiscal
year, the hospital would need to file its
application with the CMS Regional
Office not later than 70 days prior to the
second Monday in June. Because, under
412.103(c), the CMS Regional Office
must notify the hospital of its approval
or disapproval of the application within
60 days of the hospital’s filing date (the
date it is received by the CMS Regional
Office, in accordance with
§ 412.103(b)(5)), we would expect that
the extra 10 days would provide the
CMS Regional Office with sufficient
processing and administrative time to
notify the CMS Central Office of the
reclassification status of the
applications by the second Monday in
June of each year. This is the latest date
that CMS would need the information in
order to ensure that reclassified
hospitals would be included as such in
the wage index and budget neutrality
calculations for setting payment rates
for the next Federal fiscal year. This
does not preclude a hospital from
applying for reclassification under
§ 412.103 earlier or later than the
proposed deadline. Nor does the
proposed deadline change the fact that
the rural reclassification is effective as
of its filing date, in accordance with
§ 412.103(d). However, in order to
ensure that a reclassification is reflected
in the wage index and budget neutrality
calculations for setting payment rates
for the next Federal fiscal year,
applications must be received by the
CMS Regional Office (the filing date) by
no later than 70 days prior to the second
Monday in June of each year. If the CMS
Central Office is informed of a

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reclassification status after the second
Monday in June, for wage index and
budget neutrality purposes, the
reclassification would not be reflected
in the payment rates until the following
Federal fiscal year; that is, the Federal
fiscal year following the next Federal
fiscal year. We are proposing to revise
§ 412.103(b) by adding a new paragraph
(6) to incorporate this proposed policy.
Proposed § 412.103(b)(6) would specify
that in order for a hospital to be treated
as rural in the wage index and budget
neutrality calculations under
§§ 412.64(e)(1)(ii), (e)(2), (e)(4), and (h)
for payment rates for the next Federal
fiscal year, the hospital’s filing date
must be no later than 70 days prior to
the second Monday in June of the
current Federal fiscal year and the
application must be approved by the
CMS Regional Office in accordance with
the requirements of § 412.103.
M. Process for Requests for Wage Index
Data Corrections
The preliminary, unaudited
Worksheet S–3 wage data files for the
proposed FY 2017 wage index were
made available on May 15, 2015, and
the preliminary CY 2013 occupational
mix data files on May 15, 2015, through
the Internet on the CMS Web site at:
https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Wage-Index-FilesItems/FY2017-Wage-Index-HomePage.html.
On January 29, 2016, we posted a
public use file (PUF) at https://www.
cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
Wage-Index-Files-Items/FY2017-WageIndex-Home-Page.html containing FY
2017 wage index data available as of
January 28, 2016. This PUF contains a
tab with the Worksheet S–3 wage data
(which includes Worksheet S–3, Parts II
and III wage data from cost reporting
periods beginning on or after October l,
2012 through September 30, 2013; that
is, FY 2013 wage data), a tab with the
occupational mix data (which includes
data from the CY 2013 occupational mix
survey, Form CMS–10079), and new for
FY 2017, a tab containing the Worksheet
S–3 wage data of hospitals deleted from
the January 29, 2016 wage data PUF and
a tab containing the CY 2013
occupational mix data (if any) of the
hospitals deleted from the January 29,
2016 wage data PUF. In a memorandum
dated January 21, 2016, we instructed
all MACs to inform the IPPS hospitals
that they service of the availability of
the January 29, 2016 wage index data
PUFs, and the process and timeframe for
requesting revisions in accordance with
the FY 2017 Wage Index Timetable.

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In the interest of meeting the data
needs of the public, beginning with the
proposed FY 2009 wage index, we post
an additional PUF on our Web site that
reflects the actual data that are used in
computing the proposed wage index.
The release of this file does not alter the
current wage index process or schedule.
We notify the hospital community of the
availability of these data as we do with
the current public use wage data files
through our Hospital Open Door Forum.
We encourage hospitals to sign up for
automatic notifications of information
about hospital issues and about the
dates of the Hospital Open Door Forums
at the CMS Web site at: http://www.cms.
gov/Outreach-and-Education/Outreach/
OpenDoorForums/index.html.
In a memorandum dated April 30,
2015, we instructed all MACs to inform
the IPPS hospitals that they service of
the availability of the wage index data
files and the process and timeframe for
requesting revisions (including the
specific deadlines listed later in this
section). We also instructed the 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 May 15,
2015 wage data files and May 15, 2015
occupational mix data files, the hospital
was to submit corrections along with
complete, detailed supporting
documentation to its MAC by
September 2, 2015. Hospitals were
notified of this deadline and of all other
deadlines and requirements, including
the requirement to review and verify
their data as posted in the preliminary
wage index data files on the Internet,
through the letters sent to them by their
MACs.
November 4, 2015 was the date by
when MACs notified State hospital
associations regarding hospitals that
failed to respond to issues raised during
the desk reviews. The MACs notified
the hospitals by mid-January 2016 of
any changes to the wage index data as
a result of the desk reviews and the
resolution of the hospitals’ revision
requests. The MACs also submitted the
revised data to CMS by January 22,
2016. CMS published the proposed
wage index PUFs that included
hospitals’ revised wage index data on
January 29, 2016. Hospitals had until
February 16, 2016, to submit requests to
the MACs for reconsideration of
adjustments made by the MACs as a
result of the desk review, and to correct
errors due to CMS’ or the MAC’s
mishandling of the wage index data.
Hospitals also were required to submit

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sufficient documentation to support
their requests.
After reviewing requested changes
submitted by hospitals, MACs were
required to transmit to CMS any
additional revisions resulting from the
hospitals’ reconsideration requests by
March 24, 2016. The deadline for a
hospital to request CMS intervention in
cases where a hospital disagreed with a
MAC’s policy interpretation was April
5, 2016. We note that, as we did for the
FY 2016 wage index, for the FY 2017
wage index, in accordance with the FY
2017 wage index timeline posted on the
CMS Web site at https://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files-Items/FY2017-Wage-IndexHome-Page.html, the April appeals have
to be sent via mail and email. We refer
readers to the wage index timeline for
complete details.
Hospitals are given the opportunity to
examine Table 2, which is listed in
section VI. of the Addendum to this
proposed rule and available via the
Internet on the CMS Web site at:
https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Wage-Index-FilesItems/FY2017-Wage-Index-HomePage.html. Table 2 contains each
hospital’s proposed adjusted average
hourly wage used to construct the wage
index values for the past 3 years,
including the FY 2013 data used to
construct the proposed FY 2017 wage
index. We note that the proposed
hospital average hourly wages shown in
Table 2 only reflect changes made to a
hospital’s data that were transmitted to
CMS by late February 2016.
We plan to post the final wage index
data PUFs in late April 2016 on the
Internet at: https://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files-Items/FY2017-Wage-IndexHome-Page.html. The April 2016 PUFs
are made available solely for the limited
purpose of identifying any potential
errors made by CMS or the MAC in the
entry of the final wage index data that
resulted from the correction process
previously described (revisions
submitted to CMS by the MACs by
March 24, 2016).
After the release of the April 2016
wage index data PUFs, changes to the
wage and occupational mix data can
only be made in those very limited
situations involving an error by the
MAC or CMS that the hospital could not
have known about before its review of
the final wage index data files.
Specifically, neither the MAC nor CMS
will approve the following types of
requests:

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• Requests for wage index data
corrections that were submitted too late
to be included in the data transmitted to
CMS by the MACs on or before March
24, 2016.
• Requests for correction of errors
that were not, but could have been,
identified during the hospital’s review
of the January 29, 2016 wage index
PUFs.
• Requests to revisit factual
determinations or policy interpretations
made by the MAC or CMS during the
wage index data correction process.
If, after reviewing the April 2016 final
wage index data PUFs, a hospital
believes that its wage or occupational
mix data were incorrect due to a MAC
or CMS error in the entry or tabulation
of the final data, the hospital is given
the opportunity to notify both its MAC
and CMS regarding why the hospital
believes an error exists and provide all
supporting information, including
relevant dates (for example, when it first
became aware of the error). The hospital
is required to send its request to CMS
and to the MAC no later than May 23,
2016. Similar to the April appeals,
beginning with the FY 2015 wage index,
in accordance with the FY 2017 wage
index timeline posted on the CMS Web
site at https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Wage-Index-FilesItems/FY2017-Wage-Index-Home.html,
the May appeals must be sent via mail
and email to CMS and the MACs. We
refer readers to the wage index timeline
for complete details.
Verified corrections to the wage index
data received timely by CMS and the
MACs (that is, by May 23, 2016) will be
incorporated into the final FY 2017
wage index, which will be effective
October 1, 2016.
We created the processes previously
described to resolve all substantive
wage index data correction disputes
before we finalize the wage and
occupational mix data for the FY 2017
payment rates. Accordingly, hospitals
that do 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 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 PRRB, the failure of CMS to
make a requested data revision. 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 earlier

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provides hospitals with sufficient
opportunity to bring errors in their wage
and occupational mix data to the MAC’s
attention. Moreover, because hospitals
have access to the final wage index data
PUFs by late April 2016, they have the
opportunity to detect any data entry or
tabulation errors made by the MAC or
CMS before the development and
publication of the final FY 2017 wage
index by August 2016, and the
implementation of the FY 2017 wage
index on October 1, 2016. Given these
processes, 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 May 23, 2016, 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 regulations, we
make midyear corrections to the wage
index for an area only if a hospital can
show that: (1) 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 May deadline for making
corrections to the wage data for the
following fiscal year’s wage index (for
example, May 23, 2016 for the FY 2017
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 MACs notify
hospitals directly of any wage index
data changes after completing their desk
reviews, we do not expect that midyear
corrections will be necessary. However,
under our current policy, if the
correction of a data error changes the
wage index value for an area, the
revised wage index value will be
effective prospectively from the date the
correction is made.
In the FY 2006 IPPS final rule (70 FR
47385 through 47387 and 47485), 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 CMS
determines all of the following: (1) The
MAC or CMS made an error in
tabulating data used for the wage index
calculation; (2) the hospital knew about

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the error and requested that 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 May 23, 2016 deadline for the FY
2017 wage index); and (3) CMS agreed
before October 1 that 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 May
23, 2016 deadline for the FY 2017 wage
index), and CMS acknowledges that the
error in the hospital’s wage index data
was caused by CMS’ or the MAC’s
mishandling of the data, we believe that
the hospital should not be penalized by
our delay in publishing or
implementing the correction. As with
our current policy, we indicated that the
provision is not available to a hospital
seeking to revise another hospital’s data.
In addition, the provision cannot be
used to correct prior years’ wage index
data; and it can only be used for the
current Federal fiscal year. In situations
where our policies would allow midyear
corrections other than those specified in
42 CFR 412.64(k)(2)(ii), we continue to
believe that it is appropriate to make
prospective-only corrections to the wage
index.
We note that, as with prospective
changes to the wage index, the final
retroactive correction will be made
irrespective of whether the change
increases or decreases a hospital’s
payment rate. In addition, we note that
the policy of retroactive adjustment will
still apply in those instances where a
final judicial decision reverses a CMS
denial of a hospital’s wage index data
revision request.
N. Proposed Labor Market Share for the
Proposed FY 2017 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 and to 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

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attributable to wages and wage-related
costs as the labor-related share. The
labor-related share of the prospective
payment rate is adjusted by an index of
relative labor costs, which is referred to
as the wage index.
Section 403 of Public Law 108–173
amended section 1886(d)(3)(E) of the
Act to provide that the Secretary must
employ 62 percent as the labor-related
share unless this would result in lower
payments to a hospital than would
otherwise be made. However, this
provision of Public Law 108–173 did
not change the legal requirement that
the Secretary estimate from time to time
the proportion of hospitals’ costs that
are attributable to wages and wagerelated costs. Thus, 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 laborrelated share resulted in a higher
payment.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50596 through 50607), we
rebased and revised the hospital market
basket. We established a FY 2010-based
IPPS hospital market basket to replace
the FY 2006-based IPPS hospital market
basket, effective October 1, 2013. In that
final rule, we presented our analysis
and conclusions regarding the frequency
and methodology for updating the laborrelated share for FY 2014. Using the FY
2010-based IPPS market basket, we
finalized a labor-related share for FY
2014, FY 2015, and FY 2016 of 69.6
percent. In addition, in FY 2014, we
implemented this revised and rebased
labor-related share in a budget neutral
manner (78 FR 51016). However,
consistent with section 1886(d)(3)(E) of
the Act, we did not take into account
the additional payments that would be
made as a result of hospitals with a
wage index less than or equal to 1.0000
being paid using a labor-related share
lower than the labor-related share of
hospitals with a wage index greater than
1.0000.
The labor-related share is used to
determine the proportion of the national
IPPS base payment rate to which the
area wage index is applied. In this
proposed rule, for FY 2017, we are not
proposing to make any further changes
to the national average proportion of
operating costs that are attributable to
wages and salaries, employee benefits,
contract labor, the labor-related portion
of professional fees, administrative and
facilities support services, and all other
labor-related services. Therefore, for FY
2017, we are proposing to continue to
use a labor-related share of 69.6 percent
for discharges occurring on or after
October 1, 2016.

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As discussed in section IV.A of the
preamble of this proposed rule, prior to
January 1, 2016, Puerto Rico hospitals
were paid based on 75 percent of the
national standardized amount and 25
percent of the Puerto Rico-specific
standardized amount. As a result, we
applied the Puerto Rico-specific laborrelated share percentage and nonlaborrelated share percentage to the Puerto
Rico-specific standardized amount.
Section 601 of the Consolidated
Appropriations Act, 2016 (Pub. L. 114–
113) amended section 1886(d)(9)(E) of
the Act to specify that the payment
calculation with respect to operating
costs of inpatient hospital services of a
subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after
January 1, 2016, shall use 100 percent
of the national standardized amount.
Because Puerto Rico hospitals are no
longer paid with a Puerto Rico-specific
standardized amount as of January 1,
2016, under section 1886(d)(9)(E) of the
Act as amended by section 601 of the
Consolidated Appropriations Act, 2016,
there is no longer a need for us to
calculate a Puerto Rico-specific laborrelated share percentage and nonlaborrelated share percentage for application
to the Puerto Rico-specific standardized
amount. Hospitals in Puerto Rico are
now paid 100 percent of the national
standardized amount and, therefore, are
subject to the national labor-related
share and nonlabor-related share
percentages that are applied to the
national standardized amount.
Accordingly, for FY 2017, we are not
proposing a Puerto Rico-specific laborrelated share percentage or a nonlaborrelated share percentage.
Tables 1A and 1B, which are
published in section VI. of the
Addendum to this FY 2017 IPPS/LTCH
PPS proposed rule and available via the
Internet on the CMS Web site, reflect the
proposed national labor-related share,
which is also applicable to Puerto Rico
hospitals. For FY 2017, for all IPPS
hospitals (including Puerto Rico
hospitals) whose wage indexes are less
than or equal to 1.0000, we are
proposing to apply the wage index to a
labor-related share of 62 percent of the
national standardized amount. For all
IPPS hospitals (including Puerto Rico
hospitals) whose wage indexes are
greater than 1.000, for FY 2017, we are
proposing to apply the wage index to a
proposed labor-related share of 69.6
percent of the national standardized
amount.

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O. Solicitation of Comments on
Treatment of Overhead and Home
Office Costs in the Wage Index
Calculation
Section III.D. of the preamble of this
proposed rule states that the method
used to compute the proposed FY 2017
wage index without an occupational
mix adjustment follows the same
methodology that we used to compute
the FY 2012, FY 2013, FY 2014, FY
2015, and FY 2016 final wage indexes
without an occupational mix adjustment
(76 FR 51591 through 51593, 77 FR
53366 through 53367, 78 FR 50587
through 50588, 79 FR 49967, and 80 FR
49491 through 49492, respectively).
As discussed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51592), in
‘‘Step 4’’ of the calculation of the
unadjusted wage index, for each
hospital reporting both total overhead
salaries and total overhead hours greater
than zero, we allocate overhead costs to
areas of the hospital excluded from the
wage index calculation. We also
compute the amounts of overhead wagerelated costs to be allocated to excluded
areas. Finally, we subtract the computed
overhead salaries, overhead wagerelated costs, and hours associated with
excluded areas from the total salaries
(plus allowable wage-related costs) and
hours derived in ‘‘Steps 2 and 3’’ of the
calculation of the unadjusted wage
index. (We refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51592)
for a description of the calculation of
the unadjusted wage index.) We first
began to remove from the wage index
the overhead salaries and hours
allocated to excluded areas beginning
with the FY 1999 wage index
calculation (63 FR 40971 and 40972).
Beginning with the FY 2002 wage index
calculation, we estimated and removed
overhead wage-related costs allocated to
excluded areas in addition to removing
overhead salaries and hours allocated to
excluded areas (66 FR 39863 and
39864). We began to estimate and
remove overhead wage-related costs
associated with excluded areas because
we realized that without doing so, the
formula resulted in large and
inappropriate increases in the average
hourly wages of some hospitals,
particularly hospitals with large
overhead and excluded area costs.
These findings led us to believe that not
all hospitals were fully or consistently
allocating their overhead salaries among
the lines on Worksheet S–3, Part II, of
the hospital cost report for allowable
wage-related costs (Worksheet S–3, Part
II, lines 13 and 14 on CMS Form 2552–
96, and lines 17 and 18 on CMS Form
2552–10), and nonallowable wage-

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related costs associated with excluded
areas (Worksheet S–3, Part II, line 15 on
CMS Form 2552–96 and line 19 on CMS
Form 2552–10). Therefore, we
determined that it was necessary to
estimate and remove overhead wagerelated costs allocated to excluded
areas, and we have been doing so in
‘‘Step 4’’ of the unadjusted wage index
calculation since FY 2002.
With the implementation of CMS
Form 2552–10, Worksheet S–3, Part IV
was added to the cost report on which
hospitals are required to itemize their
wage-related costs (formerly reported on
Exhibit 6 of CMS Form-339). The total
amount of wage-related costs reported
on Worksheet S–3, Part II, lines 17
through 25 (CMS Form 2552–10) must
correspond to the total core wagerelated costs on Worksheet S–3, Part IV,
line 24. (We refer readers to the
instructions for line 17 of Worksheet S–
3, Part II, which state: ‘‘Enter the core
wage-related costs from Worksheet S–3,
Part IV, line 24.’’) Hospitals report wagerelated costs associated with excluded
areas of the hospital on Worksheet S–3,
Part II, line 19. We understand that
hospitals use an allocation methodology
to allocate total wage-related costs to
each of lines Worksheet S–3, Part II,
lines 17 through 25 respectively,
typically based on the ratio of
individual line costs to total wagerelated costs on lines 17 through 25.
Alternatively, we understand that
hospitals use the ratio of full-time
equivalent (FTE) hours of an individual
line to total FTE hours for those lines 17
through 25. Because the wage-related
costs of employees who work in
overhead areas of the hospital are
included in the wage-related costs of the
hospital reported on Worksheet S–3,
Part IV, and in turn, on Worksheet S–
3, Part II, it is possible to conclude that
hospitals’ own allocation methodologies
are properly allocating an accurate
amount of wage-related costs for both
direct cost centers and overhead areas to
line 19 for the excluded areas.
Accordingly, the question has been
raised whether it continues to be
necessary for CMS to estimate and
remove the overhead wage-related costs
associated with excluded areas from the
unadjusted wage index calculation.
We have tested the effect on the
average hourly wages of hospitals if we
would not estimate and remove the
overhead wage-related costs associated
with excluded areas from the
unadjusted wage index calculation. The
results show that the problem
manifested in the formula prior to FY
2002 continues to be a concern; that is,
while the average hourly wages of all
hospitals with excluded areas are

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impacted, hospitals that have
particularly large excluded areas
experience large and inappropriate
increases to their average hourly wages.
For example, one hospital with an
excluded area percentage of 95 percent
that has an average hourly wage of
approximately $32 under our current
methodology would have an average
hourly wage of $128 under the formula
in effect prior to FY 2002 (that is,
without removal of overhead wagerelated costs). Accordingly, we believe
that, at this point, there is a need for
CMS to continue to estimate and remove
the overhead wage-related costs
associated with excluded areas from the
unadjusted wage index calculation.
However, in an effort to improve
consistency in hospital cost reporting
practices and to improve the accuracy of
the wage index, we are considering the
possibility of future rulemaking or cost
reporting changes, or a combination of
both, where hospitals would apply a
single allocation methodology between
Worksheet S–3, Part IV and Worksheet
S–3, Part II, lines 17 through 25. For
example, one possibility is the
modification and expansion of
Worksheet S–3, Part IV to add columns
that would correspond to each line 17
through 25 of Worksheet S–3, Part II. In
addition, Worksheet S–3, Part IV could
employ one or two standard statistical
allocation methods, facilitating a direct
flow of the allocated amounts to each
line 17 through 25 of Worksheet S–3,
Part II. We are soliciting comments from
stakeholders to gain a better
understanding of the nature of hospitals’
reporting of wage-related costs on
Worksheet S–3, Part IV, statistical
allocation methods that hospitals
typically use to allocate their wagerelated costs, the treatment of direct
versus overhead employee wage-related
costs, and suggestions for possible
modifications to Worksheet S–3, Parts II
and IV respectively, which would
preempt the need for CMS to estimate
and remove overhead wage-related costs
associated with excluded areas from the
unadjusted wage index.
Another issue about which we are
concerned and would like to solicit
public comments relates to inconsistent
reporting of home office salaries and
wage-related costs. Worksheet S–2, Part
I, line 140, requires hospitals to
complete Worksheet A–8–1 if they have
any related organization or home office
costs claimed as defined in the Provider
Reimbursement Manual, CMS Pub. 15–
1, Chapter 10, Section 1002, and 42 CFR
413.17. Then, line 14 of Worksheet S–
3, Part II instructs hospitals to enter the
salaries and wage-related costs paid to

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personnel who are affiliated with a
home office and/or related organization,
who provide services to the hospital,
and whose salaries are not included on
Worksheet A, Column 1. Because home
office salaries and wage-related costs are
not included on Worksheet A, Column
1, we are concerned that hospitals are
not including home office costs on
Worksheet A, Column 2 or Column 6 in
the appropriate cost centers on lines 4
through 17, adjusted from Worksheet A–
8 or Worksheet A–8–1.20 Another
concern is a hospital’s inadvertent
inclusion on line 14 of the home office
salaries or wage-related costs associated
with excluded areas on Worksheet S–3,
Part II, lines 9 or 10. In addition, we are
concerned about the amalgam of
personnel costs that hospitals report on
line 14, particularly when another more
precise line exists for those personnel
costs to be reported. For example, if
cafeteria services are provided through
the home office, those wages and hours
should not be reported on line 14, but
instead should be reported on the more
specific cost center for Cafeteria,
Worksheet S–3, Part II, line 36
(corresponding to Cafeteria on
Worksheet A, line 11 21). We note that,
in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49965 through 49967), we
reiterated our requirement that all
hospitals must document salaries,
wages, and hours for the purpose of
reporting this information on Worksheet
S–3, Part II, lines 32, 33, 34, and/or 35
(for either directly employed
housekeeping and dietary employees on
lines 32 and 34, and contract labor on
lines 33 and 35). We have learned of
instances where housekeeping or
dietary services are provided through
the home office, and the hospital
reported those wages and hours on line
14. This is inconsistent with other
hospitals’ reporting of housekeeping
and dietary services on lines 32 through
35. As stated in the FY 2015 IPPS/LTCH
PPS final rule, we have instructed the
MACs to impute housekeeping or
dietary wages and hours when hospitals
20 CMS Pub. 15–2, Chapter 40, Section 4013,
Worksheet A instructions for column 6: ‘‘Enter on
the appropriate lines in column 6 the amounts of
any adjustments to expenses indicated on
Worksheet A–8, column 2,’’ and the note for line
12 of Worksheet A–8, section 4016: ‘‘Worksheet A–
8–1 represents the detail of the various cost centers
on Worksheet A which must be adjusted.’’
21 CMS Pub. 15–2, Chapter 40, Section 4013,
Worksheet A instructions under Line Descriptions:
‘‘The trial balance of expenses is broken down into
general service, inpatient routine service, ancillary
service, outpatient service, other reimbursable,
special purpose, and nonreimbursable cost center
categories to facilitate the transfer of costs to the
various worksheets. The line numbers on Worksheet
A are used on subsequent worksheets. * * *’’
(emphasis added).

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have not properly completed those lines
32 through 35. Hospitals whose
housekeeping or dietary services (either
direct or under contract) are provided
through their home office are not
exempt from this requirement to report
wages and hours on the specific cost
centers for housekeeping and dietary.
Hospitals should also take care to report
housekeeping and dietary services in
the appropriate cost centers on
Worksheet A, lines 9 and 10
respectively. Because the nature of
services provided by home office
personnel are for general management
or administrative services related to the
provision of patient care (CMS Pub. 15–
1, Chapter 21, Section 2150), and may
be provided to multiple areas of the
hospital, we are considering ending
reporting of home office costs on line 14
of Worksheet S–3, Part II, and instead
we may require reporting of home office
costs as part of the overhead lines,
possibly by adding lines or columns, or
subscripting existing line 27
(Administrative & General), and line 28
(Administrative & General for contract
labor). We are soliciting public
comments to gain a better
understanding of hospitals’ reporting of
home office salaries and wage-related
costs for possible future revisions to the
cost report instructions and lines.

1, 2016. Change Request 9523 can be
downloaded from the CMS Web site at:
https://www.cms.gov/Regulations-andGuidance/Guidance/Transmittals/2016Transmittals-Items/R3449CP.html.
For operating costs for inpatient
hospital discharges occurring in FY
2017 and subsequent fiscal years,
consistent with the provisions of section
1886(d)(9)(E) of the Act as amended by
section 601 of Public Law 114–113,
subsection (d) Puerto Rico hospitals will
continue to be paid based on 100
percent of the national standardized
amount.
In this proposed rule, we are
proposing to make conforming changes
to the regulations at 42 CFR 412.204 to
reflect the current law that is effective
for discharges occurring on or after
January 1, 2016. Specifically, we are
proposing to add a new paragraph (e) to
§ 412.204 to reflect that, beginning
January 1, 2016, subsection (d) Puerto
Rico hospitals are paid based on 100
percent of the national standardized
amount. We also are proposing to revise
paragraph (d) of § 412.204 to specify
that subsection (d) Puerto Rico hospitals
were paid based on 75 percent of the
national standardized amount and 25
percent of the Puerto Rico-specific
standardized amount for discharges
occurring through December 31, 2015.

IV. Other Decisions and Changes to the
IPPS for Operating Costs and Direct
Graduate Medical Education (GME)
and Indirect Medical Education (IME)
Costs

B. Proposed Changes in the Inpatient
Hospital Update for FY 2017
(§ 412.64(d))

A. Changes to Operating Payments for
Subsection (d) Puerto Rico Hospitals as
a Result of Section 601 of Public Law
114–113
Prior to January 1, 2016, Puerto Rico
hospitals were paid with respect to
operating costs of inpatient hospital
services for inpatient hospital
discharges based on 75 percent of the
national standardized amount and 25
percent of the Puerto Rico-specific
standardized amount. Section 601 of the
Consolidated Appropriations Act, 2016
(Pub. L. 114–113) amended section
1886(d)(9)(E) of the Act to specify that
the payment calculation with respect to
operating costs of inpatient hospital
services of a subsection (d) Puerto Rico
hospital for inpatient hospital
discharges on or after January 1, 2016,
shall use 100 percent of the national
standardized amount. As a result of the
amendment made by section 601 of
Public Law 114–113, on February 4,
2016, we issued Change Request 9523
which updated the payment rates for
subsection (d) Puerto Rico hospitals for
discharges occurring on or after January

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1. Proposed FY 2017 Inpatient Hospital
Update
In accordance with section
1886(b)(3)(B)(i) of the Act, each year we
update the national standardized
amount for inpatient hospital operating
costs by a factor called the ‘‘applicable
percentage increase.’’ For FY 2017, we
are setting the applicable percentage
increase by applying the adjustments
listed in this section in the same
sequence as we did for FY 2016.
Specifically, consistent with section
1886(b)(3)(B) of the Act, as amended by
sections 3401(a) and 10319(a) of the
Affordable Care Act, we are setting the
applicable percentage increase by
applying the following adjustments in
the following sequence. The applicable
percentage increase under the IPPS is
equal to the rate-of-increase in the
hospital market basket for IPPS
hospitals in all areas, subject to—
(a) A reduction of one-quarter of the
applicable percentage increase (prior to
the application of other statutory
adjustments; also referred to as the
market basket update or rate-of-increase
(with no adjustments)) for hospitals that
fail to submit quality information under

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rules established by the Secretary in
accordance with section
1886(b)(3)(B)(viii) of the Act;
(b) A reduction of three-quarters of
the applicable percentage increase (prior
to the application of other statutory
adjustments; also referred to as the
market basket update or rate-of-increase
(with no adjustments)) for hospitals not
considered to be meaningful EHR users
in accordance with section
1886(b)(3)(B)(ix) of the Act;
(c) An adjustment based on changes
in economy-wide productivity (the
multifactor productivity (MFP)
adjustment); and
(d) An additional reduction of 0.75
percentage point as required by section
1886(b)(3)(B)(xii) of the Act.
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 2017
adjustment of 0.75 percentage point may
result in the applicable percentage
increase being less than zero.
We note that, in compliance with
section 404 of the MMA, in the FY 2014
IPPS/LTCH PPS final rule (78 FR 50596
through 50607), we replaced the FY
2006-based IPPS operating and capital
market baskets with the revised and
rebased FY 2010-based IPPS operating
and capital market baskets for FY 2014.
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49993 through 49996) and
the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49508 through 49511), we
continued to use the FY 2010-based
IPPS operating and capital market
baskets for FY 2015 and FY 2016 and
the labor-related share of 69.6 percent,
which was based on the FY 2010-based
IPPS market basket. For FY 2017, we are
proposing to continue using the FY
2010-based IPPS operating and capital
market baskets and the proposed laborrelated share of 69.6 percent, which is
based on the FY 2010-based IPPS
market basket.
Based on the most recent data
available for this FY 2017 proposed

rule, in accordance with section
1886(b)(3)(B) of the Act, we are
proposing to base the proposed FY 2017
market basket update used to determine
the applicable percentage increase for
the IPPS on IHS Global Insight, Inc.’s
(IGI’s) first quarter 2016 forecast of the
FY 2010-based IPPS market basket rateof-increase with historical data through
fourth quarter 2015, which is estimated
to be 2.8 percent. We are proposing that
if more recent data subsequently
become available (for example, a more
recent estimate of the market basket and
the MFP adjustment), we would use
such data, if appropriate, to determine
the FY 2017 market basket update and
the MFP adjustment in the final rule.
For FY 2017, depending on whether
a hospital submits quality data under
the rules established in accordance with
section 1886(b)(3)(B)(viii) of the Act
(hereafter referred to as a hospital that
submits quality data) and is a
meaningful EHR user under section
1886(b)(3)(B)(ix) of the Act (hereafter
referred to as a hospital that is a
meaningful EHR user), there are four
possible applicable percentage increases
that can be applied to the standardized
amount as specified in the table that
appears later in this section.
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51689 through 51692), we
finalized our methodology for
calculating and applying the MFP
adjustment. As we explained in that
rule, 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 MFP (as projected by the
Secretary for the 10-year period ending
with the applicable fiscal year, calendar
year, cost reporting period, or other
annual period). The Bureau of Labor
Statistics (BLS) publishes the official
measure of private nonfarm business
MFP. We refer readers to the BLS Web

site at http://www.bls.gov/mfp for the
BLS historical published MFP data.
MFP is derived by subtracting the
contribution of labor and capital input
growth from output growth. The
projections of the components of MFP
are currently produced by IGI, a
nationally recognized economic
forecasting firm with which CMS
contracts to forecast the components of
the market baskets and MFP. As we
discussed in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49509), beginning
with the FY 2016 rulemaking cycle, the
MFP adjustment is calculated using the
revised series developed by IGI to proxy
the aggregate capital inputs.
Specifically, in order to generate a
forecast of MFP, IGI forecasts BLS
aggregate capital inputs using a
regression model. A complete
description of the MFP projection
methodology is available on the CMS
Web site at: http://www.cms.gov/
Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/
MedicareProgramRatesStats/
MarketBasketResearch.html. As
discussed in the FY 2016 IPPS/LTCH
PPS final rule, if IGI makes changes to
the MFP methodology, we will
announce them on our Web site rather
than in the annual rulemaking.
For FY 2017, we are proposing an
MFP adjustment of 0.5 percentage point.
Similar to the market basket update, for
the proposed rule, we used the most
recent data available to compute the
MFP adjustment. As noted previously,
we are proposing that if more recent
data subsequently become available, we
would use such data, if appropriate, to
determine the FY 2017 market basket
update and MFP adjustment for the final
rule.
Based on the most recent data
available for this proposed rule, as
described previously, we have
determined four proposed applicable
percentage increases to the standardized
amount for FY 2017, as specified in the
following table:

PROPOSED FY 2017 APPLICABLE PERCENTAGE INCREASES FOR THE IPPS
Hospital submitted quality
data and is a
meaningful
EHR user

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

FY 2017

Proposed Market Basket Rate-of-Increase .....................................................
Proposed Adjustment for Failure to Submit Quality Data under Section
1886(b)(3)(B)(viii) of the Act ........................................................................
Proposed Adjustment for Failure to be a Meaningful EHR User under Section 1886(b)(3)(B)(ix) of the Act ...................................................................
Proposed MFP Adjustment under Section 1886(b)(3)(B)(xi) of the Act ..........
Statutory Adjustment under Section 1886(b)(3)(B)(xii) of the Act ...................

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Hospital submitted quality
data and is
NOT a meaningful EHR
user

Hospital did
NOT submit
quality data
and is a
meaningful
EHR user

Hospital did
NOT submit
quality data
and is NOT a
meaningful
EHR user

2.8

2.8

2.8

2.8

0.0

0.0

¥0.7

¥0.7

0.0
¥0.5
¥0.75

¥2.1
¥0.5
¥0.75

0.0
¥0.5
¥0.75

¥2.1
¥0.5
¥0.75

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PROPOSED FY 2017 APPLICABLE PERCENTAGE INCREASES FOR THE IPPS—Continued
Hospital submitted quality
data and is a
meaningful
EHR user

FY 2017

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Proposed Applicable Percentage Increase Applied to Standardized Amount

We are proposing to revise the
existing regulations at 42 CFR 412.64(d)
to reflect the current law for the FY
2017 update. Specifically, in accordance
with section 1886(b)(3)(B) of the Act, we
are proposing to add a new paragraph
(vii) to § 412.64(d)(1) to reflect the
applicable percentage increase to the FY
2017 operating standardized amount as
the percentage increase in the market
basket index, subject to the reductions
specified under § 412.64(d)(2) for a
hospital that does not submit quality
data and § 412.64(d)(3) for a hospital
that is not a meaningful EHR user, less
an MFP adjustment and less an
additional reduction of 0.75 percentage
point.
Section 1886(b)(3)(B)(iv) of the Act
provides that the applicable percentage
increase to the hospital-specific rates for
SCHs and MDHs equals the applicable
percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the
same update factor as for all other
hospitals subject to the IPPS). Therefore,
the update to the hospital-specific rates
for SCHs and MDHs also 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. We
note that section 205 of the Medicare
Access and CHIP Reauthorization Act of
2015 (MACRA) (Pub. L. 114–10, enacted
on April 16, 2015) extended the MDH
program (which, under previous law,
was to be in effect for discharges on or
before March 31, 2015 only) for
discharges occurring on or after April 1,
2015, through FY 2017 (that is, for
discharges occurring on or before
September 30, 2017).
For FY 2017, we are proposing the
following updates to the hospitalspecific rates applicable to SCHs and
MDHs: A proposed update of 1.55
percent for a hospital that submits
quality data and is a meaningful EHR
user; a proposed update of 0.85 percent
for a hospital that fails to submit quality
data and is a meaningful EHR user; a
proposed update of ¥0.55 percent for a
hospital that submits quality data and is
not a meaningful EHR user; and a
proposed update of ¥1.25 percent for a
hospital that fails to submit quality data
and is not a meaningful EHR user. As

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2. Proposed FY 2017 Puerto Rico
Hospital Update
As discussed in section IV.A. of the
preamble of this proposed rule, prior to
January 1, 2016, Puerto Rico hospitals
were paid based on 75 percent of the
national standardized amount and 25
percent of the Puerto Rico-specific
standardized amount. Section 601 of
Public Law 114–113 amended section
1886(d)(9)(E) of the Act to specify that
the payment calculation with respect to
operating costs of inpatient hospital
services of a subsection (d) Puerto Rico
hospital for inpatient hospital
discharges on or after January 1, 2016,
shall use 100 percent of the national
standardized amount. Because Puerto
Rico hospitals are no longer paid with
a Puerto Rico-specific standardized
amount under the amendments to
section 1886(d)(9)(E) of the Act, there is
no longer a need for us to propose an
update to the Puerto Rico standardized
amount. Hospitals in Puerto Rico are
now paid 100 percent of the national
standardized amount and, therefore, are
subject to the same update to the
national standardized amount discussed
under section IV.B.1. of the preamble of
this proposed rule. Accordingly, for FY
2017, we are proposing an applicable
percentage increase of 1.55 percent to
the standardized amount for hospitals
located in Puerto Rico.
We note that section
1886(b)(3)(B)(viii) of the Act, which
specifies the adjustment to the
applicable percentage increase for
‘‘subsection (d)’’ hospitals that do not
submit quality data under the rules

Frm 00134

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¥0.55

1.55

mentioned previously, for this FY 2017
proposed rule, we are using IGI’s first
quarter 2016 forecast of the FY 2010based IPPS market basket update with
historical data through fourth quarter
2015. Similarly, we are using IGI’s first
quarter 2016 forecast of the MFP
adjustment. We are proposing that if
more recent data subsequently become
available (for example, a more recent
estimate of the market basket increase
and the MFP adjustment), we would use
such data, if appropriate, to determine
the update for SCHs and MDHs in the
final rule.

PO 00000

Hospital submitted quality
data and is
NOT a meaningful EHR
user

Hospital did
NOT submit
quality data
and is a
meaningful
EHR user
0.85

Hospital did
NOT submit
quality data
and is NOT a
meaningful
EHR user
¥1.25

established by the Secretary, is not
applicable to hospitals located in Puerto
Rico.
In addition, section 602 of Public Law
114–113 amended section 1886(n)(6)(B)
of the Act to specify that Puerto Rico
hospitals are eligible for incentive
payments for the meaningful use of
certified EHR technology, effective
beginning FY 2016, and also to apply
the adjustments to the applicable
percentage increase under section
1886(b)(3)(B)(ix) of the Act to Puerto
Rico hospitals that are not meaningful
EHR users, effective FY 2022.
Accordingly, because the provisions of
section 1886(b)(3)(B)(ix) of the Act are
not applicable to hospitals located in
Puerto Rico until FY 2022, the
adjustments under this provision are not
applicable for FY 2017.
C. Rural Referral Centers (RRCs):
Proposed Annual Updates to Case-Mix
Index and Discharge Criteria (§ 412.96)
Under the authority of section
1886(d)(5)(C)(i) of the Act, the
regulations at § 412.96 set forth the
criteria that a hospital must meet in
order to qualify under the IPPS as a
rural referral center (RRC). RRCs receive
some special treatment under both the
DSH payment adjustment and the
criteria for geographic reclassification.
Section 402 of Public Law 108–173
raised the DSH payment adjustment for
RRCs such that they are not subject to
the 12-percent cap on DSH payments
that is applicable to other rural
hospitals. RRCs also are 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 in which the
hospital is located.
Section 4202(b) of Public Law 105–33
states, in part, that any hospital
classified as an RRC by the Secretary for
FY 1991 shall be classified as such an
RRC for FY 1998 and each subsequent
fiscal year. In the August 29, 1997 IPPS
final rule with comment period (62 FR
45999), we reinstated RRC status for all
hospitals that lost that status due to
triennial review or MGCRB

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reclassification. However, we 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 case-mix
index (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) for additional
discussion.) 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 proposed national
median CMI value for FY 2017 is based
on the CMI values of all urban hospitals
nationwide, and the proposed regional
median CMI values for FY 2017 are
based on the CMI values of all urban

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hospitals within each census region,
excluding those hospitals with
approved teaching programs (that is,
those hospitals that train residents in an
approved GME program as provided in
§ 413.75). These proposed values are
based on discharges occurring during
FY 2015 (October 1, 2014 through
September 30, 2015), and include bills
posted to CMS’ records through
December 2015.
We are proposing that, in addition to
meeting other criteria, if rural hospitals
with fewer than 275 beds are to qualify
for initial RRC status for cost reporting
periods beginning on or after October 1,
2016, they must have a CMI value for
FY 2015 that is at least—
• 1.6125 (national—all urban); or
• The median CMI value (not
transfer-adjusted) for urban hospitals
(excluding hospitals with approved
teaching programs as identified in
§ 413.75) calculated by CMS for the
census region in which the hospital is
located.
The proposed CMI values by region
are set forth in the following table.
Case-mix
index value

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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2. Discharges
Section 412.96(c)(2)(i) provides that
CMS set forth the national and regional
numbers of discharges criteria 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. For FY 2017, we are
proposing to update the regional
standards based on discharges for urban
hospitals’ cost reporting periods that
began during FY 2014 (that is, October
1, 2013 through September 30, 2014),
which are the latest cost report data
available at the time this proposed rule
was developed.
We are proposing that, in addition to
meeting other criteria, a hospital, if it is
to qualify for initial RRC status for cost
reporting periods beginning on or after
October 1, 2016, must have, as the
number of discharges for its cost
reporting period that began during FY
2014, at least—
• 5,000 (3,000 for an osteopathic
hospital); or
• The median number of discharges
for urban hospitals in the census region
in which the hospital is located as
indicated in the following table.

1.3637
Region

1.4441

1.51235
1.5324
1.45055
1.59535
1.643
1.6966
1.616

We intend to update the preceding
CMI values in the FY 2017 final rule to
reflect the updated FY 2015 MedPAR
file, which would contain data from
additional bills received through March
2016.
A hospital seeking to qualify as an
RRC should obtain its hospital-specific
CMI value (not transfer-adjusted) from
its 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–DRGbased payment.

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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) ......................
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) ...................................

Number of
discharges
8,090
10,745
10,309
8,090
7,457
7,718
5,027
8,621
8,509

We intend to update these numbers in
the FY 2017 final rule based on the
latest available cost report data.
We note that the median number of
discharges for hospitals in each census
region is greater than the national
standard of 5,000 discharges. Therefore,
under this proposed rule, 5,000
discharges is the minimum criterion for
all hospitals, except for osteopathic
hospitals for which the minimum
criterion is 3,000 discharges.

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D. Proposed Payment Adjustment for
Low-Volume Hospitals (§ 412.101)
1. Background
Section 1886(d)(12) of the Act
provides for an additional payment to
each qualifying low-volume hospital
that is paid under IPPS beginning in FY
2005, and the low-volume hospital
payment policy is set forth in the
regulations at 42 CFR 412.101. Sections
3125 and 10314 of the Affordable Care
Act provided for a temporary change in
the low-volume hospital payment policy
for FYs 2011 and 2012. Specifically, the
provisions of the Affordable Care Act
amended the qualifying criteria for lowvolume hospitals to specify, for FYs
2011 and 2012, that a hospital qualifies
as a low-volume hospital if it is more
than 15 road miles from another
subsection (d) hospital and has less than
1,600 discharges of individuals entitled
to, or enrolled for, benefits under
Medicare Part A during the fiscal year.
In addition, the statute as amended by
the Affordable Care Act, provides that
the low-volume hospital payment
adjustment (that is, the percentage
increase) is 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 Medicare Part A in
the fiscal year to 0 percent for lowvolume hospitals with greater than
1,600 discharges of such individuals in
the fiscal year. We revised the
regulations governing the low-volume
hospital payment adjustment policy at
§ 412.101 to reflect the changes to the
qualifying criteria and the calculation of
the payment adjustment for low-volume
hospitals according to the provisions of
the Affordable Care Act in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50238
through 50275 and 50414).
The temporary changes to the lowvolume hospital qualifying criteria and
the payment adjustment originally
provided for by the Affordable Care Act
have been extended by subsequent
legislation as follows: Through FY 2013,
by the American Taxpayer Relief Act of
2012 (ATRA), Public Law 112–240;
through March 31, 2014, by the Pathway
for SGR Reform Act of 2013, Public Law
113– 167; through March 31, 2015, by
the Protecting Access to Medicare Act of
2014 (PAMA), Public Law 113–93; and
most recently through FY 2017, by the
Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA),
Public Law 114–10. For additional
details on the implementation of the
previous extensions of the temporary
changes to the low-volume hospital
qualifying criteria and payment

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adjustment originally provided for by
the Affordable Care Act, we refer
readers to the following Federal
Register documents: The FY 2013 IPPS
notice (78 FR 14689 through 14691); the
FY 2014 IPPS/LTCH PPS final rule (78
FR 50611 through 50612); the FY 2014
IPPS interim final rule with comment
period (79 FR 15022 through 15025); the
FY 2014 IPPS notice (79 FR 34444
through 34446); the FY 2015 IPPS/LTCH
PPS final rule (79 FR 49998 through
50001); and the FY 2016 IPPS interim
final rule with comment period (80 FR
49594 through 49595).
2. Proposed Low-Volume Hospital
Definition and Payment Adjustment for
FY 2017
Under section 1886(d)(12) of the Act,
as amended by section 204 of the
MACRA, the temporary changes in the
low-volume hospital payment policy
originally provided by the Affordable
Care Act and extended through
subsequent legislation, are effective
through FY 2017. In this proposed rule,
consistent with our historical approach,
we are proposing to update the
discharge data source used to identify
qualifying low-volume hospitals and
calculate the payment adjustment
(percentage increase) for FY 2017.
Under § 412.101(b)(2)(ii), for the
applicable fiscal years, a 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 lowvolume payment adjustment in the
current year and to determine the
applicable low-volume percentage
increase for qualifying hospitals. The
applicable low-volume percentage
increase for FY 2017 is determined
using a continuous linear sliding scale
equation that results in a low-volume
hospital payment adjustment ranging
from an additional 25 percent for
hospitals with 200 or fewer Medicare
discharges to a zero percent additional
payment adjustment for hospitals with
1,600 or more Medicare discharges. For
FY 2017, consistent with our historical
policy, we are proposing that qualifying
low-volume hospitals and their payment
adjustment would be determined using
the most recently available Medicare
discharge data from the December 2015
update of the FY 2015 MedPAR file, as
these data are the most recent data
available. Table 14 listed in the
Addendum of this proposed rule (which
is available via the Internet on the CMS
Web site at: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html) lists the ‘‘subsection (d)’’

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hospitals with fewer than 1,600
Medicare discharges based on the
claims data from the December 2015
update of the FY 2015 MedPAR file and
their potential proposed low-volume
payment adjustment for FY 2017.
Consistent with past practice, we note
that this 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.
Eligibility for the low-volume hospital
payment adjustment for FY 2017 also is
dependent upon meeting the mileage
criterion specified at § 412.101(b)(2)(ii);
that is, the hospital must be located
more than 15 road miles from any other
IPPS hospital. In other words, eligibility
for the low-volume hospital payment
adjustment for FY 2017 also is
dependent upon meeting (in the case of
a hospital that did not qualify for the
low-volume hospital payment
adjustment in FY 2016) or continuing to
meet (in the case of a hospital that did
qualify for the low-volume hospital
payment adjustment in FY 2016) the
mileage criterion specified at
§ 412.101(b)(2)(ii). Consistent with
historical practice, we are proposing
that if more recent Medicare discharge
data become available, we would use
that updated data to determine
qualifying low-volume hospitals and
their payment adjustment in the final
rule, and update Table 14 to reflect that
updated data.
In order to receive a low-volume
hospital payment adjustment under
§ 412.101 for FY 2017, consistent with
our previously established procedure,
we are proposing that a hospital must
notify and provide documentation to its
MAC that it meets the discharge and
mileage criteria under
§ 412.101(b)(2)(ii). Specifically, for FY
2017, we are proposing that a hospital
must make a written request for lowvolume hospital status that is received
by its MAC no later than September 1,
2016, in order for the applicable lowvolume hospital payment adjustment to
be applied to payments for its FY 2017
discharges occurring on or after October
1, 2016. Under this procedure, a
hospital that qualified for the lowvolume hospital payment adjustment in
FY 2016 may continue to receive a lowvolume hospital payment adjustment for
FY 2017 without reapplying if it
continues to meet the Medicare
discharge criterion established for FY
2017 and the mileage criterion.
However, the hospital must send
written verification that is received by
its MAC no later than September 1,
2016, stating that it continues to be
located more than 15 miles from any

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other subsection (d) hospital. This
written verification could be a brief
letter to the MAC stating that the
hospital continues to meet the lowvolume hospital mileage criterion as
documented in a prior low-volume
hospital status request. We also are
proposing that if a hospital’s written
request for low-volume hospital status
for FY 2017 is received after September
1, 2016, and if the MAC determines that
the hospital meets the criteria to qualify
as a low-volume hospital, the MAC
would apply the applicable low-volume
hospital payment adjustment to
determine the payment for the hospital’s
FY 2017 discharges effective
prospectively within 30 days of the date
of its low-volume hospital status
determination, consistent with past
practice. (For additional details on our
established process for the low-volume
hospital payment adjustment, we refer
readers to the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53408) and the FY
2015 IPPS/LTCH PPS final rule (79 FR
50000 through 50001).)
We note that, in the FY 2016 IPPS
interim final rule with comment period
(80 FR 49595), we revised the
regulations at § 412.101 to conform the
text to the provisions of section 204 of
the MACRA, which extended the
changes to the qualifying criteria and
the payment adjustment methodology
for low-volume hospitals through FY
2017 (that is, through September 30,
2017). We intend to finalize the lowvolume hospital provisions (as well as
the Medicare-dependent small rural
hospital (MDH) provisions at § 412.108)
included in that FY 2016 interim final
rule with comment period in the FY
2017 IPPS/LTCH PPS final rule.

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E. Indirect Medical Education (IME)
Payment Adjustment Factor for FY 2017
(§ 412.105)
1. IME Adjustment for FY 2017
Under the IPPS, an additional
payment amount is made to hospitals
with 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
payment amount is determined by use
of a statutorily specified adjustment
factor. The regulations regarding the
calculation of this additional payment,
known as the IME adjustment, are
located at § 412.105. We refer readers to
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51680) for a full discussion of the
IME adjustment and IME adjustment
factor. Section 1886(d)(5)(B)(ii)(XII) of
the Act provides that, for discharges
occurring during FY 2008 and fiscal

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years thereafter, the IME formula
multiplier is 1.35. Accordingly, for
discharges occurring during FY 2017,
the formula multiplier is 1.35. We
estimate that application of this formula
multiplier for the FY 2017 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.
2. Other Proposed Policies Related to
IME
We refer readers to section IV.I. of the
preamble of this proposed rule for a
discussion of the proposed policy
changes relating to medical residency
training programs (or rural tracks) at
urban hospitals that also affect
payments for IME.
F. Proposed Payment Adjustment for
Medicare Disproportionate Share
Hospitals (DSHs) for FY 2017 and
Subsequent Years (§ 412.106)
1. General Discussion
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 and
Supplemental Security Income (SSI)
benefits by the hospital’s total number
of patient days furnished to patients
entitled to benefits under Medicare Part

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25081

A. The Medicaid fraction is computed
by dividing the hospital’s number of
inpatient days furnished to patients
who, for such days, were eligible for
Medicaid, but were not entitled to
benefits under Medicare Part A, by the
hospital’s total number of inpatient days
in the same period.
Because the DSH payment adjustment
is part of the IPPS, the DSH statutory
references (under section 1886(d)(5)(F)
of the Act) to ‘‘days’’ apply only to
hospital acute care inpatient days.
Regulations located at § 412.106 govern
the Medicare DSH payment adjustment
and specify how the DPP is calculated
as well as how beds and patient days are
counted in determining the Medicare
DSH payment adjustment. Under
§ 412.106(a)(1)(i), the number of beds for
the Medicare DSH payment adjustment
is determined in accordance with bed
counting rules for the IME adjustment
under § 412.105(b).
Section 3133 of the Patient Protection
and Affordable Care Act, as amended by
section 10316 of the same Act and
section 1104 of the Health Care and
Education Reconciliation Act (Pub. L.
111–152), added a new section 1886(r)
to the Act that modifies the
methodology for computing the
Medicare DSH payment adjustment.
(For purposes of this proposed rule, we
refer to these provisions collectively as
section 3133 of the Affordable Care Act.)
Beginning with discharges in FY 2014,
hospitals that qualify for Medicare DSH
payments under section 1886(d)(5)(F) of
the Act receive 25 percent of the amount
they previously would have received
under the statutory formula for
Medicare DSH payments. This provision
applies equally to hospitals that qualify
for DSH payments under section
1886(d)(5)(F)(i)(I) of the Act and those
hospitals that qualify under the Pickle
method under section 1886(d)(5)(F)(i)(II)
of the Act.
The remaining amount, equal to an
estimate of 75 percent of what otherwise
would have been paid as Medicare DSH
payments, reduced to reflect changes in
the percentage of individuals under age
65 who are uninsured, is available to
make additional payments to each
hospital that qualifies for Medicare DSH
payments and that has uncompensated
care. The payments to each hospital for
a fiscal year are based on the hospital’s
amount of uncompensated care for a
given time period relative to the total
amount of uncompensated care for that
same time period reported by all
hospitals that receive Medicare DSH
payments for that fiscal year.
As provided by section 3133 of the
Affordable Care Act, section 1886(r) of
the Act requires that, for FY 2014 and

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each subsequent fiscal year, a
subsection (d) hospital that would
otherwise receive DSH payments made
under section 1886(d)(5)(F) of the Act
receives two separately calculated
payments. Specifically, section
1886(r)(1) of the Act provides that the
Secretary shall pay to such a subsection
(d) hospital (including a Pickle hospital)
25 percent of the amount the hospital
would have received under section
1886(d)(5)(F) of the Act for DSH
payments, which represents the
empirically justified amount for such
payment, as determined by the MedPAC
in its March 2007 Report to the
Congress. We refer to this payment as
the ‘‘empirically justified Medicare DSH
payment.’’
In addition to this empirically
justified Medicare DSH payment,
section 1886(r)(2) of the Act provides
that, for FY 2014 and each subsequent
fiscal year, the Secretary shall pay to
such subsection (d) hospital an
additional amount equal to the product
of three factors. The first factor is the
difference between the aggregate
amount of payments that would be
made to subsection (d) hospitals under
section 1886(d)(5)(F) of the Act if
subsection (r) did not apply and the
aggregate amount of payments that are
made to subsection (d) hospitals under
section 1886(r)(1) of the Act for each
fiscal year. Therefore, this factor
amounts to 75 percent of the payments
that would otherwise be made under
section 1886(d)(5)(F) of the Act.
The second factor is, for FYs 2014
through 2017, 1 minus the percent
change in the percent of individuals
under the age of 65 who are uninsured,
determined by comparing the percent of
such individuals who were uninsured
in 2013, the last year before coverage
expansion under the Affordable Care
Act (as calculated by the Secretary
based on the most recent estimates
available from the Director of the
Congressional Budget Office before a
vote in either House on the Health Care
and Education Reconciliation Act of
2010 that, if determined in the
affirmative, would clear such Act for
enrollment), and the percent of
individuals who were uninsured in the
most recent period for which data are
available (as so calculated) minus 0.1
percentage point for FY 2014, and
minus 0.2 percentage point for FYs 2015
through 2017. For FYs 2014 through
2017, the baseline for the estimate of the
change in uninsurance is fixed by the
most recent estimate of the
Congressional Budget Office before the
final vote on the Health Care and
Education Reconciliation Act of 2010,
which is contained in a March 20, 2010

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letter from the Director of the
Congressional Budget Office to the
Speaker of the House. (The March 20,
2010 letter is available for viewing on
the following Web site: http://
www.cbo.gov/sites/default/files/
cbofiles/ftpdocs/113xx/doc11379/
amendreconprop.pdf.)
For FY 2018 and subsequent fiscal
years, the second factor is 1 minus the
percent change in the percent of
individuals who are uninsured, as
determined by comparing the percent of
individuals who were uninsured in
2013 (as estimated by the Secretary,
based on data from the Census Bureau
or other sources the Secretary
determines appropriate, and certified by
the Chief Actuary of CMS), and the
percent of individuals who were
uninsured in the most recent period for
which data are available (as so
estimated and certified), minus 0.2
percentage point for FYs 2018 and 2019.
Therefore, for FY 2018 and subsequent
fiscal years, the statute provides some
greater flexibility in the choice of the
data sources to be used for the estimate
of the change in the percent of
uninsured individuals.
The third factor is a percent that, for
each subsection (d) hospital, represents
the quotient of the amount of
uncompensated care for such hospital
for a period selected by the Secretary (as
estimated by the Secretary, based on
appropriate data), including the use of
alternative data where the Secretary
determines that alternative data are
available which are a better proxy for
the costs of subsection (d) hospitals for
treating the uninsured, and the
aggregate amount of uncompensated
care for all subsection (d) hospitals that
receive a payment under section 1886(r)
of the Act. Therefore, this third factor
represents a hospital’s uncompensated
care amount for a given time period
relative to the uncompensated care
amount for that same time period for all
hospitals that receive Medicare DSH
payments in the applicable fiscal year,
expressed as a percent.
For each hospital, the product of these
three factors represents its additional
payment for uncompensated care for the
applicable fiscal year. We refer to the
additional payment determined by these
factors as the ‘‘uncompensated care
payment.’’
Section 1886(r) of the Act applies to
FY 2014 and each subsequent fiscal
year. In the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50620 through 50647)
and the FY 2014 IPPS interim final rule
with comment period (78 FR 61191
through 61197), we set forth our policies
for implementing the required changes
to the Medicare DSH payment

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methodology made by section 3133 of
the Affordable Care Act for FY 2014. In
those rules, we noted that, because
section 1886(r) of the Act modifies the
payment required under section
1886(d)(5)(F) of the Act, it affects only
the DSH payment under the operating
IPPS. It does not revise or replace the
capital IPPS DSH payment provided
under the regulations at 42 CFR part
412, subpart M, which were established
through the exercise of the Secretary’s
discretion in implementing the capital
IPPS under section 1886(g)(1)(A) of the
Act.
Finally, section 1886(r)(3) of the Act
provides that there shall be no
administrative or judicial review under
section 1869, section 1878, or otherwise
of any estimate of the Secretary for
purposes of determining the factors
described in section 1886(r)(2) of the
Act or of any period selected by the
Secretary for the purpose of determining
those factors. Therefore, there is no
administrative or judicial review of the
estimates developed for purposes of
applying the three factors used to
determine uncompensated care
payments, or the periods selected in
order to develop such estimates.
2. Eligibility for Empirically Justified
Medicare DSH Payments and
Uncompensated Care Payments
As indicated earlier, the payment
methodology under section 3133 of the
Affordable Care Act applies to
‘‘subsection (d) hospitals’’ that would
otherwise receive a DSH payment made
under section 1886(d)(5)(F) of the Act.
Therefore, hospitals must receive
empirically justified Medicare DSH
payments in a fiscal year in order to
receive an additional Medicare
uncompensated care payment for that
year. Specifically, section 1886(r)(2) of
the Act states that, in addition to the
payment made to a subsection (d)
hospital under section 1886(r)(1) of the
Act, the Secretary shall pay to such
subsection (d) hospitals an additional
amount. Because section 1886(r)(1) of
the Act refers to empirically justified
Medicare DSH payments, the additional
payment under section 1886(r)(2) of the
Act is limited to hospitals that receive
empirically justified Medicare DSH
payments in accordance with section
1886(r)(1) of the Act for the applicable
fiscal year.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50622) and the FY 2014
IPPS interim final rule with comment
period (78 FR 61193), we provided that
hospitals that are not eligible to receive
empirically justified Medicare DSH
payments in a fiscal year will not
receive uncompensated care payments

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for that year. We also specified that we
would make a determination concerning
eligibility for interim uncompensated
care payments based on each hospital’s
estimated DSH status for the applicable
fiscal year (using the most recent data
that are available). We indicated that
our final determination on the hospital’s
eligibility for uncompensated care
payments would be based on the
hospital’s actual DSH status at cost
report settlement for that payment year.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50622) and the FY 2015
IPPS/LTCH PPS final rule (79 FR
50006), we specified our policies for
several specific classes of hospitals
within the scope of section 1886(r) of
the Act. We refer readers to those two
final rules for a detailed discussion of
our policies. In summary, we specified
the following:
• Subsection (d) Puerto Rico hospitals
that are eligible for DSH payments also
are eligible to receive empirically
justified Medicare DSH payments and
uncompensated care payments under
the new payment methodology (78 FR
50623 and 79 FR 50006).
• Maryland hospitals are not eligible
to receive empirically justified Medicare
DSH payments and uncompensated care
payments under the payment
methodology of section 1886(r) of the
Act because they are not paid under the
IPPS. As discussed in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50007),
effective January 1, 2014, the State of
Maryland elected to no longer have
Medicare pay Maryland hospitals in
accordance with section 1814(b)(3) of
the Act and entered into an agreement
with CMS that Maryland hospitals will
be paid under the Maryland All-Payer
Model. However, under the Maryland
All-Payer Model, Maryland hospitals
still are not paid under the IPPS.
Therefore, they remain ineligible to
receive empirically justified Medicare
DSH payments or uncompensated care
payments under section 1886(r) of the
Act.
• SCHs that are paid under their
hospital-specific rate are not eligible for
Medicare DSH payments. SCHs that are
paid under the IPPS Federal rate receive
interim payments based on what we
estimate and project their DSH status to
be prior to the beginning of the Federal
fiscal year (based on the best available
data at that time) subject to settlement
through the cost report, and if they
receive interim empirically justified
Medicare DSH payments in a fiscal year,
they also will receive interim
uncompensated care payments for that
fiscal year on a per discharge basis,
subject as well to settlement through the
cost report. Final eligibility

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determinations will be made at the end
of the cost reporting period at
settlement, and both interim empirically
justified Medicare DSH payments and
uncompensated care payments will be
adjusted accordingly (78 FR 50624 and
79 FR 50007).
• MDHs are paid based on the IPPS
Federal rate or, if higher, the IPPS
Federal rate plus 75 percent of the
amount by which the Federal rate is
exceeded by the updated hospitalspecific rate from certain specified base
years (76 FR 51684). The IPPS Federal
rate used in the MDH payment
methodology is the same IPPS Federal
rate that is used in the SCH payment
methodology. Section 205 of the
Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA),
Public Law 114–10, enacted April 16,
2015, extended the MDH program for
discharges on or after April 1, 2015,
through September 30, 2017. Because
MDHs are paid based on the IPPS
Federal rate, for FY 2017, MDHs will
continue to be eligible to receive
empirically justified Medicare DSH
payments and uncompensated care
payments if their DPP is at least 15
percent. We will apply the same process
to determine MDHs’ eligibility for
empirically justified Medicare DSH and
uncompensated care payments, as we
do for all other IPPS hospitals, through
September 30, 2017. Moreover, we will
continue to make a determination
concerning eligibility for interim
uncompensated care payments based on
each hospital’s estimated DSH status for
the applicable fiscal year (using the
most recent data that are available). Our
final determination on the hospital’s
eligibility for uncompensated care
payments will be based on the hospital’s
actual DSH status at cost report
settlement for that payment year. In
addition, as we do for all IPPS hospitals,
we calculate a numerator for Factor 3 for
all MDHs, regardless of whether they are
projected to be eligible for Medicare
DSH payments during the fiscal year,
but the denominator for Factor 3 will be
based on the uncompensated care data
from the hospitals that we have
projected to be eligible for Medicare
DSH payments during the fiscal year.
• IPPS hospitals that have elected to
participate in the Bundled Payments for
Care Improvement initiative continue to
be paid under the IPPS (77 FR 53342)
and, therefore, are eligible to receive
empirically justified Medicare DSH
payments and uncompensated care
payments (78 FR 50625 and 79 FR
50008).
• Hospitals participating in the Rural
Community Hospital Demonstration
Program under section 410A of the

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25083

Medicare Modernization Act do not
receive DSH payments and, therefore,
are excluded from receiving empirically
justified Medicare DSH payments and
uncompensated care payments under
the new DSH payment methodology (78
FR 50625 and 79 FR 50008). There are
14 hospitals currently participating in
the program; 10 will continue to
participate through the end of FY 2016,
and 4 will continue to participate
through the scheduled end of the
program on December 31, 2016. Once a
hospital’s participation in the
demonstration program ends, the
hospital will be treated like a subsection
(d) hospital and subject to the IPPS.
Therefore, once their participation ends,
these hospitals could be eligible to
receive empirically justified Medicare
DSH payments and uncompensated care
payments and, if so, will be treated
accordingly for interim and final
payments. We will apply the same
process to determining their eligibility
as we do for all other IPPS hospitals,
and will make interim and final DSH
and uncompensated care payments
accordingly.
3. Empirically Justified Medicare DSH
Payments
As we have discussed earlier, section
1886(r)(1) of the Act requires the
Secretary to pay 25 percent of the
amount of the Medicare DSH payment
that would otherwise be made under
section 1886(d)(5)(F) of the Act to a
subsection (d) hospital. Because section
1886(r)(1) of the Act merely requires the
program to pay a designated percentage
of these payments, without revising the
criteria governing eligibility for DSH
payments or the underlying payment
methodology, we stated in the FY 2014
IPPS/LTCH PPS final rule that we did
not believe that it was necessary to
develop any new operational
mechanisms for making such payments.
Therefore, in the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50626), we
implemented this provision by advising
MACs to simply adjust the interim
claim payments to the requisite 25
percent of what would have otherwise
been paid. We also made corresponding
changes to the hospital cost report so
that these empirically justified Medicare
DSH payments can be settled at the
appropriate level at the time of cost
report settlement. We provided more
detailed operational instructions and
cost report instructions following
issuance of the FY 2014 IPPS/LTCH PPS
final rule that are available on the CMS
Web site at: http://www.cms.gov/
Regulations-and-Guidance/Guidance/
Transmittals/2014-Transmittals-Items/
R5P240.html.

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4. Uncompensated Care Payments
As we have discussed earlier, section
1886(r)(2) of the Act provides that, for
each eligible hospital in FY 2014 and
subsequent years, the uncompensated
care payment is the product of three
factors. These three factors represent our
estimate of 75 percent of the amount of
Medicare DSH payments that would
otherwise have been paid, an
adjustment to this amount for the
percent change in the national rate of
uninsurance compared to the rate of
uninsurance in 2013, and each eligible
hospital’s estimated uncompensated
care amount relative to the estimated
uncompensated care amount for all
eligible hospitals. Below we discuss the
data sources and methodologies for
computing each of these factors, our
final policies for FYs 2014 through
2016, and our proposed policies for FY
2017.
a. Calculation of Proposed Factor 1 for
FY 2017
Section 1886(r)(2)(A) of the Act
establishes Factor 1 in the calculation of
the uncompensated care payment.
Section 1886(r)(2)(A) of the Act states
that this factor is equal to the difference
between (1) the aggregate amount of
payments that would be made to
subsection (d) hospitals under section
1886(d)(5)(F) of the Act if section
1886(r) of the Act did not apply for such
fiscal year (as estimated by the
Secretary); and (2) the aggregate amount
of payments that are made to subsection
(d) hospitals under section 1886(r)(1) of
the Act for such fiscal year (as so
estimated). Therefore, section
1886(r)(2)(A)(i) of the Act represents the
estimated Medicare DSH payments that
would have been made under section
1886(d)(5)(F) of the Act if section
1886(r) of the Act did not apply for such
fiscal year. Under a prospective
payment system, we would not know
the precise aggregate Medicare DSH
payment amount that would be paid for
a Federal fiscal year until cost report
settlement for all IPPS hospitals is
completed, which occurs several years
after the end of the Federal fiscal year.
Therefore, section 1886(r)(2)(A)(i) of the
Act provides authority to estimate this
amount, by specifying that, for each
fiscal year to which the provision
applies, such amount is to be estimated
by the Secretary. Similarly, section
1886(r)(2)(A)(ii) of the Act represents
the estimated empirically justified
Medicare DSH payments to be made in
a fiscal year, as prescribed under section
1886(r)(1) of the Act. Again, section
1886(r)(2)(A)(ii) of the Act provides
authority to estimate this amount.

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Therefore, Factor 1 is the difference
between our estimates of: (1) The
amount that would have been paid in
Medicare DSH payments for the fiscal
year, in the absence of the new payment
provision; and (2) the amount of
empirically justified Medicare DSH
payments that are made for the fiscal
year, which takes into account the
requirement to pay 25 percent of what
would have otherwise been paid under
section 1886(d)(5)(F) of the Act. In other
words, this factor represents our
estimate of 75 percent (100 percent
minus 25 percent) of our estimate of
Medicare DSH payments that would
otherwise be made, in the absence of
section 1886(r) of the Act, for the fiscal
year.
As we did for FY 2016, in order to
determine Factor 1 in the
uncompensated care payment formula
for FY 2017, we are proposing to
continue the policy established in the
FY 2014 IPPS/LTCH PPS final rule (78
FR 50628 through 50630) and in the FY
2014 IPPS interim final rule with
comment period (78 FR 61194) of
determining Factor 1 by developing
estimates of both the aggregate amount
of Medicare DSH payments that would
be made in the absence of section
1886(r)(1) of the Act and the aggregate
amount of empirically justified
Medicare DSH payments to hospitals
under 1886(r)(1) of the Act. These
estimates will not be revised or updated
after we know the final Medicare DSH
payments for FY 2017.
Therefore, in order to determine the
two elements of Factor 1 for FY 2017
(Medicare DSH payments prior to the
application of section 1886(r)(1) of the
Act, and empirically justified Medicare
DSH payments after application of
section 1886(r)(1) of the Act), we used
the most recently available projections
of Medicare DSH payments for the fiscal
year, as calculated by CMS’ Office of the
Actuary using the most recently filed
Medicare hospital cost report with
Medicare DSH payment information and
the most recent Medicare DSH patient
percentages and Medicare DSH payment
adjustments provided in the IPPS
Impact File.
For purposes of calculating Factor 1
and modeling the impact of this FY
2017 IPPS/LTCH PPS proposed rule, we
used the Office of the Actuary’s March
2016 Medicare DSH estimates, which
are based on data from the December
2015 update of the Medicare Hospital
Cost Report Information System (HCRIS)
and the FY 2016 IPPS/LTCH PPS final
rule IPPS Impact file, published in
conjunction with the publication of the
FY 2016 IPPS/LTCH PPS final rule.
Because SCHs that are projected to be

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paid under their hospital-specific rate
are excluded from the application of
section 1886(r) of the Act, these
hospitals also were excluded from the
March 2016 Medicare DSH estimates.
Furthermore, because section 1886(r) of
the Act specifies that the
uncompensated care payment is in
addition to the empirically justified
Medicare DSH payment (25 percent of
DSH payments that would be made
without regard to section 1886(r) of the
Act), Maryland hospitals participating
in the Maryland All-Payer Model that
do not receive DSH payments are also
excluded from the Office of the
Actuary’s Medicare DSH estimates.
Because the Rural Community Hospital
Demonstration program is scheduled to
end on December 31, 2016, hospitals
that are participating in the program are
included in this estimate for FY 2017.
However, we have excluded 25 percent
of our estimate of DSH payments that
would otherwise be made to the 4
hospitals whose participation in the
program will continue through
December 31, 2016, as these hospitals
will be excluded from receiving DSH
payments until that time. The estimate
includes the total DSH payments that
would be made to the 10 hospitals
whose participation in the Rural
Community Hospital Demonstration
program will continue only through
September 30, 2016.
Using the data sources discussed
above, the Office of the Actuary uses the
most recently submitted Medicare cost
report data to identify Medicare DSH
payments and the most recent Medicare
DSH payment adjustments provided in
the IPPS Impact File, and applies
inflation updates and assumptions for
future changes in utilization and casemix to estimate Medicare DSH
payments for the upcoming fiscal year.
The March 2016 Office of the Actuary
estimate for Medicare DSH payments for
FY 2017, without regard to the
application of section 1886(r)(1) of the
Act, is approximately $14.227 billion.
This estimate excludes Maryland
hospitals participating in the Maryland
All-Payer Model, SCHs paid under their
hospital-specific payment rate, and 25
percent of payments to the 4 hospitals
whose participation in the Rural
Community Hospital Demonstration
program will continue through
December 31, 2016. Therefore, based on
the March 2016 estimate, the estimate
for empirically justified Medicare DSH
payments for FY 2017, with the
application of section 1886(r)(1) of the
Act, is approximately $3.556 billion (or
25 percent of the total amount of
estimated Medicare DSH payments for

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FY 2017). Under § 412.l06(g)(1)(i) of the
regulations, Factor 1 is the difference
between these two estimates of the
Office of the Actuary. Therefore, in this
proposed rule, we are proposing that
Factor 1 for FY 2017 is
$10,670,529,595.84, which is equal to

75 percent of the total amount of
estimated Medicare DSH payments for
FY 2017 ($14,227,372,794.46 minus
$3,556,843,198.62).
The Office of the Actuary’s estimates
for FY 2017 begin with a baseline of
$12.154 billion in Medicare DSH

25085

expenditures for FY 2013. The following
table shows the factors applied to
update this baseline through the current
estimate for FY 2017:

FACTORS APPLIED FOR FY 2014 THROUGH FY 2017 TO ESTIMATE MEDICARE DSH EXPENDITURES USING 2013
BASELINE
FY
2014
2015
2016
2017

Update

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

1.009
1.014
1.009
1.0005

In this table, the discharge column
shows the increase in the number of
Medicare FFS inpatient hospital
discharges. The figures for FYs 2014 and
2015 are based on Medicare claims data
that have been adjusted by a completion
factor. The discharge figure for FY 2016
is based on preliminary data for 2016.
The discharge figure for FY 2017 is an
assumption based on recent trends
recovering back to the long-term trend
and assumptions related to how many
beneficiaries will be enrolled in

Case-mix

0.9553
0.9894
1.0078
1.0168

1.015
1.005
1.005
1.005

Medicare Advantage (MA) plans. The
case-mix column shows the increase in
case-mix for IPPS hospitals. The casemix figures for FYs 2014 and 2015 are
based on actual data adjusted by a
completion factor. The FY 2016 and FY
2017 increases are based on the
recommendation of the 2010–2011
Medicare Technical Review Panel. The
‘‘other’’ column shows the increase in
other factors that contribute to the
Medicare DSH estimates. These factors
include the difference between the total
Market basket
percentage

FY

2014
2015
2016
2017

Discharge

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

Affordable
Care Act
payment
reductions

2.5
2.9
2.4
2.8

Other
1.04795
1.0702
0.9993
1.0134

Total
1.025268
1.079048
1.021239
1.036095

Estimated
DSH payment
(in billions)
$12.461
13.446
13.732
14.227

inpatient hospital discharges and the
IPPS discharges, various adjustments to
the payment rates that have been
included over the years but are not
reflected in the other columns (such as
the change in rates for the 2-midnight
stay policy). In addition, the ‘‘other’’
column includes a factor for the
Medicaid expansion due to the
Affordable Care Act.
The table below shows the factors that
are included in the ‘‘Update’’ column of
the above table:
Multifactor
productivity
adjustment

¥0.3
¥0.2
¥0.2
¥0.75

¥0.5
¥0.5
¥0.5
¥0.5

Documentation
and coding
¥0.8
¥0.8
¥0.8
¥1.5

Total update
percentage
0.9
1.4
0.9
0.05

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Note: All numbers are based on the FY 2017 President’s Budget projections.

b. Calculation of Proposed Factor 2 for
FY 2017
Section 1886(r)(2)(B) of the Act
establishes Factor 2 in the calculation of
the uncompensated care payment.
Specifically, section 1886(r)(2)(B)(i) of
the Act provides that, for each of FYs
2014, 2015, 2016, and 2017, a factor
equal to 1 minus the percent change in
the percent of individuals under the age
of 65 who are uninsured, as determined
by comparing the percent of such
individuals (1) who were uninsured in
2013, the last year before coverage
expansion under the Affordable Care
Act (as calculated by the Secretary
based on the most recent estimates
available from the Director of the
Congressional Budget Office before a
vote in either House on the Health Care
and Education Reconciliation Act of
2010 that, if determined in the
affirmative, would clear such Act for

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enrollment); and (2) who are uninsured
in the most recent period for which data
are available (as so calculated), minus
0.1 percentage point for FY 2014 and
minus 0.2 percentage point for each of
FYs 2015, 2016, and 2017.
Section 1886(r)(2)(B)(i)(I) of the Act
further indicates that the percent of
individuals under 65 without insurance
in 2013 must be the percent of such
individuals who were uninsured in
2013, the last year before coverage
expansion under the Affordable Care
Act (as calculated by the Secretary
based on the most recent estimates
available from the Director of the
Congressional Budget Office before a
vote in either House on the Health Care
and Education Reconciliation Act of
2010 that, if determined in the
affirmative, would clear such Act for
enrollment). The Health Care and
Education Reconciliation Act (Pub. L.

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111–152) was enacted on March 30,
2010. It was passed in the House of
Representatives on March 21, 2010, and
by the Senate on March 25, 2010.
Because the House of Representatives
was the first House to vote on the Health
Care and Education Reconciliation Act
of 2010 on March 21, 2010, we have
determined that the most recent
estimate available from the Director of
the Congressional Budget Office ‘‘before
a vote in either House on the Health
Care and Education Reconciliation Act
of 2010 . . .’’ (emphasis added)
appeared in a March 20, 2010 letter
from the director of the CBO to the
Speaker of the House. Therefore, we
believe that only the estimates in this
March 20, 2010 letter meet the statutory
requirement under section
1886(r)(2)(B)(i)(I) of the Act. (To view
the March 20, 2010 letter, we refer
readers to the Web site at: http://

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www.cbo.gov/sites/default/files/
cbofiles/ftpdocs/113xx/doc11379/
amendreconprop.pdf.)
In its March 20, 2010 letter to the
Speaker of the House of Representatives,
the CBO provided two estimates of the
‘‘post-policy uninsured population.’’
The first estimate is of the ‘‘Insured
Share of the Nonelderly Population
Including All Residents’’ (82 percent)
and the second estimate is of the
‘‘Insured Share of the Nonelderly
Population Excluding Unauthorized
Immigrants’’ (83 percent). In the FY
2014 IPPS/LTCH PPS final rule (78 FR
50631), we used the first estimate that
includes all residents, including
unauthorized immigrants. We stated
that we believe this estimate is most
consistent with the statute, which
requires us to measure ‘‘the percent of
individuals under the age of 65 who are
uninsured’’ and provides no exclusions
except for individuals over the age of
65. In addition, we stated that we
believe that this estimate more fully
reflects the levels of uninsurance in the
United States that influence
uncompensated care for hospitals than
the estimate that reflects only legal
residents. The March 20, 2010 CBO
letter reports these figures as the
estimated percentage of individuals
with insurance. However, because
section 1886(r)(2)(B)(i) of the Act
requires that we compare the percent of
individuals who are uninsured in the
most recent period for which data are
available with the percent of individuals
who were uninsured in 2013, in the FY
2014 IPPS/LTCH PPS final rule, we

used the CBO insurance rate figure and
subtracted that amount from 100
percent (that is the total population
without regard to insurance status) to
estimate the 2013 baseline percent of
individuals without insurance.
Therefore, for FYs 2014 through 2017,
our estimate of the uninsurance
percentage for 2013 is 18 percent.
Section 1886(r)(2)(B)(i) of the Act
requires that we compare the baseline
uninsurance rate to the percent of such
individuals who are uninsured in the
most recent period for which data are
available (as so calculated). In the FY
2014, FY 2015, and FY 2016 IPPS/LTCH
PPS final rules (78 FR 50634, 79 FR
50014, and 80 FR 49522, respectively),
we used the same data source, CBO
estimates, to calculate this percent of
individuals without insurance. In
response to public comments, we also
agreed that we should normalize the
CBO estimates, which are based on the
calendar year, for the Federal fiscal
years for which each calculation of
Factor 2 is made (78 FR 50633).
Therefore, for this FY 2017 IPPS/LTCH
PPS proposed rule, we used the most
recently available estimate of the
uninsurance rate, which is based on the
CBO’s March 2015 estimates of the
effects of the Affordable Care Act on
health insurance coverage (which are
available at http://www.cbo.gov/sites/
default/files/cbofiles/attachments/
43900–2014–04–ACAtables2.pdf). The
CBO’s March 2015 estimate of
individuals under the age of 65 with
insurance in CY 2016 is 89 percent.
Therefore, the CBO’s most recent

estimate of the rate of uninsurance in
CY 2016 is 11 percent (that is, 100
percent minus 89 percent). Similarly,
the CBO’s March 2015 estimate of
individuals under the age of 65 with
insurance in CY 2017 is 90 percent.
Therefore, the CBO’s most recent
estimate of the rate of uninsurance in
CY 2017 available for this proposed rule
is 10 percent (that is, 100 percent minus
90 percent).
The calculation of the proposed
Factor 2 for FY 2017, employing a
weighted average of the CBO projections
for CY 2016 and CY 2017, is as follows:
• CY 2016 rate of insurance coverage
(March 2015 CBO estimate): 89 percent.
• CY 2017 rate of insurance coverage
(March 2015 CBO estimate): 90 percent.
• FY 2016 rate of insurance coverage:
(89 percent * .25) + (90 percent * .75)
= 89.75 percent.
• Percent of individuals without
insurance for 2013 (March 2010 CBO
estimate): 18 percent.
• Percent of individuals without
insurance for FY 2017 (weighted
average): 10.25 percent.
1¥|((0.1025–0.18)/0.18)| = 1 ¥ 0.4306 =
0.5694 (56.94 percent)
0.5694 (56.94 percent) ¥ .002 (0.2
percentage points for FY 2017
under section 1886(r)(2)(B)(i) of the
Act) = 0.5674 or 56.74 percent
0.5674 = Factor 2
Therefore, the proposed Factor 2 for
FY 2017 is 56.74 percent.
The FY 2017 Proposed
Uncompensated Care Amount is:
$10,670,529,595.84 × 0.5674 =
$6,054,458,492.68.

FY 2017 Proposed Uncompensated Care Total Available .................................................................................................

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

c. Calculation of Proposed Factor 3 for
FY 2017
Section 1886(r)(2)(C) of the Act
defines Factor 3 in the calculation of the
uncompensated care payment. As we
have discussed earlier, section
1886(r)(2)(C) of the Act states that Factor
3 is equal to the percent, for each
subsection (d) hospital, that represents
the quotient of (1) the amount of
uncompensated care for such hospital
for a period selected by the Secretary (as
estimated by the Secretary, based on
appropriate data (including, in the case
where the Secretary determines
alternative data are available that are a
better proxy for the costs of subsection
(d) hospitals for treating the uninsured,
the use of such alternative data)); and
(2) the aggregate amount of
uncompensated care for all subsection
(d) hospitals that receive a payment

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under section 1886(r) of the Act for such
period (as so estimated, based on such
data).
Therefore, Factor 3 is a hospitalspecific value that expresses the
proportion of the estimated
uncompensated care amount for each
subsection (d) hospital and each
subsection (d) Puerto Rico hospital with
the potential to receive Medicare DSH
payments relative to the estimated
uncompensated care amount for all
hospitals estimated to receive Medicare
DSH payments in the fiscal year for
which the uncompensated care payment
is to be made. Factor 3 is applied to the
product of Factor 1 and Factor 2 to
determine the amount of the
uncompensated care payment that each
eligible hospital will receive for FY
2014 and subsequent fiscal years. In
order to implement the statutory

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$6,054,458,492.68

requirements for this factor of the
uncompensated care payment formula,
it was necessary to determine: (1) The
definition of uncompensated care or, in
other words, the specific items that are
to be included in the numerator (that is,
the estimated uncompensated care
amount for an individual hospital) and
the denominator (that is, the estimated
uncompensated care amount for all
hospitals estimated to receive Medicare
DSH payments in the applicable fiscal
year); (2) the data source(s) for the
estimated uncompensated care amount;
and (3) the timing and manner of
computing the quotient for each
hospital estimated to receive Medicare
DSH payments. The statute instructs the
Secretary to estimate the amounts of
uncompensated care for a period based
on appropriate data. In addition, we
note that the statute permits the

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
Secretary to use alternative data in the
case where the Secretary determines
that such alternative data are available
that are a better proxy for the costs of
subsection (d) hospitals for treating
individuals who are uninsured.
In the course of considering how to
determine Factor 3 during the
rulemaking process for FY 2014, we
considered defining the amount of
uncompensated care for a hospital as
the uncompensated care costs of each
hospital and determined that Worksheet
S–10 of the Medicare cost report
potentially provides the most complete
data regarding uncompensated care
costs for Medicare hospitals. However,
because of concerns regarding variations
in the data reported on the Worksheet
S–10 and the completeness of these
data, we did not propose to use data
from the Worksheet S–10 to determine
the amount of uncompensated care for
FY 2014, the first year this provision
was in effect, or for FY 2015 and FY
2016. We instead employed the
utilization of insured low income
patients, defined as inpatient days of
Medicaid patients plus inpatient days of
Medicare SSI patients as defined in
§ 412.106(b)(4) and § 412.106(b)(2)(i) of
the regulations, respectively, to
determine Factor 3. We believed that
these alternative data, which are
currently reported on the Medicare cost
report, would be a better proxy for the
amount of uncompensated care
provided by hospitals. We also
indicated that we were expecting
reporting on the Worksheet S–10 to
improve over time and remained
convinced that the Worksheet S–10
could ultimately serve as an appropriate
source of more direct data regarding
uncompensated care costs for purposes
of determining Factor 3. As discussed in
section IV.F.3.d. of the preamble of this
proposed rule, since the introduction of
the uncompensated care payment in FY
2014, we believe that hospitals have
been submitting more accurate and
consistent data through Worksheet S–10
and that it is appropriate to begin
incorporating Worksheet S–10 data for
purposes of calculating Factor 3 starting
in FY 2018. As discussed in greater
detail in section IV.F.3.d. of the
preamble of this proposed rule, we are
proposing a methodology and timeline
for incorporating Worksheet S–10 data
and invite public comments on such a
proposal.
For FY 2017, we believe it remains
premature to propose the use of
Worksheet S–10 data for purposes of
determining Factor 3 because hospitals
were not on notice that Worksheet S–10
would be used for purposes of
computing uncompensated care

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payments prior to FY 2014, which could
affect the accuracy and completeness of
the information reported on Worksheet
S–10. As described more fully below
regarding the time period of the data
used to calculate Factor 3, for FY 2017,
we are using data from hospital cost
reports that precede FY 2014 to
determine Factor 3 of the
uncompensated care payments
methodology. Therefore, for FY 2017,
we remain concerned about the
accuracy and consistency of the data
reported on Worksheet S–10 and are
proposing to continue to employ the
utilization of insured low-income
patients (defined as inpatient days of
Medicaid patients plus inpatient days of
Medicare SSI patients as defined in
§ 412.106(b)(4) and § 412.106(b)(2)(i),
respectively) to determine Factor 3. We
also are proposing to continue the
policies that were finalized in the FY
2015 IPPS/LTCH PPS final rule (79 FR
50020) to address several specific issues
concerning the process and data to be
employed in determining Factor 3 in the
case of hospital mergers for FY 2017 and
subsequent fiscal years.
We also are proposing to make a
change to the data that will be used to
calculate Factor 3 for Puerto Rico
hospitals. We received a comment in
response to the FY 2016 IPPS/LTCH
PPS proposed rule that requested CMS
to create a proxy for the SSI days used
in the Factor 3 calculation for Puerto
Rico hospitals (80 FR 49526).
Specifically, commenters were
concerned that residents of Puerto Rico
are not eligible for SSI benefits.
Although we did not have logical
outgrowth to adopt any change for FY
2016, we indicated that we planned to
address this issue in the FY 2017 IPPS/
LTCH PPS proposed rule if we also
proposed to continue using inpatient
days of Medicare SSI patients as a proxy
for uncompensated care in FY 2017.
Because we are proposing to continue
using insured low-income patient days
as a proxy for uncompensated care in
FY 2017, we believe it is important to
consider the commenter’s request
regarding the data used to calculate
Factor 3 for Puerto Rico hospitals.
Accordingly, we are proposing to create
a proxy for SSI days for Puerto Rico
hospitals for use in the Factor 3
calculation. The commenter specifically
mentioned the use of inpatient days for
Medicare beneficiaries receiving
Medicaid as this proxy. We have
examined this concept and have been
unable to identify a systematic source
for these data for Puerto Rico hospitals.
Specifically, we note that inpatient
utilization for Medicare beneficiaries

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25087

entitled to Medicaid is not reported by
hospitals on the Medicare cost report.
Therefore, we sought an alternative
method using publicly available
Medicare data for determining a proxy
to account for the fact that residents of
Puerto Rico are not eligible for SSI, and
therefore Puerto Rico hospitals have a
relatively low number of Medicare SSI
days in the Factor 3 computation. We
believe it is appropriate to use data from
the Medicare cost report to develop a
Puerto Rico Medicare SSI days proxy
because they are publicly available,
used for payment purposes, and subject
to audit. However, we acknowledge that
there are other data sources that could
be included to develop such a proxy, in
particular the SSI ratios posted on the
Medicare DSH Web site at: https://www.
cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
dsh.html, and therefore are soliciting
public comment on their use.
To develop a Puerto Rico Medicare
SSI days proxy using data from the
Medicare cost report, our Office of the
Actuary examined data from 2013 cost
reports and analyzed the relationship
between Medicare SSI days (estimated
using SSI ratios on the cost report and
Medicare days from the same cost
report) and Medicaid days (reported by
the hospitals in accordance with
§ 412.106(b)(4)). Nationally, excluding
Puerto Rico, the Office of the Actuary
found that, on average and across States,
for every 100 Medicaid inpatient days,
hospitals had 14 Medicare SSI days. In
other words, the relationship between
Medicare SSI days and Medicaid days
reported by hospitals in States,
excluding Puerto Rico, was
approximately 14 percent. We believe it
would be appropriate to extrapolate this
relationship to Puerto Rico hospitals to
approximate how many patient days for
these hospitals would be Medicare SSI
days if Puerto Rico residents were
eligible to receive SSI. Therefore, to
calculate Factor 3 for FY 2017, we are
proposing to use a proxy for Medicare
SSI days for each Puerto Rico hospital
equal to 14 percent (or 0.14) of its
Medicaid days. In other words, for each
Puerto Rico hospital, we would
compute a value that is equal to 14
percent of its Medicaid days, where
Medicaid days are determined in
accordance with § 412.106(b)(4).
Because this is a proposed proxy for the
Puerto Rico hospital’s Medicare SSI
days, this value would replace whatever
value would otherwise be computed for
the hospital under § 412.106(b)(2)(i).
Specifically, we would first remove any
Medicare SSI days that a Puerto Rico
hospital has from our calculation for

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purposes of determining the numerator
of Factor 3 for the hospital and, if the
hospital is projected to be eligible for
DSH payments in FY 2017, the
denominator of Factor 3. Second, we
would add the proxy to the hospital’s
Medicaid days for purposes of
determining the numerator of Factor 3
for the hospital and, if the hospital is
projected to be eligible for DSH
payments in FY 2017, the denominator
of Factor 3. We note that we continue
to encourage Puerto Rico hospitals to
report uncompensated care costs on
Worksheet S–10 of the Medicare cost
report completely and accurately in
light of our proposal to begin
incorporating data from Worksheet S–10
in the computation of hospitals’
uncompensated care payments starting
in FY 2018, as described in more detail
in section IV.F.3.d. of the preamble of
this proposed rule.
In summary, we are inviting public
comments on these proposals to
continue to use insured low-income
days (that is, to use data for Medicaid
and Medicare SSI patient days
determined in accordance with
§ 412.106(b)(2)(i) and (b)(4) as a proxy
for uncompensated care, as permitted by
statute, including a proxy for Medicare
SSI days for Puerto Rico hospitals), to
determine Factor 3 for FY 2017. These
proposals would be codified in our
regulations at § 412.106(g)(1)(iii)(C). We
also are inviting public comments on
our proposal to continue the policies
concerning the process and data to be
employed in determining Factor 3 in the
case of hospital mergers.
As we have done for every proposed
rule beginning in FY 2014, for this FY
2017 IPPS/LTCH PPS proposed rule, we
are publishing on the CMS Web site a
table listing Factor 3 for all hospitals
that we estimate would receive
empirically justified Medicare DSH
payments in FY 2017 (that is, hospitals
that we project would receive interim
uncompensated care payments during
the fiscal year), and for the remaining
subsection (d) hospitals and subsection
(d) Puerto Rico hospitals that have the
potential of receiving a Medicare DSH
payment in the event that they receive
an empirically justified Medicare DSH
payment for the fiscal year as
determined at cost report settlement.
This table also contains a list of the
mergers that we are aware of and the
computed uncompensated care payment
for each merged hospital. Hospitals have
60 days from the date of public display
of this FY 2017 IPPS/LTCH PPS
proposed rule to review this table and
notify CMS in writing of any
inaccuracies. Comments can be
submitted to the CMS inbox at

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[email protected]. After
the publication of the FY 2017 IPPS/
LTCH final rule, hospitals will have
until August 31, 2016, to review and
submit comments on the accuracy of the
table published in conjunction with the
final rule. Comments can be submitted
to the CMS inbox at Section3133DSH@
cms.hhs.gov through August 31, 2016,
and any changes to Factor 3 will be
posted on the CMS Web site prior to
October 1, 2016.
The statute also allows the Secretary
the discretion to determine the time
periods from which we will derive the
data to estimate the numerator and the
denominator of the Factor 3 quotient.
Specifically, section 1886(r)(2)(C)(i) of
the Act defines the numerator of the
quotient as the amount of
uncompensated care for such hospital
for a period selected by the Secretary.
Section 1886(r)(2)(C)(ii) of the Act
defines the denominator as the aggregate
amount of uncompensated care for all
subsection (d) hospitals that receive a
payment under section 1886(r) of the
Act for such period. In the FY 2014
IPPS/LTCH PPS final rule (78 FR
50638), we adopted a process of making
interim payments with final cost report
settlement for both the empirically
justified Medicare DSH payments and
the uncompensated care payments
required by section 3133 of the
Affordable Care Act. Consistent with
that process, we also determined the
time period from which to calculate the
numerator and denominator of the
Factor 3 quotient in a way that would
be consistent with making interim and
final payments. Specifically, we must
have Factor 3 values available for
hospitals that we estimate will qualify
for Medicare DSH payments and for
those hospitals that we do not estimate
will qualify for Medicare DSH payments
but that may ultimately qualify for
Medicare DSH payments at the time of
cost report settlement.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50638) and the FY 2015
IPPS/LTCH PPS final rule (79 FR
50018), we finalized a policy of using
the most recent available full year of
Medicare cost report data for
determining Medicaid days and the
most recently available SSI ratios to
calculate Factor 3. In the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49528), we
held constant the cost reporting years
used to determine Medicaid days in the
calculation of Factor 3. That is, instead
of calculating the numerator and the
denominator of Factor 3 for hospitals
based on the most recently available full
year of Medicare cost report data with
respect to a Federal fiscal year, we used
data from the more recent of the cost

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report years (2012/2011) used to
determine Medicaid days in FY 2015.
We made this change in order to refine
the balance between the recency and
accuracy of the data used in the Factor
3 calculation. Because we make
prospective determinations of the
uncompensated care payment without
reconciliation, we believed this change
would increase the accuracy of the data
used to determine Factor 3, and
accordingly each eligible hospital’s
allocation of the overall uncompensated
care amount by providing hospitals with
more time to submit these data before
they are used in the computation of
Factor 3. As in prior years, if the more
recent of the two cost reporting periods
did not reflect data for a 12-month
period, we used data from the earlier of
the two periods so long as that earlier
period reflected data for a period of 12
months. If neither of the two periods
reflected 12 months, we used the period
that reflected a longer amount of time.
We also finalized a proposal to continue
to extract Medicaid days from the most
recent HCRIS database update and to
use Medicare SSI days from the most
recent SSI ratios available to us during
the time of rulemaking to calculate
Factor 3. We stated that, for subsequent
fiscal years, if we propose and finalize
a policy of using insured low-income
days in computing Factor 3, we would
continue to use the most recent HCRIS
database extract at the time of the
annual rulemaking cycle, and to use the
subsequent year of cost reports (that is,
to advance the 12-month cost reports by
1 year). In addition, for any subsequent
fiscal years in which we finalize a
policy to use insured low-income days
to compute Factor 3, our intention
would be to continue to use the most
recently available SSI ratio data at the
time of annual rulemaking to calculate
Factor 3. We believed that it was
appropriate to state our intentions
regarding the specific data we would
use in the event Factor 3 was
determined on the basis of low-income
insured days for subsequent years to
provide hospitals with as much
guidance as possible so they may best
consider how and when to submit cost
report information in the future. We
noted that we would make proposals
with regard to our methodology for
calculating Factor 3 for subsequent
fiscal years through notice-andcomment rulemaking.
Since the publication of the FY 2016
IPPS/LTCH PPS final rule, we have
learned that some members of the
hospital community have been
disadvantaged by our policy of using
only one cost reporting period to

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determine their share of uncompensated
care. Specifically, many hospitals have
reported unpredictable swings and
anomalies in their low-income insured
days between cost reporting periods.
These hospitals expressed concern that
the use of only one cost reporting period
is a poor predictor of their future
uncompensated care burden and results
in inadequate payments. Because the
data used to make uncompensated care
payment determinations are not subject
to reconciliation after the end of the
fiscal year, we believe that it would be
appropriate to expand the time period
for the data used to calculate Factor 3
from one cost reporting period to three
cost reporting periods. Using data from
more than one cost reporting period
would mitigate undue fluctuations in
the amount of uncompensated care
payments to hospitals from year to year
and smooth over anomalies between
cost reporting periods. Moreover, this
policy would have the benefit of
supplementing the data of hospitals that
filed cost reports that are less than 12
months, such that the basis of their
uncompensated care payments and
those of hospitals that filed full-year 12month cost reports would be more
equitable. We believe that computing
Factor 3 using data from three cost
reporting periods would best stabilize
hospitals’ uncompensated care
payments while maintaining the
recency of the data used in the Factor
3 calculation. We believe that using data
from two cost reporting periods would
not be as stable while using data from
more than three cost reporting periods
could result in using overly dated
information.
Therefore, for FY 2017, we are
proposing to use an average of data
derived from three cost reporting
periods instead of one cost reporting
period to compute Factor 3. That is, we
would calculate a Factor 3 for each cost
reporting period and calculate the
average. We would calculate their
average by adding these amounts
together, and dividing the sum by three,
in order to calculate Factor 3 for FY
2017. Consistent with the policy
adopted in the FY 2016 IPPS/LTCH PPS
final rule, we would advance the most
recent cost report years used to obtain
Medicaid days and Medicare SSI days
in FY 2017 by one year and continue to
extract Medicaid days data from the
most recent update of HCRIS, which for
FY 2017 would be the March 2015
update of HCRIS. If the hospital does
not have data for one or more of the
three cost reporting periods, we
compute Factor 3 for the periods
available and average those. In other

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words, we would divide the sum of the
individual Factor 3s by the number of
cost reporting periods for which there
are data. If a hospital has merged, we
would combine data from both hospitals
for the cost reporting periods in which
the merger is not reflected in the
surviving hospital’s cost report data to
compute Factor 3 for the surviving
hospital. Moreover, to further reduce
undue fluctuations in a hospital’s
uncompensated care payments, if a
hospital filed multiple cost reports
beginning in the same fiscal year, we are
proposing to combine data from the
multiple cost reports so that a hospital
may have a Factor 3 calculated using
more than one cost report within a cost
reporting period. We are proposing to
codify these changes for FY 2017 by
amending the regulations at
§ 412.106(g)(1)(iii)(C). We are inviting
public comments on this proposal,
which we describe more fully below.
For the FY 2016 IPPS/LTCH PPS final
rule, we used the most recent of
hospitals’ 12-month 2012 or 2011 cost
reports and 2012 cost report data
submitted to CMS by IHS hospitals to
obtain the Medicaid days to calculate
Factor 3. In addition, we used Medicare
SSI days from the FY 2013 SSI ratios
published on the following CMS Web
site to calculate Factor 3: http://www.
cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
dsh.html.
Under our proposal to calculate
Factor 3 for FY 2017 using data from
three cost reporting periods, we would
use data from hospitals’ FY 2011, FY
2012, and FY 2013 cost reporting
periods extracted from the most recent
update of the hospital cost report data
in the HCRIS database and the FY 2011
and FY 2012 cost report data submitted
to CMS by IHS hospitals to obtain the
Medicaid days to calculate Factor 3. (We
note that, starting with the FY 2013 cost
reports, data for IHS hospitals will be
included in the HCRIS database and
will no longer be submitted separately.)
In addition, to calculate Factor 3 for FY
2017, we anticipate that, under our
proposal discussed earlier to use the
most recent available 3 years of data on
Medicare SSI utilization, we would
obtain Medicare SSI days from the FY
2012, FY 2013, and FY 2014 SSI ratios
(or, for Puerto Rico hospitals, substitute
Medicare SSI days with a proxy as
described earlier). We expect the FY
2014 SSI ratios to be published on the
CMS Web site when available at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/dsh.html. Under this
proposal, we would calculate Factor 3
as follows:

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25089

Step 1: Calculate Factor 3 for FY 2011 by
summing a hospital’s FY 2011 Medicaid days
and FY 2012 SSI days and dividing by all
DSH eligible hospitals’ FY 2011 Medicaid
days and FY 2012 SSI days.
Step 2: Calculate Factor 3 for FY 2012 by
summing a hospital’s FY 2012 Medicaid days
and FY 2013 SSI days and dividing by all
DSH eligible hospitals’ FY 2012 Medicaid
days and FY 2013 SSI days.
Step 3: Calculate Factor 3 for FY 2013 by
summing a hospital’s FY 2013 Medicaid days
and FY 2014 SSI days and dividing by all
DSH eligible hospitals’ FY 2013 Medicaid
days and FY 2014 SSI days.
Step 4: Sum the Factor 3 calculated for FY
2011, FY 2012, and FY 2013 and divide by
the number of cost reporting periods with
data to compute an average Factor 3.

For illustration purposes, in Table 18
associated with the FY 2017 proposed
rule (which is available via the Internet
on the CMS Web site), we compute
Factor 3 using hospitals’ FY 2011, FY
2012, and FY 2013 cost reports from the
December 2015 update of HCRIS to
obtain Medicaid days and the FY 2012
and FY 2013 SSI ratios published on the
following CMS Web site to determine
Medicare SSI days: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html.
Because the FY 2014 SSI ratios are not
yet available, for purposes of this
proposed rule, we computed Factor 3
for FY 2013 using FY 2013 Medicaid
days and FY 2013 SSI days. However,
we expect that the FY 2014 SSI ratios
will be available to calculate Factor 3 for
the FY 2017 IPPS/LTCH PPS final rule.
For subsequent years, we are
proposing to continue to use the most
recent HCRIS database extract at the
time of the annual rulemaking cycle and
to advance the three cost reporting
periods used to determine Factor 3 by
1 year as appropriate. For instance, if we
were to finalize a proposal to continue
using the proxy in FY 2018, we would
use FY 2012, FY 2013, and FY 2014 cost
reports from the most recent available
extract of HCRIS for Medicaid days and
FY 2013, FY 2014, and FY 2015 SSI
ratios to obtain the Medicare SSI days
and follow the same methodology
outlined earlier to determine Factor 3.
However, as discussed earlier, we
believe that it is possible to begin
incorporating data from Worksheet S–10
into the computation of Factor 3 starting
in FY 2018 and outline a proposal for
doing so using data from three cost
reporting periods in the following
section.
d. Proposed Calculation of Factor 3 for
FY 2018 and Subsequent Years
(1) Background
In response to commenters’ requests
for a timeline and transition for

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introducing Worksheet S–10 data into
the calculation of Factor 3, in this
section, we discuss our proposed plans
on how to begin incorporating hospitals’
Worksheet S–10 data into the
calculation of Factor 3, in order to
allocate payments based on a hospital’s
share of overall uncompensated care
costs reported on Worksheet S–10.
When we first discussed using
Worksheet S–10 to allocate hospitals’
shares of uncompensated care costs in
the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50638), we explained why we
believed that it was premature to use
uncompensated care costs reported on
Worksheet S–10 for FY 2014.
Specifically, at that time, the most
recent available cost reports would have
been from FYs 2010 and 2011, which
were submitted on or after May 1, 2010,
when the new Worksheet S–10 went
into effect. We believed that ‘‘[c]oncerns
about the standardization and
completeness of the Worksheet S–10
data could be more acute for data
collected in the first year of the
Worksheet’s use’’ (78 FR 50635). In
addition, we believed that it would be
most appropriate to use data elements
that have been historically publicly
available, subject to audit, and used for
payment purposes (or that the public
understands will be used for payment
purposes) to determine the amount of
uncompensated care for purposes of
Factor 3 (78 FR 50635). At the time we
issued the FY 2014 IPPS/LTCH PPS
final rule, we did not believe that the
available data regarding uncompensated
care from Worksheet S–10 met these
criteria and, therefore, we believed they
were not reliable enough to use for
determining FY 2014 uncompensated
care payments. Accordingly, for FY
2014, we concluded that utilization of
insured low-income patients would be a
better proxy for the costs of hospitals in
treating the uninsured. For FYs 2015,
2016, and 2017, the cost reports used for
calculating uncompensated care
payments (that is, FYs 2011, 2012, and
2013) were also submitted prior to the
time that hospitals were on notice that
Worksheet S–10 could be the data
source for calculating uncompensated
care payments. Therefore, we believe it
is also appropriate to use proxy data to
calculate Factor 3 for these years.
We believe that, for FY 2018, many of
these concerns would no longer be
relevant. That is, as described more
fully below regarding the use of
Worksheet S–10 from FY 2014,
hospitals were on notice as of FY 2014
that Worksheet S–10 could eventually
become the data source for CMS to
calculate uncompensated care

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payments. Hospitals’ cost reports from
FY 2014 have been publically available
for some time now. Furthermore,
MedPAC has provided analyses that
found that current Worksheet S–10 data
are a better proxy for predicting audited
uncompensated care costs than
Medicaid/Medicare SSI days.
Specifically, MedPAC submitted a
public comment discussed in the FY
2016 IPPS/LTCH PPS final rule that
cited its 2007 analysis of data from the
Government Accountability Office
(GAO) and data from the American
Hospital Association (AHA), which
suggests that Medicaid days and lowincome Medicare days are not a good
proxy for uncompensated care costs (80
FR 49525). Analysis performed by
MedPAC showed that the correlation
between audited uncompensated care
data from 2009 and the data from FY
2011 Worksheet S–10 was over 0.80, as
compared to a correlation of
approximately 0.50 for 2011 Medicare
SSI and Medicaid days. MedPAC
concluded that use of Worksheet S–10
data was already better than using
Medicare SSI and Medicaid days as a
proxy for uncompensated care costs,
and that the data on Worksheet S–10
would improve over time as the data are
actually used to make payments.
We also have undertaken an extensive
analysis of the Worksheet S–10 data,
benchmarking it against the data on
uncompensated care costs reported to
the Internal Revenue Service (IRS) on
Form 990 by not-for-profit hospitals.
The purpose of this analysis, performed
by Dobson DaVanzo & Associates, LLC,
under contract to CMS, was to
determine if Worksheet S–10
uncompensated care data are becoming
more stable over time. (This analysis,
included in a report entitled
‘‘Improvements to Medicare
Disproportionate Share Hospital (DSH)
Payments Report: Benchmarking S–10
Data Using IRS Form 990 Data and
Worksheet S–10 Trend Analyses,’’ is
available on the CMS Web site at:
https://www.cms/gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/dsh.html under the
Downloads section.) Although we
acknowledge that the analysis was
limited to not-for-profit hospitals, we
believe it is relevant to our assessment
of the overall quality of the data
reported on Worksheet S–10. Because
many not-for-profit hospitals are eligible
for empirically justified Medicare DSH
payments and, therefore,
uncompensated care payments, they
represent a suitable standard of
comparison. We conducted an analysis
of 2010, 2011, and 2012 Worksheet S–

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10 data and IRS Form 990 data from the
same years. Using IRS Form 990 data for
tax years 2010, 2011, and 2012 (the
latest available years) as a benchmark,
we compared key variables derived from
Worksheet S–10 and IRS Form 990 data,
such as charity care and bad debt. The
analysis was completed using data from
hospitals that had completed both
Worksheet S–10 and IRS Form 990
across all study years, yielding a sample
of 788 not-for-profit hospitals
(representing 668 unique Taxpayer
Identification Numbers). Because Factor
3 is used to determine the Medicare
uncompensated care payment amount
for each hospital, we calculated the
amounts for Factor 3 for the matched
hospitals using charity care and bad
debt, and compared the Factor 3
distributions calculated using data from
IRS Form 990 and Worksheet S–10. Key
findings indicate that the amounts for
Factor 3 derived using the IRS Form 990
and Worksheet S–10 data are highly
correlated. In addition, the correlation
coefficient between the amounts for
Factor 3 calculated from the IRS Form
990 and Worksheet S–10 has increased
over time, from 0.71 in 2010 to 0.80 in
2012, suggesting some convergence in
the data sources over time. This strong
correlation indicates that Worksheet S–
10 data would be a statistically valid
source to use as part of the calculation
of the uncompensated care payments in
FY 2018.
Accordingly, because hospitals have
been on notice since the FY 2014
rulemaking that CMS intended
eventually to use Worksheet S–10 as the
data source for calculating
uncompensated care payments, and in
light of growing evidence that
Worksheet S–10 data are improving over
time, we believe it would be appropriate
to use Worksheet S–10 as a data source
for determining Factor 3 starting in FY
2018. We discuss our proposed
methodology below for how we would
begin to incorporate Worksheet S–10
data into the calculation of Factor 3 of
the uncompensated care payment
methodology.
(2) Proposed Data Source and Time
Period for FY 2018 and Subsequent
Years, Including Methodology for
Incorporating Worksheet S–10 Data
For the reasons explained earlier, we
believe that, starting with Worksheet S–
10 data reported for FY 2014, it is
appropriate to begin to incorporate
Worksheet S–10 data into the
computation of Factor 3 and the
allocation of uncompensated care
payments. Specifically, we are
proposing to continue to use lowincome insured patient days as a proxy

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for uncompensated care for cost
reporting periods before FY 2014 and to
use Worksheet S–10 data for FY 2014
and subsequent fiscal years to calculate
uncompensated care payments for FY
2018 and subsequent fiscal years,
which, when combined with our
proposal to use data from three cost
reporting periods to calculate Factor 3,
would have the effect of transitioning
toward exclusive use of Worksheet S–10
data. Under this proposed approach, we
would use only Worksheet S–10 data to
calculate Factor 3 for FY 2020 and
subsequent fiscal years.
As discussed previously, for FY 2017,
we are proposing to calculate a
hospital’s share of uncompensated care
based on the proxy of its share of lowincome insured days using a time
period that includes three cost reports
(that is, FY 2011, FY 2012, and FY 2013
cost reports). For the reasons we
described earlier, we believe it would
not be appropriate to use Worksheet S–
10 data for periods prior to FY 2014. For
cost reporting periods prior to FY 2014,
we believe it would be appropriate to
continue to use low-income insured
days for the reasons we have previously
described. Accordingly, with a time
period that includes three cost reporting
periods consisting of FY 2014 and two
preceding periods, we are proposing to
use Worksheet S–10 data for the FY
2014 cost reporting period and the lowincome insured day proxy data for the
two earlier cost reporting periods,
drawing three sets of data from the most
recently available HCRIS extract. That
is, for FY 2018, to compute Factor 3, we
are proposing to continue to advance
the 3-year time period we are using by
1 year and therefore to use FY 2012, FY
2013, and FY 2014 cost report data from
the most recent update of HCRIS. In
addition, for FY 2018, we are proposing
to use Medicaid days from FY 2012 and
FY 2013 cost reports and FY 2014 and
FY 2015 SSI ratios. We believe this
approach would have a transitioning
effect of incorporating data from
Worksheet S–10 into the calculation of
Factor 3 starting in FY 2018.
Consistent with our proposal to
determine Factor 3 using data over a
period of 3 cost reporting periods, we
are proposing to calculate a Factor 3 for
each of the three cost reporting periods.
Specifically, we are proposing to
calculate Factor 3 for FY 2018 based on
an average of Factor 3 calculated using
low-income insured days (proxy data)
determined using Medicaid days from
FY 2012 and FY 2013 cost reports and
FY 2014 and FY 2015 SSI ratios, and
Factor 3 calculated using
uncompensated care data based on FY
2014 Worksheet S–10. We are proposing

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to compute this average for each
hospital by—
• Step 1: Calculating Factor 3 using
the low-income insured days proxy
based on FY 2012 cost report data and
the FY 2014 SSI ratio;
• Step 2: Calculating Factor 3 using
the insured low-income days proxy
based on FY 2013 cost report data and
the FY 2015 SSI ratio;
• Step 3: Calculating Factor 3 based
on the FY 2014 Worksheet S–10 data;
and
• Step 4: Averaging the Factor 3
values that are computed in Steps 1, 2,
and 3; that is, adding the Factor 3 values
from FY 2012, FY 2013, and FY 2014 for
each hospital, and dividing that amount
by the number of cost reporting periods
with data to compute an average Factor
3.
The denominator would be the sum of
the averages of the FY 2012, FY 2013,
and FY 2014 amounts from Step 4 for
each hospital that is estimated to be
eligible for Medicare DSH payments in
FY 2018. For example, assuming there
are only three hospitals in the IPPS and
Hospitals A and B are estimated to be
eligible for Medicare DSH payments in
FY 2018, while Hospital C is estimated
as ineligible for Medicare DSH
payments in FY 2018, each hospital’s
proposed share of the overall amount
available for uncompensated care
payments would be calculated as
follows:
[(Hospital A FY 2012 Factor 3 proxy) +
(Hospital A FY 2013 Factor 3 proxy)
+ (Hospital A FY 2014 Factor 3 S–
10)] / 3 = X
[(Hospital B FY 2012 Factor 3 proxy) +
(Hospital B FY 2013 Factor 3 proxy)
+ (Hospital B FY 2014 Factor 3 S–
10)] / 3 = Y
[(Hospital C FY 2012 Factor 3 proxy) +
(Hospital C FY 2013 Factor 3 proxy)
+ (Hospital C FY 2014 Factor 3 S–
10)] / 3 = Z
Hospital A’s Factor 3 or proposed share
of the overall uncompensated care
amount in FY 2018 would be equal
to (X) / (X+Y).
Hospital B’s Factor 3 or proposed share
of the overall uncompensated care
amount in FY 2018 would be equal
to (Y) / (X+Y).
Hospital C’s Factor 3 or proposed share
of the overall uncompensated care
amount in FY 2018 would be equal
to (Z) / (X+Y).
We note that, under this proposal, the
methodology for calculating Factor 3 for
each subsequent year would remain
unchanged (such as using all cost
reports for eligible hospitals that begin
during the relevant cost reporting years,
including cost reporting periods that are

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not 12 months in length, and using a
proxy for Medicare SSI days for
hospitals in Puerto Rico, as described
earlier for the calculation of Factor 3 for
FY 2017). With regard to FY 2019 and
subsequent years, we believe it would
continue to be appropriate to advance
the 3-year time period we are using by
1 year to compute Factor 3.
Accordingly, we are proposing to use
FY 2013, FY 2014, and FY 2015 cost
report data from the most recent
available update of HCRIS to compute
Factor 3 and allocate uncompensated
care payments for FY 2019. As we stated
earlier, with regard to the data used to
compute Factor 3, we believe that it
would be appropriate to use Worksheet
S–10 data from FY 2014 and subsequent
periods to calculate Factor 3 and
hospitals’ uncompensated care
payments for FY 2018 and subsequent
fiscal years. Because we are proposing
to use FY 2013, FY 2014, and FY 2015
cost reports to determine Factor 3 for FY
2019, we are proposing to calculate
Factor 3 with a proxy calculated based
on FY 2013 cost report data and FY
2015 SSI ratios and based on Worksheet
S–10 uncompensated care costs from FY
2014 and FY 2015 cost reports. We are
proposing to calculate Factor 3 for FY
2019 based on an average of Factor 3
amounts calculated using data from the
three cost reporting periods in the
manner described earlier for FY 2018.
For FY 2020, we are proposing to
continue to advance the three cost
reports used by 1 year, and we are
proposing to calculate Factor 3 using
only data from the Worksheet S–10,
from cost reports from FY 2014, FY
2015, and FY 2016. For FY 2021 and
subsequent fiscal years, we would
continue to base our estimates of the
amount of hospital uncompensated care
on uncompensated care costs, using
three cost reporting periods from the
most recently available HCRIS database,
and in each fiscal year, the cost
reporting periods would be advanced
forward by 1 year (for example, for FY
2021, FY 2015, FY 2016, and FY 2017
cost reports would be used). We are
soliciting comments on the proposed
data sources, time periods, and method
for calculating uncompensated care
costs in FY 2018 and subsequent years.
Although our proposal for FY 2018 is
to calculate Factor 3 based on an
average of the Factor 3 amounts
calculated using 2 years of proxy data
and 1 year of data from the FY 2014
Worksheet S–10, readers may find it
useful to review a file posted on the
CMS Web site at: https://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html

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under the Downloads section, which
shows preliminary uncompensated care
costs calculated by hospital using only
Worksheet S–10 data from FY 2014 cost
reports extracted from the December
2015 update of HCRIS. To the extent
that hospitals have either not submitted
a Worksheet S–10 with their FY 2014
cost report or find errors on a submitted
Worksheet S–10, we encourage
hospitals to work with MACs to
complete and revise, as appropriate,
their FY 2014 Worksheet S–10 as soon
as possible.
(3) Proposed Definition of
Uncompensated Care for FY 2018 and
Subsequent Fiscal Years
In the FY 2014 IPPS/LTCH PPS
rulemaking, we considered three

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Where:
• Cost of charity care = Cost of initial
obligation of patients approved for
charity care (line 21) minus partial
payment by patients approved for charity
care (line 22).
• Cost of non-Medicare bad debt expense =
Cost to charge ratio (line 1) times nonMedicare and nonreimbursable bad debt
expense (line 28).

We believe a definition that
incorporates the most commonly used
factors within uncompensated care as
reported by stakeholders would include
charity care costs and non-Medicare bad
debt costs which correlates to line 30 of
Worksheet S–10. Therefore, we are
proposing that, for purposes of
calculating Factor 3 and uncompensated
care costs beginning in FY 2018,
‘‘uncompensated care’’ would be
defined as the amount on line 30 of
Worksheet S–10, which is the cost of
charity care and the cost of nonMedicare bad debt.
We have received many comments
and questions from hospitals and
hospital associations regarding whether
Medicaid payment shortfalls should be
included in the definition of
uncompensated care. Some stakeholders
argue that such payment shortfalls are
unreimbursed care for low-income
patients and that the definition of
uncompensated care should be
consistent across Medicare and
Medicaid (where the longstanding
Medicaid definition of uncompensated
care used for Medicaid hospital-specific
DSH limits includes Medicaid payment

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potential definitions of uncompensated
care: Charity care; charity care + bad
debt; and charity care + bad debt +
Medicaid shortfalls. As we explained in
the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50634), we considered proposing
to define the amount of uncompensated
care for a hospital as the
uncompensated care costs of that
hospital and considered potential data
sources for those costs. We examined
the literature on uncompensated care
and the concepts of uncompensated care
used in various public and private
programs, and considered input from
stakeholders and public comments in
various forums, including the national
provider call that we held in January
2013. Our review of the information

from these sources indicated that there
is some variation in how different
States, provider organizations, and
Federal programs define
‘‘uncompensated care.’’ However, a
common theme of almost all these
definitions is that they include both
‘‘charity care’’ and ‘‘bad debt’’ as
components of ‘‘uncompensated care.’’
Therefore, a definition that incorporates
the most commonly used factors within
uncompensated care as reported by
stakeholders would include charity care
costs and bad debt costs. Worksheet S–
10 employs the definition of charity care
plus non-Medicare bad debt.
Specifically:

shortfalls). Proponents of including
Medicare shortfalls advance two
arguments:
• Medicaid payment shortfalls
represent non-covered care; therefore,
hospitals have unmet costs when
treating these patients.
• The goal of Medicare DSH
payments is to provide partial relief
from charity care that is provided to
(primarily) low-income patients.
Because Medicaid enrollees are lowincome persons, the underpayments
associated with their care are a form of
charity care.
In contrast, there are several
arguments to support excluding
Medicaid shortfalls from the definition
of uncompensated care:
• Several government agencies and
key stakeholders define uncompensated
care as bad debt plus charity care,
without consideration for Medicaid
payment shortfalls. Specifically,
MedPAC, GAO, and the AHA exclude
Medicaid underpayments from the
definition of uncompensated care.
• Including Medicaid shortfalls in the
calculation of Medicare uncompensated
care payments would represent a form
of cross-subsidization from Medicare to
cover Medicaid costs. In the past, CMS
and MedPAC have not supported such
action.
• Excluding Medicaid shortfalls from
the uncompensated care definition
allows Medicare DSH payments to
better target hospitals with a
disproportionate share of

uncompensated care for patients with
no insurance coverage.
We believe these arguments for
excluding Medicare shortfalls from the
definition of uncompensated care are
compelling. In addition, we believe that
it is advisable to adopt a definition that
is used by several government agencies
and key stakeholders. Therefore, we are
proposing that, for purposes of
calculating Factor 3 and the amount of
uncompensated care for a hospital
beginning in FY 2018, ‘‘uncompensated
care’’ would be defined as the cost of
charity care and the cost of nonMedicare bad debt. We also are
proposing to exclude Medicaid
shortfalls reported on Worksheet S–10
from the definition of uncompensated
care for purposes of calculating Factor 3.
We are proposing to codify this
definition in the regulation at
§ 412.106(g)(1)(iii)(C) and are inviting
public comment on our proposed
definition. We believe that
uncompensated care costs as reported
on line 30 of Worksheet S–10 best
reflect our proposed definition of
uncompensated care at this time, but we
welcome public input on this issue.

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(4) Other Methodological
Considerations for FY 2018 and
Subsequent Fiscal Years
In the past several years, we also have
received technical comments from
stakeholders regarding the timing of
reporting charity care and the CCRs
used in determining uncompensated
care costs. We discuss these issues and

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how we are proposing to incorporate
them into the calculation of
uncompensated care costs for purposes
of determining uncompensated care
payments for FY 2018 and subsequent
fiscal years below.
• Timing of Reporting Charity Care.
The determination and write-off of
charity care often happens outside of
the hospital fiscal year in which the
services are provided. Some
commenters have requested that the
charity care captured on Line 20 of
Worksheet S–10 include only the
charity care that was written off in the
particular cost reporting year, regardless
of when the services were provided,
consistent with charity write-offs that
hospitals report in accordance with
GAAP. In addition, hospitals currently
report non-Medicare bad debt without
regard to when the services were
provided. The current Worksheet S–10
does not follow this hospital practice,
and specifies that charity care provided
(not necessarily written off) during the
period should to be recorded on Line
20. (Instructions for Line 20 of
Worksheet S–10 of the Medicare cost
report CMS-Form-2552–10, ‘‘Enter the
total initial payment obligation of
patients who are given a full or partial
discount based on the hospital’s charity
care criteria (measured at full charges),
for care delivered during this cost
reporting period for the entire facility
. . .’’ (emphasis added) are included in
CMS Pub. 15–2, Chapter 40, Section
4012).) While these differences in
reporting should average out over time
for a hospital, consistency in reporting
has been requested by some
stakeholders. We acknowledge these
concerns, and we intend to revise the
current Worksheet S–10 cost report
instructions for Line 20 concerning the
timing of reporting charity care, such
that charity care will be reported based
on date of write-off, and not based on
date of service.
• Revisions to the CCR on Line 1 of
Worksheet S–10. Many commenters
have requested that the CCR used to
convert charges to costs should include
the cost of training residents (direct
GME costs). The CCR on line 1 of
Worksheet S–10 currently does not
include GME costs, while the charges of
teaching hospitals do include charges
for GME. Thus, the CCR excludes GME
costs in the cost component (or
numerator), but includes GME costs in
the charge component (or denominator).
Commenters have requested that CMS
consider using the GME costs reported
in Worksheet B Part I (column 24, line
118) to capture these additional costs.
Unless these GME costs are included,
commenters maintained that the CCRs

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of teaching hospitals are artificially low,
not capturing true uncompensated care
costs, thereby disadvantaging teaching
hospitals in the calculation of their
uncompensated care costs.
Using data from FY 2011 and 2012
cost reports, we analyzed the effect on
all hospitals’ uncompensated care costs
when GME costs are included in the
numerator. Specifically, instead of
calculating the CCRs as specified
currently on line 1 of Worksheet S–10
(which pulls the CCR from Worksheet C,
Part I, column 3, line 202/Worksheet C,
column 8, line 202), we calculated the
CCRs using Worksheet B, Part I, column
24, line 118/Worksheet C, Part I, column
8, line 202. As can be seen on the file
posted on the CMS Web site at: https://
www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/AcuteInpatient
PPS/dsh.html under the Downloads
section, and as expected, including
GME costs in the numerator of the CCR
results in an increased share of
uncompensated care payments being
made to teaching hospitals. Of the more
than 1,000 teaching hospitals included
in the analysis, the CCRs of 830
hospitals increase by less than 5
percent, 178 hospitals’ CCRs increase by
more than 5 percent but less than 10
percent, and 71 hospitals’ CCRs increase
by 10 percent or more. Thirty-three
hospitals experience a decrease in their
CCRs, with 32 hospitals experiencing a
decrease of less than 5 percent, and 1
hospital experiencing a decrease of
more than 5 percent, but less than 10
percent. As we have stated previously in
response to this issue, we believe that
the purpose of uncompensated care
payments is to provide additional
payment to hospitals for treating the
uninsured, not for the costs incurred in
training residents. In addition, because
the CCR on line 1 of Worksheet S–10
pulled from Worksheet C, Part I, is also
used in other IPPS ratesetting contexts
(such as high-cost outliers and the
calculation of the MS–DRG relative
weights) from which it is appropriate to
exclude GME because GME is paid
separately from the IPPS, we hesitate to
adjust the CCRs in the narrower context
of calculating uncompensated care
costs. Therefore, at this time, we do not
believe it is appropriate to modify the
calculation of the CCR on line 1 of
Worksheet S–10 to include GME costs
in the numerator.
• Trims to Apply to CCRs on Line 1
of Worksheet S–10. Commenters also
have suggested that uncompensated care
costs reported on Worksheet S–10
should be audited due to extremely high
values consistently reported by some
hospitals. We believe that, just as we
apply trims to hospitals’ CCRs used to

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calculate high-cost outlier payments to
eliminate anomalies in payment
determinations (§ 412.84(h)(3)(ii)), it is
appropriate to apply statistical trims to
the CCRs that are considered anomalies
on Worksheet S–10, Line 1. Specifically,
§ 412.84(h)(3)(ii) states that the
Medicare contractor may use a
statewide CCR for hospitals whose
operating or capital CCR is in excess of
3 standard deviations above the
corresponding national geometric mean
(that is, the CCR ‘‘ceiling’’). This mean
is recalculated annually by CMS and
published in the proposed and final
IPPS rules each year. To control for data
anomalies, we are considering proposals
which would trim hospitals’ CCRs to
ensure reasonable CCRs are used to
convert charges to costs for purposes of
determining uncompensated care costs.
One approach we are considering as
a possible proposal for FY 2018 and
subsequent years would be a ‘‘double
trim’’ methodology as follows:
First Trim
Step 1: Prior to calculating the
statewide average CCRs, all hospitals
with a CCR reported on Worksheet S–
10, line 1, of greater than the
corresponding CCR ‘‘ceiling’’ (that is,
the CCR ‘‘ceiling’’ published in the final
rule of the fiscal year that is
contemporaneous to the particular
Worksheet S–10 data) would be
removed from the calculation. We are
proposing to remove the hospitals with
a CCR of greater than 3 standard
deviations above the corresponding
national geometric mean in order to
calculate the statewide average CCRs so
that these aberrant CCRs do not skew
the statewide average CCR.
Step 2: Using the CCRs for the
remaining hospitals in Step 1,
determine the statewide average CCRs
using line 1 of Worksheet S–10 for
hospitals within each State (including
non-DSH eligible hospitals).
Step 3: Calculate the simple average
CCR (not weighted by hospital size) for
each State.
Step 4: First CCR Trim—Assign the
statewide average CCR calculated in
Step 3 to all hospitals with a CCR
greater than 3 standard deviations above
the corresponding national geometric
mean (that is, the CCR ‘‘ceiling’’).
Second Trim
Step 5: Calculate the natural
logarithm of the CCR for all hospitals
(including those with replaced CCRs
and those not eligible for Medicare DSH
payments).
Step 6: Calculate the geometric mean
and standard deviation of the log values

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across all hospitals (including those not
eligible for Medicare DSH payments).
Step 7: Second CCR Trim—Assign the
statewide average CCR calculated in
Step 3 to each Medicare DSH eligible
hospital with a CCR greater than 3.0
standard deviations above the geometric
mean. All hospitals not eligible for
Medicare DSH payments should be
excluded from further analyses.
Analysis we performed under this
‘‘double trim’’ approach was based on
CCRs from FY 2012 Worksheet S–10,
Line 1. Under Step 1, we used the FY
2013 CCR ‘‘ceiling’’ of 1.146 published
in the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53697). (We used the FY
2013 CCR ‘‘ceiling’’ because it was
computed from the March 2012 update
of the Provider Specific File, which
contained CCRs that are relatively
contemporaneous to the CCRs in the FY
2012 cost reports.) Our analysis shows
that 27 hospitals would receive their
respective statewide average CCR. (We
refer readers to our analysis posted on
the CMS Web site at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServiePayment/AcuteInpatientPPS/dsh.html
under the Downloads section.)
Alternatively, we are considering
proposing for FY 2018 and subsequent
years to use the same trim process that
is used for high-cost outliers under
§ 412.84(i), under which we calculate
separate urban and rural average CCRs
for each state. Thus, the CCR of an
urban or rural hospital above the
applicable CCR ‘‘ceiling’’ for a given
fiscal year would be replaced by its
respective urban or rural statewide
average CCR. As a reference, the FY
2013 IPPS statewide average urban and
rural CCRs are in Table 8A included on
the CMS Web site at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/AcuteInpatient-Files-for-Download-Items/
FY2013-FinalRule-CorrectionNoticeFiles.html.
After applying the applicable trims to
a hospital’s CCR as appropriate, we
would calculate a hospital’s
uncompensated care costs as being
equal to line 30, which is the sum of
line 23 and line 29, as follows:
Hospital Uncompensated Care Costs =
line 30 (=line 23 + line 29), which
is equal to—
[(Line 1 CCR adjusted by trim if
applicable × charity care line 20) ¥
(Payments received for charity care
line 22)]
+
[(Line 1 CCR adjusted by trim if
applicable × Non-Medicare and
non-reimbursable Bad Debt line
28)].

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We are inviting public comments on
these methodological considerations.
G. Hospital Readmissions Reduction
Program: Proposed Updates and
Changes (§§ 412.150 Through 412.154)
1. Statutory Basis for the Hospital
Readmissions Reduction Program
Section 3025 of the Affordable Care
Act, as amended by section 10309 of the
Affordable Care Act, added section
1886(q) to the Act, which establishes the
‘‘Hospital Readmissions Reduction
Program’’ effective for discharges from
‘‘applicable hospitals’’ beginning on or
after October 1, 2012. Under the
Hospital Readmissions Reduction
Program, payments to applicable
hospitals may be reduced to account for
certain excess readmissions. We refer
readers to section IV.E.1. of the FY 2016
IPPS/LTCH PPS final rule (80 FR 49530
through 49531) for a detailed discussion
and additional information on of the
statutory history of the Hospital
Readmissions Reduction Program.
2. Regulatory Background
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51660 through 51676), we
addressed the issues of the selection of
readmission measures and the
calculation of the excess readmissions
ratio, which will be used, in part, to
calculate the readmissions adjustment
factor. Specifically, in that final rule, we
finalized policies that relate to the
portions of section 1886(q) of the Act
that address the selection of and
measures for the applicable conditions,
the definitions of ‘‘readmission’’ and
‘‘applicable period,’’ and the
methodology for calculating the excess
readmissions ratio. We also established
policies with respect to measures for
readmission for the applicable
conditions and our methodology for
calculating the excess readmissions
ratio.
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53374 through 53401), we
finalized policies that relate to the
portions of section 1886(q) of the Act
that address the calculation of the
hospital readmission payment
adjustment factor and the process by
which hospitals can review and correct
their data. Specifically, in that final
rule, we addressed the base operating
DRG payment amount, aggregate
payments for excess readmissions and
aggregate payments for all discharges,
the adjustment factor, applicable
hospital, limitations on review, and
reporting of hospital-specific
information, including the process for
hospitals to review readmission
information and submit corrections. We

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also established a new Subpart I under
42 CFR part 412 (§§ 412.150 through
412.154) to codify rules for
implementing the Hospital
Readmissions Reduction Program.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50649 through 50676), we
finalized our policies that relate to
refinement of the readmissions
measures and related methodology for
the current applicable conditions,
expansion of the ‘‘applicable
conditions’’ for FY 2015 and subsequent
fiscal years, and clarification of the
process for reporting hospital-specific
information, including the opportunity
to review and submit corrections. We
also established policies related to the
calculation of the adjustment factor for
FY 2014.
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50024 through 50048), we
made refinements to the readmissions
measures and related methodology for
applicable conditions for FY 2015 and
subsequent fiscal years, discussed the
maintenance of technical specifications
for quality measures, and described a
waiver from the Hospital Readmissions
Reduction Program for hospitals
formerly paid under section 1814(b)(3)
of the Act (§ 412.154(d)). We also
specified the ‘‘applicable period’’ for FY
2015 and made changes to the
calculation of the aggregate payments
for excess readmissions so as to include
two additional applicable conditions for
the FY 2015 payment determination.
Finally, we expanded the list of
applicable conditions for the FY 2017
payment determination to include the
Hospital-Level, 30-Day, All-Cause,
Unplanned Readmission Following
Coronary Artery Bypass Graft (CABG)
Surgery measure.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49530 through 49543), we
made a refinement to the pneumonia
readmissions measure that expanded
the measure cohort for the FY 2017
payment determination and subsequent
years (80 FR 49532 through 49536);
adopted an extraordinary circumstance
exception policy to address hospitals
that experience a disaster or other
extraordinary circumstance beginning in
FY 2016 and for subsequent years (80
FR 49542 through 49543); specified the
adjustment factor floor for FY 2016 (80
FR 49537); and specified the calculation
of aggregate payments for excess
readmissions for FY 2016 (80 FR 49537
through 49542).
3. Proposed Policies for the FY 2017
Hospital Readmissions Reduction
Program
In this proposed rule, we are
proposing to—

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• Clarify that public reporting of
excess readmission ratios will be posted
on an annual basis to the Hospital
Compare Web site as soon as is feasible
following the preview period.
• Discuss the proposed methodology
to include the addition of the CABG
applicable condition in the calculation
of the readmissions payment adjustment
for FY 2017.
4. Maintenance of Technical
Specifications for Quality Measures
We refer readers to the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50039) for
a discussion of the maintenance of
technical specifications for quality
measures for the Hospital Readmissions
Reduction Program. Technical
specifications of the readmission
measures are provided on our Web site
in the Measure Methodology Reports at:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html. Additional
resources about the Hospital
Readmissions Reduction Program and
measure technical specifications are on
the QualityNet Web site on the
Resources page at: http://www.
qualitynet.org/dcs/ContentServer?c=
Page&pagename=QnetPublic%2FPage
%2FQnetTier3&cid=1228772412995.
We want to remind readers that, in
the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49532), we discussed our
policies regarding the use of
sociodemographic factors in quality
measures. We understand the important
role that sociodemographic status plays
in the care of patients. However, we
continue to have concerns about
holding hospitals to different standards
for the outcomes of their patients of
diverse sociodemographic status
because we do not want to mask
potential disparities or minimize
incentives to improve the outcomes of
disadvantaged populations. We
routinely monitor the impact of
sociodemographic status on hospitals’
results on our measures.
The NQF is currently undertaking a 2year trial period in which new measures
and measures undergoing maintenance
review will be assessed to determine if
risk-adjusting for sociodemographic
factors is appropriate. For 2 years, NQF
will conduct a trial of temporarily
allowing inclusion of sociodemographic
factors in the risk-adjustment approach
for some performance measures. At the
conclusion of the trial, NQF will issue
recommendations on future permanent
inclusion of sociodemographic factors.
During the trial, measure developers are
encouraged to submit information such
as analyses and interpretations as well

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as performance scores with and without
sociodemographic factors in the risk
adjustment model.
Furthermore, the Office of the
Assistant Secretary for Planning and
Evaluation (ASPE) is conducting
research to examine the impact of
sociodemographic status on quality
measures, resource use, and other
measures under the Medicare program
as directed by the IMPACT Act. We will
closely examine the findings of the
ASPE reports and related Secretarial
recommendations and consider how
they apply to our quality programs at
such time as they are available.
5. Proposed Applicable Period for FY
2017
Under section 1886(q)(5)(D) of the
Act, the Secretary has the authority to
specify the applicable period with
respect to a fiscal year under the
Hospital Readmissions Reduction
Program. In the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51671), we
finalized our policy to use 3 years of
claims data to calculate the readmission
measures. In the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53675), we
codified the definition of ‘‘applicable
period’’ in the regulations at 42 CFR
412.152 as the 3-year period from which
data are collected in order to calculate
excess readmissions ratios and
adjustments for the fiscal year, which
includes aggregate payments for excess
readmissions and aggregate payments
for all discharges used in the calculation
of the payment adjustment.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49537), for FY 2016,
consistent with the definition specified
at § 412.152, we established an
‘‘applicable period’’ for the Hospital
Readmissions Reduction Program of the
3-year period from July 1, 2011 through
June 30, 2014. In other words, the
excess readmissions ratios and the
payment adjustment (including
aggregate payments for excess
readmissions and aggregate payments
for all discharges) for FY 2016 were
determined using data from the 3-year
time period of July 1, 2011 through June
30, 2014.
In this proposed rule, for FY 2017,
consistent with the definition specified
at § 412.152, we are proposing that the
‘‘applicable period’’ for the Hospital
Readmissions Reduction Program will
be the 3-year period from July 1, 2012
through June 30, 2015. In other words,
we are proposing that the excess
readmissions ratios and the payment
adjustment (including aggregate
payments for excess readmissions and
aggregate payments for all discharges)
for FY 2017 would be calculated using

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data from the 3-year time period of July
1, 2012 through June 30, 2015.
6. Proposed Calculation of Aggregate
Payments for Excess Readmissions for
FY 2017
Section 1886(q)(3)(B) of the Act
specifies the ratio used to calculate the
adjustment factor under the Hospital
Readmissions Reduction Program. It
states that the ratio is equal to 1 minus
the ratio of—(i) The aggregate payments
for excess readmissions and (ii) the
aggregate payments for all discharges.
The definition of ‘‘aggregate payments
for excess readmissions’’ and ‘‘aggregate
payments for all discharges,’’ as well as
a methodology for calculating the
numerator of the ratio (aggregate
payments for excess readmissions) and
the denominator of the ratio (aggregate
payments for all discharges) are codified
at § 412.154(c)(2).
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 and
§ 412.152 of our regulations as, for a
hospital for an applicable period, the
sum, for applicable conditions of the
product, for each applicable condition,
of: (i) The base operating DRG payment
amount for such hospital for such
applicable period for such condition; (ii)
the number of admissions for such
condition for such hospital for such
applicable period; and (iii) the excess
readmissions ratio for such hospital for
such applicable period minus 1.
The excess readmissions ratio is a
hospital-specific ratio calculated for
each applicable condition. Specifically,
section 1886(q)(4)(C) of the Act defines
the excess readmissions ratio as the
ratio of ‘‘risk-adjusted readmissions
based on actual readmissions’’ for an
applicable hospital for each applicable
condition, to the ‘‘risk-adjusted
expected readmissions’’ for the
applicable hospital for the applicable
condition. We refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51673) for additional information on the
methodology for the calculation of the
excess readmissions ratio. ‘‘Aggregate
payments for excess readmissions’’ is
the numerator of the ratio used to
calculate the adjustment factor under
the Hospital Readmissions Reduction
Program.
The term ‘‘aggregate payments for all
discharges’’ is defined at section
1886(q)(4)(B) of the Act as for a hospital
for an applicable period, the sum of the
base operating DRG payment amounts

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for all discharges for all conditions from
such hospital for such applicable
period. We codified this definition of
‘‘aggregate payments for all discharges’’
under the regulations at § 412.152.
‘‘Aggregate payments for all discharges’’
is the denominator of the ratio used to
calculate the adjustment factor under
the Hospital Readmissions Reduction
Program.
The Hospital Readmissions Reduction
Program currently includes the
following five applicable conditions:
acute myocardial infarction (AMI), heart
failure (HF), pneumonia (PN), total hip
arthroplasty/total knee arthroplasty
(THA/TKA), and chronic obstructive
pulmonary disease (COPD). In the FY
2015 IPPS/LTCH PPS final rule effective
for FY 2017 (79 FR 50033 through
50039), we finalized the inclusion of an
additional applicable condition,
Hospital-Level, 30-Day, All-Cause,
Unplanned Readmission Following
Coronary Artery Bypass Graft (CABG)
Surgery.
In this section, we discuss the
proposed methodology to include this
additional measure in the calculation of
the readmissions payment adjustment
for FY 2017. Specifically, we are
proposing how the addition of CABG
applicable conditions would be
included in the calculation of the
aggregate payments for excess
readmissions (the numerator of the
readmissions payment adjustment). We
note that this proposal does not alter our
established methodology for calculating
aggregate payments for all discharges;
that is, the denominator of the ratio.
When calculating the numerator
(aggregate payments for excess
readmissions), we determine the base
operating DRG payments for the
applicable period. ‘‘Aggregate payments
for excess readmissions’’ (the
numerator) is defined as the sum, for
applicable conditions, of the product,
for each applicable condition, of: (i) The
base operating DRG payment amount for
such hospital for such applicable period
for such condition; (ii) the number of
admissions for such condition for such
hospital for such applicable period; and
(iii) the excess readmissions ratio for
such hospital for such applicable period
minus 1.
When determining the base operating
DRG payment amount for an individual
hospital for such applicable period for
such condition, we use Medicare
inpatient claims from the MedPAR file
with discharge dates that are within the
same applicable period to calculate the
excess readmissions ratio. We use
MedPAR claims data as our data source
for determining aggregate payments for
excess readmissions and aggregate

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payments for all discharges, as this data
source is consistent with the claims data
source used in IPPS rulemaking to
determine IPPS rates.
For FY 2017, we are proposing to use
MedPAR claims with discharge dates
that are on or after July 1, 2012, and no
later than June 30, 2015, consistent with
our historical use of a 3-year applicable
period. Under our established
methodology, we use the update of the
MedPAR file for each Federal fiscal
year, which is updated 6 months after
the end of each Federal fiscal year
within the applicable period, as our data
source (that is, the March updates of the
respective Federal fiscal year MedPAR
files) for the final rules.
The FY 2012 through FY 2015
MedPAR data files can be purchased
from CMS. Use of these files allows the
public to verify the readmissions
adjustment factors. Interested
individuals may order these files
through the CMS Web site at: http://
www.cms.hhs.gov/LimitedDataSets/ by
clicking on MedPAR Limited Data Set
(LDS)-Hospital (National). This Web
page describes the files and provides
directions and detailed instructions for
how to order the data sets.
In this proposed rule, for FY 2017, we
are proposing to determine aggregate
payments for excess readmissions and
aggregate payments for all discharges
using data from MedPAR claims with
discharge dates that are on or after July
1, 2012, and no later than June 30, 2015.
However, we note that, for the purpose
of modeling the proposed FY 2017
readmissions payment adjustment
factors for this proposed rule, we use
excess readmissions ratios for
applicable hospitals from the FY 2016
Hospital Readmissions Reduction
Program applicable period. For the FY
2017 final rule, applicable hospitals will
have had the opportunity to review and
correct data from the proposed FY 2017
applicable period of July 1, 2012 to June
30, 2015, before they are made public
under our policy regarding the preview
and reporting of hospital-specific
information, which we discussed in the
FY 2013 IPPS/LTCH PPS final rule (77
FR 53374 through 53401).
In this proposed rule, for FY 2017, we
are proposing to use MedPAR data from
July 1, 2012 through June 30, 2015.
Specifically, for this proposed rule, we
are using the March 2013 update of the
FY 2012 MedPAR file to identify claims
within FY 2012 with discharges dates
that are on or after July 1, 2012, the
March 2014 update of the FY 2013
MedPAR file to identify claims within
FY 2013, the March 2015 update of the
FY 2014 MedPAR file to identify claims
within FY 2014, and the December 2015

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update of the FY 2015 MedPAR file to
identify claims within FY 2015 with
discharge dates no later than June 30,
2015. For the final rule, we are
proposing to use the same MedPAR files
as listed above for claims within FY
2012, FY 2013 and FY 2014, and for
claims within FY 2015, we are
proposing to use the March 2016 update
of the FY 2015 MedPAR file.
For a discussion of how we identified
the applicable conditions to calculate
the aggregate payments for excess
readmissions for FY 2016, we refer
readers to the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49538 through 49541).
For FY 2017, with the addition of the
CABG measure to the applicable
conditions under the Hospital
Readmissions Reduction Program, we
are proposing to follow this same
approach.
In this proposed rule, for FY 2017, we
are proposing to continue to apply the
same exclusions to the claims in the
MedPAR file as we applied for FY 2016
for the AMI, HF, PN, THA/TKA, and
COPD applicable conditions. We refer
readers to the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49539) for a list of
these exclusions. Updates to these
exclusions will be posted on the
QualityNet Web site at: http://www.
QualityNet.org > Hospital-Inpatient >
Claims-Based Measures > Readmission
Measures > Measure Methodology.
In addition to the exclusions
described above, for FY 2017, we are
proposing the following steps to identify
admissions specifically for CABG for the
purposes of calculating aggregate
payments for excess readmissions.
These exclusions were previously
finalized in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50037):
• Admissions for patients who are
discharged against medical advice
(excluded because providers do not
have the opportunity to deliver full care
and prepare the patient for discharge);
• Admissions for patients who die
during the initial hospitalization (these
patients are not eligible for
readmission);
• Admissions for patients with
subsequent qualifying CABG procedures
during the measurement period (a
repeat CABG procedure during the
measurement period very likely
represents a complication of the original
CABG procedure and is a clinically
more complex and higher risk surgery;
therefore, we select the first CABG
admission for inclusion in the measure
and exclude subsequent CABG
admissions from the cohort); and
• Admissions for patients without at
least 30 days post-discharge enrollment
in Medicare FFS (excluded because the

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30-day readmission outcome cannot be
assessed in this group).
As noted previously, these exclusions
are consistent with our current
methodology, and any updates to these
exclusions will be posted on the
QualityNet Web site at: http://www.
QualityNet.org > Hospital-Inpatient >
Claims-Based Measures > Readmission
Measures > Measure Methodology.
Furthermore, we would only identify
Medicare FFS claims that meet the
criteria (that is, claims paid for under
Medicare Part C, Medicare Advantage,
would not be included in this
calculation), consistent with the
methodology to calculate excess
readmissions ratios based solely on
admissions and readmissions for
Medicare FFS patients. Therefore,
consistent with our established
methodology, for FY 2017, we would
exclude admissions for patients enrolled
in Medicare Advantage as identified in
the Medicare Enrollment Database. This
policy is consistent with how
admissions for Medicare Advantage
patients are identified in the calculation
of the excess readmissions ratios under
our established methodology.
In order to identify the admissions for
each applicable condition for FY 2017
to calculate the aggregate payments for
excess readmissions for an individual
hospital, we are proposing to identify
each applicable condition, including the
CABG condition, using the appropriate
ICD–9–CM codes. (Although the
compliance date for the ICD–10–CM and
ICD–10–PCS code sets was October 1,
2015, these proposed policies apply to
data submitted prior to this compliance
date.) Under our existing policy, we
identify eligible hospitalizations and
readmissions of Medicare patients
discharged from an applicable hospital
having a principal diagnosis for the
measured condition in an applicable
period (76 FR 51669). The discharge
diagnoses for each applicable condition
are based on a list of specific ICD–9–CM
codes for that condition. The ICD–9–CM
codes for the AMI, HF, PN, THA/TKA,
COPD, and CABG applicable conditions
can be found on the QualityNet Web site
at: http://www.QualityNet.org >
Hospital-Inpatient > Claims-Based
Measures > Readmission Measures >
Measure Methodology. Consistent with
our established policy (76 FR 51673
through 51676), we are proposing to use
the ICD–9–CM codes to identify the
applicable conditions in calculation of
the excess readmissions ratios, which
are provided in the measure
methodology reports on the QualityNet
Web site, to identify each applicable
condition to calculate the aggregate

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payments for the excess readmissions
ratios for FY 2017. For a complete list
of the ICD–9–CM codes we are
proposing to use to identify the
applicable conditions, we refer readers
to the following tables of those reports:
• 2015 Measure Updates: AMI, HF,
Pneumonia, COPD, Stroke Readmission
(AMI-Version 8.0, HF-Version 8.0,
Pneumonia-Version 8.0, COPD-Version
4.0, and Stroke-Version 4.0: 2015
Condition-Specific Readmission
Measures Updates and Specifications
Report)—
++ Table D.1.1—ICD–9–CM Codes for
AMI Cohort (page 74).
++ Table D.2.1—ICD–9–CM Codes for
HF Cohort (page 78).
++ Table D.3.1—ICD–9–CM Codes for
Pneumonia Cohort (page 82).
++ Table D.4.1—ICD–9–CM Codes for
COPD Cohort (page 87).
• 2015 Measure Updates: THA/TKA
and CABG Readmission (THA and/or
TKA-Version 4.0, CABG-Version 2.0:
2015 Procedure-Specific Readmission
Measures Updates and Specifications
Report,)—
++ Table D.1.1—ICD–9–CM Codes
Used to Identify Eligible THA/TKA
Procedures (page 45).
++ Table D.2.1—ICD–9–CM Codes
Used to Identify Eligible CABG
Procedures (page 53).
For FY 2017, we are proposing to
calculate aggregate payments for excess
readmissions, using MedPAR claims
from July 1, 2012 to June 30, 2015, to
identify applicable conditions based on
the same ICD–9–CM codes used to
identify the conditions for the
readmissions measures, and to apply the
proposed exclusions for the types of
admissions (as previously discussed).
To calculate aggregate payments for
excess readmissions for each hospital,
we are proposing to calculate the base
operating DRG payment amounts for all
claims in the 3-year applicable period
for each applicable condition (AMI, HF,
PN, COPD, THA/TKA, and CABG) based
on the claims we have identified as
described above. Once we have
calculated the base operating DRG
amounts for all the claims for the six
applicable conditions, we are proposing
to sum the base operating DRG
payments amounts by each condition,
resulting in six summed amounts, one
amount for each of the six applicable
conditions. We are proposing to then
multiply the amount for each condition
by the respective excess readmissions
ratio minus 1 when that excess
readmissions ratio is greater than 1,
which indicates that a hospital has
performed, with respect to readmissions
for that applicable condition, worse

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25097

than the average hospital with similar
patients. Each product in this
computation represents the payments
for excess readmissions for that
condition. We are proposing to then
sum the resulting products which
represent a hospital’s proposed
‘‘aggregate payments for excess
readmissions’’ (the numerator of the
ratio). Because this calculation is
performed separately for each of the six
conditions, a hospital’s excess
readmissions ratio must be less than or
equal to 1 on each measure to avoid
CMS’ determination that there were
payments made by CMS for excess
readmissions (resulting in a payment
reduction under the Hospital
Readmissions Reduction Program). In
other words, in order to avoid a
payment reduction a hospital’s excess
readmissions ratio must be less than or
equal to 1 on each measure. We note
that we are not proposing any changes
to our existing methodology to calculate
‘‘aggregate payments for all discharges’’
(the denominator of the ratio).
Section 1886(q)(3)(A) of the Act
defines the ‘‘adjustment factor’’ for an
applicable hospital for a fiscal year as
equal to the greater of (i) The ratio
described in subparagraph (B) for the
hospital for the applicable period (as
defined in paragraph (5)(D)) for such
fiscal year; or (ii) the floor adjustment
factor specified in subparagraph (C).
Section 1886(q)(3)(B) of the Act, in turn,
describes the ratio used to calculate the
adjustment factor. Specifically, it states
that the ratio is equal to 1 minus the
ratio of—(i) the aggregate payments for
excess readmissions and (ii) the
aggregate payments for all discharges.
The calculation of this ratio is codified
at § 412.154(c)(1) of the regulations and
the floor adjustment factor is codified at
§ 412.154(c)(2) of the regulations.
Section 1886(q)(3)(C) of the Act
specifies the floor adjustment factor at
0.97 for FY 2015 and subsequent fiscal
years.
Consistent with section 1886(q)(3) of
the Act, codified at § 412.154(c)(2), for
FY 2017, the adjustment factor is either
the greater of the ratio or the floor
adjustment factor of 0.97. Under our
established policy, the ratio is rounded
to the fourth decimal place. In other
words, for FY 2017, a hospital subject to
the Hospital Readmissions Reduction
Program will have an adjustment factor
that is between 1.0 (no reduction) and
0.9700 (greatest possible reduction).
We are proposing the following
methodology for FY 2017 as displayed
in the chart below.

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FORMULAS TO CALCULATE THE READMISSIONS ADJUSTMENT FACTOR FOR FY 2017

Aggregate payments for excess readmissions = [sum of base operating DRG payments for AMI x (Excess Readmissions Ratio for AMI–1)] +
[sum of base operating DRG payments for HF x (Excess Readmissions Ratio for HF–1)] + [sum of base operating DRG payments for PN x
(Excess Readmissions Ratio for PN–1)] + [sum of base operating DRG payments for COPD) x (Excess Readmissions Ratio for COPD–1)] +
[sum of base operating DRG payments for THA/TKA x (Excess Readmissions Ratio for THA/TKA–1)] + [sum of base operating DRG payments for CABG x (Excess Readmissions Ratio for CABG–1)].
* We note that if a hospital’s excess readmissions ratio for a condition is less than/equal to 1, there are no aggregate payments for excess readmissions for that condition included in this calculation.
Aggregate payments for all discharges = sum of base operating DRG payments for all discharges.
Ratio = 1 ¥ (Aggregate payments for excess readmissions/Aggregate payments for all discharges).
Proposed Readmissions Adjustment Factor for FY 2017 is the higher of the ratio or 0.9700.
* Based on claims data from July 1, 2012 to June 30, 2015 for FY 2017.

We are inviting public comment on
these proposals.

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7. Extraordinary Circumstance
Exception Policy
We refer readers to the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49542
through 49543) for a detailed discussion
of our Extraordinary Circumstance
Exception policy for the Hospital
Readmissions Reduction Program.
During the review of a hospital’s
request for an extraordinary
circumstance exception, we maintain
the general principle that providing
high quality of care and ensuring patient
safety is of paramount importance. We
intend to provide relief only for
hospitals whose ability to accurately or
timely submit all of their claims (from
which readmission measures data are
derived) has been negatively impacted
as a direct result of experiencing a
significant disaster or other
extraordinary circumstance beyond the
control of the hospital. In the FY 2016
IPPS/LTCH PPS final rule (80 FR 49542
through 49543) we finalized that the
request process for an extraordinary
circumstance exception begins with the
submission of an extraordinary
circumstance exception request form by
a hospital within 90 calendar days of
the natural disaster or other
extraordinary circumstance. Under this
policy, a hospital is able to request a
Hospital Readmissions Reduction
Program extraordinary circumstance
exception at the same time it may
request a similar exception under the
Hospital IQR Program, the Hospital VBP
Program, and the HAC Reduction
Program. The extraordinary
circumstance exception request form is
available on the QualityNet Web site.
The following information is required
to submit the request:
• Hospital CCN;
• Hospital name;
• Hospital Chief Executive Officer
(CEO) and any other designated
personnel contact information,
including name, email address,
telephone number, and mailing address

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(must include a physical address; a post
office box address is not acceptable);
• Hospital’s reason for requesting an
exception, including:
++ CMS program name (for example,
the Hospital Readmissions Reduction
Program, the Hospital VBP Program, or
the Hospital IQR Program);
++ The measure(s) and submission
quarters affected by the extraordinary
circumstance that the hospital is seeking
an exception for should be accompanied
with the specific reasons why the
exception is being sought; and
++ How the extraordinary
circumstance negatively impacted
performance on the measure(s) for
which an exception is being sought;
• Evidence of the impact of the
extraordinary circumstances, including
but not limited to, photographs,
newspaper, and other media articles;
and
• The request form must be signed by
the hospital’s CEO or designated nonCEO contact and submitted to CMS.
The same set of information is
currently required under the Hospital
IQR Program and the Hospital VBP
Program on the request form from a
hospital seeking an extraordinary
circumstance exception with respect to
these programs. The specific list of
required information is subject to
change from time to time at the
discretion of CMS.
Following receipt of the request form,
CMS will: (1) Provide a written
acknowledgement of receipt of the
request using the contact information
provided in the request form to the CEO
and any additional designated hospital
personnel; 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.
We review each request for an
extraordinary circumstance exception
on a case-by-case basis at our discretion.
To the extent feasible, we also review
requests in conjunction with any similar
requests made under other IPPS quality
reporting and payment programs, such

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as the Hospital IQR Program and the
Hospital VBP Program.
This policy does not preclude CMS
from granting extraordinary
circumstance exceptions to hospitals
that do not request them if we
determine at our discretion that a
disaster or other extraordinary
circumstance has affected an entire
region or locale. If CMS makes such a
determination to grant an extraordinary
circumstance exception to hospitals in
an affected region or locale, we would
convey 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. This
provision aligns with the Hospital IQR
Program’s extraordinary circumstances
extensions or exemptions policy.
8. Timeline for Public Reporting of
Excess Readmission Ratios on Hospital
Compare for the FY 2017 Payment
Determination
Section 1886(q)(6) of the Act requires
the Secretary to make information
available to the public regarding
readmission rates of each subsection (d)
hospital under the program, and states
that such information shall be posted on
the Hospital Compare Internet Web site
in an easily understandable format.
Accordingly, in the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53401), we
indicated that public reporting for
excess readmission ratios could be
available on the Hospital Compare Web
site as early as mid-October. In this
proposed rule, we are clarifying that
public reporting of excess readmission
ratios will be posted on an annual basis
to the Hospital Compare Web site as
soon as is feasible following the review
period. This may occur as early as
October, but it could occur later for a
particular year in order to streamline
reporting and align with other hospital
quality reporting and performance
programs.

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H. Hospital Value-Based Purchasing
(VBP) Program: Proposed Policy
Changes for the FY 2018 Program Year
and Subsequent Years
1. Background
a. Statutory Background and Overview
of Past Program Years
Section 1886(o) of the Act, as added
by section 3001(a)(1) of the Affordable
Care Act, requires the Secretary to
establish a hospital value-based
purchasing program (the Hospital VBP
Program) under which value-based
incentive payments are made in a fiscal
year to hospitals that meet performance
standards established for a performance
period for such fiscal year. Both the
performance standards and the
performance period for a fiscal year are
to be established by the Secretary.
For more of the statutory background
and descriptions of our current policies
for the Hospital VBP Program, we refer
readers to the Hospital Inpatient VBP
Program final rule (76 FR 26490 through
26547); the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51653 through 51660);
the CY 2012 OPPS/ASC final rule with
comment period (76 FR 74527 through
74547); the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53567 through 53614);
the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50676 through 50707); the CY
2014 OPPS/ASC final rule (78 FR 75120
through 75121); the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50048 through
50087); and the FY 2016 IPPS/LTCH
PPS final rule with comment period (80
FR 49544 through 49570).
We also have codified certain
requirements for the Hospital VBP
Program at 42 CFR 412.160 through
412.167.

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b. FY 2017 Program Year Payment
Details
Section 1886(o)(7)(B) of the Act
instructs the Secretary to reduce the
base operating DRG payment amount for
a hospital for each discharge in a fiscal
year by an applicable percent. Under
section 1886(o)(7)(A) of the Act, the sum
total of these reductions in a fiscal year
must equal the total amount available
for value-based incentive payments for
all eligible hospitals for the fiscal year,
as estimated by the Secretary. We
finalized details on how we would
implement these provisions in the FY
2013 IPPS/LTCH PPS final rule (77 FR
53571 through 53573) and refer readers
to that rule for further details.
Under section 1886(o)(7)(C)(iv) of the
Act, the applicable percent for the FY
2017 program year is 2.00 percent.
Using the methodology we adopted in
the FY 2013 IPPS/LTCH PPS final rule

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(77 FR 53571 through 53573), we
estimate that the total amount available
for value-based incentive payments for
FY 2017 is approximately $1.7 billion,
based on the December 2015 update of
the FY 2015 MedPAR file. We intend to
update this estimate for the FY 2017
IPPS/LTCH PPS final rule, using the
March 2016 update of the FY 2015
MedPAR file.
As finalized in the FY 2013 IPPS/
LTCH PPS final rule, we will utilize a
linear exchange function to translate
this estimated amount available into a
value-based incentive payment
percentage for each hospital, based on
its Total Performance Score (TPS) (77
FR 53573 through 53576). We will then
calculate a value-based incentive
payment adjustment factor that will be
applied to the base operating DRG
payment amount for each discharge
occurring in FY 2017, on a per-claim
basis. We are publishing proxy valuebased incentive payment adjustment
factors in Table 16 associated with this
proposed rule (which is available via
the Internet on the CMS Web site). The
proxy factors are based on the TPSs
from the FY 2016 program year. These
FY 2016 performance scores are the
most recently available performance
scores that hospitals have been given
the opportunity to review and correct.
The slope of the linear exchange
function used to calculate those proxy
value-based incentive payment
adjustment factors is 2.7714997322.
This slope, along with the estimated
amount available for value-based
incentive payments, is also published in
Table 16.
We intend to update this table as
Table 16A in the final rule (which will
be available via the Internet on the CMS
Web site) to reflect changes based on the
March 2016 update to the FY 2015
MedPAR file. We also intend to update
the slope of the linear exchange
function used to calculate those updated
proxy value-based incentive payment
adjustment factors. The updated proxy
value-based incentive payment
adjustment factors for FY 2017 will
continue to be based on historic FY
2016 program year TPSs because
hospitals will not have been given the
opportunity to review and correct their
actual TPSs for the FY 2017 program
year until after the FY 2017 IPPS/LTCH
PPS final rule is published. After
hospitals have been given an
opportunity to review and correct their
actual TPSs for FY 2017, we will add
Table 16B (which will be available via
the Internet on the CMS Web site) to
display the actual value-based incentive
payment adjustment factors, exchange
function slope, and estimated amount

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available for the FY 2017 program year.
We expect that Table 16B will be posted
on the CMS Web site in October 2016.
2. PSI 90 Measure in the FY 2018
Program and Future Program Years
a. Proposed PSI 90 Measure
Performance Period Change for the FY
2018 Program Year
We previously finalized the
performance period for the PSI 90:
Patient Safety for Selected Indicators
(Composite Measure) (then referred to as
both the ‘‘PSI–90 measure’’ and the
‘‘AHRQ PSI Composite Measure’’) for
the FY 2018 program year (78 FR
50694). We have calculated and
finalized performance standards for the
FY 2018 program year based on a
baseline period that uses ICD–9–CM
claims data. The previously finalized
performance period for the FY 2018
program year runs from July 1, 2014
through June 30, 2016. Because
hospitals began ICD–10–CM/PCS
implementation on October 1, 2015, the
performance period as currently
finalized for the FY 2018 program year
would necessitate using both ICD–9 and
ICD–10 claims data to calculate
performance standards for the PSI 90
measure.
Since the ICD–10 transition was
implemented on October 1, 2015, we
have been monitoring our systems, and
claims are processing normally.
Currently, the measure steward, AHRQ,
is reviewing any potential issues related
to ICD–10 conversion of coded
operating room procedures (https://
www.cms.gov/icd10manual/fullcode_
cms/P1616.html), which directly impact
the AHRQ PSI 90 component indicators.
Nevertheless, given the complexity of
converting the PSI 90 component
indicators from ICD–9 to ICD–10 and
considering that there are approximately
70,000 22 ICD–10 codes, the measure
steward has recommended against
combining measure performance data
that use both ICD–9 and ICD–10 data at
this time. In addition, to meet program
requirements and implementation
schedules, our system requires an ICD–
10 risk-adjusted version of the AHRQ QI
PSI software 23 by December 2016 for
use in the FY 2018 payment year. At
this time, a risk adjusted ICD–10 version
22 International Classification of Diseases (ICD–
10–CM/PCS) Transition—Background. Available at:
http://www.cdc.gov/nchs/icd/icd10cm_pcs_
background.htm.
23 The AHRQ QI Software is the software used to
calculate PSIs and the composite measure. More
information is available at: http://
www.qualityindicators.ahrq.gov/Downloads/
Resources/Publications/2015/Empirical_Methods_
2015.pdf.

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of the PSI 90 software is not expected
to be available until late CY 2017.
To address the above issues, we are
proposing to shorten the performance
period for the FY 2018 program year.
We are proposing to use a 15-month
performance period from July 1, 2014
through September 30, 2015 for the FY
2018 program year. The 15-month
performance period would only apply to
the FY 2018 program year and would
only use ICD–9 data. For the FY 2018
program year, the performance
standards that were previously
established and announced in past rules
would not change because they were
calculated based on the baseline period
of July 1, 2010 through June 30, 2012,
which would remain the same. In order
to align the use of this measure with
other hospital quality programs, we are
proposing similar modifications to the
FY 2018 reporting period for the PSI 90
measure for the HAC Reduction
Program, as set forth in section IV.I. of
the preamble of this proposed rule, and
for the Hospital IQR Program, as set
forth in section VIII.A. of the preamble
of this proposed rule.
We are aware that the FY 2019
program year also has a performance
period that contains ICD–9 and ICD–10
data (79 FR 50072 through 50073). We
will continue to review our options for
calculating the performance period for
the FY 2019 program year and further
address this in next year’s rulemaking.
Therefore, we are not proposing to make
any changes to the FY 2019 program
year, which runs from July 1, 2015
through June 30, 2017.
We note that in proposing a shortened
performance period for the PSI 90
measure, a prior reliability analysis of
the PSI 90 measure shows that the
majority of hospitals attain a moderate
or high level of reliability for the PSI 90
measure after a 12-month period.24 We
do not anticipate any delay for hospitals
to review their TPS for the FY 2018
program year during the review and
correction period.
Prior to deciding to propose an
abbreviated performance period for the
FY 2018 program year, we took several
factors into consideration, including the

recommendations of the measure
steward, the feasibility of using a
combination of ICD–9 and ICD–10 data
without the availability of the
appropriate measure software,
minimizing provider burden, program
implementation timelines, and the
reliability of using shortened
performance periods, as well as the
importance of continuing to publicly
report this measure. We believe that
using a 15-month performance period
for FY 2018 best serves the need to
provide important information on
hospital patient safety and adverse
events by allowing sufficient time to
process the claims data and calculate
the measures, while minimizing the
reporting burden and program
disruption.
Furthermore, we plan to propose to
adopt the modified PSI 90 measure,
which includes several substantive
measure updates, for the Hospital VBP
Program in subsequent rulemaking, as
soon as it is feasible. We discuss this
future proposed adoption in section
IV.H.2.b. of the preamble of this
proposed rule.
We are inviting public comments on
this proposed plan to shorten the
performance period for the PSI 90
measure for the FY 2018 program year.
b. Intent To Propose in Future
Rulemaking To Adopt the Modified PSI
90 Measure
The PSI 90 measure underwent NQF
maintenance review in 2014. The 2014
NQF maintenance review process has
been completed and has led to several
changes to the measure.25 Due to
statutory requirements 26 in the Hospital
VBP Program, we would not be able to
adopt the NQF-endorsed modified PSI
90 measure, now known as Patient
Safety and Adverse Events Composite,
until a future program year. We refer
readers to section VIII.A. of the
preamble of this proposed rule relating
to the Hospital IQR Program for a
discussion of the modified PSI 90
measure update.

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Hospital VBP program domain

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a. Retention of Previously Adopted
Hospital VBP Program Measures
Since the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53592), we have
retained measures from prior program
years for each successive program year,
unless otherwise proposed and
finalized. We are not proposing any
changes to this policy.
b. Proposed Domain Name Change
We strive to align quality
measurement and value-based
purchasing programs with the NQS
priority and the CMS Quality Strategy.
Value-based purchasing programs in
particular allow us to link the CMS
Quality Strategy with Medicare
payments to providers and suppliers on
a national scale. Given this objective, as
well as our objective to focus quality
measurement on the patient-centered
outcome of interest to the extent
possible, we proposed to reclassify the
Hospital VBP Program measures into
domains based on the six priorities of
the CMS Quality Strategy. In the FY
2014 IPPS/LTCH PPS final rule (78 FR
50702), we proposed to combine the
priorities of Care Coordination and
Patient- and Caregiver-Centered
Experience of Care into one domain for
purposes of aligning the Hospital VBP
Program domains with the CMS Quality
Strategy. The domain name is often
shortened to say PCCEC/CC. The
HCAHPS measure, which includes the
care transitions measure (CTM–3),
currently comprises the Patient- and
Caregiver-Centered Experience of Care/
Care Coordination domain.
This domain name has proven to be
long and unwieldy. Therefore, we are
proposing to change the domain name
from Patient- and Caregiver-Centered
Experience of Care/Care Coordination
to, more simply, Person and Community
Engagement beginning with the FY 2019
program year. We believe that this
domain name captures two goals of the
CMS Quality Strategy, as shown in the
table below:

CMS Quality strategy goal

Safety .......................................................................................
24 Mathematica Policy Research (November 2011).
Reporting period and reliability of AHRQ, CMS 30day and HAC Quality Measures—Revised.
Available at: http://www.cms.gov/Medicare/
Quality-Initiatives-Patient-Assessment-Instruments/
hospital-value-based-purchasing/Downloads/
HVBP_Measure_Reliability-.pdf.
25 National Quality Forum QPS Measure
Description for ‘‘Patient Safety for Selected

3. Retention Policy, Domain Name
Proposal, and Updating of Quality
Measures for the FY 2019 Program Year

Make Care Safer by Reducing Harm Caused in the Delivery of Care.

Indicators (modified version of PSI90) (Composite
Measure)’’ found at https://www.qualityforum.org/
QPS/MeasureDetails.aspx?standardID=321&print=
0&entityTypeID=3.
26 First, section 1886(o)(2)(A) of the Act requires
the Program to select measures that have been
specified for the Hospital IQR Program. Second,
section 1886(o)(2)(C)(i) of the Act requires the
Hospital VBP Program to refrain from beginning the

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performance period for a new measure until data on
the measure have been posted on Hospital Compare
for at least one year. Finally, section 1886(o)(3)(C)
of the Act requires that the Hospital VBP Program
establish performance standards for each measure
not later than 60 days prior to the beginning of the
performance period.

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Hospital VBP program domain

CMS Quality strategy goal

Efficiency and Cost Reduction .................................................
Clinical Care .............................................................................
Person and Community Engagement ......................................
N/A ............................................................................................

We are inviting public comments on
this proposal.
c. Proposed Inclusion of Selected Ward
Non-Intensive Care Unit (ICU) Locations
in Certain NHSN Measures Beginning
With the FY 2019 Program Year
The Hospital VBP Program has used
the CLABSI measure since the FY 2015
program year and has used the CAUTI
measure since the FY 2016 program
year. Both measures use adult, pediatric,
and neonatal intensive care unit (ICU)
data to calculate performance standards
and measure scores (79 FR 50061). In
the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50787), we expanded the CAUTI
and CLABSI measures to selected ward
(non-ICU) settings for the Hospital IQR
Program, effective January 1, 2015 (78
FR 50787). Data were first posted on
Hospital Compare in December 2015.
Selected ward (non-ICU) locations are
defined as adult or pediatric medical,
surgical, and medical/surgical wards (78
FR 50787; 79 FR 50061). More
information on the CLABSI and CAUTI
measures can be found at: http://
www.cdc.gov/nhsn/pdfs/pscmanual/
4psc_clabscurrent.pdf and http://
www.cdc.gov/nhsn/pdfs/pscmanual/
7psccauticurrent.pdf, respectively.
In the FY 2015 and FY 2016 IPPS/
LTCH PPS final rules, we discussed our

25101

Make Care Affordable.
Promote Effective Prevention and Treatment of Chronic Disease.
Promote Effective Communication and Coordination of Care.
Strengthen Persons and Their Families as Partners in Their Care.
Work with Communities to Promote Best Practices of Healthy Living.

intent to consider using data from
selected ward (non-ICU) locations for
the Hospital VBP Program beginning in
the FY 2019 program year for purposes
of calculating performance standards for
the CAUTI and CLABSI measures (79
FR 50061; 80 FR 49556). Several public
commenters supported our proposal to
include performance data from non-ICU
locations in the CLABSI and CAUTI
measures beginning in the FY 2019
program year, noting that CLABSI and
CAUTI measures are important targets
for dedicated surveillance and
prevention efforts outside the ICU
setting (80 FR 49566).
Based on the public comments we
have received in prior rulemaking, we
are proposing to include the selected
ward (non-ICU) locations in the CAUTI
and CLABSI measures for the Hospital
VBP Program beginning with the FY
2019 program year, with a baseline
period of January 1, 2015 through
December 31, 2015 and a performance
period of January 1, 2017 through
December 31, 2017. This expansion of
the CAUTI and CLABSI measures aligns
with the Hospital IQR Program. It also
aligns with the HAC Reduction
Program, which adopted the expansion
of the CAUTI and CLABSI measures
beginning with its FY 2018 program

year (80 FR 49576 through 49578). This
expansion is also consistent with the
NQF reendorsement update to these
measures, which allows application of
the measures beyond ICU locations (78
FR 50787). The MAP conditionally
supported the expansion of the CAUTI
(MUC–S0138) and CLABSI (MUC–
S0139) measures for the Hospital VBP
Program on the condition of gaining
experience publicly reporting these
measure data, as detailed in the
‘‘Spreadsheet of MAP 2015 Final
Recommendations.’’ 27 We continue to
believe this expansion of the measures
would allow all hospitals, including
hospitals that do not have ICU locations,
to use the tools and resources of the
NHSN for quality improvement and
public reporting efforts.
We are inviting public comments on
this proposal.
d. Summary of Previously Adopted
Measures and Newly Proposed Measure
Refinements for the FY 2019 Program
Year
In summary, for the FY 2019 program
year, we have finalized the following
measure set and are proposing the
refinement of certain NHSN measures,
as indicated:

PREVIOUSLY ADOPTED MEASURES AND NEWLY PROPOSED MEASURE REFINEMENTS FOR THE FY 2019 PROGRAM YEAR ±
Short name

Domain/Measure name

NQF #

Person and Community Engagement Domain *
HCAHPS ...................................

HCAHPS + 3-Item Care Transition Measure ...............................................................................

0166
0228

Clinical Care Domain
MORT–30–AMI .........................
MORT–30–HF ..........................

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MORT–30–PN ..........................
THA/TKA ...................................

Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Myocardial Infarction (AMI) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Heart Failure (HF) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Pneumonia
Hospitalization.
Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total
Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA).

0230
0229
0468
1550

Safety Domain
CAUTI ** ....................................

National Healthcare Safety Network (NHSN) Catheter-Associated Urinary Tract Infection
(CAUTI) Outcome Measure.

27 ‘‘Spreadsheet of MAP 2015 Final
Recommendations’’ available at: http://
www.qualityforum.org/WorkArea/

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linkit.aspx?LinkIdentifier=id&ItemID=78711 and
‘‘Process and Approach for MAP Pre-Rulemaking
Deliberations 2015’’ available at: http://

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0138

www.qualityforum.org/Publications/2015/01/
Process_and_Approach_for_MAP_Pre-Rulemaking_
Deliberations_2015.aspx.

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PREVIOUSLY ADOPTED MEASURES AND NEWLY PROPOSED MEASURE REFINEMENTS FOR THE FY 2019 PROGRAM
YEAR ±—Continued
Short name

Domain/Measure name

CLABSI ** ..................................

National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream Infection
(CLABSI) Outcome Measure.
American College of Surgeons—Centers for Disease Control and Prevention (ACS–CDC)
Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure.
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Methicillinresistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure.
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Clostridium
difficile Infection (CDI) Outcome Measure.
Patient Safety for Selected Indicators (Composite Measure) ......................................................
Elective Delivery ...........................................................................................................................

Colon and Abdominal
Hysterectomy SSI.
MRSA Bacteremia ....................
CDI ............................................
PSI 90 .......................................
PC–01 .......................................

NQF #
0139
0753
1716
1717
0531
0469

Efficiency and Cost Reduction Domain
MSPB ........................................

Payment-Standardized Medicare Spending Per Beneficiary (MSBP) .........................................

2158

± We

are changing some of the short names for measures from previous years’ rulemakings to align these names with the usage in the Hospital IQR Program, and we are changing some measure names from previous years’ rulemakings to use complete NQF-endorsed measure
names.
* We are proposing, in section IV.H.3.b. of the preamble of this proposed rule, to change the name of this domain from Patient- and CaregiverCentered Experience of Care/Care Coordination domain to Person and Community Engagement domain beginning with the FY 2019 program
year.
** Proposed to include selected ward (non-ICU) locations in the measure as discussed in section IV.H.3.c. of the preamble of this proposed
rule.

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4. Newly Proposed Measures and
Measure Refinements for the FY 2021
Program Year and Subsequent Years
We consider measures for adoption
based on the statutory requirements,
including specification under the
Hospital IQR Program, posting dates on
the Hospital Compare Web site, and our
priorities for quality improvement as
outlined in the current CMS Quality
Strategy, available at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/
QualityInitiativesGenInfo/CMS-QualityStrategy.html.
Due to the time necessary to adopt
measures, we often adopt policies for
the Hospital VBP Program well in
advance of the program year for which
they will be applicable (for example, 76
FR 26490 through 26547; 76 FR 51653
through 51660; 76 FR 74527 through
74547; 77 FR 53567 through 53614; 78
FR 50676 through 50707; 78 FR 75120
through 75121; 79 FR 50048 through
50087; 80 FR 49556 through 49559).
a. Condition-Specific Hospital Level,
Risk-Standardized Payment Measures
Providing high-value care is an
essential part of our mission to provide
better health care for individuals, better
health for populations, and lower
healthcare costs. Our aim is to
encourage higher value care where there
is the most opportunity for
improvement, the greatest number of
patients to benefit from improvements,
and the largest sample size to ensure
reliability. In order to incentivize
innovation that promotes high-quality
care at high value, we believe it is

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critical to examine measures of resource
use, efficiency, and cost reduction.
In prior rules we have discussed our
interest in expanding the Hospital VBP
Program’s Efficiency and Cost
Reduction domain to include conditionspecific or treatment-specific Medicare
payment measures, and we have sought
public comments (78 FR 50688; 79 FR
50066). In response to comments, we
have stated that risk-adjusted
standardized Medicare payments,
viewed in light of other quality
measures in a program, are an
appropriate indicator of efficiency
because they allow us to compare
hospitals without regard to factors such
as geography and teaching status. This
comparison is particularly important
with clinically coherent episodes
because it distinguishes the degree to
which practice pattern variation
influences the cost of care. In addition,
we have stated that the granularity of
condition-specific or treatment-specific
payment measures may provide specific
actionable feedback to hospitals to
implement targeted improvements. The
observed differences in episode
payments revealed by these measures
may also encourage hospitals to assess
local, postacute health care services (for
example, SNF and home health
services) to ensure that efficient services
are available to all patients. Given these
factors, we believe that the addition of
condition-specific or treatment-specific
payment measures to the Hospital VBP
Program is necessary not only to
facilitate a better understanding of
service utilization and costs associated
with conditions or treatments, but also

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as an important next step in the
evolution of value-based purchasing to
transform how Medicare pays for care
and services.
We recognize that high or low
payments to hospitals are difficult to
interpret in isolation. Some high
payment hospitals may produce better
clinical outcomes when compared with
low payment hospitals, while other high
payment hospitals may not produce
better outcomes. For this reason,
payment measure results viewed in
isolation are not necessarily an
indication of quality. However, by
viewing such information along with
quality measure results, we believe that
consumers, payers, and providers would
be able to better assess the value of care.
We believe that adopting conditionspecific or treatment-specific payment
measures for the Hospital VBP Program
that can be more directly paired with
clinical outcome measures, aligned by
comparable populations, performance
periods, or risk-adjustment
methodologies, help move toward
achievement of this goal. We also
believe that adopting condition-specific
or treatment-specific payment measures
would create stronger incentives for
appropriately reducing practice pattern
variation to achieve the aim of lowering
the cost of care and creating better
coordinated care for Medicare
beneficiaries.
In the Hospital VBP Program, we
adopted the Medicare Spending per
Beneficiary (MSPB) measure beginning
with the FY 2015 program year to
incentivize hospitals to redesign care
systems in order to provide coordinated,

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high-quality, and cost-efficient care (77
FR 53590). Currently, the Hospital VBP
Program measures efficiency by
weighting and combining the MSPB
measure with other quality measures in
order to calculate each hospital’s TPS.
However, we have previously expressed
our interest in expanding the Efficiency
and Cost Reduction domain and
continue to believe that additional
supplemental measures would create
incentives for greater coordination
between hospitals and physicians to
optimize the care they provide to
Medicare beneficiaries (78 FR 50688; 79
FR 50066).
We believe that when examining
variation in payments, an episode-ofcare triggered by admission is
meaningful for several reasons. First,
hospitalizations represent brief periods
of illness that require ongoing
management post-discharge, and
decisions made at the admitting hospital
affect payments for care in the
immediate postdischarge period.
Second, attributing payments for a
continuous episode-of-care to admitting
hospitals may reveal variations in care
decision-making and resource
utilization. Third, an episode-of-care
with a specified time period (30 days in
the case of the measures proposed
below) provides a standard observation
period by which to compare all
hospitals. For all of the reasons
described above, we are proposing to
add two condition-specific payment
measures in the Hospital VBP Program
that can be directly paired with existing
clinical outcome measures in the
program.
We are inviting public comments on
the proposed measures as detailed
below. We are further inviting public
comment on the addition of other
condition-specific or treatment-specific
payment measures that are directly
paired with quality measures, as well as
episode-based payment measures not
directly paired with quality measures,
for future program years.
(1) Proposed New Measure for the FY
2021 Program Year: Hospital-Level,
Risk-Standardized Payment Associated
With a 30-Day Episode-of-Care for Acute
Myocardial Infarction (AMI) (NQF
#2431)
Hospital-Level, Risk-Standardized
Payment Associated with a 30-Day
Episode-of-Care for AMI (NQF #2431)
(AMI Payment) is an NQF-endorsed
measure assessing hospital riskstandardized payment associated with a
30-day episode-of-care for AMI. We
adopted this measure in the Hospital
IQR Program in the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50802 through

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50805). The measure includes Medicare
FFS patients aged 65 or older admitted
for an AMI and calculates payments for
these patients over a 30-day episode-ofcare, beginning with the index
admission, using administrative claims
data. In general, the measure uses the
same approach to risk-adjustment as our
30-day outcome measures previously
adopted for the Hospital VBP Program,
including the AMI mortality measure.
Initial measure data were posted on
Hospital Compare in December 2014
and the full measure specifications are
available at: https://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/
HospitalQualityInits/MeasureMethodology.html.
AMI remains a high-volume condition
that is one of the top 20 conditions
contributing to Medicare costs.28 There
is evidence of variation in payment for
AMI patients among hospitals; median
30-day risk-standardized payment (in
2013 dollars) for AMI was $21,620 and
ranged from $12,862 to $29,802 for the
July 2011 through June 2014 reporting
period in the Hospital IQR Program.29
This variation in payment suggests there
is opportunity for improvement.
We believe it is important to adopt the
AMI Payment measure because
variation in payment may reflect
differences in care decision-making and
resource utilization (for example,
treatment, supplies, or services) for
patients with AMI both during
hospitalization and immediately postdischarge. The AMI Payment measure
also addresses the NQS priority and
CMS Quality Strategy goal to make
quality care more affordable. Lastly, the
AMI Payment measure is intended to be
paired with our 30-day AMI mortality
measure, MORT–30–AMI, thereby
directly linking payment to quality by
the alignment of comparable
populations and risk-adjustment
methodologies to facilitate the
assessment of efficiency and value of
care.
We are proposing the AMI Payment
measure beginning with the FY 2021
program year. The AMI Payment
measure would be added to the
28 Torio, C.M. and Andrews, R.M., 2013. National
inpatient hospital costs: The most expensive
conditions by payer, 2011. In Agency for Healthcare
Research and Quality, Healthcare Cost and
Utilization Project Statistical Brief# 160. Available
at: https://www.hcup-us.ahrq.gov/reports/statbriefs/
sb160.pdf.
29 2015 Condition-Specific Measure Updates and
Specifications Report Hospital-Level 30-Day Risk
Standardized Payment Measures. AMI, HF, PN
Payment Updates (zip file). Available at: https://
www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/
Measure-Methodology.html.

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Efficiency and Cost Reduction domain.
The proposed measure fulfills all
statutory requirements for the Hospital
VBP Program based on our adoption of
the measure in the Hospital IQR
Program, and our posting of measure
data on Hospital Compare for at least
one year before the beginning of the
performance period. The AMI Payment
measure (MUC15–369) was reviewed by
the MAP in December 2015 and did not
receive support for adoption into the
Hospital VBP Program.30 The result of
the MAP vote was 27 percent support,
15 percent conditional support, and 58
percent do not support. MAP members
expressed concern that treatmentspecific or condition-specific payment
measures may overlap and double count
services that are already captured in the
MSPB measure. In addition,
stakeholders expressed a desire to have
more experience with the measure in
the Hospital IQR Program to understand
whether there may be unintended
consequences or a need to adjust for
sociodemographic status (SDS).
With respect to MAP stakeholder
concerns that treatment-specific or
condition-specific payment measures
may overlap and double count services,
we note that these measures cover
topics of critical importance to quality
improvement in the inpatient hospital
setting. As discussed above, we selected
these measures because we believe that
it is appropriate to provide stronger
incentives for hospitals to provide highvalue and efficient care. We believe that
even if some services were double
counted, hospitals that offer quality
service and maintain better results on
the MSPB and condition-specific
payment measures relative to other
hospitals in the Hospital VBP Program
could receive an increased benefit by
performing well on both quality
measures and payment measures.
Furthermore, because hospitals would
have bigger financial incentives, they
would strive to perform better, which
would lead to better quality. At the
same time, however, we are proposing
that the Efficiency and Cost Reduction
domain remain weighted at 25 percent
of the TPS even as additional payment
measures may be adopted for this
domain in the FY 2021 program year;
therefore, the impact of poor
performance on the MSPB measure or
on any other particular payment
measure would be reduced.
30 ‘‘Spreadsheet of MAP 2015–2016 Final
Recommendations’’ available at: http://
www.qualityforum.org/map/ and ‘‘Process and
Approach for MAP Pre-Rulemaking Deliberations
2016’’ found at: http://www.qualityforum.org/
Publications/2016/02/Process_and_Approach_for_
MAP_Pre-Rulemaking_Deliberations.aspx.

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In regard to MAP stakeholder
concerns regarding the need to adjust
for SDS, we note that the AMI Payment
measure already incorporates a riskadjustment methodology that accounts
for age and comorbidities. We
understand the important role that
sociodemographic status plays in the
care of patients. However, we continue
to have concerns about holding
hospitals to different standards for the
outcomes of their patients of diverse
sociodemographic status because we do
not want to mask potential disparities or
minimize incentives to improve the
outcomes of disadvantaged populations.
We routinely monitor the impact of
sociodemographic status on hospitals’
results on our measures.
NQF is currently undertaking a 2-year
trial period in which new measures and
measures undergoing maintenance
review will be assessed to determine if
risk-adjusting for sociodemographic
factors is appropriate. For 2 years, NQF
will conduct a trial of temporarily
allowing inclusion of sociodemographic
factors in the risk-adjustment approach
for some performance measures. At the
conclusion of the trial, NQF will issue
recommendations on future permanent
inclusion of sociodemographic factors.
During the trial, measure developers are
expected to submit information such as
analyses and interpretations as well as
performance scores with and without
sociodemographic factors in the riskadjustment model.
Furthermore, ASPE is conducting
research to examine the impact of
sociodemographic status on quality
measures, resource use, and other
measures under the Medicare program
as directed by the IMPACT Act. We will
closely examine the findings of the
ASPE reports and related Secretarial
recommendations and consider how
they apply to our quality programs at
such time as they are available.
Finally, we note that some MAP
members did express support for the
AMI Payment measure and other
condition-specific payment measures.
Members agreed that the increased
granularity provided by conditionspecific payment measures will provide
valuable feedback to hospitals for
targeted improvement. A recent NQFcommissioned white paper also
supports the position that cost or
payment measures should be
interpreted in the context of quality
measures and that measures that link
cost and quality are the preferred
method of assessing hospital

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efficiency.31 We believe that the
condition-specific payment measures
we are proposing, which directly pair
with clinical outcome measures already
in the Hospital VBP Program, follow
this recommended approach. Based on
our analysis of the issues surrounding
condition-specific payment measures,
we believe that the benefits of adopting
this measure into the Hospital VBP
Program outweigh any potential risks;
however, we remain committed to
monitoring for unintended
consequences.
We are inviting public comments on
this proposal.
(2) Proposed New Measure for the FY
2021 Program Year: Hospital-Level,
Risk-Standardized Payment Associated
With a 30-Day Episode-of-Care for Heart
Failure (HF) (NQF #2436)
Hospital-Level, Risk-Standardized
Payment Associated with a 30-Day
Episode-of-Care for HF (NQF #2436) (HF
Payment) is an NQF-endorsed measure
assessing hospital risk-standardized
Medicare payment associated with a 30day episode-of-care for heart failure.
The measure includes Medicare FFS
patients aged 65 or older admitted for
heart failure and calculates payments
for these patients over a 30-day episodeof-care, beginning with the index
admission, using administrative claims
data. In general, the measure uses the
same approach to risk-adjustment as our
30-day outcome measures previously
adopted for the Hospital VBP Program,
including the HF mortality measure. We
adopted this measure in the Hospital
IQR Program in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50231 through
50235). Initial measure data were posted
on Hospital Compare in July 2015 and
the full measure specifications are
available at: https://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/
HospitalQualityInits/MeasureMethodology.html.
Heart failure is one of the leading
causes of hospitalization for Americans
65 and over and costs roughly $34
billion annually.32 33 There is evidence
of variation in Medicare payments at
hospitals for heart failure patients;
median 30-day risk-standardized
31 Ryan

A.M., Tompkins C.P. Efficiency and
Value in Healthcare: Linking Cost and Quality
Measures. Washington, DC: NQF; 2014.
32 Russo C.A., Elixhauser, A. Hospitalizations in
the Elderly Population, 2003. Agency for Healthcare
Research and Quality. 2006.
33 Heidenriech P.A., Trogdon J.G., Khavjou O.A.,
Butler J, Dracup K., Ezekowitz M.D., et al.
Forecasting the future of cardiovascular disease in
the United States: A policy statement from the
American Heart Association. Circulation.
2011;123(8):933–44.

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payment (in 2013 dollars) among
Medicare FFS patients aged 65 or older
was $15,139, and ranged from $11,086
to $21,867 for the July 2011 through
June 2014 reporting period in the
Hospital IQR Program.34 This variation
in payment suggests there is
opportunity for improvement.
We believe it is important to adopt the
HF Payment measure because variation
in payment may reflect differences in
care decision making and resource
utilization (for example, treatment,
supplies, or services) for patients with
heart failure both during hospitalization
and immediately post-discharge. The
HF Payment measure also addresses the
NQS priority and CMS Quality Strategy
goal to make quality care more
affordable. Lastly, the HF Payment
measure is intended to be paired with
our 30-day HF mortality measure,
MORT–30–HF, thereby directly linking
payment to quality by the alignment of
comparable populations and riskadjustment methodologies to facilitate
the assessment of efficiency and value
of care.
We are proposing the HF Payment
measure beginning with the FY 2021
program year. The HF Payment measure
would be added to the Efficiency and
Cost Reduction domain. The measure
fulfills all statutory requirements for the
Hospital VBP Program based on our
adoption of the measure in the Hospital
IQR Program and our posting of measure
data on Hospital Compare for at least
one year before the beginning of the
performance period for this measure.
The HF Payment measure (MUC15–322)
was reviewed by the MAP in December
2015 and did not receive support for
adoption into the Hospital VBP
Program, due to the same concerns that
we noted in our discussion of the AMI
Payment measure.35 The result of the
MAP vote was 27 percent support, 8
percent conditional support, and 65
percent do not support. Although the
final MAP decision was ‘‘do not
support,’’ we continue to believe that
the NQF-endorsed HF Payment measure
provides beneficiaries and hospitals
with valuable information about relative
value for an episode-of-care. We support
34 2015 Condition-Specific Measure Updates and
Specifications Report Hospital-Level 30-Day RiskStandardized Payment Measures. AMI, HF, PN
Payment Updates (zip file). Available at: https://
www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/
Measure-Methodology.html.
35 ‘‘Spreadsheet of MAP 2015–2016 Final
Recommendations’’ available at: http://
www.qualityforum.org/map/ and ‘‘Process and
Approach for MAP Pre-Rulemaking Deliberations
2016’’ found at: http://www.qualityforum.org/
Publications/2016/02/Process_and_Approach_for_
MAP_Pre-Rulemaking_Deliberations.aspx.

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the HF Payment measure for the same
reasons that we noted in our general
discussion of condition-specific
payment measures in section IV.H.4.a.
of the preamble of this proposed rule
and in our discussion of the AMI
Payment measure in section IV.H.4.a.(2)
of the preamble of this proposed rule.
We note that some MAP members did
express support for the HF Payment
measure and other condition-specific
payment measures. Members agreed that
the increased granularity provided by
condition-specific payment measures
will provide valuable feedback to
hospitals for targeted improvement. In
addition, we believe that the conditionspecific payment measures we are
proposing, which directly pair with
clinical outcome measures already in
the Hospital VBP Program, follow the
recommended approach outlined in the
NQF white paper on how best to
measure efficiency.36 Based on our
analysis of the issues surrounding
condition-specific payment measures,
we believe that the benefits of adopting
this measure into the Hospital VBP
program outweigh any potential risks.
However, we remain committed to
monitoring for unintended
consequences.
We are inviting public comments on
this proposal.
(3) Proposed Scoring Methodology for
the Proposed AMI Payment and HF
Payment Measures
We are proposing to score the
proposed AMI Payment and HF
Payment measures using the same
methodology we use to score the MSPB
measure, so that all measures in the
Efficiency and Cost Reduction domain
are scored in the same manner and have
the same case minimum threshold.
For achievement points, we are
proposing to calculate a spending ratio
of AMI spending and HF spending for
each hospital to the median AMI
spending and median HF spending,
respectively, across all hospitals during
the performance period. We would then
use each hospital’s AMI spending ratio
and HF spending ratio to calculate
between 0 and 10 achievement points.
We are proposing to set the achievement
thresholds at the median AMI spending
ratio and HF spending ratio across all
hospitals during the performance
period. We are proposing to set the
benchmarks at the mean of the lowest
decile of the AMI spending ratios and
the HF spending ratios during the
performance period. Therefore, a
36 Ryan A.M., Tompkins C.P. Efficiency and
Value in Healthcare: Linking Cost and Quality
Measures. Washington, DC: NQF; 2014.

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hospital whose individual AMI
spending or HF spending ratios fall
above the achievement threshold would
score 0 achievement points on the
measure. A hospital for which
individual AMI spending or HF
spending ratios fall at or below the
benchmark would score the maximum
10 achievement points on the measure.
A hospital for which individual AMI
spending or HF spending ratios fall at or
below the achievement threshold but
above the benchmark would score
between 1 and 9 points according to the
following formula:
[9 * ((achievement
threshold¥Hospital’s performance
period ratio)/(achievement
threshold¥benchmark))] + 0.5
For improvement points, we are
proposing to calculate a spending ratio
of AMI spending and HF spending for
each hospital to the median AMI
spending and median HF spending,
respectively, across all hospitals during
the performance period. We would then
use each hospital’s AMI spending ratio
and the HF spending ratio to calculate
between 0 and 9 improvement points by
comparing each hospital’s ratio to its
own performance during the baseline
period. We are proposing to set the
improvement benchmark as the mean of
the lowest decile of AMI spending and
HF spending ratios across all hospitals.
Therefore, a hospital for which AMI
spending or HF spending ratios are
equal to or higher than its baseline
period ratios would 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, the hospital would receive
a score of 0 to 9 according to the
following formula:
[10 * ((Hospital baseline period
ratio¥Hospital performance period
ratio)/(Hospital baseline period
ratio¥benchmark))] ¥0.5
For more information about the
proposed scoring methodology for the
AMI Payment and HF Payment
measures, we refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51654 through 51656) and to 42 CFR
412.160 where we discuss the MSPB
measure’s identical scoring
methodology in detail.
In order to codify this scoring
methodology for the proposed payment
measures, we are proposing to amend
our regulations at 42 CFR 412.160 to
revise the definitions of ‘‘Achievement
threshold’’ and ‘‘Benchmark’’ to reflect
this methodology, not just for the MSPB
measure, but more generally for all

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measures in the Efficiency and Cost
Reduction domain.
We also considered and seek public
feedback on scoring the AMI Payment
and HF Payment measures using the
same methodology that we use to score
most other measures, including the
MORT–30–AMI and MORT–30–HF
measures. Under that scoring
methodology, hospitals receive
achievement points along an
achievement range, which is a scale
between the achievement threshold (the
minimum level of hospital performance
required to receive achievement points)
and the benchmark (the mean of the top
decile of hospital performance during
the baseline period). A hospital receives
improvement points for a measure if the
hospital improves upon its measure
score from its own baseline period
measure score (76 FR 26514). We
decided to propose the scoring
methodology that more closely aligns
with the MSPB measure because we
believe it would be helpful for hospitals
to be compared against performance
standards constructed from more
current performance period data, given
potential changes in Medicare payment
policy, changes in market forces, and
changes in utilization practices.
We are inviting public comment on
the proposed scoring methodology in
the calculation of achievement and
improvement points for the AMI
Payment and HF Payment measures
beginning with the FY 2021 program
year.
In addition, we are considering
adopting a scoring methodology for a
future program year that would assess
quality measures and efficiency
measures in tandem to produce a
composite score reflective of value. To
support the goals of value-based
purchasing and to provide consumers
and purchasers with information about
value of care provided by hospitals, we
are soliciting public comments on ways
we can incorporate scoring value into
the Hospital VBP Program. The concept
of value reflects highest quality
achieved with most efficiency or least
costs. Currently, the Hospital VBP
Program assesses quality and efficiency
separately through distinct performance
measures and domains. Because each
domain is weighted and combined to
determine each hospital’s TPS, a
hospital could earn a higher payment
adjustment relative to other hospitals by
performing well on the quality-related
domains but without performing well in
the Efficiency and Cost Reduction
domain, or vice versa. Without a
measure or score for value that reflects
both quality and costs, our ability to
assess value is limited.

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There are various different ways value
could be incorporated into the Hospital
VBP Program. We are seeking public
comments on two general approaches.
First, specific measures of value could
be developed by measure developers
and incorporated into the Hospital IQR
Program and then the Hospital VBP
Program through the measure
development process. This may be a
lengthy process and will depend upon
interest from measure developers.
However, specific measures of value
could be more interpretable by
consumers, and would have rates that
could be trended, benchmarked, and
scored using the current Hospital VBP
Program scoring methodology for
assessing achievement and
improvement.
A second potential approach is for the
Hospital VBP Program to use the
Program’s scoring methodology to
incorporate value based on the
performance of hospitals by either: (a)
Comparing scores on specific quality
and cost measures; or (b) comparing
quality and efficiency domain scores.
First, the measure-specific approach
could target high-cost, high clinicalimpact conditions by pairing conditionspecific quality and cost measures, such
as by assessing a ratio of a hospital’s
reported quality over costs. A value
score based on the paired clinical
outcome and cost measures could be
incorporated into the existing Efficiency
and Cost Reduction domain (or Clinical
Care or Safety domains) or included in
a separate new ‘Value’ domain.
Alternatively, a domain-based value
scoring approach could be similar to the
current quality/cost tiering approach in
the Physician Value-Based Modifier
Program, which tiers providers into nine
high, average, or low cost and quality
(or ‘‘value’’) categories to determine
payments. The domain-based value
score could be weighted and
incorporated into the calculation of a
hospital’s overall Hospital VBP Program
TPS along with the other existing
domains, or potentially as a multiplier
or adjuster to additionally reward higher
value hospitals.
We welcome the public’s feedback
and suggestions on how to appropriately
incorporate the concept of value in the
Hospital VBP Program, and we are
inviting specific suggestions on how to
measure or score value that will be
meaningful to consumers, purchasers,
and providers.

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b. Proposed Update to an Existing
Measure for the FY 2021 Program Year:
Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate (RSMR)
Following Pneumonia Hospitalization
(NQF #0468) (Updated Cohort)
The Hospital 30-Day, All-Cause,
RSMR Following Pneumonia
Hospitalization (NQF #0468) (MORT–
30–PN (updated cohort)) measure is a
risk-adjusted, NQF-endorsed mortality
measure monitoring mortality rates
following PN hospitalizations. As part
of the CMS measure reevaluation
process, the MORT–30–PN measure
underwent a substantive revision,
which expanded the measure cohort to
include: (1) Patients with a principal
discharge diagnosis of pneumonia (the
current reported cohort); (2) patients
with a principal discharge diagnosis of
aspiration pneumonia; and (3) patients
with a principal discharge diagnosis of
sepsis (excluding severe sepsis) with a
secondary diagnosis of pneumonia
coded as present on admission. For the
purposes of describing the refinement of
this measure, we note that ‘‘cohort’’ is
defined as the hospitalizations, or
‘‘index admissions,’’ that are included
in the measure and evaluated to
ascertain whether the patient
subsequently died within 30 days of the
index admission. This cohort is the set
of hospitalizations that meet all of the
inclusion and exclusion criteria.
The Hospital IQR Program adopted
this measure refinement of MORT–30–
PN (updated cohort) in the FY 2016
IPPS/LTCH PPS final rule (80 FR 49653
through 49660), with initial MORT–30–
PN (updated cohort) data to be posted
on Hospital Compare on or around July
21, 2016. The MORT–30–PN (updated
cohort) measure (MUC–E0468) was
included on the ‘‘List of Measures
Under Consideration for December 1,
2014’’ and received conditional support
from the MAP, pending NQF
endorsement of the updated cohort as
detailed in the ‘‘Spreadsheet of MAP
2015 Final Recommendations.’’ 37 The
full measure specifications are available
at: https://www.cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html.
This refinement to the MORT–30–PN
measure was adopted to more accurately
reflect quality and outcomes for patients
37 ‘‘Spreadsheet of MAP 2015 Final
Recommendations’’ available at: http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=78711 and
‘‘Process and Approach for MAP Pre-Rulemaking
Deliberations 2015’’ available at: http://
www.qualityforum.org/Publications/2015/01/
Process_and_Approach_for_MAP_Pre-Rulemaking_
Deliberations_2015.aspx.

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with pneumonia. Recent evidence has
shown an increase in the use of sepsis
as a principal diagnosis code among
patients hospitalized with pneumonia.38
In response to this emerging evidence,
we examined coding patterns across
hospitals caring for Medicare patients
and sought to forecast the impact of
enhancing or broadening the measure
cohort to include the complete patient
population, at each hospital, who are
receiving clinical management and
treatment for pneumonia. Our findings
were consistent with a published
study.39 That is, our results suggested
that there is: (1) An increasing use of
sepsis as a principal discharge
diagnoses for pneumonia patients; and
(2) wide variation across hospitals in the
use of these codes. These published
studies and CMS analyses also show
that hospitals that use sepsis codes for
the principal diagnosis frequently have
better performance on the currently
adopted MORT–30–PN measure. This
coding practice improves performance
on the measure because patients with
greatest severity of illness (for example,
those with sepsis) are systematically
excluded from the measure under
current measure specifications, leaving
only patients with less severity of
illness in the cohort.
In addition to assessing the use of the
principal diagnosis codes of sepsis, we
also analyzed coding patterns and the
impact of expanding the pneumonia
measure to include patients with the
principal diagnosis of aspiration
pneumonia. We noted after our analyses
that aspiration pneumonia: (1) Is a
common reason for pneumonia
hospitalization, particularly among the
elderly; (2) is currently not included in
the CMS hospital outcome measure
specifications for pneumonia patients;
and (3) appears to be similarly subject
to variation in diagnosis,
documentation, and coding. The
findings of published studies and CMS
analyses suggested that a MORT–30–PN
measure with an enhanced or broader
cohort would ensure that the population
of patients with pneumonia is more
complete and comparable across
hospitals.
We are proposing this measure
refinement for the Hospital VBP
38 Lindenauer P.K., Lagu T., Shieh M.S., Pekow
P.S., Rothberg M.B. Association of diagnostic
coding with trends in hospitalizations and mortality
of patients with pneumonia, 2003–2009. Journal of
the American Medical Association. Apr 4
2012;307(13):1405–1413.
39 Rothberg M.B., Pekow P.S., Priya A.,
Lindenauer P.K. Variation in diagnostic coding of
patients with pneumonia and its association with
hospital risk-standardized mortality rates: A crosssectional analysis. Annals of Internal Medicine. Mar
18 2014;160(6):380–388.

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Program based on our adoption of the
measure refinement in the Hospital IQR
Program, and our posting of measure
data on Hospital Compare for at least 1
year prior to the start of the measure
performance period. In addition, the
MORT–30–PN (updated cohort)
measure addresses a high volume, high
cost condition. The measure aligns with
the NQS priority and CMS Quality
Strategy Goal of ‘‘Effective Prevention
and Treatment of Chronic Disease.’’
Based on the continued high risk of
mortality after pneumonia
hospitalizations, we are proposing to
add it to the Clinical Care domain
beginning with the FY 2021 program
year.
We are inviting public comments on
this proposal.
5. Proposed New Measure for the FY
2022 Program Year: Hospital 30-Day,
All-Cause, Risk-Standardized Mortality
Rate (RSMR) Following Coronary Artery
Bypass Graft (CABG) Surgery (NQF
#2558)
The Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate (RSMR)
Following CABG Surgery (NQF #2558)
(MORT–30–CABG) measure is a riskadjusted, NQF-endorsed mortality
measure monitoring mortality rates
following CABG hospitalizations. This
measure includes Medicare FFS patients
aged 65 or older who receive a
qualifying CABG procedure and
assesses hospitals’ 30-day, all-cause
risk-standardized rate of mortality,
beginning with the date of the index
procedure. The measure is calculated
using administrative claims data. In
general, the measure uses the same
approach to risk adjustment as our 30day outcome measures previously
adopted for the Hospital VBP Program.
We adopted this measure in the
Hospital IQR Program in the FY 2015
IPPS/LTCH PPS final rule (79 FR 50224
through 50227). Initial measure data
were posted on Hospital Compare in
July 2015 and the full measure
specifications are available at: https://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html.
CABG is a priority area because it is
a common procedure associated with
considerable morbidity, mortality, and
healthcare spending. In the United
States, over 200,000 CABG procedures
are performed annually, and the
majority of procedures are performed on
Medicare beneficiaries.40 In 2012,
40 Fingar, K.R., Stocks, C., Weiss, A.J. and Steiner,
C.A., 2014. Most frequent operating room
procedures performed in U.S. hospitals, 2003–2012.

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Medicare beneficiaries had 121,744
CABG surgery admissions, with or
without percutaneous coronary
intervention or valve surgery.41 CABG
surgeries are costly procedures that
account for a large percentage of cardiac
surgeries performed nationally. For
example, isolated CABG surgeries
accounted for almost half (40.02
percent) of all cardiac surgery hospital
admissions in Massachusetts in FY
2012.42 This provides an example of the
frequency in which a CABG is
performed for a patient admitted for
cardiac surgery. The average Medicare
payment was $32,564 for CABG without
valve and $48,461 for CABG plus valve
surgeries in 2011.43
Mortality rates following CABG
surgery are not insignificant and vary
across hospitals. For the July 2011
through June 2014 Hospital IQR
Program reporting period, the median
hospital-level risk-standardized
mortality rate after CABG was 3.1
percent and ranged from 1.6 percent to
9.2 percent.44 Variation in mortality
rates following CABG surgery can be
seen not only nationally, but also within
a single State. Within the State of New
York, the risk-adjusted mortality rate
among patients who were discharged
after CABG surgery (without any other
major heart surgery earlier in the
hospital stay) ranged from 0.0 percent to
4.58 percent in 2011.45 Variation in riskstandardized mortality rates among U.S.
hospitals suggests that there is room for
improvement.
An all-cause, risk-adjusted mortality
measure for patients who undergo
CABG surgery would provide hospitals
with an incentive to reduce mortality

through improved coordination of
perioperative care and discharge
planning. This is further supported by
the success of registry-based mortality
measures in reducing CABG mortality
rates. For example, CABG mortality in
California declined from 2.9 percent in
2003, the first year that the State
implemented a mandatory CABG
mortality reporting measure, to 2.1
percent in 2012.46
We are proposing the MORT–30–
CABG measure for the Hospital VBP
Program beginning with the FY 2022
program year because it addresses a
high-volume, high-cost procedure with
variation in performance. The measure
also aligns with the CMS Quality
Strategy Goal of Effective Prevention
and Treatment of Chronic Disease. The
measure fulfills all statutory
requirements for the Hospital VBP
Program based on our adoption of the
measure in the Hospital IQR Program
and our posting of measure data on
Hospital Compare for at least one year
before the beginning of the measure
performance period. The MAP
supported the inclusion of the MORT–
30–CABG measure (MUC15–395) in the
Hospital VBP Program as detailed in the
‘‘Spreadsheet of MAP 2016 Final
Recommendations.’’ 47 Based on the
continued high risk of mortality after
CABG hospitalizations, we are
proposing to add this measure to the
Clinical Care domain beginning with the
FY 2022 program year.
We are inviting public comments on
this proposal.

In Agency for Healthcare Research and Quality,
Healthcare Cost and Utilization Project Statistical
Brief #186. Available at: https://www.hcupus.ahrq.gov/reports/statbriefs/sb186-OperatingRoom-Procedures-United-States-2012.pdf.
41 Culler S.D., Kugelmass A.D., Brown P.P.,
Reynolds M.R., Simon A.W. Trends in coronary
revascularization procedures among Medicare
beneficiaries between 2008 and 2012. Circulation.
2014 Dec 22: CIRCULATIONAHA–114.
42 Massachusetts Data Analysis Center. Adult
Coronary Artery Bypass Graft Surgery in the
Commonwealth of Massachusetts: Hospital and
Surgeons Risk-Standardized 30-Day Mortality Rates.
Fiscal Year 2012 Report. Available at: http://
www.massdac.org/wp-content/uploads/CABGFY2012-Update.pdf.
43 Pennsylvania Health Care Cost Containment
Council. Cardiac Surgery in Pennsylvania 2011–
2013. Harrisburg; 2013:60.
44 September 2015 Medicare Hospital
Performance Report on Outcome Measures:
Available at: https://www.cms.gov/Medicare/
Quality-Initiatives-Patient-Assessment-Instruments/
HospitalQualityInits/OutcomeMeasures.html.
45 New York State Department of Health. Adult
Cardiac Surgery in New York State 2009–2011.
Available at: https://www.health.ny.gov/statistics/
diseases/cardiovascular/heart_disease/docs/20092011_adult_cardiac_surgery.pdf.

a. Background
Section 1886(o)(4) of the Act requires
the Secretary to establish a performance
period for the Hospital VBP Program
that begins and ends prior to the
beginning of such fiscal year. We refer
readers to the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49561 through 49562)
for the baseline and performance
periods for the Clinical Care, Person and
Community Engagement, Safety, and

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6. Previously Adopted and Newly
Proposed Baseline and Performance
Periods

46 California Office of Statewide Health Planning
and Development. CABG Outcomes Reporting
Program. The California Report on Coronary Artery
Bypass Graft Surgery: 2003–2012 Trendlines.
Available at: http://www.oshpd.ca.gov/hid/
Products/Clinical_Data/CABG/03-12_Trends.html
or http://www.oshpd.ca.gov/HID/Products/Clinical_
Data/CABG/2012/ExecutiveSummary.pdf.
47 ‘‘Spreadsheet of MAP 2015–2016 Final
Recommendations’’ available at: http://
www.qualityforum.org/map/ and ‘‘Process and
Approach for MAP Pre-Rulemaking Deliberations
2016’’ found at http://www.qualityforum.org/
Publications/2016/02/Process_and_Approach_for_
MAP_Pre-Rulemaking_Deliberations.aspx.

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Efficiency and Cost Reduction domains
that we have adopted for the FY 2018
program year. In past final rules, we
have proposed and adopted a new
baseline and performance period for
each program year for each domain in
each final rule. This year, we are
proposing to adopt the following
baseline and performance periods for all
future program years, unless otherwise
noted in future rulemaking.
b. Patient- and Caregiver-Centered
Experience of Care/Care Coordination
Domain (Proposed Person and
Community Engagement Domain)
Since the FY 2015 program year, we
have adopted a 12-month baseline
period and a 12-month performance
period for measures in the proposed
Person and Community Engagement
domain (currently referred to as the
Patient- and Caregiver-Centered
Experience of Care/Care Coordination
domain) (77 FR 53598; 78 FR 50692; 79
FR 50072; 80 FR 49561). We continue to
believe that a 12-month period provides
us sufficient data on which to score
hospital performance.
Therefore, we are proposing to adopt
this baseline and performance period
length for the FY 2019 program year and
all future program years, unless
otherwise noted in future rulemaking.
Therefore, for the FY 2019 program year
and future program years, we are
proposing to adopt a performance
period that runs on the calendar year 2
years prior to the applicable program
year. We are proposing to adopt a
baseline period that runs on the
calendar year 4 years prior to the
applicable program year. Applying these
proposed new policies, for the FY 2019
program year, the baseline period for the
Person and Community Engagement
domain (proposed name change) would
run from January 1, 2015 through
December 31, 2015. The performance
period would run from January 1, 2017
through December 31, 2017.
c. Efficiency and Cost Reduction
Domain

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

(1) MSPB Measure
Since the FY 2016 program year, we
have adopted a 12-month baseline
period and a 12-month performance
period for the MSPB measure in the
Efficiency and Cost Reduction domain
(78 FR 50692; 79 FR 50072; 80 FR
49562). We continue to believe that a
12-month period for this measure
provides sufficient data on which to
score hospital performance. We are
proposing to adopt this baseline and
performance period length for the FY
2019 program year and all future

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program years, unless otherwise noted
in future rulemaking. Therefore, for the
FY 2019 program year and future
program years, we are proposing to
adopt a performance period that runs on
the calendar year 2 years prior to the
applicable program year. We are
proposing to adopt a baseline period
that runs on the calendar year 4 years
prior to the applicable program year.
Applying these proposed new policies,
for the FY 2019 program year, the
baseline period for the MSPB measure
would run from January 1, 2015 through
December 31, 2015. The performance
period would run from January 1, 2017
through December 31, 2017.
(2) AMI Payment and HF Payment
Measures in the FY 2021 Program Year
We are also proposing to adopt the
AMI Payment and HF Payment
measures as two new measures for the
Efficiency and Cost Reduction domain
beginning in the FY 2021 program year.
In order to adopt the measures as early
as feasible into the Hospital VBP
Program, we are proposing to adopt a
36-month baseline period and a 24month performance period. Therefore,
for the FY 2021 program year, we are
proposing to adopt a 24-month
performance period that runs from July
1, 2017 to June 30, 2019. We are
proposing to adopt a 36-month baseline
period that runs from July 1, 2012 to
June 30, 2015.
We believe that using a 24-month
performance period for the AMI
Payment and HF Payment measures,
rather than a 36-month performance
period, in the FY 2021 program year
would accurately assess the quality of
care provided by hospitals and would
not substantially change hospitals’
performance on the measure. To
determine the viability of using a 24month performance period to calculate
the AMI Payment and HF Payment
measures’ scores, we compared the
measure score reliability for a 24-month
and 36-month performance period. We
calculated the Intraclass Correlation
Coefficient (ICC) to determine the extent
to which assessments of a hospital using
different but randomly selected subsets
of patients produces similar measures of
hospital performance.48 We calculated
the risk-standardized payment (RSP)
using a random split-sample of a 36month performance period (we used
July 1, 2012 through June 30, 2015).
For both the 36-month and the 24month performance periods, we
obtained two RSPs for each hospital,
48 Shrout P., Fleiss J. Intraclass Correlations: Uses
in Assessing Rater Reliability. Pyschol Bull. Mar
1979;86(2):420–428.

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using an entirely distinct set of patients
from the same time period. If the RSPs
for both the 36-month and the 24-month
performance periods agree, we can
demonstrate that the measure assesses
the quality of the hospital rather than
the types of patients treated. To
calculate agreement between these
measure subsets, we calculated the ICC
(2,1) 49 for both the 36-month and 24month performance periods.
For the AMI Payment measure, there
were 459,874 index admissions and
2,342 hospitals that met the minimum
threshold for reporting a measure result
(at least 25 cases) in the 36-month
performance period. We also calculated
the RSP using a random split-sample of
the combined 24-month performance
period (we used July 1, 2012 through
June 30, 2014). There were 309,067
index admissions and 2,141 hospitals
that met the minimum threshold for
reporting a measure result in the 24month performance period.
For the 36-month performance period,
the ICC for the two independent
assessments of each hospital was 0.775.
For the 24-month performance period,
the ICC for the two independent
assessments of each hospital was 0.742.
Therefore, the data subsets showcase
‘‘substantial’’ agreement of hospital
performance, and we can demonstrate
that, even with a 24-month performance
period, the measure assesses the quality
of care provided at the hospital rather
than the types of patients that these
hospitals treat.50
To assess whether using 24 months of
data instead of 36 months of data
changes the performance in the same
hospital, we compared the percent
change in a hospital’s predicted/
expected (P/E) ratio. For hospitals that
met the minimum case threshold in the
24-month performance period, the
median percent change was ¥0.06
percent (with an interquartile range of
¥1.7 percent to 1.5 percent). These
results suggest minimal difference in
same-hospital performance when using
a 24-month measurement period.
To determine the viability of using a
24-month performance period for the
HF Payment measure, we assessed
reliability and change in hospital
performance for a 24-month and 36month performance period using the
same process as the AMI Payment
measure. For the HF Payment measure,
there were 877,856 index admissions
and 2,981 hospitals that met the
49 Shrout P., Fleiss J. Intraclass Correlations: Uses
in Assessing Rater Reliability. Pyschol Bull. Mar
1979;86(2):420–428.
50 Landis J, Koch G. The Measurement of
Observer Agreement for Categorical Data.
Biometrics. Mar 1997 1977;33(1):159–174.

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

minimum threshold for reporting a
measure result (at least 25 cases) in the
36-month performance period. We also
calculated the RSP using a random splitsample of a 24-month performance
period (we used July 1, 2012 through
June 30, 2014). There were 580,741
index admissions and 2,883 hospitals
that met the minimum threshold for
reporting a measure result in the 24month performance period.
For the 36-month performance period,
the ICC for the two independent
assessments of each hospital was 0.83.
For the 24-month performance period,
the ICC for the two independent
assessments of each hospital was 0.81.
Therefore, the data subsets showcase
‘‘almost perfect’’ agreement of hospital
performance, and we can demonstrate
that, even with a 24-month performance
period, the measure assesses the quality
of care provided at the hospital rather
than the types of patients that these
hospitals treat.51
To assess whether using a 24-month
performance period instead of a 36month performance period changes the
performance in the same hospital, we
compared the percent change in a
hospital’s P/E ratio. For hospitals that
met the minimum case threshold in the
24-month performance period, the
median percent change for hospitals’
P/E ratio using 24-month performance
periods compared with 36-month
performance periods was ¥0.02 percent
(with an interquartile range of ¥1.9
percent to 1.8 percent). These results
suggest minimal difference in samehospital performance when using a 24month measurement period.
Therefore, we believe that using a 24month performance period rather than a
36-month performance period would
not substantially change hospitals’
performance on the AMI Payment and
HF Payment measures. In sum, based on
the analyses described earlier, we
believe that using 24-month
performance periods, rather than 36month performance periods, for the
initial performance period for this
measure would accurately assess the
quality of care provided by that hospital
and would not substantially change that
hospital’s performance on the measure.
(3) AMI Payment and HF Payment
Measures in the FY 2022 Program Year
For the FY 2022 program year, we are
proposing to adopt a 36-month
performance period and a 36-month
baseline period for the AMI Payment
and HF Payment measures. We have
51 Landis J., Koch G. The Measurement of
Observer Agreement for Categorical Data.
Biometrics. Mar 1997 1977;33(1):159–174.

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stated in past rules that we would strive
to adopt 36-month performance periods
and baseline periods when possible to
accommodate the time needed to
process measure data and to ensure that
we collect enough measure data for
reliable performance scoring for all
mortality measures (80 FR 49588; 79 FR
50057; 78 FR 50074). Therefore, for the
FY 2022 program year, we are proposing
to adopt a 36-month performance period
that runs from July 1, 2017 to June 30,
2020. We are proposing to adopt a 36month baseline period that runs from
July 1, 2012 to June 30, 2015.
d. Safety Domain
Since the FY 2016 program year, we
have adopted a 12-month baseline
period and 12-month performance
period for all measures in the Safety
domain, with the exception of the PSI
90 measure (78 FR 50692; 79 FR 50071;
80 FR 49562). We continue to believe
that a 12-month period for these
measures provides us sufficient data on
which to score hospital performance.
Therefore, we are proposing to adopt
a 12-month baseline period and a 12month performance period for all
measures in the Safety domain, with the
exception of the PSI 90 measure for the
FY 2019 program year and all future
program years, unless otherwise noted
in future rulemaking. Under this
proposed policy, for the FY 2019
program year and future program years,
we are proposing to adopt a
performance period that runs on the
calendar year 2 years prior to the
applicable program year. We are
proposing to adopt a baseline period
that runs on the calendar year 4 years
prior to the applicable program year.
Applying these proposed new policies,
for the FY 2019 program year, the
baseline period for all measures in the
Safety domain except for the PSI 90
measure would run from January 1,
2015 through December 31, 2015. The
performance period would run from
January 1, 2017 through December 31,
2017.
As discussed in section IV.H.2.a. of
the preamble of this proposed rule, we
are proposing to shorten the
performance period for the PSI 90
measure in the FY 2018 program year.
Under this proposal, the performance
period for the PSI 90 measure for the FY
2018 program year would be July 1,
2014 through September 30, 2015. As
stated earlier, the baseline period for the
measure for FY 2018 that we previously
established would not change.

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e. Clinical Care Domain
(1) Currently Adopted Measures in the
Clinical Care Domain
For the FY 2019, FY 2020, and FY
2021 program years, we have adopted a
36-month baseline period and a 36month performance period for currently
adopted measures in the Clinical Care
domain (78 FR 50692 through 50694; 79
FR 50073; 80 FR 49563).52 For the FY
2022 program year, we are proposing to
adopt a 36-month performance period
and a 36-month baseline period for each
of the other measures in the Clinical
Care domain, the MORT–30–AMI,
MORT–30–HF, and MORT–30–COPD
measures, as well as the newly proposed
MORT–30–CABG measure. The
performance periods for these measures
would run for 36-months from July 1,
2017 through June 30, 2020. The
baseline period would run from July 1,
2012 through June 30, 2015. We are
proposing that the THA/TKA measure
performance period would run from
April 1, 2017 through March 31, 2020.
The baseline period would run from
April 1, 2012 through March 31, 2015.
(2) MORT–30–PN (Updated Cohort)
Measure in the FY 2021 Program Year
In order to adopt the newly proposed
MORT–30–PN (updated cohort)
measure into the Hospital VBP Program
as early as feasible, we are proposing to
adopt a 36-month baseline period and a
23-month performance period for the FY
2021 program year. We are proposing to
adopt a 23-month performance period
because the measure will not be posted
on Hospital Compare for one year until
July 21, 2017. We are proposing to begin
the performance period on August 1,
2017 to accommodate this statutory
requirement.
We believe that using a 23-month
performance period for the MORT–30–
PN (updated cohort) measure, rather
than a 36-month performance period, in
the FY 2021 program year would
accurately assess the quality of care
provided by hospitals and would not
substantially change hospitals’
performance on the measure. To
determine the viability of using a 23month performance period to calculate
the MORT–30–PN (updated cohort)
52 The currently adopted measures in the Clinical
Care domain include: MORT–30–AMI, MORT–30–
HF, MORT–30–PN, and THA/TKA. The THA/TKA
measure was added for the FY 2019 program year
with a 36-month baseline period and a 24-month
performance period (79 FR 50072), but we have
since adopted 36-month baseline and performance
periods for the FY 2021 program year (80 FR
49563). We intend to continue having 36-month
baseline periods and 36-month performance periods
in the future for all measures in the Clinical Care
domain.

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measure score, we compared the
measure score reliability for a 23-month
and a 36-month performance period. We
calculated the ICC to determine the
extent to which assessments of a
hospital using different but randomly
selected subsets of patients produces
similar measures of hospital
performance. We calculated the RSMR
using a random split-sample of the
combined 36-month performance period
(we used July 1, 2012 through June 30,
2015). There were 1,292,701 index
admissions and 3,103 hospitals that met
the minimum threshold for reporting a
measure result (at least 25 cases) in the
36-month performance period. We also
calculated the RSMR using a random
split-sample of the combined 23-month
performance period (we used July 1,
2012 through May 31, 2014). There were
798,746 index admissions and 3,043
hospitals that met the minimum
threshold for reporting a measure result
in the 23-month performance period.
For both the 36-month data and the
23-month performance periods, we
obtained two RSMRs for each hospital,
using an entirely distinct set of patients
from the same time period. If the RSMRs
for both the 36-month subset and the 23month performance periods agree, we
can demonstrate that the measure
assesses the quality of the hospital
rather than the types of patients treated.
To calculate agreement between these
measure subsets, we calculated the ICC
for both the 36-month and 23-month
performance periods.
For the 36-month data performance
period, the agreement between the two
independent assessments of each
hospital was 0.69. For the 23-month

data performance period, the agreement
between the two independent
assessments of each hospital was 0.58.
Therefore, the data subsets showcase
‘‘moderate’’ agreement of hospital
performance, and we can demonstrate
that, even with a 23-month performance
period, the measure moderately assesses
the quality of care provided at the
hospital rather than the types of patients
that these hospitals treat.53
To assess whether using a 23-month
performance period instead of a 36month performance period changes the
performance in the same hospital, we
compared the percent change in a
hospital’s RSMR. In some cases,
changing the performance period from
36 months to 23 months resulted in
hospitals failing to meet the case
threshold to report a measure score;
therefore, these hospitals were removed
from the measure. For the remaining
hospitals, the median percent change
was 1.52 percent (with an interquartile
range of 2.32 percent to 5.32 percent).
These results suggest minimal
difference in hospital performance
when using a 23-month measurement
period.
Therefore, we believe that using 23
months of data rather than 36 months of
data would not substantially change
hospitals’ performance on this measure.
In summary, based on the analyses
further described earlier, we believe that
using 23 months of data, rather than 36
months of data, for the initial
performance period for this measure
would, with moderate accuracy, assess
the quality of care provided by that
hospital. In addition, it would not

substantially change that hospital’s
performance on the measure.
Further, adopting this proposed
performance period would enable us to
include the updated measure cohort in
the FY 2021 Hospital VBP Program,
which would ensure that MORT–30–PN
more accurately reflects quality and
outcomes for patients with pneumonia.
Therefore, for the MORT–30–PN
(updated cohort) measure, we are
proposing a performance period that
would run from August 1, 2017 through
June 30, 2019 for the FY 2021 program
year. The baseline period would run
from July 1, 2012 through June 30, 2015.
(3) MORT–30–PN (Updated Cohort)
Measure in the FY 2022 Program Year
For the FY 2022 program year and
subsequent years, we are proposing to
lengthen the MORT–30–PN (updated
cohort) performance period to nearly a
36-month performance period (35
months) and continue to adopt a 36month baseline period. For the FY 2022
program year, we are proposing a
performance period that would run from
August 1, 2017 through June 30, 2020.
The baseline period would run from
July 1, 2012 through June 30, 2015.
f. Summary of Previously Adopted and
Newly Proposed Baseline and
Performance Periods for the FY 2018,
FY 2019, FY 2020, FY 2021, and FY
2022 Program Years
The tables below summarize the
baseline and performance periods that
we are proposing to adopt (and include
previously adopted baseline and
performance periods for the Clinical
Care domain).

NEWLY PROPOSED BASELINE AND PERFORMANCE PERIODS FOR THE FY 2018 PROGRAM YEAR
Domain

Baseline period

Performance period

Safety:
• PSI 90 * .........................................................................................

July 1, 2010–June 30, 2012 ..........

July 1, 2014–September 30, 2015.

* We are proposing to shorten the performance period for the PSI 90 measure for the FY 2018 program year as discussed in section IV.H.2.a.
of the preamble of this proposed rule.

PREVIOUSLY ADOPTED AND NEWLY PROPOSED BASELINE AND PERFORMANCE PERIODS FOR THE FY 2019 PROGRAM
YEAR

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Domain
Person and Community Engagement:
• HCAHPS + 3-Item Care Transition ..............................................
Clinical Care:
• Mortality (MORT–30–AMI, MORT–30–HF, MORT–30–PN) * ......
• THA/TKA * ....................................................................................
Safety:

Baseline period

Performance period

January 1, 2015–December 31,
2015.

January 1, 2017–December 31,
2017.

• July 1, 2009–June 30, 2012 ......
• July 1, 2010–June 30, 2013 ......

• July 1, 2014–June 30, 2017.
• January 1, 2015–June 30, 2017.

53 Landis J, Koch G. The Measurement of
Observer Agreement for Categorical Data.
Biometrics. Mar 1997 1977;33(1):159–174.

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PREVIOUSLY ADOPTED AND NEWLY PROPOSED BASELINE AND PERFORMANCE PERIODS FOR THE FY 2019 PROGRAM
YEAR—Continued
Domain

Baseline period

Performance period

• PSI 90 ...........................................................................................

• July 1, 2011–June 30, 2013 ......

• PC–01 and NHSN measures (CAUTI, CLABSI, SSI, CDI,
MRSA).
Efficiency and Cost Reduction:
• MSPB ...........................................................................................

• January 1, 2015–December 31,
2015.

• July 1, 2015 through June 30,
2017.
• January 1, 2017–December 31,
2017.

January 1, 2015–December 31,
2015.

January 1, 2017–December 31,
2017.

* Previously adopted baseline and performance periods that remain unchanged (80 FR 49562 through 49563).

PREVIOUSLY ADOPTED BASELINE AND PERFORMANCE PERIODS FOR THE FY 2020 PROGRAM YEAR
Domain

Baseline period

Clinical Care:
• Mortality (MORT–30–AMI, MORT–30–HF, MORT–30–PN) * ......
• THA/TKA * ....................................................................................
Safety:
• PSI 90 * .........................................................................................

Performance period

• July 1, 2010–June 30, 2013 ......
• July 1, 2010–June 30, 2013 ......

• July 1, 2015–June 30, 2018.
• July 1, 2015–June 30, 2018.

July 1, 2012–June 30, 2014 ..........

July 1, 2016–June 30, 2018.

* Previously adopted baseline and performance periods that remain unchanged (80 FR 49562 through 49563).

PREVIOUSLY ADOPTED AND NEWLY PROPOSED BASELINE AND PERFORMANCE PERIODS FOR THE FY 2021 PROGRAM
YEAR
Domain
Clinical Care:
• Mortality (MORT–30–AMI, MORT–30–HF, MORT–30–COPD) *
• THA/TKA * ....................................................................................
• MORT–30–PN (updated cohort) ..................................................
Efficiency and Cost Reduction:
• Payment (AMI Payment and HF Payment) ..................................

Baseline period

Performance period

• July 1, 2011–June 30, 2014 ......
• April 1, 2011–March 31, 2014 ...
• July 1, 2012–June 30, 2015 ......

• July 1, 2016–June 30, 2019.
• April 1, 2016–March 31, 2019.
• August 1, 2017–June 30, 2019.

July 1, 2012 to June 30, 2015 ......

July 1, 2017 to June 30, 2019.

* Previously adopted baseline and performance periods that remain unchanged (80 FR 49562 through 49563).

NEWLY PROPOSED BASELINE AND PERFORMANCE PERIODS FOR THE FY 2022 PROGRAM YEAR
Domain

Baseline period

Clinical Care:
• Mortality (MORT–30–AMI, MORT–30–HF, MORT–30–COPD,
MORT–30–CABG).
• THA/TKA ......................................................................................
• MORT–30–PN (updated cohort) ..................................................
Efficiency and Cost Reduction:
• Payment (AMI Payment, HF Payment) ........................................

We are inviting public comments on
these proposals.
7. Proposed Immediate Jeopardy Policy
Changes

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

a. Background
Section 1886(o)(1)(C) of the Act states
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
a hospital ‘‘for which, during the
performance period for such fiscal year,
the Secretary has cited deficiencies that
pose immediate jeopardy to the health
or safety of patients.’’

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• July 1, 2012–June 30, 2015 ......

• July 1, 2017–June 30, 2020.

• April 1, 2012–March 31, 2015 ...
• July 1, 2012–June 30, 2015 ......

• April 1, 2017–March 31, 2020.
• August 1, 2017–June 30, 2020.

July 1, 2012–June 30, 2015 ..........

July 1, 2017–June 30, 2020.

In 42 CFR 412.160 of our Hospital
VBP Program regulations, we define the
term ‘‘Cited for deficiencies that pose
immediate jeopardy’’ to mean that
‘‘during the applicable performance
period, the Secretary cited the hospital
for immediate jeopardy on at least two
surveys using the Form CMS–2567,
Statement of Deficiencies and Plan of
Correction’’ (OMB Control Number
0938–0391). In 42 CFR 412.160, we also
adopted the definition of ‘‘immediate
jeopardy’’ found in 42 CFR 489.3 of our
regulations.
Our current interpretation of the
Hospital VBP Program’s statute is that a
hospital cited for deficiencies that pose
immediate jeopardy during any part of

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Performance period

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the finalized performance period for the
applicable program year does not meet
the definition of the term ‘‘hospital,’’
and thus is excluded from the Hospital
VBP Program for that program year.
Because the Hospital VBP Program
currently uses measures with 12-month,
24-month, and 36-month performance
periods, a hospital’s immediate jeopardy
citations could result in its exclusion
from the Hospital VBP Program for
multiple program years.
b. Proposed Increase of Immediate
Jeopardy Citations From Two to Three
Surveys
We are proposing to amend our
regulations at 42 CFR 412.160 to change
the definition of the term ‘‘Cited for

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deficiencies that pose immediate
jeopardy’’ to increase the number of
surveys on which a hospital must be
cited for immediate jeopardy before
being excluded from the Hospital VBP
Program pursuant to section
1886(o)(1)(C) of the Act from two to
three. In other words, we are proposing
that a hospital must be cited on Form
CMS–2567, Statement of Deficiencies
and Plan of Correction, for immediate
jeopardy on at least three surveys during
the performance period in order to meet
the standard for exclusion from the
Hospital VBP Program under section
1886(o)(1)(C)(ii)(II) of the Act. Beginning
on the effective date of this change,
hospitals would be excluded from the
Hospital VBP Program for a particular
program year if, during the performance
period for that fiscal year, they were
cited three times by the Secretary for
deficiencies that pose immediate
jeopardy to the health or safety of
patients.
Because we expect that the effective
date of this change will be October 1,
2016 (the first day of the FY 2017
Hospital VBP program year), only
hospitals that were cited three times
during the performance period that
applies to the FY 2017 program year
would be excluded from the Hospital
VBP Program. Hospitals that were, as of
October 1, 2016, cited for immediate
jeopardy on two surveys during the
performance period that applies to the
FY 2017 program year could participate
in the Hospital VBP Program for the FY
2017 program year.
We are proposing this change to be
more inclusive of hospitals and to
ensure that we are not too quickly
excluding a hospital from participation
in the Hospital VBP Program. After
reviewing the survey and certification
data, we have determined that limiting
exclusion to those hospitals that have
been cited for immediate jeopardy three
or more times during the applicable
performance period, rather than two,
would continue to appropriately
exclude hospitals that are cited for
jeopardizing patient safety while
allowing hospitals with a lower number
of immediate jeopardy citations over
significantly longer performance periods
to continue to participate in the
Hospital VBP Program. Many immediate
jeopardy citations involve systematic
issues of patient safety, and we believe
that hospitals that are, during the
performance period, cited by the
Secretary for three or more deficiencies
that pose immediate jeopardy should be
excluded from the Hospital VBP
Program. This proposal would ensure
that we continue to assure high quality

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care while being as inclusive of
hospitals as possible.
c. EMTALA-Related Immediate
Jeopardy Citations
Hospitals are often alerted to
immediate jeopardy situations when a
surveyor or team of surveyors is in the
process of conducting a survey of
compliance with the Medicare
condition of participation (CoPs) at the
hospital and identifies those situations
that immediately jeopardize the health
and safety of patients (77 FR 53610).
Following the survey, the Form CMS–
2567, Statement of Deficiencies and
Plan of Correction, is sent to the
hospital, which contains the survey
findings, including any immediate
jeopardy situations. For EMTALArelated immediate jeopardy situations,
however, the CMS Regional Office
determines whether there was an
EMTALA violation after reviewing the
State Survey Agency’s report and an
expert physician review’s findings, and,
if so, whether it constituted an
immediate jeopardy (77 FR 53610). The
CMS Regional Office then sends the
Form CMS–2567 to the hospital.
Currently, the Automated Survey
Processing Environment (ASPEN)
system, an electronic system that
supports our survey and certification
activity, catalogs deficient practices
(that is, noncompliance) identified
during a survey and generates the Form
CMS–2567 that is sent to the hospital
after the survey. The survey end date
generated in ASPEN is currently used as
the date for assignment of the
immediate jeopardy citation to a
particular performance period (77 FR
53613). The additional processes for
EMTALA-related immediate jeopardy
citations can result in significant
notification delays to hospitals (often
several months or longer).
In the case of EMTALA-related
immediate jeopardy citations only, we
are proposing to change our policy
regarding the date of the immediate
jeopardy citation for possible exclusion
from the Hospital VBP Program from the
survey end date generated in ASPEN to
the date of CMS’ final issuance of Form
CMS–2567 to the hospital. Form CMS–
2567 is not considered final until it is
transmitted to the healthcare facility,
either by the State Survey Agency, or, in
all EMTALA cases and certain other
cases, by the CMS Regional Office. The
date of final issuance is also tracked in
ASPEN. The date the Form CMS–2567
is sent by the CMS Regional Office to
the hospital (via mail, electronically, or
both) is the date of final issuance
recorded in ASPEN. We believe this
change would accurately reflect the date

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hospitals receive official notification of
an immediate jeopardy citation based on
the issuance date of Form CMS–2567 as
this date will be weeks, if not months,
after the survey end date. Hospitals may
continue to receive preliminary notice
during the onsite EMTALA
investigation survey that they may
receive an immediate jeopardy citation
based on survey findings. However,
because the decision-making
responsibility in EMTALA
investigations always rests with the
CMS Regional Office, the final
determination and notification of
immediate jeopardy citations will
always be delayed. The Form CMS–
2567 constitutes the official notice to a
healthcare facility of the survey
findings.
Finally, in instances where one onsite
hospital survey resulted in both hospital
CoP immediate jeopardy citation(s) as
well as EMTALA immediate jeopardy
citation(s), the survey end date would
be the default date for potential
exclusion from the Hospital VBP
Program. CMS recognizes the hospital
will receive notification of the EMTALA
immediate jeopardy citation(s) at a later
date than the CoP immediate jeopardy
citation(s). However, because the
hospital was notified of the CoP
immediate jeopardy citation(s) at the
time of survey, this date will be used for
the performance period for potential
exclusion from the Hospital VBP
Program. Even though there may be
separate enforcement actions resulting
from the same survey, we will consider
each Form CMS–2567 with immediate
jeopardy findings to be one citation for
purposes of the Hospital VBP Program
(77 FR 53613).
We are proposing to revise our
regulations at 42 CFR 412.160 to reflect
the above proposal and specify use of
the date of CMS’ issuance of Form
CMS–2567 to the hospital for EMTALA
immediate jeopardy citation(s). We also
specify that in instances where one
onsite hospital survey resulted in both
hospital CoP immediate jeopardy
citation(s) as well as EMTALA
immediate jeopardy citation(s), the
survey end date would be the date we
use for purposes of assigning the
citations to a performance period to
determine whether the hospital should
be excluded from the Hospital VBP
Program for a particular program year.
We are inviting public comments on
this proposal.

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8. Proposed Performance Standards for
the Hospital VBP Program
a. Background
Section 1886(o)(3)(A) of the Act
requires the Secretary to establish
performance standards for the measures
selected under the Hospital VBP
Program for a performance period for
the applicable fiscal year. The
performance standards must include
levels of achievement and improvement,
as required by section 1886(o)(3)(B) of
the Act, and must be established no
later than 60 days before the beginning
of the performance period for the fiscal
year involved, as required by section
1886(o)(3)(C) of the Act. We refer
readers to the Hospital Inpatient VBP
Program final rule (76 FR 26511 through
26513) for further discussion of
achievement and improvement
standards under the Hospital VBP
Program.
In addition, when establishing the
performance standards, section
1886(o)(3)(D) of the Act requires the
Secretary to consider appropriate
factors, such as: (1) Practical experience
with the measures, including whether a
significant proportion of hospitals failed
to meet the performance standard

during previous performance periods;
(2) historical performance standards; (3)
improvement rates; and (4) the
opportunity for continued
improvement.
We refer readers to the FY 2013, FY
2014, and FY 2015 IPPS/LTCH PPS final
rules (77 FR 53604 through 53605; 78
FR 50694 through 50698; and 79 FR
50077 through 50079) for a more
detailed discussion of the general
scoring methodology used in the
Hospital VBP Program.
We note that the performance
standards for the following measures are
calculated with lower values
representing better performance:
• The NHSN measures (the CLABSI,
CAUTI, CDI and MRSA Bacteremia
measures);
• The PSI 90 measure;
• The Colon and Abdominal
Hysterectomy SSI measure;
• The THA/TKA measure;
• The MSPB measure; and,
• The proposed HF and AMI Payment
measures.
This distinction is made in contrast to
other measures for which higher values
indicate better performance. As
discussed further in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50684), the
performance standards for the Colon

and Abdominal Hysterectomy SSI
measure are computed separately for
each procedure stratum, and we will
first award achievement and
improvement points to each stratum
separately, then compute a weighted
average of the points awarded to each
stratum by predicted infections.
b. Previously Adopted and Newly
Proposed Performance Standards for the
FY 2019 Program Year
In accordance with our finalized
methodology for calculating
performance standards (discussed more
fully in the Hospital Inpatient VBP
Program final rule (76 FR 26511 through
26513)), we are proposing to adopt the
following additional performance
standards for the FY 2019 program year.
We note that the numerical values for
the performance standards displayed
below represent estimates based on the
most recently available data, and we
intend to update the numerical values
in the FY 2017 IPPS/LTCH PPS final
rule. We note further that the MSPB
measure’s performance standards are
based on performance period data;
therefore, we are unable to provide
numerical equivalents for the standards
at this time.

PREVIOUSLY ADOPTED AND NEWLY PROPOSED PERFORMANCE STANDARDS FOR THE FY 2019 PROGRAM YEAR: SAFETY,
CLINICAL CARE, AND EFFICIENCY AND COST REDUCTION MEASURES
Measure ID

Description

Achievement threshold

Benchmark

Safety Measures
CAUTI * ................................
CLABSI * ..............................
CDI * .....................................
MRSA Bacteremia * .............

PSI 90 * ± ..............................
Colon and Abdominal
Hysterectomy SSI *.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

PC–01 ..................................

National Healthcare Safety Network (NHSN) Catheterassociated Urinary Tract Infection (CAUTI) Outcome
Measure.
National Healthcare Safety Network (NHSN) Central
line-associated Bloodstream Infection (CLABSI) Outcome Measure.
National Healthcare Safety Network (NHSN) Facilitywide Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome Measure.
National Healthcare Safety Network (NHSN) Facilitywide Inpatient Hospital-onset Methicillin-resistant
Staphylococcus aureus (MRSA) Bacteremia Outcome Measure.
Patient Safety for Selected Indicators (Composite
Measure).
American College of Surgeons—Centers for Disease
Control and Prevention (ACS–CDC) Harmonized
Procedure Specific Surgical Site Infection (SSI) Outcome Measure.
Elective Delivery ............................................................

0.438000 ............................

0.000000.

0.465000 ............................

0.000000.

0.823000 ............................

0.013000.

0.812000 ............................

0.000000.

0.084034 ............................

0.058946.

• 0.856000 ........................
• 0.682000 ........................

• 0.000000.
• 0.000000.

0.012384 ............................

0.000000.

0.850671 ............................

0.873263.

0.883472 ............................

0.908094.

0.882334 ............................

0.907906.

Clinical Care Measures
MORT–30–AMI ± ..................
MORT–30–HF ± ...................
MORT–30–PN ± ...................

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Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Myocardial Infarction (AMI) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Heart Failure (HF)
Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Pneumonia Hospitalization.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

PREVIOUSLY ADOPTED AND NEWLY PROPOSED PERFORMANCE STANDARDS FOR THE FY 2019 PROGRAM YEAR: SAFETY,
CLINICAL CARE, AND EFFICIENCY AND COST REDUCTION MEASURES—Continued
Measure ID

Description

Achievement threshold

Benchmark

THA/TKA * ± .........................

Hospital-Level Risk-Standardized Complication Rate
(RSMR) Following Elective Primary Total Hip
Arthroplasty (THA) and/or Total Knee Arthroplasty
(TKA).

0.032229 ............................

0.023178.

Efficiency and Cost Reduction Measure
MSPB * .................................

Payment-Standardized Medicare Spending Per Beneficiary (MSPB).

Median Medicare Spending
per Beneficiary ratio
across all hospitals during the performance period.

Mean of the lowest decile
Medicare Spending per
Beneficiary ratios across
all hospitals during the
performance period.

* Lower values represent better performance.
± Previously adopted performance standards.

In the past, we have used the
‘‘normalization’’ approach to scoring the
Patient- and Caregiver-Centered
Experience of Care/Care Coordination
domain (which we are proposing, in
section IV.H.3.b. of the preamble of this
proposed rule, to rename the Person and
Community Engagement domain
beginning with the FY 2019 program
year). The nine dimensions of the
HCAHPS measure, one of which is the
CTM–3 measure, are calculated to
generate the HCAHPS Base Score. For

each of the nine dimensions,
Achievement Points (0–10 points) and
Improvement Points (0–9 points) are
calculated, the larger of which is
summed across the nine dimensions to
create a prenormalized HCAHPS Base
Score (0–90 points). The prenormalized
HCAHPS Base Score is then multiplied
by 8/9 (0.88888) and rounded according
to standard rules (values of 0.5 and
higher are rounded up, values below 0.5
are rounded down) to create the
normalized HCAHPS Base Score. Each

of the nine dimensions is of equal
weight, so that the normalized HCAHPS
Base Score would range from 0 to 80
points. HCAHPS Consistency Points are
then calculated and range from 0 to 20
points. The Consistency Points now
consider scores across all nine of the
Person and Community Engagement
dimensions. The final element of the
scoring formula is the sum of the
HCAHPS Base Score and the HCAHPS
Consistency Points and will range from
0 to 100 points.

PROPOSED PERFORMANCE STANDARDS FOR THE FY 2019 PROGRAM YEAR PROPOSED PERSON AND COMMUNITY
ENGAGEMENT DOMAIN *
Floor
(percent)

HCAHPS survey dimension
Communication with Nurses ........................................................................................................
Communication with Doctors .......................................................................................................
Responsiveness of Hospital Staff ................................................................................................
Pain Management ........................................................................................................................
Communication about Medicines ................................................................................................
Hospital Cleanliness & Quietness ...............................................................................................
Discharge Information ..................................................................................................................
3-Item Care Transition .................................................................................................................
Overall Rating of Hospital ............................................................................................................

16.32
22.56
21.91
16.02
6.19
13.78
60.58
4.26
30.52

Achievement
threshold
(percent)
78.59
80.33
65.00
70.04
63.18
65.64
86.88
51.35
70.58

Benchmark
(percent)
86.81
88.55
80.27
78.60
73.51
79.12
91.73
62.73
84.68

* We are proposing, in section IV.H.3.b. of the preamble of this proposed rule, to change the name of this domain from Patient- and CaregiverCentered Experience of Care/Care Coordination domain to Person and Community Engagement domain beginning with the FY 2019 program
year.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

We are inviting public comments on
these proposed performance standards.
c. Previously Adopted Performance
Standards for Certain Measures for the
FY 2020 Program Year
As discussed above, we have adopted
certain Safety and Clinical Care domain
measures for future program years in
order to ensure that we can adopt

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baseline and performance periods of
sufficient length for performance
scoring purposes. In the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50062
through 50065), we adopted the PSI 90
measure in the Safety domain and the
THA/TKA measure in the Clinical Care
domain for the FY 2019 program year
and subsequent years. In the FY 2015

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IPPS/LTCH PPS final rule (79 FR
50077), we adopted performance
standards for the MORT–30–AMI,
MORT–30–HF, MORT–30–PN, and
THA/TKA for the FY 2020 program
year. In the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49566), we also
adopted performance standards for the
PSI–90 measure.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

PREVIOUSLY ADOPTED PERFORMANCE STANDARDS FOR CERTAIN CLINICAL CARE DOMAIN AND SAFETY DOMAIN
MEASURES FOR THE FY 2020 PROGRAM YEAR
Measure ID

Achievement
threshold

Description

Benchmark

Safety Domain
PSI 90 * ............................................

Patient Safety for Selected Indicators (Composite Measure) ...................

0.778761

0.545903

0.853715

0.875869

0.881090

0.906068

0.882266

0.909532

0.032229

0.023178

Clinical Care Domain
MORT–30–AMI ................................
MORT–30–HF ..................................
MORT–30–PN .................................
THA/TKA * ........................................

Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR)
Following Acute Myocardial Infarction (AMI) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR)
Following Heart Failure (HF) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR)
Following Pneumonia Hospitalization.
Hospital-Level Risk-Standardized Complication Rate (RSCR) Following
Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee
Arthroplasty (TKA).

* Lower values represent better performance.

d. Previously Adopted and Newly
Proposed Performance Standards for
Certain Measures for the FY 2021
Program Year
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49567), we adopted

performance standards for the FY 2021
program year for the Clinical Care
domain measures (THA/TKA, MORT–
30–HF, MORT–30–AMI, MORT–30–PN,
and MORT–30–COPD). We are
proposing to add two measures, AMI

Payment and HF Payment, beginning
with the FY 2021 program year. The
previously adopted and proposed
performance standards for these
measures are set out below.

PREVIOUSLY ADOPTED AND PROPOSED PERFORMANCE STANDARDS FOR THE FY 2021 PROGRAM YEAR
Measure ID

Description

Achievement threshold

Benchmark

Clinical Care Measures
MORT–30–AMI ± ..................
MORT–30–HF ± ...................
MORT–30–PN ± ...................
MORT–30–COPD ± ..............
THA/TKA * ± .........................

Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Myocardial Infarction (AMI) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Heart Failure (HF)
Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Pneumonia Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Chronic Obstructive
Pulmonary Disease (COPD) Hospitalization.
Hospital-Level Risk-Standardized Complication Rate
(RSCR) Following Elective Primary Total Hip
Arthroplasty (THA) and/or Total Knee Arthroplasty
(TKA).

0.860355 ............................

0.879714.

0.883803 ............................

0.906144.

0.886443 ............................

0.910670.

0.923253 ............................

0.938664.

0.030890 ............................

0.022304.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Efficiency and Cost Reduction Measures
AMI Payment *# ....................

Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Acute Myocardial Infarction (AMI).

Median Hospital-Level,
Risk-Standardized Payment Associated with a
30-Day Episode-of-Care
across all hospitals during the performance period.

HF Payment *# .....................

Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Heart Failure (HF).

Median Hospital-Level,
Risk-Standardized Payment Associated with a
30-Day Episode-of-Care
across all hospitals during the performance period.

± Previously

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27APP2

Mean of the lowest decile
Hospital-Level, RiskStandardized Payment
Associated with a 30Day Episode-of-Care
across all hospitals during the performance period.
Mean of the lowest decile
Hospital-Level, RiskStandardized Payment
Associated with a 30Day Episode-of-Care
across all hospitals during the performance period.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

* Lower values represent better performance.
# Proposed to be scored the same as the MSPB measure.

e. Proposed Performance Standards for
Certain Measures for the FY 2022
Program Year
We are proposing the following
performance standards for the FY 2022

program year for the Clinical Care
domain measures (THA/TKA, MORT–
30–AMI, MORT–30–HF, MORT–30–PN,
MORT–30–COPD), and the newly
proposed MORT–30–CABG:

PROPOSED PERFORMANCE STANDARDS FOR THE FY 2022 PROGRAM YEAR
Measure ID

Description

Achievement threshold

Benchmark

Clinical Care Measures
MORT–30–AMI ....................
MORT–30–HF .....................
MORT–30–PN (updated cohort).
MORT–30–COPD ................
THA/TKA * ............................

MORT–30–CABG ................

Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following (RSMR) Acute Myocardial Infarction (AMI) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Heart Failure (HF)
Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Pneumonia Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Chronic Obstructive
Pulmonary Disease (COPD) Hospitalization.
Hospital-Level Risk-Standardized Complication Rate
(RSCR) Following Elective Primary Total Hip
Arthroplasty (THA) and/or Total Knee Arthroplasty
(TKA).
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery.

0.861793 ............................

0. 881305.

0.879869 ............................

0.903608.

0.836122 ............................

0.870506.

0.920058 ............................

0.936962.

0.029599 ............................

0.021439.

0.979000 ............................

0.968210.

Efficiency and Cost Reduction Measures
AMI

Payment * #

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

Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Acute Myocardial Infarction (AMI).

Median Hospital-Level,
Risk-Standardized Payment Associated with a
30-Day Episode-of-Care
across all hospitals during the performance period..

HF Payment * # .....................

Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Heart Failure (HF).

Median Hospital-Level,
Risk-Standardized Payment Associated with a
30-Day Episode-of-Care
across all hospitals during the performance period.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

* Lower values represent better performance.
# Proposed to be scored the same as the MSPB measure.

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27APP2

Mean of the lowest decile
Hospital-Level, RiskStandardized Payment
Associated with a 30Day Episode-of-Care
across all hospitals during the performance period
Mean of the lowest decile
Hospital-Level, RiskStandardized Payment
Associated with a 30Day Episode-of-Care
across all hospitals during the performance period.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
section IV.H.3.b. of the preamble of this
proposed rule, to rename the Person and
Community Engagement domain
a. Domain Weighting for the FY 2019
Program Year for Hospitals That Receive beginning with the FY 2019 program
year) score.
a Score on All Domains
• Hospitals must meet the
In the FY 2016 IPPS/LTCH PPS final
requirements to receive a MSPB
rule (80 FR 49568 through 49570), we
measure score in order to receive an
adopted equal weight of 25 percent for
Efficiency and Cost Reduction domain
each of the four domains in the FY 2018 score. Hospitals must report a minimum
program year for hospitals that receive
number of 25 cases for the MSPB
a score in all domains. For the FY 2019
measure (77 FR 53609 through 53610)
program year, we are not proposing to
and the AMI Payment and HF Payment
remove any measures nor are we
measures.
proposing to adopt any new measures.
• Hospitals must receive a minimum
We also are not proposing any changes
of two measure scores within the
to the domain weighting for hospitals
Clinical Care domain. Hospitals must
receiving a score on all domains.
report a minimum number of 25 cases
for each of the mortality measures (77
DOMAIN WEIGHTS FOR THE FY 2019 FR 53609 through 53610) and the THA/
PROGRAM YEAR FOR HOSPITALS TKA measure.
• Hospitals must receive a minimum
RECEIVING A SCORE ON ALL DOof three measure scores within the
MAINS
Safety domain.
++ Hospitals must report a minimum
Weight
Domain
(percent)
of three cases for any underlying
indicator for the PSI 90 measure based
Safety ..........................................
25 on AHRQ’s measure methodology (77
Clinical Care ...............................
25
Efficiency and Cost Reduction ...
25 FR 53608 through 53609).
++ Hospitals must report a minimum
Person and Community Engagement * ......................................
25 of one predicted infection for NHSNbased surveillance measures based on
* We are proposing, in section IV.H.3.b. of CDC’s minimum case criteria (77 FR
the preamble of this proposed rule, to change
the name of this domain from Patient- and 53608 through 53609).
++ Hospitals must report a minimum
Caregiver-Centered Experience of Care/Care
Coordination domain to Person and Commu- of 10 cases for the PC–01 measure (76
nity Engagement domain beginning with the FR 26530).
FY 2019 program year.
We are not proposing any changes to
the minimum numbers of domain
b. Domain Weighting for the FY 2019
scores, cases, and measures outlined
Program Year and Future Years for
above. We continue to believe that these
Hospitals Receiving Scores on Fewer
requirements appropriately balance our
Than Four Domains
desire to enable as many hospitals as
For the FY 2017 program year and
possible to participate in the Hospital
subsequent years, we adopted a policy
VBP Program and the need for TPSs to
that hospitals must receive domain
be sufficiently reliable to provide
scores on at least three of four quality
meaningful distinctions between
domains in order to receive a TPS, and
hospitals’ performance on quality
hospitals with sufficient data on only
measures. We are inviting public
three domains will have their TPSs
comment on these proposals.
proportionately reweighted (79 FR
50084 through 50085).
I. Proposed Changes to the HospitalUnder these policies, in order to
Acquired Condition (HAC) Reduction
receive a TPS for the FY 2019 program
Program
year and future years:
1. Background
• Hospitals must report a minimum
number of 100 completed HCAHPS
We refer readers to section V.I.1.a. of
surveys for a hospital to receive a
the FY 2014 IPPS/LTCH PPS final rule
Patient- and Caregiver-Centered
(78 FR 50707 through 50708) for a
Experience of Care/Care Coordination
general overview of the HAC Reduction
domain (which we are proposing, in
Program.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

9. FY 2019 Program Year Scoring
Methodology

2. Statutory Basis for the HAC
Reduction Program
We refer readers to section V.I.2. of
the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50708 through 50709) for a
detailed discussion of the statutory basis
of the HAC Reduction Program.
3. Overview of Previous HAC Reduction
Program Rulemaking
For a further description of our
policies for the HAC Reduction
Program, we refer readers to the FY
2014 IPPS/LTCH PPS final rule (78 FR
50707 through 50729), the FY 2015
IPPS/LTCH PPS final rule (79 FR 50087
through 50104) and the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49570
through 49581). These policies describe
the general framework for
implementation of the HAC Reduction
Program, including: (a) The relevant
definitions applicable to the program;
(b) the payment adjustment under the
program; (c) the measure selection and
conditions for the program, including a
risk-adjustment and scoring
methodology; (d) performance scoring;
(e) the process for making hospitalspecific performance information
available to the public, including the
opportunity for a hospital to review the
information and submit corrections; and
(f) limitation of administrative and
judicial review.
We also have codified certain
requirements of the HAC Reduction
Program at 42 CFR 412.170 through
412.172.
4. Implementation of the HAC
Reduction Program for FY 2017
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50717), we finalized the
following measures for use in the FY
2017 Program: PSI 90 measure for
Domain 1 and the CDC NHSN measures
CLABSI, CAUTI, Colon and Abdominal
Hysterectomy SSI, MRSA Bacteremia,
and CDI for Domain 2. We are not
proposing any changes to this measure
set for FY 2017. We also are not
proposing to make any changes to the
measures that were finalized for use in
the FY 2016 program (CAUTI, CLABSI,
and Colon and Abdominal
Hysterectomy SSI) or the FY 2017
program (MRSA Bacteremia and CDI).

HAC REDUCTION PROGRAM MEASURES FOR FY 2017
Short name

Measure name

NQF No.

Domain 1
PSI 90 .......................................................

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Patient Safety for Selected Indicators (Composite Measure) .....................................

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HAC REDUCTION PROGRAM MEASURES FOR FY 2017—Continued
Short name

Measure name

NQF No.

Domain 2
CAUTI .......................................................

National Healthcare Safety Network (NHSN) Catheter-associated Urinary Tract Infection (CAUTI) Outcome Measure.
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset
Clostridium difficile Infection (CDI) Outcome Measure.
National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream
Infection (CLABSI) Outcome Measure.
American College of Surgeons—Centers for Disease Control and Prevention
(ACS–CDC) Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure.
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset
Methicillin-resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure.

CDI ............................................................
CLABSI .....................................................
Colon and Abdominal Hysterectomy SSI

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MRSA Bacteremia ....................................

In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50717), we finalized and
codified at 42 CFR 412.170 a 2-year
period during which we collect data
used to calculate the Total HAC Score.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49574), we finalized the 2year time periods for the calculation of
HAC Reduction Program measure
results for FY 2017. For the Domain 1
measure (PSI 90 measure), we will use
the 24-month period from July 1, 2013
through June 30, 2015. The claims for
all Medicare FFS beneficiaries
discharged during this period would be
included in the calculations of measure
results for FY 2017. For the CDC NHSN
measures previously finalized for use in
the FY 2017 HAC Reduction Program
(CLABSI, CAUTI, Colon and Abdominal
Hysterectomy SSI, MRSA Bacteremia,
and CDI), we will use data from CYs
2014 and 2015.
We also note that we anticipate we
will be able to provide hospitals with
their confidential hospital-specific
reports and discharge level information
used in the calculation of their FY 2017
Total HAC Score in late summer 2016
via the QualityNet Secure Portal.54 In
order to access their hospital-specific
reports, hospitals must register for a
QualityNet Secure Portal account. We
did not make any changes to the review
and correction policies for FY 2016.
Hospitals have a period of 30 days after
the information is posted to the
QualityNet Secure Portal to review and
submit corrections for the calculation of
their HAC Reduction Program measure
scores, domain scores, and Total HAC
Score for the fiscal year.
For FY 2017, we are proposing
updates to the following HAC Reduction
Program policies: (1) A proposal to
clarify data requirements for Domain 1;
54 Available at: https://www.qualitynet.org/dcs/
ContentServer?c=Page&pagename=QnetPublic%
2FPage%2FQnetBasic&cid=1228773343598.

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and (2) a proposal for NHSN CDC HAI
data submission requirements for newly
opened hospitals. Each policy is
described in more detail below.
a. Clarification of Complete Data
Requirements for Domain 1
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50722) we finalized our plan
to use the PSI 90 measure for Domain
1. Because hospitals may not have
complete data for every AHRQ indicator
in the PSI 90 measure, we decided to
use the same methodology used for the
Hospital VBP Program to determine the
minimum number of indicators with
complete data to be included in the
calculation of the Domain 1 measure. In
addition, we finalized the following
rules to determine the number of AHRQ
indicators to be included in the
calculation for a hospital’s Domain 1
score. For Domain 1, we defined
‘‘complete data’’ as whether a hospital
has enough eligible discharges to
calculate a rate for a measure. In order
to have complete data for the PSI 90
measure, a hospital must have three or
more eligible discharges for at least one
component indicator.
In establishing the performance
period for the PSI 90 measure, we relied
upon an analysis by Mathematica Policy
Research, a CMS contractor, which
found the measure was most reliable
with a 24-month performance period.
This analysis also indicated the measure
was unreliable with a performance
period of less than 12 months.55 We
have since determined that the current
definition for ‘‘complete data’’ may
result in facilities with less than 12
months of data being eligible to receive
55 Mathematica Policy Research (November 2011).
Reporting period and reliability of AHRQ, CMS 30day and HAC Quality Measures—Revised.
Available at: https://www.cms.gov/Medicare/
Quality-Initiatives-Patient-Assessment-Instruments/
hospital-value-based-purchasing/Downloads/
HVBP_Measure_Reliability-.pdf.

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1717
0139
0753
1716

a score on the PSI 90 measure, and that
the resulting score may not be reflective
of the hospital’s clinical performance.
While the PSI 90 measure continues to
play a vital role in patient safety and is
an integral part of the HAC Reduction
Program, we believe that reliable data is
a critical component of accurately
assessing hospital performance.
To address this concern, we are
proposing to clarify the term ‘‘complete
data’’ for the PSI 90 measure within
Domain 1 to require that hospitals have
three or more eligible discharges for at
least one component indicator and 12
months or more of data to receive a
Domain 1 score. Under this proposal,
hospitals with less than 12 months of
PSI 90 data would not receive a Domain
1 score, regardless of the number of
eligible discharges at the hospital. If a
hospital has 12 months or more of PSI
90 data, the hospital would have to have
three or more eligible discharges for at
least one component indicator to receive
a Domain 1 score. We believe this is the
most favorable method for scoring
measure results for hospitals.
We believe, after weighing the
considerations, that this additional
policy should be incorporated into the
HAC Reduction Program for FY 2017
and subsequent years, primarily because
this approach greatly improves the
measure’s assessment of quality and,
therefore, its implementation should not
be unnecessarily delayed. This
clarification would be a change to the
Domain 1 criteria and would not change
our current scoring policy for Domain 2.
As previously finalized in the FY 2014
IPPS/LTCH PPS final rule (78 FR 50722
through 50723), if a hospital does not
have enough data to calculate the PSI 90
measure score for Domain 1 but has
‘‘complete data’’ for at least one measure
in Domain 2, its Total HAC Score will
depend entirely on its Domain 2 score.
Similarly, if a hospital has ‘‘complete
data’’ to calculate the PSI 90 measure

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score in Domain 1 but none of the
measures in Domain 2, its Total HAC
Score will be based entirely on its
Domain 1 score. If a hospital does not
have ‘‘complete data’’ to calculate the
PSI 90 measure score for Domain 1 or
any of the measures in Domain 2, we
will not calculate a Total HAC Score for
this hospital. We refer readers to the FY
2014 IPPS/LTCH PPS final rule (78 FR
50722 through 50723) for a detailed
discussion of Domain 2 scoring.
We are inviting public comments on
our proposal to require that hospitals
have three or more eligible discharges
for at least one component indicator and
12 months or more of data to receive a
Domain 1 score beginning in the FY
2017 HAC Reduction Program.
b. Clarification of NHSN CDC HAI Data
Submission Requirements for Newly
Opened Hospitals
We have encountered issues with
some newly opened hospitals that do
not appear to understand that they must
submit CDC NHSN HAI data for the
HAC Reduction Program, even when
they may not be required to report
under the Hospital IQR Program. As set
forth in the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50098), a hospital that
does not have an ICU waiver or other
waiver for the CDC NHSN HAI measures
and does not submit data will receive
the maximum of 10 points for that
measure. We noted in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50723) that,
for Domain 2, we will obtain measure
results that hospitals submitted to the
CDC NHSN from the Hospital IQR
Program.56 However, we note that
participation in the Hospital IQR
Program is voluntary, while
participation in the HAC Reduction
Program is mandatory for almost all
IPPS hospitals (we refer readers to
section 1886(d)(1)(B) of the Act; 42 CFR
412.170 (definition of the term
‘‘applicable hospital’’); and 42 CFR
412.172(e)). The HAC Reduction
Program does not apply to hospitals and
hospital units that are excluded from
the IPPS, such as LTCHs, cancer
hospitals, children’s hospitals, IRFs,
IPFs, CAHs, and Puerto Rico hospitals
(79 FR 50087 through 50088).
We believe that it is important to
establish data submission requirements
for all applicable hospitals under the
HAC Reduction Program. We are
proposing the following requirements
for newly opened hospitals for CDC
NHSN HAI data submissions. We note
56 For a further discussion of CDC NHSN HAI
Data submission requirements for the Hospital IQR
Program, we refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53536) and 42 CFR
412.140(a)(3)(i) and 412.140(b).

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that these requirements do not affect
any requirements for facilities in States
that are required by law to report HAI
data to NHSN.
• If a hospital files a notice of
participation (NOP) with the Hospital
IQR Program within 6 months of
opening, the hospital would be required
to begin submitting data for the CDC
NHSN HAI measures no later than the
first day of the quarter following the
NOP.
• If a hospital does not file a NOP
with the Hospital IQR Program within 6
months of opening, the hospital would
be required to begin submitting data for
the CDC NHSN HAI measures on the
first day of the quarter following the end
of the 6-month period to file the NOP.
For example, if a subsection (d)
hospital opens on January 1 and it
intends to participate in the Hospital
IQR Program, the hospital would be
required to file a Hospital IQR Program
NOP no later than July 1, and begin
submitting data to NHSN no later than
October 1. If a subsection (d) hospital
opens on January 1 and it does not
intend to participate in the Hospital IQR
Program (that is, no NOP is filed), it
must begin submitting data to NHSN no
later than July 1 of that year. We believe
that these data submission requirements
are clear, align with the Hospital IQR
Program, and are fair and equitable for
all newly opened hospitals. Hospitals
that are not required to submit data
within the respective HAC Reduction
Program year will not receive a score.
These hospitals will receive a
designation of ‘‘NEW,’’ and will not
receive any points for CDC NHSN HAI
measures.
We further note that this clarification
does not affect the narrative rules used
in calculation of the Domain 2 Score.
We will continue to follow all Domain
2 scoring procedures as previously
finalized, and we refer readers to the FY
2016 IPPS/LTCH PPS final rule (80 FR
49575) for further discussion of the
narrative rules used in calculation of the
Domain 2 Score. We believe that this
proposal should be incorporated into
the HAC Reduction Program for FY
2017 and subsequent years.
We are inviting public comments on
our proposal to adopt these policies
related to the data submission
requirements beginning in the FY 2017
HAC Reduction Program.
5. Implementation of the HAC
Reduction Program for FY 2018
For FY 2018, we are proposing the
following HAC Reduction Program
policies: (1) Adoption of the modified
version of the NQF-endorsed PSI 90:
Patient Safety and Adverse Events

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Composite; (2) defining the applicable
time periods for the FY 2018 HAC
Reduction Program and the FY 2019
HAC Reduction Program; (3) changes to
the scoring methodology; and (4) a
request for comments on additional
measures for potential future adoption.
a. Proposed Adoption of Modified PSI
90: Patient Safety and Adverse Events
Composite (NQF #0531)
(1) Background
We are proposing to adopt
refinements to the Agency for
Healthcare Research and Quality
(AHRQ) Patient Safety and Adverse
Events Composite (NQF #0531) for the
HAC Reduction Program beginning with
the FY 2018 payment determination and
subsequent years. In summary, the PSI
90 measure was refined to reflect the
relative importance and harm associated
with each component indicator to
provide a more reliable and valid signal
of patient safety events. We believe
refining PSI 90 will provide strong
incentives for hospitals to ensure that
patients are not harmed by the medical
care they receive, a critical
consideration in quality improvement.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50712 through 50717), we
adopted the PSI 90 measure (NQF
#0531) in the HAC Reduction Program
as an important measure of patient
safety and adverse events. As previously
adopted, PSI 90 consisted of eight
component indicators: (1) PSI 3 Pressure
Ulcer Rate; (2) PSI 6 Iatrogenic
Pneumothorax Rate; (3) PSI 7 Central
Venous Catheter-Related Blood Stream
Infections Rate; (4) PSI 8 Postoperative
Hip Fracture Rate; (5) PSI 12
Perioperative Pulmonary Embolism/
Deep Vein Thrombosis Rate; (6) PSI 13
Postoperative Sepsis Rate; (7) PSI 14
Postoperative Wound Dehiscence Rate;
and (8) PSI 15 Accidental Puncture and
Laceration Rate.57
The currently adopted eight-indicator
version of the measure underwent
extended NQF maintenance
reendorsement in the 2014 NQF Patient
Safety Committee due to concerns with
the underlying component indicators
and their composite weights. In the
NQF-Endorsed Measures for Patient
Safety, Final Report,58 the NQF Patient
Safety Committee deferred its final
decision for the PSI 90 measure until
57 NQF-Endorsed Measures for Patient Safety,
Final Report. Available at: http://www.quality
forum.org/Publications/2015/01/NQF-Endorsed_
Measures_for_Patient_Safety_Final_Report.aspx.
58 NQF-Endorsed Measures for Patient Safety,
Final Report available at: http://
www.qualityforum.org/Publications/2015/01/NQFEndorsed_Measures_for_Patient_Safety,_Final_
Report.aspx.

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the following measure evaluation cycle.
In the meantime, AHRQ worked to
address many of the NQF stakeholders’
concerns about PSI 90, which
subsequently completed NQF
maintenance re-review and received
reendorsement on December 10, 2015.
The PSI 90 measure’s extended NQF
reendorsement led to several changes to
the measure.59 First, the name of the PSI
90 measure has changed to ‘‘Patient
Safety and Adverse Events Composite’’
(NQF #0531) (herein referred to as the
‘‘modified PSI 90’’). Second, the
modified PSI 90 measure includes the
addition of three indicators: (1) PSI 09
Perioperative Hemorrhage or Hematoma
Rate; (2) PSI 10 Physiologic and
Metabolic Derangement Rate; and (3)
PSI 11 Postoperative Respiratory Failure
Rate. Third, PSI 12 Perioperative
Pulmonary Embolism (PE) or Deep Vein
Thrombosis (DVT) Rate and PSI 15
Accidental Puncture or Laceration Rate
have been respecified in the modified
PSI 90. Fourth, PSI 07 Central Venous
Catheter-Related Blood Stream Infection
Rate has been removed in the modified
PSI 90. Fifth, the weighting of
component indicators in the modified
PSI 90 is based not only on the volume
of each of the patient safety and adverse
events, but also the harms associated
with the events.
We consider these changes to the
modified PSI 90 to be substantive
changes to the measure. Therefore, we
are proposing to adopt the modified PSI
90 for the HAC Reduction Program
beginning with the FY 2018 payment
determination and subsequent years. We
explain the modified PSI 90 more fully
below, and also refer readers to the
measure description on the NQF Web
site at: https://www.qualityforum.org/
QPS/MeasureDetails.aspx?
standardID=321&print=
0&entityTypeID=3.
We note that the proposed modified
PSI 90 (MUC15–604) was included on a
publicly available document entitled
‘‘2015 Measures Under Consideration
for December 1, 2015’’ 60 in compliance
with section 1890A(a)(2) of the Act, and
was reviewed by the MAP. The MAP
supported this measure, stating that
‘‘the PSI measures were developed to
identify harmful healthcare related
events that are potentially preventable.
Three additional PSIs have been added
59 National Quality Forum QPS Measure
Description for ‘‘Patient Safety for Selected
Indicators (modified version of PSI90) (Composite
measure)’’ found at: https://www.qualityforum.org/
QPS/MeasureDetails.aspx?standardID=321&print=
0&entityTypeID=3.
60 2015 Measures Under Consideration List
available at: http://www.qualityforum.org/
ProjectMaterials.aspx?projectID=75367.

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to this updated version of the measure.
PSIs were better linked to important
changes in clinical status with ‘harm
weights’ that are based on diagnoses
that were assigned after the
complication. This is intended to allow
the measure to more accurately reflect
the impact of the events.’’ 61 The
measure received support for inclusion
in the HAC Reduction Program as
referenced in the MAP Final
Recommendations Report.62
(2) Overview of the Measure Changes
First, the name of the PSI 90 measure
has changed from the ‘‘Patient Safety for
Selected Indicators Composite Measure’’
to the ‘‘Patient Safety and Adverse
Events Composite’’ (NQF #0531) to
more accurately capture the indicators
included in the measure.
Second, the PSI 90 measure has
expanded from 8 to 10 component
indicators. The modified PSI 90 is a
weighted average of the following 10
risk-adjusted and reliability-adjusted
individual component PSI rates:
• PSI 03 Pressure Ulcer Rate;
• PSI 06 Iatrogenic Pneumothorax
Rate;
• PSI 08 Postoperative Hip Fracture
Rate;
• PSI 09 Postoperative Hemorrhage or
Hematoma Rate;*
• PSI 10 Physiologic and Metabolic
Derangement Rate;*
• PSI 11 Postoperative Respiratory
Failure Rate;*
• PSI 12 Perioperative Pulmonary
Embolism (PE) or Deep Vein
Thrombosis (DVT) Rate;
• PSI 13 Postoperative Sepsis Rate,
• PSI 14 Postoperative Wound
Dehiscence Rate; and
• PSI 15 Accidental Puncture or
Laceration Rate.63
(* Denotes new component for the
modified PSI 90 measure.)
As stated above, the modified PSI 90
measure also removed PSI 07, Central
Venous Catheter-Related Blood Stream
Infection Rate, because of potential
overlap with the CLABSI measure (NQF
#0139) which has been included in the
Hospital IQR Program since the FY 2011
IPPS/LTCH PPS final rule (75 FR 50201
through 50202), the HAC Reduction
Program since the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50717), and the
Hospital VBP Program since the FY
2013 IPPS/LTCH PPS final rule (77 FR
53597 through 53598).
In response to stakeholder concerns,
highlighted in the NQF 2014 Patient
61 MAP Final Recommendations available at:
http://www.qualityforum.org/Publications/2016/02/
MAP_2016_Considerations_for_Implementing_
Measures_in_Federal_Programs_-_Hospitals.aspx.
62 Ibid.
63 http://www.qualityforum.org/QPS/0531.

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Safety Report,64 the modified PSI 90
also respecified two component
indicators, PSI 12 and PSI 15.
Specifically, for PSI 12 Perioperative PE
or DVT rate, the NQF received public
comments concerning the inclusion of:
(1) Extracorporeal membrane
oxygenation (ECMO) procedures in the
denominator; and (2) intra-hospital
variability in the documentation of calf
vein thromboses (which have uncertain
clinical significance). As such, the
revised PSI 12 component indicator no
longer includes ECMO procedures in
the denominator or isolated deep vein
thrombosis of the calf veins in the
numerator. PSI 15 was also respecified
further to focus on the most serious
intraoperative injuries—those that were
unrecognized until they required a
subsequent reparative procedure. The
modified denominator of PSI 15 now is
limited to discharges with an
abdominal/pelvic operation, rather than
including all medical and surgical
discharges. In addition, to identify
events that are more likely to be
clinically significant and preventable,
the PSI 15 numerator was modified to
require both: (1) A diagnosis of an
accidental puncture and/or laceration;
and (2) an abdominal/pelvic reoperation
one or more days after the index
surgery.
Finally, the NQF Patient Safety
Review Committee raised concerns
about the weighting scheme of the
component indicators. In prior versions
of the measure, the weights of each
component PSI were based solely on
volume (numerator rates). In the
modified PSI 90, the rates of each
component PSI are weighted based on
statistical and empirical analyses of
volume, excess clinical harm associated
with the PSI, and disutility (individual
preference for a health state linked to a
harm, such as death or disability). The
final weight for each component
indicator is the product of harm weights
and volume weights (numerator
weights). Harm weights are calculated
by multiplying empirical estimates of
excess harms associated with the patient
safety event by utility weights linked to
each of the harms. Excess harms are
estimated using statistical models
comparing patients with a safety event
to those without a safety event in a
Medicare FFS sample. Volume weights
are calculated based on the number of
safety events for the component
64 NQF Endorsed Measures for Patient Safety,
Final Report. Available at: http://
www.qualityforum.org/Publications/2015/01/NQFEndorsed_Measures_for_Patient_Safety,_Final_
Report.aspx.

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indicators in an all-payer reference
population.
For more information on the modified
PSI 90 measure and component
indicators, we refer readers to the
Quality Indicator Empirical Methods
available online at:
www.qualityindicators.ahrq.gov.
(3) Risk Adjustment
The risk adjustment and statistical
modeling approaches of the models
remain unchanged in the modified PSI
90. In summary, the predicted value for
each case is computed using a modeling
approach that includes, but is not
limited to, applying a Generalized
Estimating Equation (GEE) hierarchical
model (logistic regression with hospital
random effect) and covariates for
gender, age, Modified MS–DRG
(MDRG), Major Diagnostic Category,
transfer in, point of origin not available,
procedure days not available, and
AHRQ comorbidity (COMORB).
The expected rate for each of the
indicators is computed as the sum of the
predicted value for each case divided by
the number of cases for the unit of
analysis of interest (that is, hospital).
The risk-adjusted rate for each of the
indicators is computed using indirect
standardization as the observed rate
divided by the expected rate, multiplied
by the reference population rate. For
more details about risk adjustment, we
refer readers to: http://www.quality
indicators.ahrq.gov/Downloads/
Resources/Publications/2015/
Empirical_Methods_2015.pdf.

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(4) Adoption of the NQF-Endorsed
Version of the Modified PSI 90
In summary, the PSI 90 measure was
revised to reflect the relative importance
and harm associated with each
component indicator to provide a more
reliable and valid signal of patient safety
events. We believe that adopting the
modified PSI 90 would continue to
provide strong incentives for hospitals
to ensure that patients are not harmed
by the medical care they receive, which
is a critical consideration in quality
improvement. We are proposing to
adopt the modified PSI 90 for the HAC
Reduction Program for FY 2018 and
subsequent years. We will continue to
use the currently adopted eightindicator version of the PSI 90 measure
for the HAC Reduction Program for FY
2017. We are inviting public comment
on our proposal to adopt the modified
PSI 90 measure (NQF #0531) for the
HAC Reduction Program for FY 2018.

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b. Applicable Time Periods for the FY
2018 HAC Reduction Program and the
FY 2019 HAC Reduction Program
Section 1886(p)(4) of the Act gives the
Secretary the statutory authority to
determine the applicable period for the
HAC Reduction Program. In the FY 2014
IPPS/LTCH PPS final rule (78 FR
50717), we finalized and codified at 42
CFR 412.170 that we would use a 2-year
time period of performance data to
calculate the Total HAC Score. We
believe the 24-month performance
period provides hospitals and the public
with the most current data available,
while allowing sufficient time to
complete the complex calculation
process for these measures. The 24month performance period was chosen
because it tended to show that between
50 to 90 percent of hospitals attained a
moderate or high level of reliability for
AHRQ measures (78 FR 50717).
Although we believe the 24-month time
is the preferred length of time for
performance data, there may be
situations, discussed in more detail
below, where the collection of 24
months of data is not operationally
feasible.
Therefore, we are proposing,
beginning in FY 2017 and for
subsequent years, to permit flexibility to
use a period other the 2 years from
which data are collected in order to
calculate the Total HAC Score under the
HAC Reduction Program. We also are
proposing to change the definition of
‘‘applicable period,’’ in 42 CFR 412.170,
to reflect this proposed change.
Since the ICD–10 transition was
implemented on October 1, 2015, we
have been monitoring our systems and
so far claims are processing normally.
The measure steward, AHRQ, has been
reviewing the measure for any potential
issues related to the conversion of
approximately 70,000 ICD–10 coded
operating room procedures 65 (https://
www.cms.gov/icd10manual/fullcode_
cms/P1616.html), which could directly
affect the modified PSI 90 component
indicators. In addition, to meet program
requirements and implementation
schedules, our system would require an
ICD–10 risk-adjusted version of the
AHRQ QI PSI software 66 by December
2016 for the FY 2018 payment
determination year. At this time, a risk65 International Classification of Diseases, (ICD–
10–CM/PCS) Transition—Background. Available at:
http://www.cdc.gov/nchs/icd/icd10cm_pcs_
background.htm.
66 The AHRQ QI Software is the software used to
calculate PSIs and the composite measure. More
information is available at: http://
www.qualityindicators.ahrq.gov/Downloads/
Resources/Publications/2015/Empirical_Methods_
2015.pdf.

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adjusted ICD–10 version of the PSI 90
Patient Safety and Adverse Events
Composite software is not expected to
be available until late CY 2017.
To address these issues, for the
current Domain 1 measure (PSI 90
Patient Safety and Adverse Events
Composite), we are proposing to use the
15-month performance period from July
1, 2014 through September 30, 2015, for
the FY 2018 HAC Reduction Program.
This 15-month performance period
would utilize only ICD–9–CM data and
only apply to the FY 2018 payment
year. The claims for all Medicare FFS
beneficiaries discharged during this
period would be included in the
calculations of measure results for FY
2018. For the FY 2019 HAC Reduction
Program, we are proposing to use the
21-month performance period from
October 1, 2015 through September 30,
2017. This 21-month performance
period would utilize only ICD–10 data
and only apply to the FY 2019 payment
year. The claims for all Medicare FFS
beneficiaries discharged during this
period would be included in the
calculations of measure results for FY
2019.
Prior to deciding to propose
abbreviated data collection periods for
the FY 2018 and the FY 2019 payment
determinations, we took several factors
into consideration. These included the
recommendations of the measure
steward, the feasibility of using a
combination of ICD–9 and ICD–10 data,
minimizing provider burden, program
implementation timelines, and the
reliability of using shortened data
collection periods, as well as the
importance of continuing to publicly
report this measure. We believe that
using a 15-month data collection period
for FY 2018 and a 21-month data
collection period for FY 2019 best serve
the need to provide important
information on hospital patient safety
and adverse events by allowing
sufficient time to process the claims
data and calculate the measures, while
minimizing reporting burden and
program disruption.
Because this issue only impacts the
PSI 90 Patient Safety and Adverse
Events Composite in Domain 1, for the
CDC NHSN measures previously
finalized for use in the FY 2017 HAC
Reduction Program (CLABSI, CAUTI,
Colon and Abdominal Hysterectomy
SSI, MRSA Bacteremia, and CDI), we
would use the 24-month performance
period from January 1, 2015 through
December 31, 2016 (CYs 2015 and 2016)
for the FY 2018 HAC Reduction
Program. For the FY 2019 HAC
Reduction Program, we are proposing to
use the 24-month performance period

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from January 1, 2016 through December
31, 2017 (CYs 2016 and 2017).
We believe that using a 15-month
period and a 21-month performance
period for Domain 1 and a 24-month
performance period for Domain 2
balance the needs of the HAC Reduction
Program and allow sufficient time to
process the claims data and calculate
the measures. We will continue to test
ICD–10 data that are submitted in order
to ensure the accuracy of measure
calculations and to monitor and assess
the translation of measure specifications
to ICD–10, potential coding variation,
and impacts on measure performance
and payment incentive programs.
We are inviting public comment on
the proposals to update the definition of
‘‘applicable period’’ codified at 42 CFR
412.170 for FY 2017 and subsequent
years and to use these updated
performance periods for calculation of
measure results for the FY 2018 and the
FY 2019 HAC Reduction Programs.
c. Proposed Changes to the HAC
Reduction Program Scoring
Methodology

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(1) Current Scoring Policy
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50721), we finalized a
scoring methodology that aligns with
the achievement scoring methodology
currently used in the Hospital VBP
Program. Our intent was to reduce
confusion associated with multiple
scoring methodologies by aligning the
scoring for the Hospital VBP Program
and the HAC Reduction Program. We
note that alignment benefits the hospital
stakeholders who have prior experience
with the Hospital VBP Program.
Accordingly, we implemented a
methodology for assessing the top
quartile of applicable hospitals for
HACs based on performance standards.
We indicated in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50720
through 50725) that points will be
assigned to hospitals’ performance for
each measure. We finalized a decilebased methodology for assigning points,
depending on the specific measures.
• For Domain 1, point assignment is
based on a hospital’s score for the PSI
90 measure.
• For the Domain 1 score, 1 to 10
points are assigned to the hospital.
• For the measures in Domain 2,
point assignment for each measure is
based on the SIR for that measure.
• For each SIR, 1 to 10 points are
assigned to the hospital for each
measure.
• The Domain 2 score consists of the
average of points assigned to each
measure.

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To calculate a Total HAC Score for
each hospital, we multiply each domain
score by a weighting and add together
the weighted domain scores to
determine the Total HAC Score
(§ 412.172(e)(3)). We use each hospital’s
Total HAC Score to determine the top
quartile of subsection (d) hospitals that
are subject to the payment adjustment
beginning with discharges on or after
October 1, 2014.
(2) Program Evaluation Efforts
As part of our ongoing efforts to
evaluate the HAC Reduction Program,
we recently conducted a review of our
scoring methodology and assessed
opportunities to strengthen the program.
As part of that review, our Hospital
Quality Reporting Program Support
(HQRPS) contractors convened a
technical expert panel (TEP) on October
19–20, 2015, with a follow-up call on
December 11, 2015. The TEP examined
multiple areas of the HAC Reduction
Program and focused on identifying a
scoring methodology that provides an
incentive to hospitals to reduce HACs
and distinguishes top performers from
low performers. The TEP identified
concerns with the current decile-based
scoring methodology that included: Ties
at the penalty threshold; hospitals with
a limited amount of data being
identified as poor performers; and
situations in which hospitals with no
adverse events and no Domain 2 data
nonetheless become eligible for penalty.
During the FY 2016 HAC Reduction
Program, a small subset of hospitals that
had zero adverse events in Domain 1
and no Domain 2 score were identified
as part of the worst-performing quartile.
These hospitals received Domain 1
scores of 7.0, meaning they were in the
7th decile of hospitals for the PSI 90
measure despite being close to the PSI
90 measure mean value. As this subset
of hospitals had no Domain 2 scores,
they received a Total HAC Score equal
to their Domain 1 score of 7.0. This
Total HAC Score was greater than the
75th percentile cutoff for penalty
determination of 6.75. CMS waived the
penalty for these zero adverse event
hospitals so they would not be treated
as poor performers. These hospitals
were potentially disadvantaged because
their Total HAC Scores were determined
solely on their Domain 1 Score. Because
Domain 2 scores tend to be lower on
average than Domain 1 scores,67 other
67 This is because hospitals are assigned the
minimum of one point for any measure for which
they have a measure result of zero. For example, for
the CAUTI measure, if 13 percent of hospitals have
an SIR of zero, one point is assigned to each of these
hospitals, even though the decile approach is
intended to assign 10 percent of hospitals to each

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hospitals without Domain 2 scores are
potentially treated the same as low
performers in the same decile.
In addition, scoring using deciles can
make it more difficult to distinguish top
performers from low performers by
creating a large number of ties on
measure scores. For example, two
hospitals with meaningfully different
measure results may fall into the same
decile bin and therefore be ultimately
indistinguishable under the current
scoring methodology. Conversely, two
hospitals with performance that is not
statistically distinguishable may fall
into different decile bins. Furthermore,
ties at the penalty threshold complicate
the adjudication of payment
adjustments; in both the FY 2015 and
FY 2016 programs, less than 25 percent
of all hospitals had Total HAC Scores
above the threshold for penalties.
Specifically, only 21.9 percent of
hospitals in FY 2015 and 23.7 percent
of hospitals in FY 2016 were subject to
a payment adjustment.
To address stakeholder concerns
regarding the current scoring
methodology, we evaluated a number of
alternatives and recommendations from
the TEP. We refer readers to the Project
Title: Hospital-Acquired Condition
(HAC) Reduction Program Scoring
Methodology Reevaluation located at:
https://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/MMS/
TechnicalExpertPanels.html for a
summary of the TEP’s discussion. These
alternatives included replacement of the
current decile-based scoring approach
with the use of Winsorized 68 z-scores.
(3) Winsorized Z-Score Method
The Winsorized z-score method (zscore) uses a continuous measure score
rather than forcing measure results into
deciles. Z-scores represent a hospital’s
distance from the national mean for a
measure in units of standard deviations.
Under the z-score approach, poorperforming hospitals earn a positive zscore, reflecting measure values above
the national mean, and betterperforming hospitals earn a negative zscore, reflecting measure values below
the national mean. For each measure, a
decile. Two points would be assigned to the
remaining seven percent of hospitals that would fall
in the second decile. This phenomenon does not
affect Domain 1 scores, since the reliability-adjusted
PSI 90 measure result is not equal to zero in any
hospital.
68 Winsorized measure results are truncated to the
5th and 95th percentiles, replacing values between
the minimum and the 5th percentile with the 5th
percentile value and replacing values between the
95th percentile and the maximum with the 95th
percentile value. Z-scores are then calculated based
on these values.

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hospital’s z-score is based on the
following equation that expresses the

hospital’s measure value minus the
average value for that measure, divided

by the standard deviation of the
measure values across all hospitals:

To form the Total HAC Score, we
would use the z-scores as hospitals’
measure scores. In accordance with the
current scoring methodology, we would
then average the z-scores across
measures within Domain 2 and assign
the z-score for PSI 90 for Domain 1 to
determine the domain scores. We would
then multiply each domain score by the
appropriate weighting and add together
the weighted domain scores to
determine the Total HAC Score. We
would use each hospital’s Total HAC
Score to determine the top quartile of
subsection (d) hospitals that are subject
to the payment adjustment.

and no Domain 2 score in either the
actual results from FY 2016 or in the
results based on the FY 2016 data
supplemented with MRSA Bacteremia
and CDI results.
Among the 184 hospitals with fewer
than 25 beds, the proportion of hospitals
penalized would fall from 33 percent to
18 percent. Among the 213 hospitals
with more than 500 beds, the proportion
of hospitals penalized would fall from
50 percent to 42 percent. The approach
leaves the proportion of teaching, urban,
and high-DSH hospitals penalized
largely unchanged, with one exception.
The z-score approach slightly increases
the penalization rate among moderately
high (50 to 64 percent) DSH hospitals,
from 28 percent to 35 percent. Only 172
hospitals fall into this group; therefore,
the increase reflects only 11 additional
hospitals in that group being penalized.
We believe that differences in
performance scores must reflect true
differences in performance. In addition,
hospitals must be able to clearly
understand performance scoring
methods and performance expectations
to maximize their quality improvement
efforts. Therefore, we are inviting public
comments on our proposal to adopt the
z-score method for calculating measure
results beginning in the FY 2018 HAC
Reduction Program.

health for populations, and lower costs
for health care.
To the extent practicable, all HAC
Reduction Program measures should be
nationally endorsed by a multistakeholder organization. Measures
should be aligned with best practices
among other payers and the needs of the
end users of the measures. Measures
should take into account widely
accepted criteria established in medical
literature. We note that all measures
proposed for the HAC Reduction
Program should follow the criteria
established by the DRA of 2005 in that
they consist of high-volume or high-cost
conditions that could be prevented by
the use of evidence-based guidelines.
We welcome public comment and
suggestions for additional HAC
Reduction Program measures that will
help achieve the Program goals in these
or other measurement areas.

(4) Impact and Implementation
This z-score approach is
straightforward to implement, easily
adapted as measures are added or
removed from the HAC Reduction
Program, transparent, and familiar to a
wide range of stakeholders. Continuous
values address the limitations of decile
scoring and preserve the magnitude of
differences among hospitals’ measure
results. Thus, hospitals that differ
meaningfully on their measure results
will also differ meaningfully on their
Total HAC Scores. Unlike the decile
approach, continuous measure scores
would substantially reduce ties of Total
HAC Scores, which have prevented
CMS from penalizing exactly 25 percent
of hospitals in previous program years.
The use of z-scores also improves
alignment between Domains 1 and 2
and creates a more level playing field
for hospitals with data in only Domain
1.
Based on FY 2016 data supplemented
with MRSA Bacteremia and CDI
results,69 the z-score approach affects
the penalty status of slightly more than
200 hospitals, relative to the decile
approach. This approach brings 114
hospitals into the penalty zone and 103
hospitals out of the penalty zone and
reduces the HAC Reduction Program’s
impact on the largest and smallest
hospitals. Most importantly, because of
the improvements in precision and
standardization gained by implementing
this approach, there is no penalization
of hospitals that had zero adverse events
69 Results are a based on actual FY 2016 measure
data with the addition of MRSA Bacteremia and
CDI data for the reporting period spanning October
2012 through December 2014.

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6. Request for Comments on Additional
Measures for Potential Future Adoption
We view the addition of other quality
measures as a critical component of
value-based purchasing, and we are
seeking public comments on what
additional measures we should consider
adopting in the future. We believe that
our continued efforts to reduce HACs
are vital to improving patients’ quality
of care and reducing complications and
mortality, while simultaneously
decreasing costs. The reduction of HACs
is an important marker of quality of care
and has a positive impact on both
patient outcomes and cost of care. Our
goal for the HAC Reduction Program is
to heighten the awareness of HACs and
reduce the number of incidences that
occur. We seek to adopt measures for
the HAC Reduction Program that
promote better, safer, and more efficient
care. Our overarching purpose is to
support the NQS’ three-part aim of
better health care for individuals, better

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7. Maintenance of Technical
Specifications for Quality Measures
Technical specifications for AHRQ’s
PSI–90 measure in Domain 1 can be
found at AHRQ’s Web site at: http://
qualityindicators.ahrq.gov/Modules/
PSI_TechSpec.aspx. Technical
specifications for the CDC NHSN HAI
measures in Domain 2 can be found at
CDC’s NHSN Web site at: http://
www.cdc.gov/nhsn/acute-care-hospital/
index.html. Both Web sites provide
measure updates and other information
necessary to guide hospitals
participating in the collection of HAC
Reduction Program data.
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50100), we described a
policy under which we use a
subregulatory process to make
nonsubstantive updates to measures
used for the HAC Reduction Program.
We are not proposing any changes to
this policy at this time.
8. Extraordinary Circumstance
Exception Policy for the HAC Reduction
Program Beginning in FY 2016 and for
Subsequent Years
We refer readers to the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49579
through 49581) for a detailed discussion
of the exception policy for hospitals
located in areas that experience
disasters or other extraordinary
circumstances for the HAC Reduction

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Program. We are not proposing any
changes to this policy for FY 2017.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

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

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to end the implicit incentive for
hospitals to increase the number of FTE
residents, Congress, through the
Balanced Budget Act of 1997 (Pub. L.
105–33), established a limit on the
number of allopathic and osteopathic
residents that a hospital may include in
its FTE resident count for direct GME
and IME payment purposes. Under
section 1886(h)(4)(F) of the Act, for cost
reporting periods beginning on or after
October 1, 1997, a hospital’s
unweighted FTE count of residents for
purposes of direct GME may not exceed
the hospital’s unweighted FTE count for
direct GME in its most recent cost
reporting period ending on or before
December 31, 1996. Under section
1886(d)(5)(B)(v) of the Act, a similar
limit based on the FTE count for IME
during that cost reporting period is
applied, effective for discharges
occurring on or after October 1, 1997.
Dental and podiatric residents are not
included in this statutorily mandated
cap.
The Affordable Care Act made a
number of statutory changes relating to
the determination of a hospital’s FTE
resident limit 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(a)(4) of the Affordable
Care Act added a new section 1886(h)(8)
to the Act to provide for the reduction
in FTE resident caps for direct GME
under Medicare for certain hospitals
training fewer residents than their caps,
and to authorize the redistribution of
the estimated number of excess FTE
resident slots to other qualified
hospitals. In addition, section 5503(b)
amended section 1886(d)(5)(B)(v) of the
Act to require the application of the
section 1886(h)(8) of the Act provisions
in the same manner to the IME FTE
resident caps. The policy implementing
section 5503 of the Affordable Care Act
was included in the November 24, 2010
final rule with comment period (75 FR
72147 through 72212) and the FY 2013
IPPS/LTCH PPS final rule (77 FR 53424
through 53434). Section 5506(a) of the
Affordable Care Act amended section
1886(h)(4)(H) of the Act to add a new
clause (vi) that instructs the Secretary to
establish a process by regulation under
which, in the event a teaching hospital
closes, the Secretary will permanently
increase the FTE resident caps for
hospitals that meet certain criteria up to
the number of the closed hospital’s FTE
resident caps. The policy implementing
section 5506 of the Affordable Care Act
was included in the November 24, 2010
final rule with comment period (75 FR
72212 through 72238) and the FY 2013

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IPPS/LTCH PPS final rule (77 FR 53434
through 53448).
2. Change in New Program Growth From
3 Years to 5 Years
a. Urban and Rural Hospitals
Section 1886(h)(4)(H)(i) of the Act
requires CMS to establish rules for
calculating the direct GME caps of
teaching hospitals training residents in
new programs established on or after
January 1, 1995. Under section
1886(d)(5)(B)(viii) of the Act, these rules
also apply to the establishment of a
hospital’s IME cap. CMS implemented
these statutory requirements in the
August 29, 1997 Federal Register (62 FR
46005) and in the May 12, 1998 Federal
Register (63 FR 26333). Generally, when
CMS (then HCFA) implemented the
regulations at 42 CFR 413.79(e)(1) and
42 CFR 412.105(f)(1)(vii), these
regulations provided that if a hospital
did not train any allopathic or
osteopathic residents in its most recent
cost reporting period ending on or
before December 31, 1996, and it begins
to participate in training residents in a
new residency program (allopathic or
osteopathic) on or after January 1, 1995,
the hospital’s unweighted FTE resident
cap (which would otherwise be zero)
may be adjusted based on the sum of the
product of the highest number of FTE
residents in any program year during
the third year of the first new program,
for each new residency training program
established during that 3-year period,
and the minimum accredited length for
each type of program. This 3-year
period, which we will refer to as the ‘‘3year window’’ for ease of reference in
this proposed rule, started when a new
program began, and the teaching
hospital first began to train residents for
the first time in that new program,
typically on July 1, and ending when
the third program year of that first new
program ends.
Prior to development of the FY 2013
IPPS/LTCH PPS proposed rule, the
teaching hospital community expressed
concerns that 3 years do not provide for
a sufficient amount of time for a
hospital to ‘‘grow’’ its new residency
programs and to establish FTE resident
caps that are properly reflective of the
number of FTE residents that it will
actually train, once the programs are
fully grown. Hospitals explained that 3
years is an insufficient amount of time
primarily because a period of 3 years is
not compatible with program
accreditation requirements, particularly
in instances where the qualifying
teaching hospital wishes to start more
than one new program. Therefore, in the
FY 2013 IPPS/LTCH PPS proposed rule

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and final rule, we proposed and
finalized changes to the regulations at
42 CFR 413.79(e) for direct GME and at
42 CFR 412.105(f)(1)(vii) for IME that
revised the ‘‘3-year window’’ to a ‘‘5year window,’’ for a new teaching
hospital to establish and grow a new
program, and thus begin training
residents for the first time in new
programs that are started on or after
October 1, 2012. Thus, for urban
hospitals that begin to train residents in
a new medical residency training
program for the first time on or after
October 1, 2012, the cap will not be
adjusted for new programs established
more than 5 years after residents begin
training in the first new program.
However, rural hospitals are permitted
to receive new cap adjustments for
participating in training residents in
new medical residency training
programs at any time, and therefore,
under § 413.79(e)(3), if a rural hospital
participates in new medical residency
training programs on or after October 1,
2012, the hospital’s cap is adjusted for
each new program based on a 5-year
growth window. We refer readers to the
FY 2013 IPPS/LTCH PPS final rule for
more details on this change in the
regulations regarding the 5-year window
for urban hospitals training residents in
new medical residency training
programs for the first time and for rural
hospitals participating in new medical
residency training programs (77 FR
53416 through 53424).
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50111), we changed our
policy regarding implementation of the
FTE resident caps for new programs to
be effective with the beginning of the
applicable hospital’s cost reporting
period that coincides with or follows
the start of the sixth program year of the
first new program started for hospitals
for which the FTE cap may be adjusted
in accordance with § 413.79(e)(1), and
beginning with the applicable hospital’s
cost reporting period that coincides
with or follows the start of the sixth
program year of each individual new
program started for rural hospitals for
which the FTE cap may be adjusted in
accordance with § 413.79(e)(3). In the
same final rule, we also made the
effective dates of the 3-year rolling
average and IME IRB ratio cap
consistent with the effective date of the
new program FTE resident caps. That is,
beginning with the applicable hospital’s
cost reporting period that coincides
with or follows the start of the sixth
program year of the first new program
started for hospitals for which the FTE
cap may be adjusted in accordance with
§ 413.79(e)(1), and beginning with the

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applicable hospital’s cost reporting
period that coincides with or follows
the start of the sixth program year of
each individual new program started for
rural hospitals for which the FTE cap
may be adjusted in accordance with
§ 413.79(e)(3), FTE residents
participating in new medical residency
training programs are included in the
hospital’s IRB ratio cap and the 3-year
rolling average.
b. Proposed Policy Changes Relating to
Rural Training Tracks at Urban
Hospitals
To encourage the training of residents
in rural areas, section 407(c) of the
Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act of
1999 (Pub. L. 106–113) amended section
1886(h)(4)(H) of the Act to add a
provision (subsection (iv)) that, in the
case of a hospital that is not located in
a rural area (an urban hospital) that
establishes separately accredited
approved medical residency training
programs (or rural tracks) in a rural area
or has an accredited training program
with an integrated rural track, the
Secretary shall adjust the urban
hospital’s cap on the number of FTE
residents under subsection (F), in an
appropriate manner in order to
encourage training of physicians in rural
areas. Section 407(c) of Public Law 106–
113 was made effective for direct GME
payments to hospitals for cost reporting
periods beginning on or after April 1,
2000, and for IME payments applicable
to discharges occurring on or after April
1, 2000. We refer readers to the August
1, 2000 interim final rule with comment
period (65 FR 47033 through 47037) and
the FY 2002 IPPS final rule (66 FR
39902 through 39909) where we
implemented section 407(c) of Public
Law 106–113. The regulations for
establishing rural track FTE limitations
are located at 42 CFR 413.79(k) for
direct GME and at 42 CFR
412.105(f)(1)(x) for IME.
In the August 1, 2003 IPPS final rule
(68 FR 45456 through 45457), we
clarified our existing policy that
although the rural track provision
allows an increase to the urban
hospital’s FTE cap, sections
1886(h)(4)(H)(iv) and 1886(d)(5)(B) of
the Act do not provide for an exclusion
from the rolling average for the urban
hospital for those FTE residents training
in a rural track. These provisions are
interpreted to mean that, except for new
rural track programs begun by urban
teaching hospitals that are establishing
an FTE cap for the first time, when an
urban hospital with an FTE resident cap
establishes a new rural track program or
expands an existing rural track program,

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FTE residents in the rural track that are
counted by the urban hospital are
included in the hospital’s rolling
average calculation immediately. This
policy is reflected in the regulation at
§ 412.105(f)(1)(v)(F) for IME and
§ 413.79(d)(7) for direct GME, and
applies for IME and direct GME to cost
reporting periods beginning on or after
April 1, 2000.
We received questions asking whether
the change in the 3-year window to the
5-year window for new programs also
applies to the establishment of rural
training tracks. In the FY 2013 IPPS/
LTCH PPS final rule, when we amended
the regulations to provide for a 5-year
new program growth window at
§ 413.79(e) for direct GME and at
§ 412.105(f)(1)(vii) for IME, and in the
FY 2015 IPPS/LTCH PPS final rule
when we made the FTE resident caps of
new programs to be effective with the
applicable hospital’s cost reporting
period that coincides with or follows
the start of the sixth program year, we
inadvertently did not also change the
growth window and effective date of
FTE limitations for rural training tracks,
which, under existing § 413.79(k) for
direct GME and § 412.105(f)(1)(x) for
IME, is 3 program years, and is effective
after 3 program years, respectively.
In this FY 2017 IPPS/LTCH PPS
proposed rule, we are proposing to
revise the regulations at § 413.79(k) (and
which, in turn, would affect IME
adjustments under § 412.105(f)(1)(x)) to
permit that, in the first 5 program years
(rather than the first 3 program years) of
the rural track’s existence, the rural
track FTE limitation for each urban
hospital will be the actual number of
FTE residents training in the rural
training track at the urban hospital, and
beginning with the urban hospital’s cost
reporting period that coincides with or
follows the start of the sixth program
year of the rural training track’s
existence, the rural track FTE limitation
would take effect. This proposed change
addresses concerns expressed by the
hospital community that rural training
tracks, like any program, should have a
sufficient amount of time for a hospital
to ‘‘grow’’ and to establish a rural track
FTE limitation that reflects the number
of FTE residents that it will actually
train, once the program is fully grown.
However, as stated above, due to the
statutory language at sections
1886(d)(5)(B) and 1886(h)(4)(H)(iv) of
the Act as implemented in our
regulations at §§ 412.105(f)(1)(v)(F) and
413.79(d)(7), except for new rural track
programs begun by urban teaching
hospitals that are establishing an FTE
cap for the first time, FTE residents in
a rural track training program at the

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urban hospital are subject immediately
to the 3-year rolling average for direct
GME and IME. In addition, under the
regulations at § 412.105(a)(1)(i), no
exception to the IME intern- and
resident-to-bed (IRB) ratio cap is
provided for residents in a rural track
training program (except for new rural
track programs begun by urban teaching
hospitals that are establishing an FTE
cap for the first time). Accordingly,
while we are proposing that the urban
hospital’s rural track FTE limitation
would first be effective beginning with
the urban hospital’s cost reporting
period that coincides with or follows
the start of the sixth program year of the
rural track training program’s existence,
the rural track training program’s FTEs
are included in the 3-year rolling
average and are subject to the IME IRB
ratio cap for hospitals with established
FTE caps, even within the first 5
program years prior to the beginning of
the urban hospital’s cost reporting
period that coincides with or follows
the start of the sixth program year of the
rural track training program’s existence.
We note that, for programs with cost
reporting periods beginning on or after
October 1, 2003, our regulations at
§§ 413.79(k)(1) through (k)(4) are
divided between rural track FTE
limitation adjustments for urban
hospitals where the residents rotate to a
rural area for more than one half of the
duration of the program (§§ 413.79(k)(1)
and (k)(2)), and where the residents
rotate to a rural area for less than onehalf of the duration of the program
(§§ 413.79(k)(3) and (k)(4)). As we
explained in the August 1, 2003 IPPS
final rule (68 FR 45456 through 45458),
‘‘duration of the program’’ refers to the
minimum accredited length of the
particular specialty of the rural track
training program. We are clarifying
under this proposal that, although the
urban hospital’s rural track FTE
limitation would not be effective until
the beginning of the urban hospital’s
cost reporting period that coincides
with or follows the start of the sixth
program year of the rural track training
program’s existence, the rural track FTE
limitation that would be provided, if
any, is still subject to whether or not the
urban hospital rotates the residents in
the rural track training program to a
rural area(s) for more than one-half of
the ‘‘duration of the program,’’ and
whether or not the urban hospital
complies with existing §§ 413.79(k)(5)
and (k)(6), and the proposed revised
§ 413.79(k)(7). We are proposing to
revise § 413.79(k)(7), which specifies the
effect on rural track FTE limitations
when previously rural statistical areas

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become urban statistical areas due to
updates in the OMB standards for
delineating urban and rural statistical
areas, because the existing paragraphs
under § 413.79(k)(7) discuss the ‘‘3year’’ growth period. Consequently, we
need to make conforming changes by
revising paragraphs (k)(7)(ii) and (iii) to
account for rural track training programs
started prior to October 1, 2012. (For
more information regarding the effect on
rural track FTE limitations when OMB
makes changes to its standards for
delineating statistical areas, we refer
readers to the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50113 through 50117).)
c. Proposed Effective Date
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50111), when we provided
that the policy regarding the effective
dates of the FTE residency caps, the 3year rolling average, and the IRB ratio
cap for FTE residents in new medical
residency training programs would be
effective with the applicable hospital’s
cost reporting period that coincides
with or follows the start of the sixth
program year of the first new program
started, we stated that this policy would
be effective for urban hospitals that first
begin to participate in training residents
in their first new medical residency
training program, and for rural
hospitals, on or after October 1, 2012.
We finalized this as the effective date
because the policy providing a 5-year
growth period for establishing the FTE
resident caps (§§ 413.79(e)(1) and (e)(3))
was also effective for new programs
started on or after October 1, 2012.
Because we inadvertently did not also
amend the separate regulations at
§ 412.105(f)(1)(x) and § 413.79(k)
regarding the growth window and
effective date of FTE limitations for
rural track training programs when we
amended the regulations regarding the
5-year growth window in the FY 2013
IPPS/LTCH PPS final rule and regarding
the additional changes we made in the
FY 2015 IPPS/LTCH PPS final rule, we
are proposing that the effective date
regarding the change in the growth
window for rural track training
programs from 3 years to 5 years also be
effective for rural track training
programs started on or after October 1,
2012. We acknowledge that there could
be urban hospitals that started a rural
track training program after October 1,
2012 (likely on July 1, 2013) for which
rural track FTE limitations would
become effective under current policy
after 3 years (likely on July 1, 2016). We
are proposing that, if our proposal is
finalized, we would not actually apply
the rural track FTE limitations that
would have become effective for these

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hospitals after 3 program years. Instead,
the rural track FTE limitations for these
hospitals would be the actual number of
FTE residents training in the rural track
(subject to the rolling average at
§ 413.79(d)(7) and the IME IRB ratio cap
at § 412.105(a)(1)(i), if applicable) for an
additional 2 years (from July 1, 2016
through June 30, 2018), and the rural
track FTE limitations would become
effective with the cost reporting period
that coincides with or follows the start
of the sixth program year, which in this
example would be July 1, 2018.
In summary, we are proposing to
revise the direct GME regulations at
§ 413.79(k) (and which, in turn, would
affect IME adjustments under
§ 412.105(f)(1)(x)) to permit that,
effective with rural track training
programs started on or after October 1,
2012, in the first 5 program years of the
rural track’s existence, the rural track
FTE limitation for each urban hospital
will be the actual number of FTE
residents (subject to the rolling average
at § 413.79(d)(7) and the IME IRB ratio
cap at § 412.105(a)(1)(i), if applicable),
training in the rural track training
program at the urban hospital, and the
rural track FTE limitation would take
effect beginning with the urban
hospital’s cost reporting period that
coincides with or follows the start of the
sixth program year of the rural track
training program’s existence.
We are inviting public comment on
this proposal.
K. Rural Community Hospital
Demonstration Program
1. Background
Section 410A(a) of Public Law 108–
173 required the Secretary to establish
a demonstration program to test the
feasibility and advisability of
establishing ‘‘rural community’’
hospitals to furnish covered inpatient
hospital services to Medicare
beneficiaries. The demonstration pays
rural community hospitals under a
reasonable cost-based methodology for
Medicare payment purposes for covered
inpatient hospital services furnished to
Medicare beneficiaries. A rural
community hospital, as defined in
section 410A(f)(1), is a hospital that—
• Is located in a rural area (as defined
in section 1886(d)(2)(D) of the Act) or is
treated as being located in a rural area
under section 1886(d)(8)(E) of the Act;
• Has fewer than 51 beds (excluding
beds in a distinct part psychiatric or
rehabilitation unit) as reported in its
most recent cost report;
• Provides 24-hour emergency care
services; and

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• Is not designated or eligible for
designation as a CAH under section
1820 of the Act.
Section 410A(a)(4) of Public Law 108–
173 specified that the Secretary was to
select for participation no more than 15
rural community hospitals in rural areas
of States that the Secretary identified as
having low population densities. Using
2002 data from the U.S Census Bureau,
we identified the 10 States with the
lowest population density in which
rural community hospitals were to be
located in order to participate in the
demonstration: Alaska, Idaho, Montana,
Nebraska, Nevada, New Mexico, North
Dakota, South Dakota, Utah, and
Wyoming. (Source: U.S. Census Bureau,
Statistical Abstract of the United States:
2003.)
CMS originally solicited applicants
for the demonstration in May 2004; 13
hospitals began participation with cost
reporting periods beginning on or after
October 1, 2004. In 2005, 4 of these 13
hospitals withdrew from the program
and converted to CAH status. This left
9 hospitals participating at that time. In
2008, 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 4 additional
hospitals began under the
demonstration payment methodology
with the hospital’s first cost reporting
period starting on or after July 1, 2008.
At that time, 13 hospitals were
participating in the demonstration.
Five hospitals (3 of the hospitals were
among the 13 hospitals that were
original participants in the
demonstration program and 2 of the
hospitals were among the 4 hospitals
that began the demonstration program
in 2008) withdrew from the
demonstration program during CYs
2009 and 2010. (Three of these hospitals
indicated that they would be paid more
for Medicare inpatient hospital services
under the rebasing option allowed
under the SCH methodology provided
for under section 122 of the Medicare
Improvements for Patients and
Providers Act of 2008 (Pub. L. 110–275).
One hospital restructured to become a
CAH, and one hospital closed.) In CY
2011, one hospital that was among the
original set of hospitals that participated
in the demonstration withdrew from the
demonstration. These actions left seven
of the originally participating hospitals
(that is, hospitals that were selected to
participate in either 2004 or 2008)
participating in the demonstration
program as of June 1, 2011.
Sections 3123 and 10313 of the
Affordable Care Act (Pub. L. 111–148)

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amended section 410A of Public Law
108–173, changing 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,
to begin on the date immediately
following the last day of the initial 5year period. Further, the Affordable
Care Act requires, in the case of a rural
community hospital that is participating
in the demonstration program as of the
last day of the initial 5-year period, the
Secretary to provide for the continued
participation of such rural hospital in
the demonstration program during the
5-year extension period, unless the
hospital makes an election to
discontinue participation.
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. Further, the Secretary is
required to use the same criteria and
data that the Secretary used to
determine the States for purposes of the
initial 5-year period. 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.
We published a solicitation for
applications for additional participants
in the rural community hospital
demonstration program in the Federal
Register on August 30, 2010 (75 FR
52960). Applications were due on
October 14, 2010. The 20 States with the
lowest population density that were
eligible for the demonstration program
are: Alaska, Arizona, Arkansas,
Colorado, Idaho, Iowa, Kansas, Maine,
Minnesota, Mississippi, Montana,
Nebraska, Nevada, New Mexico, North
Dakota, Oklahoma, Oregon, South
Dakota, Utah, and Wyoming (Source:
U.S. Census Bureau, Statistical Abstract
of the United States: 2003). We
approved 19 new hospitals for
participation in the demonstration
program. We determined that each of
these new hospitals would begin
participating in the demonstration with
its first cost reporting period beginning
on or after April 1, 2011.
Three of these 19 hospitals declined
participation prior to the start of the cost
reporting periods for which they would
have begun the demonstration. In
addition to the 7 hospitals that were
selected in either 2004 or 2008, the new
selection led to a total of 23 hospitals in
the demonstration. During CY 2013, one
additional hospital among the set
selected in 2011 withdrew from the
demonstration, similarly citing a

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relative financial advantage to returning
to the customary SCH payment
methodology, which left 22 hospitals
participating in the demonstration,
effective July 1, 2013. In October 2015,
another hospital among those selected
in 2011 closed, leaving 14 among this
cohort still participating. (By this date,
as described below, the 7 hospitals that
were selected in either 2004 or 2008 had
completed the 5-year extension period
mandated by the Affordable Care Act).
Section 410A(c)(2) of Public Law 108–
173 required that, in conducting the
demonstration program under this
section, the Secretary shall ensure that
the aggregate payments made by the
Secretary do not exceed the amount
which the Secretary would have paid if
the demonstration program under this
section was not implemented. This
requirement is commonly referred to as
‘‘budget neutrality.’’ Generally, when
we implement a demonstration program
on a budget neutral basis, the
demonstration program is budget
neutral in its own terms; in other words,
the aggregate payments to the
participating hospitals do not exceed
the amount that would be paid to those
same hospitals in the absence of the
demonstration program. Typically, this
form of budget neutrality is viable
when, by changing payments or aligning
incentives to improve overall efficiency,
or both, a demonstration program may
reduce the use of some services or
eliminate the need for others, resulting
in reduced expenditures for the
demonstration program’s participants.
These reduced expenditures offset
increased payments elsewhere under
the demonstration program, thus
ensuring that the demonstration
program as a whole is budget neutral or
yields savings. However, the small scale
of this demonstration program, in
conjunction with the payment
methodology, makes it extremely
unlikely that this demonstration
program could be viable under the usual
form of budget neutrality.
Specifically, cost-based payments to
participating small rural hospitals are
likely to increase Medicare outlays
without producing any offsetting
reduction in Medicare expenditures
elsewhere. Therefore, a rural
community hospital’s participation in
this demonstration program is unlikely
to yield benefits to the participant if
budget neutrality were to be
implemented by reducing other
payments for these same hospitals. In
the past 12 IPPS final rules, 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

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for the added costs of this
demonstration program, thus applying
budget neutrality across the payment
system as a whole rather than merely
across the participants in the
demonstration program. As we
discussed in the FYs 2005 through 2016
IPPS final rules (69 FR 49183; 70 FR
47462; 71 FR 48100; 72 FR 47392; 73 FR
48670; 74 FR 43922, 75 FR 50343, 76 FR
51698, 77 FR 53449, 78 FR 50740, 77 FR
50145, and 80 FR 49585, respectively),
we believe that the language of the
statutory budget neutrality requirements
permits the agency to implement the
budget neutrality provision in this
manner.

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2. Budget Neutrality Offset Adjustments:
Fiscal Years 2005 Through 2016
a. Fiscal Years 2005 Through 2013
In general terms, in each of these
previous years from FYs 2005 through
2016, we used available cost reports for
the participating hospitals to derive an
estimate of the additional costs
attributable for the demonstration. For
FYs 2005 through 2012, we used
finalized, or settled, cost reports, as
available, and ‘‘as submitted’’ cost
reports for hospitals for which finalized
cost reports were not available to derive
this estimate of the additional costs
attributable to the demonstration.
Annual market basket percentage
increase amounts provided by the CMS
Office of the Actuary reflecting the
growth in the prices of inputs for
inpatient hospitals were applied to cost
amounts obtained from these cost
reports. In the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53452), we initiated
two general changes to the methodology
for estimating the costs of the
demonstration (which we have
continued to apply through FY 2016).
First, we used ‘‘as submitted’’ cost
reports for each hospital participating in
the demonstration in estimating the
costs of the demonstration (for FY 2013,
we used cost reports for cost reporting
periods ending in CY 2010). Second, in
FY 2013, we incorporated different
update factors (the market basket
percentage increase and the applicable
percentage increase, as applicable, to
several years of data as opposed to
solely using the market basket
percentage increase) for the calculation
of the budget neutrality offset amount.
We refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53449
through 53453) for a detailed discussion
of the methodology initiated in FY 2013.
In each of these fiscal years, an annual
update factor provided by the CMS
Office of the Actuary reflecting growth
in the volume of inpatient operating

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services was also applied to update the
estimated costs. For the budget
neutrality calculations in the IPPS final
rules for FYs 2005 through 2011, the
annual volume adjustment applied was
2 percent; for the IPPS final rules for
FYs 2012 through 2016, it was 3
percent. For a detailed discussion of our
budget neutrality offset calculations, we
refer readers to the IPPS final rule
applicable to the fiscal year involved.
In general, for FYs 2005 through 2013,
we based the budget neutrality offset
estimate on the estimated cost of the
demonstration in an earlier given year.
For these periods, we derived that
estimated cost by subtracting the
estimated amount that would otherwise
be paid without the demonstration in an
earlier given year from the estimated
amount for the same year that would be
paid under the demonstration under the
reasonable cost-based methodology
authorized by section 410A of Public
Law 108–173. (We ascertained the
estimated amount that would be paid in
an earlier given year under the
reasonable cost methodology and the
estimated amount that would otherwise
be paid without the demonstration in an
earlier given year from finalized or ‘‘as
submitted’’ cost reports as discussed
earlier.) For FYs 2005 through 2012, we
then updated the estimated costs
described earlier to the upcoming year
by multiplying them by the market
basket percentage increases applicable
to the years involved and the applicable
annual volume adjustment. Beginning
in FY 2013, as discussed earlier, we
began incorporating different update
factors—we used the IPPS market basket
percentage increases applicable to the
years involved to update the estimated
amount that would be paid under the
demonstration under the reasonable
cost-based methodology, and the
applicable percentage increases
applicable to the years involved to
update the amounts that would
otherwise be paid without the
demonstration. We continued to apply
the annual volume adjustment as
discussed earlier.
For the FY 2010 IPPS/RY 2010 LTCH
PPS final rule, data from finalized cost
reports reflecting the participating
hospitals’ experience under the
demonstration were available.
Specifically, the finalized cost reports
for the first 2 years of the
demonstration, that is, cost reports for
cost reporting years beginning in FYs
2005 and 2006 (CYs 2004, 2005, and
2006) were available. These data
showed that the actual costs of the
demonstration for these years exceeded
the amounts originally estimated in the
respective final rules for the budget

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neutrality adjustment. In the FY 2010
IPPS/RY 2010 LTCH PPS final rule, we
included an additional amount in the
budget neutrality offset amount in that
fiscal year. This additional amount was
based on the amount that the costs of
the demonstration for FYs 2005 and
2006 exceeded the budget neutrality
offset amounts finalized in the IPPS
rules applicable for those years.
In the final rules for FYs 2011 through
2013, we continued to use a
methodology for calculating the budget
neutrality offset amount consisting of
two components: (1) The estimated
demonstration costs in the upcoming
fiscal year; and (2) the amount by which
the actual demonstration costs
corresponding to an earlier, given year
(which would be known once finalized
cost reports became available for that
year) exceeded the budget neutrality
offset amount finalized in the
corresponding year’s IPPS final rule.
However, we noted in the FYs 2011,
2012, and 2013 IPPS final rules that,
because of a delay affecting the
settlement process for cost reports for
IPPS hospitals occurring on a larger
scale than merely for the demonstration,
we were unable to finalize this
component of the budget neutrality
offset amount accounting for the amount
by which the actual demonstration costs
in an earlier given year exceeded the
budget neutrality offset amount
finalized in the corresponding year’s
IPPS final rule for cost reports of
demonstration hospitals dating to those
beginning in FY 2007.
b. Fiscal Years 2014 and 2015
In the final rules for FYs 2014 and
2015, we continued to apply the general
methodology discussed earlier (with the
modifications initiated in FY 2013) in
estimating the costs of the
demonstration for the specific fiscal
year, using the set of ‘‘as submitted’’
cost reports from the most recent
calendar year for which they are
available (cost reporting periods ending
in 2011 and 2012, respectively), and
updating the cost amounts according to
the factors discussed earlier. In
addition, in these final rules, because
finalized cost reports for FYs 2007 and
2008 had become available, we were
able to include in the budget neutrality
offset adjustment the amount by which
the actual demonstration costs in each
of those years exceeded the budget
neutrality offset amounts finalized in
the IPPS final rules for these years.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR through 50744), we
determined the final budget neutrality
offset amount to be applied to the FY
2014 IPPS rates to be $52,589,741. This

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amount was comprised of the two
distinct components identified earlier:
(1) The final resulting difference
between the total estimated FY 2014
reasonable cost amount to be paid under
the demonstration to the 22
participating hospitals for covered
inpatient hospital services, and the total
estimated amount that would otherwise
be paid to such hospitals without the
demonstration (this amount was
$46,549, 861); and (2) the amount by
which the actual costs for the
demonstration for FY 2007 (as shown in
the finalized cost reports for cost
reporting periods beginning in FY 2007
for the nine hospitals that participated
in the demonstration during FY 2007)
exceeded the budget neutrality offset
amount that was finalized in the FY
2007 IPPS final rule (this amount was
$6,039,880).
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50141 through 50145), we
determined the final budget neutrality
offset amount to be applied to the FY
2015 IPPS rates to be $64,566,915. This
amount was also comprised of the two
earlier referenced components: (1) The
final resulting difference between the
total estimated FY 2015 reasonable cost
amount to be paid under the
demonstration to the 22 participating
hospitals for covered inpatient hospital
services, and the total estimated amount
that would otherwise be paid to such
hospitals in FY 2015 without the
demonstration (this amount was
$54,177,144); and (2) the amount by
which the actual costs of the
demonstration for FY 2008 (as shown in
the finalized cost reports for the
hospitals that participated in the
demonstration during FY 2008)
exceeded the budget neutrality offset
amount that was finalized in the FY
2008 IPPS final rule (this amount was
$10,389,771).
c. Fiscal Year 2016
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49586 through 49591), we
continued to apply the general
methodology discussed earlier for FYs
2014 and 2015 in estimating the costs of
the demonstration for FY 2016, with
some modifications. For FY 2016, we
used the set of ‘‘as submitted’’ cost
reports from the most recent calendar
year for which they were available (cost
reporting periods ending in CY 2013),
and updated the cost amounts using the
IPPS market basket percentage increase
and applicable percentage increase
applicable to the years involved as
discussed earlier. Although the
methodology for FY 2016 was similar to
that for the previous several rules,
because the demonstration began to

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phase out prior to the beginning of FY
2016, appropriate changes to the
calculations were made. The 7
‘‘originally participating hospitals,’’ that
is, those hospitals that were selected for
the demonstration in either 2005 or
2008, were scheduled to end their
participation in the 5-year extension
period authorized by the Affordable
Care Act prior to the start of FY 2016.
Therefore, we did not include the
financial experience of these hospitals
in the calculation of either the estimated
reasonable cost amount or the estimated
amount that otherwise would be paid
without the demonstration for FY 2016.
In addition, 8 hospitals that entered the
demonstration in 2011 and 2012
through the solicitation that followed
the Affordable Care Act amendments
expanding the demonstration, and that
were still participating in the
demonstration at the time of the FY
2016 IPPS/LTCH PPS final rule, were
scheduled to end their participation on
a rolling basis before September 30,
2016. As discussed in the FY 2016 IPPS/
LTCH PPS final rule, for these 8
hospitals, the estimated reasonable cost
amount and the estimated amount that
would otherwise be paid without the
demonstration were prorated according
to the ratio of the number of months
between October 1, 2015, and the end of
the hospital’s cost reporting period in
relation to the entire 12-month period.
We refer readers to the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49586
through 49588) for a discussion of these
additional calculations.
The resulting estimate of costs of the
demonstration for FY 2016 for the 15
hospitals participating in the
demonstration for FY 2016 was
$26,044,620.
In addition, in the FY 2016 IPPS/
LTCH PPS final rule, we were able to
finalize the amounts by which the
actual demonstration costs for FYs 2009
and 2010 differed from the budget
neutrality offset amount finalized in the
corresponding final rules for these years
using the following approach:
We identified the difference between
the actual cost of the demonstration for
FY 2009 as indicated in the finalized
cost reports for hospitals that
participated in FY 2009 and that had
cost reporting periods beginning in FY
2009 (this amount was $14,332,936),
and the budget neutrality offset amount
that was identified in the FY 2009 IPPS
final rule (73 FR 48671) (this amount
was $22,790,388). Analysis of this set of
cost reports showed that the budget
neutrality offset amount that was
finalized to account for the
demonstration costs in FY 2009 (as set
forth in the FY 2009 IPPS final rule)

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exceeded the actual cost of the
demonstration for FY 2009 by
$8,457,452.
We included the amount by which the
actual costs of the demonstration for FY
2010 (as shown in the finalized cost
reports for the nine hospitals that
completed a cost reporting period
beginning in FY 2010) ($16,817,922)
differed from the amount that was
finalized as the costs of the
demonstration for FY 2010 as set forth
in the FY 2010 IPPS/RY 2010 LTCH PPS
final rule and the FY 2011 IPPS/LTCH
PPS final rule ($21,569,472). Analysis of
this set of cost reports showed that the
budget neutrality offset amount that was
finalized to account for the
demonstration costs in FY 2010 (as set
forth in the FY 2010 IPPS/RY 2010
LTCH PPS final rule and the FY 2011
IPPS/LTCH PPS final rule) exceeded the
actual cost of the demonstration for FY
2010 by $4,751,550.
Unlike in previous years, because the
budget neutrality offset amount
identified in the corresponding final
rules for each of FYs 2009 and 2010
exceeded the actual costs of the
demonstration, we subtracted the
differences between these amounts for
each fiscal year (that is, $8,457,452
applicable to FY 2009 and $4,751,550
applicable to FY 2010) from the
estimated amount of the costs of the
demonstration for FY 2016 (that is,
$26,044,620). Thus, the final budget
neutrality offset amount for which the
adjustment to the national IPPS rates
was calculated was $12,835,618.
3. Proposed Budget Neutrality
Methodology for FY 2017
As described earlier, we have
generally incorporated two components
into the budget neutrality offset
amounts identified in the final IPPS
rules in previous years. First, we have
estimated the costs of the demonstration
for the upcoming fiscal year, generally
determined from historical, ‘‘as
submitted’’ cost reports for the hospitals
participating in that year. Update factors
representing nationwide trends in cost
and volume increases have been
incorporated into these estimates, as
specified in the methodology described
in the final rule for each fiscal year.
Second, as finalized cost reports have
become available, we have determined
the amount by which the actual costs of
the demonstration for an earlier, given
year differed from the estimated costs
for the demonstration set forth in the
final IPPS rule for the corresponding
fiscal year, and we incorporated that
amount into the budget neutrality offset
amount for the upcoming fiscal year. If
the actual costs for the demonstration

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for the earlier fiscal year exceeded the
estimated costs of the demonstration
identified in the final rule for that year,
this difference was added to the
estimated costs of the demonstration for
the upcoming fiscal year when
determining the budget neutrality
adjustment for the upcoming fiscal year.
Conversely, if the estimated costs of the
demonstration set forth in the final rule
for a prior fiscal year exceeded the
actual costs of the demonstration for
that year, this difference was subtracted
from the estimated cost of the
demonstration for the upcoming fiscal
year when determining the budget
neutrality adjustment for the upcoming
fiscal year. We note that we have
calculated this difference between the
actual costs of the demonstration for
FYs 2005 through 2010, as determined
from finalized cost reports once
available, and estimated costs of the
demonstration as identified in the
applicable IPPS final rules for these
years.
In this FY 2017 proposed rule, we are
proposing a different methodology as
compared to previous years for
analyzing the costs attributable to the
demonstration for FY 2017. We note
that the demonstration will have
substantially phased out by the
beginning of FY 2017. The 7 ‘‘originally
participating hospitals,’’ that is, those
that were selected for the demonstration
in 2004 and 2008, ended their
participation in the 5-year extension
period authorized by the Affordable
Care Act prior to the start of FY 2016.
In addition, the participation period for
the 14 hospitals that entered the
demonstration following upon the
mandate of the Affordable Care Act and
that are still participating will end on a
rolling basis according to the end dates
of the hospitals’ cost report periods,
respectively, from April 30, 2016
through December 31, 2016. (As noted
earlier, 1 hospital among this cohort
closed in October 2015). Of these 14
hospitals, 10 will end participation on
or before September 30, 2016, leaving 4
hospitals participating for the last 3
months of CY 2016 (that is, the first 3
months of FY 2017). We believe that,
given the small number of participating
hospitals and the limited time of
participation for such hospitals during
FY 2017, a revised methodology is
appropriate for determining the costs of
the demonstration during this period as
discussed below.
We note that estimating the costs of
the demonstration for these 4 hospitals
for their extent of participation in the
demonstration in FY 2017 would entail
a prorating calculation if we followed
the methodology we used for FY 2016

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as described earlier, as well as
application of update factors to project
increases in cost. We further note that,
for the 4 hospitals that will end their
participation in the demonstration
effective December 31, 2016, the
financial experience of the last 3 months
of the calendar year (that is, the first 3
months of FY 2017) will be included in
the finalized cost reports for FY 2016.
(Consistent with the methodology used
for the final rules for previous years, a
hospital’s cost report is included in the
analysis of a given fiscal year if the cost
reporting period begins in that fiscal
year). We believe that examining the
finalized cost reports for FY 2016 for
these hospitals would lead to a more
accurate and administratively feasible
calculation of budget neutrality for the
demonstration in FY 2017 than
conducting an estimate of the costs of
the demonstration for this 3-month
period based on ‘‘as submitted cost
reports’’ (as would occur according to
the budget neutrality methodology
currently in effect).
In addition, given that the extent of
covered services for FY 2017 subject to
the payment methodology under the
demonstration is a small fraction of that
in previous fiscal years, we believe that
it is appropriate to forego the process of
estimating the costs attributable to the
demonstration for 2017 and to instead
analyze the set of finalized cost reports
for cost reporting periods beginning in
FY 2016, which will reflect the actual
cost of the demonstration, when they
become available. Such an approach
also would eliminate the need to
perform for FY 2017 the second
component of the budget neutrality
methodology discussed earlier (that is,
determining the amount by which the
actual costs of the demonstration for the
fiscal year, as determined in finalized
cost reports once available, differed
from the estimated costs for the
demonstration set forth in the final IPPS
rule for the corresponding fiscal year).
Thus, for the reasons discussed earlier,
we are proposing to calculate the costs
of the demonstration and the resulting
budget neutrality adjustment factor for
the demonstration for FY 2017 once the
finalized cost reports for cost reporting
periods beginning in FY 2016 become
available. We are inviting public
comments on this proposal.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49591), we stated that we
intended to discuss in this FY 2017
IPPS/LTCH PPS proposed rule how we
would reconcile the budget neutrality
offset amounts identified in the IPPS
final rules for FYs 2011 through 2016
with the actual costs of the
demonstration for those years,

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considering the fact that the
demonstration will end December 31,
2016. We believe it would be
appropriate to conduct this analysis for
FYs 2011 through 2016 at one time,
when all of the finalized cost reports for
cost reporting periods beginning in FYs
2011 through 2016 are available. Such
an aggregate analysis encompassing the
cost experience through the end of the
period of performance of the
demonstration represents an
administratively streamlined method,
allowing for the determination of any
appropriate adjustment to the IPPS rates
and obviating the need for multiple
fiscal-year-specific calculations and
regulatory actions. Given the general lag
of 3 years in finalizing cost reports, we
expect any such analysis to be
conducted in FY 2020.
We also note that, in the FY 2016
IPPS/LTCH PPS final rule (80 FR
49591), we indicated that we were
considering whether to propose in
future rulemaking that the calculation of
the final costs of the demonstration for
a fiscal year reflect that some of the
participating hospitals would otherwise
have been eligible for the payment
adjustment for low-volume hospitals in
that fiscal year if they had not
participated in the demonstration. Our
policy under the demonstration is that
hospitals participating in the
demonstration are not able to receive
the low-volume adjustment in addition
to the reasonable cost-based payment
authorized by section 410A of Public
Law 108–173. We refer readers to
Change Request 7505 dated July 22,
2011, available on the CMS Web site at:
http://www.cms.gov. Section
1886(d)(12) of the Act provides for a
payment adjustment to account for the
higher costs per discharge for lowvolume hospitals under the IPPS,
effective FY 2005 (69 FR 49099 through
49102). We note that sections 3125 and
10314 of the Affordable Care Act
provided for temporary changes in the
qualifying criteria and payment
adjustment for low-volume hospitals for
FYs 2011 and 2012, which have been
extended through subsequent
legislation: Through FY 2013, by the
American Taxpayer Relief Act of 2012
(ATRA) (Pub. L. 112–240) (78 FR 50610
through 50613), through March 31,
2014, by the Pathway for SGR Reform
Act (Pub. L. 113–67) (79 FR 15022
through 15025); through March 21,
2015, by the Protecting Access to
Medicare Act of 2014 (Pub. L. 113–93)
(79 FR 49998 through 50001); and most
recently through September 30, 2017, by
section 204 of the Medicare Access and
CHIP Reauthorization Act of 2015 (Pub.

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L. 114–110). These temporary changes
have increased the number of hospitals
that are eligible to receive the lowvolume hospital payment adjustment.
We further stated in the FY 2016
IPPS/LTCH PPS final rule that taking
the low-volume hospital payment
adjustment into account in determining
the costs of the demonstration would
require detailed consideration of the
data sources and methodology that
would be used to determine which
among the demonstration hospitals
would have otherwise been eligible for
the low-volume payment adjustment
and to estimate the amount of the
adjustment. In the FY 2016 IPPS/LTCH
PPS final rule (80 FR 24521), we invited
public comments on this issue.
We are continuing to examine this
issue and are considering whether to
incorporate the low-volume payment
adjustment amounts that would have
otherwise been made into the
calculation of the difference between
the actual costs of the demonstration
and budget neutrality offset amounts for
FYs 2011 through 2016. We note that
applying such a methodology may lower
the calculated amounts of the actual
costs of the demonstration compared to
not applying such a methodology,
making it more likely that the actual
costs of the demonstration for a year
will not exceed the estimated costs of
the demonstration identified in the final
rule for that year. We again are inviting
public comments on this issue.
L. Proposed Hospital and CAH
Notification Procedures for Outpatients
Receiving Observation Services

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1. Background
a. Statutory Authority
On August 6, 2015, the Notice of
Observation Treatment and Implication
for Care Eligibility Act (the NOTICE
Act), Public Law 114–42 was enacted.
Section 2 of the NOTICE Act amended
section 1866(a)(1) of the Act by adding
new subparagraph (Y) that requires
hospitals and critical access hospitals
(CAHs) to provide written notification
and an oral explanation of such
notification to individuals receiving
observation services as outpatients for
more than 24 hours at the hospitals or
CAHs. Section 1866(a)(1) of the Act lists
requirements for providers of services to
participate in the Medicare program and
be eligible for payments under Medicare
pursuant to provider agreements.
Section 1866(a)(1)(Y) of the Act, as
added by section 2 of the NOTICE Act,
specifies that the notification process
must consist of a written notification as
specified by the Secretary through
rulemaking and containing such

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language as the Secretary prescribes
consistent with the statutory provision,
and an oral explanation of the written
notification and documentation of the
provision of the explanation, as the
Secretary determines to be appropriate.
Notification to each individual who
receives observation services as an
outpatient for more than 24 hours must
be provided no later than 36 hours after
observation services are initiated (or
sooner, if upon release from the hospital
or CAH). Section 1866(a)(1)(Y)(ii) of the
Act provides that the written notice
must explain that the individual is an
outpatient receiving observation
services, and is not an inpatient of a
hospital or CAH. In addition, the
written notice must include the
reason(s) the individual is an outpatient
receiving observation services and must
explain the implications of being an
outpatient receiving observation
services, such as cost-sharing
requirements and post-hospitalization
eligibility for coverage of skilled nursing
facility (SNF) services under Medicare.
The written notification also must
include any additional information as
deemed appropriate by the Secretary.
Moreover, the written notification must
either be signed by the individual
receiving observation services as an
outpatient, or a person acting on the
individual’s behalf, to acknowledge
receipt of the notification. In cases
where a signature by the individual or
the person acting on the individual’s
behalf is refused, section
1866(a)(1)(Y)(ii)(IV)(bb) of the Act
stipulates that the notification be signed
by the staff member of the hospital or
CAH who presented the written
notification and include the name and
title of the staff member, a certification
statement that the notification was
presented, and the date and time that
the notification was presented. Finally,
section 1866(a)(1)(Y)(ii)(V) of the Act
provides that the notification be written
and formatted using plain language and
is made available in appropriate
languages as determined by the
Secretary.
b. Proposed Effective Date
Section 2 of the NOTICE ACT
provides the effective date for this
notification requirement as effective
beginning 12 months after the date of
enactment of the NOTICE Act; that is,
effective on August 6, 2016. Since the
date the NOTICE Act was enacted, CMS
has been working to implement the
statutory requirement in a timely
manner. On December 14, 2015, CMS
released an electronic mailbox address
for individuals who wished to submit
email comments on the provisions of

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the NOTICE Act. In addition, CMS
announced a December 21, 2015
listening session to provide individuals
further opportunity to provide comment
on the NOTICE Act. We thank those
individuals who shared their input. The
agency reviewed all comments
submitted by email as well as those
comments provided during the public
listening session in developing the
provisions of this proposed rule.
2. Proposed Implementation of the
NOTICE Act Provisions
a. Proposed Notice Process
In this proposed rule, we are
proposing to implement section
1866(a)(1)(Y) of the Act by revising the
requirements that providers agree to as
part of participating in Medicare under
a provider agreement by establishing
regulations (at proposed 42 CFR
489.20(y)) that would specify a process
for hospitals and CAHs to notify an
individual, orally and in writing,
regarding the individual’s receipt of
observation services as an outpatient
and the implications of receiving such
services as set forth below. Under this
proposed process, hospitals and CAHs
would be required to furnish notice to
such an individual entitled to Medicare
benefits if the individual receives
observation services as an outpatient for
more than 24 hours. We are proposing
the use of a standardized notice,
referred to as the Medicare Outpatient
Observation Notice (MOON), to be used
by all applicable hospitals and CAHs.
The MOON would include all of the
informational elements required by
section 1866(a)(1)(Y)(ii) of the Act to
fulfill the written notice requirement of
the NOTICE Act.
b. Proposed Notification Recipients
Section 1866(a)(1)(Y) of the Act
requires hospitals or CAHs to furnish
notice to each individual who receives
observation services as an outpatient at
such hospital or CAH for more than 24
hours. Throughout section 1866 of the
Act, ‘‘individual’’ generally refers to a
person entitled to have payment made
for services under Title XVIII of the Act,
or a person not entitled to have payment
made for services under Title XVIII if
certain conditions are met. The
provisions of the NOTICE Act specify
that notice must be provided to
individuals receiving observation
services as an outpatient for more than
24 hours; the provisions do not specify
qualifications related to payment for
such services as a condition of notice.
Accordingly, we are proposing under
the new § 489.20(y) that the notification
required by section 1866(a)(1)(Y) of the

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Act must be provided to individuals
entitled to benefits under Title XVIII of
the Act, whether or not the services
furnished are payable under Title XVIII,
when individuals receive observation
services as an outpatient for more than
24 hours. For example, an individual
receiving Medicare Part A benefits who
has not enrolled in Part B would still
receive notice even though the
observation services the individual
receives as an outpatient would not be
covered under Medicare for him or her,
as such observation services received as
an outpatient would fall under the Part
B benefit and would be subject to
payment under Medicare Part B.
A beneficiary enrolled in a Medicare
Advantage or other Medicare health
plan would receive the required notice
under the existing rules that apply to
hospitals and CAHs under a provider
agreement governed by the provisions of
section 1866(a)(1)(Y) of the Act. The
Medicare Advantage regulations related
to selection and credentialing of
contract providers at 42 CFR
422.204(b)(3) require that, with respect
to providers that meet the definition of
‘‘provider of services’’ as defined in
section 1861(u) of the Act, basic benefits
may only be provided by these
providers if they have a provider
agreement with CMS permitting them to
provide services under original
Medicare. Under section 1861(u) of the
Act, the term ‘‘provider of services’’
means a hospital, critical access
hospital, skilled nursing facility,
comprehensive outpatient rehabilitation
facility, home health agency, hospice
program, or, for purposes of section
1814(g) and section 1835(e) of the Act,
a fund.
Observation services are always
provided under a physician’s order that
specifies the initiation of observation
services. As a general matter, hospital
observation services are defined in the
Medicare Benefits Policy Manual (Pub.
100–02), Chapter 6, Section 20.6, as
services that are medically reasonable
and necessary, specifically ordered by a
physician or other nonphysician
practitioner authorized by State
licensure law and hospital staff bylaws
to admit patients to the hospital or to
order outpatient services, and meet
other published Medicare criteria for
payment. The term ‘‘physician’’ will
encompass these authorized qualified
nonphysician practitioners for the
purposes of this proposed rule.
Individuals receiving observation
services will always be registered as
outpatients; however, not all outpatients
receive observation services.
‘‘Outpatient,’’ as defined in the
Medicare Claims Processing Manual

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(Pub. 100–04), Chapter 1, Section 50.3.1,
means ‘‘a person who has not been
admitted as an inpatient but who is
registered on the hospital or critical
access hospital (CAH) records as an
outpatient and receives services (rather
than supplies alone) directly from the
hospital or CAH.’’ We are proposing that
the provisions in this proposed rule
would apply to the subset of individuals
entitled to benefits under Title XVIII of
the Act who are receiving treatment as
outpatients and are receiving
observation services for more than 24
hours. For outpatients who are not
receiving observation services, or who
are receiving observation services but
not for more than 24 hours, hospitals
and CAHs would not be required to
deliver notice.
c. Proposed Timing of Notice Delivery
As provided at section 1866(a)(1)(Y)
of the Act, we are proposing under
proposed new § 489.20(y) that hospitals
and CAHs must provide notice to an
individual who receives observation
services as an outpatient for more than
24 hours and that such notice must be
furnished no later than 36 hours after
observation services are initiated, or
sooner if the individual is transferred,
discharged, or admitted as an inpatient.
For purposes of this proposed rule,
consistent with existing billing rules,
observation services are initiated when
a physician orders such services.
According to the Medicare Claims
Processing Manual (Pub. 100–04),
Chapter 4, Section 290.2.2, hospital
reporting for observation services
‘‘begins at the clock time documented in
the patient’s medical record, which
coincides with the time that observation
services are initiated in accordance with
a physician’s order.’’ Because valid
medical documentation for observation
services will always contain the time
when observation services are initiated,
we believe hospitals and CAHs will be
able to readily determine the timeframe
within which the notice must be
delivered. We expect that there will be
cases where an individual receives more
than 24 hours of observation services
and has not yet received the MOON, but
there are imminent plans for discharge
to home or another facility, transfer to
another unit or facility to receive care
that does not include observation
services, or admission to the hospital or
another facility as an inpatient. In these
cases, pursuant to section 1866(a)(1)(Y)
of the Act, which provides that notice
be provided not later than 36 hours after
the time such an individual begins
receiving such services (or, if sooner,
upon release), we are proposing that the
MOON must be given sooner than the

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36-hour time limit for delivery because
the MOON must be delivered before the
individual is discharged, transferred, or
admitted. When there are no plans to
transfer, discharge, or admit an
individual who receives observation
services for more than 24 hours, we are
proposing that the MOON must be
provided within 36 hours of the
initiation of observation services.
In rare circumstances where a
physician initially orders inpatient
services, but following internal
utilization review (UR) performed while
the patient is hospitalized, the hospital
determines that the services do not meet
its inpatient criteria and the physician
concurs with UR, orders the
discontinuation of inpatient services
and initiation of outpatient observation
services (that is, a Condition Code 44
situation), the MOON would be
delivered as required by the NOTICE
Act (when outpatient observation
services have been ordered and
furnished for more than 24 hours). If
observation services are ordered when
Condition Code 44 applies, the 24-hour
time period for observation notification
commences at the same time that
observation services are initiated under
a physician’s order, consistent with
existing policy for observation services
furnished to outpatients. (We refer
readers to the Medicare Claims
Processing Manual, (Pub. 100–04),
Chapter 1, Section 50.3.)
As stated in the notice announcing
CMS Ruling CMS–1455–R (78 FR
16614), the Part B Inpatient Billing
Ruling, in cases where CMS reviewers
find that an inpatient admission was not
medically reasonable and necessary
after the beneficiary is discharged, and
thus, not appropriate for payment under
Medicare Part A, the beneficiary’s
patient status remains ‘‘inpatient’’ as of
the time of the inpatient admission. The
patient’s status is not changed to
outpatient because the beneficiary was
formally admitted as an inpatient, and
there is no provision to change a
beneficiary’s status after he or she is
discharged from the hospital. Where
CMS denies a claim after the beneficiary
has been discharged because the
inpatient admission was not medically
reasonable and necessary, there would
be no need to issue the MOON because
the individual’s status remains
inpatient, despite the fact that the
inpatient admission was improper.
Similarly, where a hospital determines
through UR after a beneficiary is
discharged that his or her inpatient
admission was not reasonable and
necessary and the hospital bills the
services that were provided on a
Medicare Part B claim, the NOTICE Act

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notification requirements would not
apply for these individuals because
their status would also remain inpatient.
d. Proposed Requirements for Written
Notice
We are proposing to implement
section 1866(a)(1)(Y)(ii) of the Act, the
requirement for written notification,
under proposed new § 489.20(y)(1) by
proposing the basic requirements for the
written notice that hospitals and CAHs
must use to notify individuals receiving
outpatient observation services.
Specifically, we are proposing that
hospitals and CAHs would be required
to use a proposed standardized notice
(the MOON) for written notification to
an individual who receives observation
services as an outpatient under the
appropriate circumstances. By requiring
use of a standardized notice, hospitals
and CAHs would be assured that they
are providing all of the statutorily
required elements in a manner that is
understandable to individuals receiving
the notice. As provided at section
1866(a)(1)(Y)(ii)(I) of the Act, we are
proposing at § 489.20(y)(1)(i) that the
proposed MOON would explain to
individuals that they are outpatients
receiving observation services and not
inpatients of the hospital or CAH, and
the reason(s) for such status as an
outpatient receiving observation
services. By definition (as specified in
the Medicare Benefits Policy Manual,
(Pub. 100–02), Chapter 6, Section 20.6),
the reason for ordering observation
services will always be the result of a
physician’s decision that the individual
does not currently require inpatient
services and observation services are
needed for the physician to make a
decision regarding whether the
individual needs further treatment as a
hospital inpatient or if the individual is
able to be discharged from the hospital.
We are proposing at § 489.20(y)(1)(ii)
that the proposed MOON also would
provide an explanation of the
implications of receiving observation
services furnished by a hospital or CAH
as an outpatient, including services
furnished on an inpatient basis, such as
those related to cost-sharing
requirements for the patient under
Medicare, and post-hospitalization
eligibility for Medicare-covered SNF
care, in standardized language to ensure
that all Medicare eligible individuals
receive accurate information. We are
proposing the inclusion of a blank
‘‘Additional Information’’ section on the
MOON so that hospitals and CAHs may
include additional information. Finally,
as required by section
1866(a)(1)(Y)(ii)(V) of the Act, the
proposed MOON would include this

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information in plain language written
for beneficiary comprehension.
e. Outpatient Observation Services and
Beneficiary Financial Liability
Section 20.6, Chapter 6, of the
Medicare Benefit Policy Manual (Pub.
100–2) specifies that observation
services furnished by hospitals and
CAHs are ‘‘a well-defined set of specific,
clinically appropriate services, which
include ongoing short-term treatment,
assessment, and reassessment before a
decision can be made regarding whether
patients will require further treatment as
hospital inpatients or if they are able to
be discharged from the hospital.’’
Typically, observation services are
ordered for individuals who present to
the emergency department (ED) and
who then require a significant period of
treatment and monitoring to determine
whether or not their condition warrants
inpatient admission or discharge.
Individuals also may receive outpatient
observation services in other areas of a
hospital or CAH when necessary. For
example, a patient who receives a drug
infusion in a hospital’s outpatient
infusion center and then experiences
post-infusion hypertension may require
observation services. In the majority of
cases, the decision whether to discharge
a patient from the hospital following
resolution of the reason for the
observation care or to admit the patient
as an inpatient can be made in less than
48 hours, usually in less than 24 hours.
In only rare and exceptional cases do
reasonable and necessary outpatient
observation services span more than 48
hours. All hospital observation services,
regardless of duration of care, that are
medically reasonable and necessary are
covered by Medicare.
In some cases, Medicare beneficiaries
receiving observation services while in
a hospital or CAH may not be aware of
their status as an inpatient or an
outpatient, and thus may not be aware
that there are significant differences in
financial liability between inpatient
status and outpatient status. CMS has
published educational materials for
Medicare beneficiaries to help inform
them of financial and coverage
liabilities associated with inpatient and
outpatient services.70 As an outpatient
receiving observation services, a
beneficiary may incur financial liability
for Medicare Part B copayments,71 the
70 ‘‘Are You a Hospital Inpatient or Outpatient? If
You Have Medicare—Ask!’’ CMS Product No.
11435. May 2014.
71 A beneficiary who receives hospital outpatient
services typically pays 20 percent of the Medicare
payment amount for outpatient items and services
after paying the annual Part B deductible ($166 in
CY 2016). The coinsurance amount for an

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cost of self-administered drugs that are
not covered under Part B, and the cost
of post-hospital SNF care because
section 1861(i) of the Act requires a
prior 3-day hospital inpatient
consecutive stay to be eligible for
coverage of post-hospital SNF care
under Medicare Part A. In contrast, as
a hospital inpatient under Medicare Part
A, a beneficiary pays an annual
deductible ($1,288 in CY 2016) for all
inpatient services provided during the
first 60 days in the hospital of each
benefit period for the year. Cost-sharing
requirements for individuals enrolled in
Medicare Part C, known as Medicare
Advantage, health plans are dependent
on the particular plan’s policies. In
addition, Medicare beneficiaries
qualified through their State Medicaid
program (QMBs) have different costsharing rules. For example, QMBs
cannot be billed for Medicare Part A or
Part B deductibles, coinsurance, and
copayments and may have different
rules regarding qualifying for SNF
services. CMS has produced
informational publications for
beneficiaries that advise Medicare
Advantage enrollees to check with their
plans for information on coverage of
observation services furnished to an
outpatient.
As mentioned earlier, a beneficiary’s
liability for medication costs also is
likely affected by whether the
individual is hospitalized as an
inpatient or receiving care as an
outpatient. When an individual is
hospitalized under a covered Medicare
Part A inpatient stay, payment for
medically reasonable and necessary
medications that are provided by the
hospital are covered under Medicare
Part A. Generally, Medicare Part B
covers drugs that are usually not selfadministered. Based on the statutory
prohibition at section 1861(s)(2) of the
Act and its implementing regulation at
42 CFR 410.29(a), Medicare Part B
generally does not cover or pay for any
drug or biological that can be selfadministered. ‘‘Self-administered
drugs’’ are considered prescription and
over-the-counter medications that
beneficiaries routinely take on their
own. For safety reasons, many hospitals
do not allow patients to take
medications brought from home.
outpatient CAH service is based on 20 percent of
charges. In most cases, the cost-sharing for each
individual outpatient service should not be more
than the inpatient deductible. However, Medicare
beneficiaries who receive several outpatient
services, or are treated for extended periods of time
as hospital outpatients, may have greater costsharing liabilities as an outpatient under
observation than they may have if they were
admitted as an inpatient to the hospital.

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Medicare prescription drug plans (Part
D) may help pay for drugs provided by
the hospital. Individuals with Medicare
Part D will likely need to pay out-ofpocket costs to the hospital for these
drugs and request reimbursement from
their Part D plan.
In addition, whether an individual is
receiving treatment or care as an
inpatient admitted to the hospital or is
receiving observation services as an
outpatient pursuant to a doctor’s orders
may impact Medicare coverage for posthospital SNF services. Section 1861(i) of
the Act requires a beneficiary to be an
inpatient of a hospital for not less than
3 consecutive days before discharge
from the hospital in order to be eligible
for coverage of post-hospital extended
care services in a SNF under Medicare.
For purposes of Medicare SNF coverage,
the time spent receiving observation
services as an outpatient does not count
towards the requirement of a 3-day
hospital inpatient stay because these
services are outpatient.

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f. Delivering the Medicare Outpatient
Observation Notice
An English language version of the
proposed MOON was submitted to OMB
for approval. Once we receive OMB
approval, a Spanish language version of
the MOON will be made available. If the
individual receiving the notice is unable
to read its written contents and/or
comprehend the required oral
explanation, we expect hospitals and
CAHs to employ their usual procedures
to ensure notice comprehension. (We
refer readers, for example, to the
Medicare Claims Processing Manual
(Pub. 100–4), Chapter 30, Section
40.3.4.3., for similar existing procedures
related to notice comprehension for the
Advance Beneficiary Notice of
Noncoverage (ABN).) Usual procedures
may include, but are not limited to, the
use of translators, interpreters, and
assistive technologies. Hospitals and
CAHs are reminded that recipients of
Federal financial assistance have an
independent obligation to provide
language assistance services to
individuals with limited English
proficiency (LEP) consistent with
section 1557 of the Affordable Care Act
and Title VI of the Civil Rights Act of
1964. In addition, recipients of Federal
financial assistance have an
independent obligation to provide
auxiliary aids and services to
individuals with disabilities free of
charge, subject to section 1557 of the
Affordable Care Act and section 504 of
the Rehabilitation Act of 1973.

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g. Proposed Oral Notice
Pursuant to the statutory requirement
at section 1866(a)(1)(Y)(i) of the Act, we
are proposing under proposed new
§ 489.20(y)(2) that hospitals and CAHs
provide an oral explanation of the
written notice furnished to individuals
who receive observation services as
outpatients. We will provide guidance
for oral notification in our forthcoming
Medicare manual provisions. Hospitals
and CAHs are familiar with providing
oral explanations of written notices (for
example, surgical and procedural
consent notices and the Important
Message from Medicare), and we expect
that oral notification will occur in
conjunction with delivery of the MOON.
Again, hospitals and CAHs are
reminded that recipients of Federal
financial assistance have an
independent obligation to provide
language assistance services to
individuals with LEP consistent with
section 1557 of the Affordable Care Act
and Title VI of the Civil Rights Act of
1964. In addition, recipients of Federal
financial assistance have an
independent obligation to provide
auxiliary aids and services to
individuals with disabilities free of
charge, subject to section 1557 of the
Affordable Care Act and section 504 of
the Rehabilitation Act of 1973.

i. No Appeal Rights Under the NOTICE
Act

h. Proposed Signature Requirements
As set forth at section
1866(a)(1)(Y)(ii)(IV) of the Act, the
written notification must be either
signed by the individual receiving
observation services as an outpatient or
a person acting on such individual’s
behalf to acknowledge receipt of
notification. Moreover, the statute
provides that if such individual or
person refuses to provide a signature,
the written notification is to be signed
by the staff member of the hospital or
CAH who presented the written
notification and certain information
needs to be included with such
signature. Accordingly, we are
proposing under proposed new
§ 489.20(y)(3), that the written notice be
signed, as described above, in order to
acknowledge receipt and understanding
of the notice. The MOON would include
a dedicated signature area for this
purpose. In cases where the individual
receiving the MOON refuses to sign the
notice, we are proposing that the MOON
must be signed by the staff member who
presents the notice to the individual.
The staff signature would include the
staff member’s name and title, a
certification statement that the notice
was presented, and the date and time
that the notice was presented.

2. Proposed Technical Change to
Regulations at 42 CFR 413.17(d)(1) on
Cost to Related Organizations

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Section 1866(a)(1)(Y) of the Act, as
added by the NOTICE Act, does not
afford appeal rights to beneficiaries
regarding the notice provided pursuant
to that statutory provision. To provide
clarity to this point, we are proposing to
amend the regulations at 42 CFR
405.926 relating to actions that are not
initial determinations, by adding new
paragraph (u) to explain that issuance of
the MOON by a hospital or CAH does
not constitute an initial determination
and therefore does not trigger appeal
rights under 42 CFR part 405, subpart I.
M. Proposed Technical Changes and
Correction of Typographical Errors in
Certain Regulations Under 42 CFR Part
413 Relating to Costs to Related
Organizations and Medicare Cost
Reports
1. General Background
As part of our ongoing review of the
Medicare regulations, we have
identified a number of technical
changes or corrections of typographical
errors in 42 CFR part 413 relating to
costs to related organizations and
Medicare cost reports that need to be
made. Below we are summarizing these
proposed changes or corrections.

Prior to the enactment of section
911(b) of the Medicare Prescription
Drug, Improvement, and Modernization
Act of 2003 (Pub. L. 108–173), a
provider had the right to nominate a
fiscal intermediary (currently known as
a Medicare Administrative Contractor
(MAC) and referred to in this section as
a ‘‘contractor’’) of its choice. Public Law
108–173 repealed the nomination
provisions formerly found in section
1816 of the Act and added section
1874A (Contracts with Medicare
Administrative Contractors). Currently,
a provider will be assigned to the
contractor that covers the geographic
locale where the provider is located, as
specified in the regulations at 42 CFR
421.404(b).
Because a provider is no longer
permitted to select a contractor of its
choice, and a contractor is now assigned
to a provider, the parenthetical language
of the regulation text at 42 CFR
413.17(d)(1) referring to a provider’s
nomination of a contractor is obsolete.
Therefore, we are proposing to revise
§ 413.17(d)(1) to remove the
parenthetical reference to a provider’s
nomination of a contractor.

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3. Proposed Changes to 42 CFR
413.24(f)(4)(i) Relating to Electronic
Submission of Cost Reports
In § 413.24(f)(4)(i), we incorrectly
refer to a ‘‘Federally qualified health
clinic.’’ The correct entity title under
section 1861(aa) of the Act is ‘‘Federally
qualified health center.’’ In this
proposed rule, we are proposing to
correct this error.
In addition, § 413.200(c)(1)(i) requires
a histocompatibility laboratory to file a
Medicare cost report in accordance with
the regulations at § 413.24(f). For cost
reporting periods ending on or after
March 31, 2005, organ procurement
organizations (OPOs) and
histocompatibility laboratories are
required to submit Medicare cost reports
in a standardized electronic format, but
histocompatibility laboratories were
inadvertently omitted from the list of
providers in the regulations text at
§ 413.24(f). As evidenced by the
reference in the August 22, 2003
Federal Register document (68 FR
50720) to the Office of Management and
Budget (OMB) approval number 0938–
0102 of the Paperwork Reduction Act
request for the cost reporting form
entitled ‘‘Organ Procurement Agency/
Laboratory Statement of Reimbursable
Costs,’’ histocompatibility laboratories
were intended to be included in the
regulation text. Both OPOs and
histocompatibility laboratories have
used that Medicare cost report form to
report their statements of reimbursable
costs since its approval by OMB for use
for cost reporting periods ending on or
after March 31, 2005. To correct this
omission, we are proposing a technical
change to § 413.24(f)(4)(i) to add
‘‘histocompatibility laboratories’’ to the
list of providers required to submit cost
reports in a standardized electronic
format.

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4. Proposed Technical Changes to 42
CFR 413.24(f)(4)(ii) Relating to
Electronic Submission of Cost Reports
and Due Dates
In this proposed rule, we are
proposing a technical correction in
§ 413.24(f)(4)(ii) to the effective date for
the submission of Medicare cost reports
in a standardized electronic format for
skilled nursing facilities (SNFs) and
home health agencies (HHAs) from cost
reporting periods ending on or after
December 31, 1996 to cost reporting
periods ending on or after February 1,
1997 to accurately reflect the regulation
text finalized in the January 2, 1997
final rule, ‘‘Medicare Program:
Electronic Cost Reporting for Skilled
Nursing Facilities and Home Health

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Agencies,’’ published in Federal
Register at 62 FR 26 through 31.
For the same reasons articulated in
section IV.M.3. of the preamble of this
proposed rule, we also are proposing to
revise § 413.24(f)(4)(ii) by adding
histocompatibility laboratories to the
list of providers required to file
electronic cost reports. To correct a
typographic error, we are proposing to
remove the duplicate word ‘‘contractor’’
from the second sentence of this
paragraph.
5. Proposed Technical Changes to 42
CFR 413.24(f)(4)(iv) Relating to
Reporting Entities, Cost Report
Certification Statement, Electronic
Submission and Cost Reports Due Dates
In this proposed rule, we are
proposing to revise § 413.24(f)(4)(iv) to
make a technical correction to the
effective date for SNFs and HHAs to
submit hard copies of a settlement
summary, a statement of certain
worksheet totals found within the
electronic file, and a certifying
statement signed by its administrator or
chief financial officer, from cost
reporting periods ending on or after
December 31, 1996, to cost reporting
periods ending on or after February 1,
1997, to accurately reflect the regulation
text finalized in the January 2, 1997
final rule (62 FR 26 through 31).
We are proposing to revise
§ 413.24(f)(4)(iv) by adding
histocompatibility laboratories to the
list of providers required to file
electronic cost reports for the same
reasons provided in section IV.M.3. of
the preamble of this proposed rule. In
addition, we are proposing to add
histocompatibility laboratories to the
list of providers required to submit hard
copies of a settlement summary, a
statement of certain worksheet totals
found within the electronic file, and a
certifying statement signed by its
administrator or chief financial officer,
for cost reporting periods ending on or
after March 31, 2005, for the same
reasons.
We also are proposing to correct a
typographical error that occurred in the
Medicare cost report certification
statement set forth in § 413.24(f)(4)(iv)
by adding the word ‘‘and’’ between the
words ‘‘Sheet’’ and ‘‘Statement’’ to
denote the two separate financial
documents required to be submitted
with the cost report; that is, the Balance
Sheet and the Statement of Revenue and
Expenses. The cost report certification
statement historically correctly denoted
the two separate and distinct financial
forms, the Balance Sheet and the
Statement of Revenue and Expenses on
Worksheet S (Form CMS–2552–92) of

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the Medicare cost report since the
Worksheet S was first used in 1993. The
Medicare cost report certification
statement was later incorporated into
§ 413.24(f)(4)(iv) in a final rule with
comment period (59 FR 26964 through
26965) issued in response to public
comments received following the
Uniform Electronic Cost Reporting
System for Hospitals proposed rule (56
FR 41110). A typographical error
excluding the word ‘‘and’’ occurred
during the incorporation of the
certification statement into the
regulations text at § 413.24(f)(4)(iv).
6. Proposed Technical Correction to 42
CFR 413.200(c)(1)(i) Relating to
Medicare Cost Report Due Dates for
Organ Procurement Organizations and
Histocompatibility Laboratories
In this proposed rule, we are
proposing to make a technical
correction to the reference in
§ 413.200(c)(1)(i) to the due date for the
Medicare cost report for organ
procurement organizations (OPOs) and
histocompatibility laboratories from
‘‘three months’’ to ‘‘5 months’’ after the
end of the fiscal year. Section
413.200(c)(1)(i) requires independent
OPOs and histocompatibility
laboratories to file a cost report in
accordance with § 413.24(f). In the 1995
final rule (60 FR 33137), we revised
§ 413.24(f) to extend the Medicare cost
report due date for all providers
required to file a cost report from 3
months to 5 months after the end of a
provider’s fiscal year end, but
inadvertently neglected to make a
conforming change to § 413.200(c)(1)(i),
which we are proposing to correct in
this proposed rule.
N. Clarification Regarding the Medicare
Utilization Requirement for MedicareDependent, Small Rural Hospitals
(MDHs) (§ 412.108)
1. Background
Section 1886(d)(5)(G) of the Act
provides special payment protections
under the IPPS to Medicare-dependent,
small rural hospitals (MDHs). (For
additional information on the MDH
program and the payment methodology,
we refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51683
through 51684).) As we discussed in the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50287) and in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51683
through 51684), section 3124 of the
Affordable Care Act extended the
expiration of 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

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occurring before October 1, 2012).
Under prior law, as specified in section
5003(a) of Public Law 109–171 (DRA
2005), the MDH program was to be in
effect through the end of FY 2011 only.
Since the extension of the MDH
program through FY 2012 provided by
section 3124 of the Affordable Care Act,
the MDH program has been further
extended multiple times. First, section
606 of the ATRA (Public L. 112–240)
extended the MDH program through FY
2013 (that is, for discharges occurring
before October 1, 2013). Second, section
1106 of the Pathway for SGR Reform Act
of 2013 (Public L. 113–67) extended the
MDH program through the first half of
FY 2014 (that is, for discharges
occurring before April 1, 2014). Third,
section 106 of the PAMA (Public L.
113–93) extended the MDH program
through the first half of FY 2015 (that is,
for discharges occurring before April 1,
2015). Fourth and most recently, section
205 of the MACRA (Public L. 114–10)
extended the MDH program through FY
2017 (that is, for discharges occurring
before October 1, 2017). For additional
information on the extensions of the
MDH program after FY 2012, we refer
readers to the following Federal
Register documents: The FY 2013 IPPS/
LTCH PPS final rule (77 FR 53404
through 53405 and 53413 through
53414); the FY 2013 IPPS notice (78 FR
14689); the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50647 through 50649);
the FY 2014 IPPS interim final rule with
comment period (79 FR 15025 through
15027); the FY 2014 IPPS notice (79 FR
34446 through 34449); the FY 2015
IPPS/LTCH PPS final rule (79 FR 50022
through 50024); and the FY 2016
interim final rule with comment period
(80 FR 49596 through 49597).
2. Clarification of Medicare Utilization
Criterion for MDH Classification
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 during the cost reporting
period beginning in FY 1987 or two of
the three most recently audited cost
reporting periods for which the
Secretary has a settled cost report were
attributable to inpatients entitled to
benefits under Part A). The regulations
at 42 CFR 412.108 set forth the criteria
that a hospital must meet to be
classified as an MDH.
The Medicare utilization requirement
is set forth at section
1886(d)(5)(G)(iv)(IV) of the Act and
implemented by regulation at 42 CFR

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412.108(a)(1)(iii). Consistent with the
policy noted in the FY 1991 IPPS final
rule (55 FR 35995) and further
discussed in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50287), in order
to not disadvantage hospitals that
receive payment from a Medicare
Advantage (MA) organization under
Medicare Part C for inpatient care
provided to Medicare beneficiaries
enrolled in Medicare Part C plans, we
count the days and discharges for those
stays toward the 60-percent Medicare
utilization requirement for MDH
classification.
In accordance with the regulations at
§ 412.108(b)(5), Medicare contractors
(MACs) evaluate, on an ongoing basis,
whether or not a hospital continues to
qualify for MDH status. For hospitals
that qualify for MDH status under
§ 412.108(a)(1)(iii)(C) and in accordance
with the regulations at § 412.108(b)(5),
at each cost report settlement, the MAC
will determine whether the hospital has
a Medicare utilization of at least 60
percent in at least two of the last three
most recent audited cost reports for
which the Secretary has a settled cost
report by including the newly settled
cost report in the evaluation.
Medicare policy requires hospitals
that receive certain additional payments
such as IME, direct GME, and DSH, to
submit claims for services furnished to
individuals enrolled in a MA plan
under Medicare Part C. Specifically,
teaching hospitals that provide services
to individuals enrolled in a MA plan
under Medicare Part C must submit
timely claims in order to receive the
supplemental IME and direct GME
payments for services provided to these
individuals. Likewise, hospitals that
operate nursing or allied health
education programs and incur costs
associated with individuals enrolled in
a MA plan under Medicare Part C also
must submit timely claims in order to
receive the additional payment amount
for those MA enrollees. In addition,
hospitals that are eligible for DSH
payments are required to submit claims
in a timely manner for individuals
enrolled in a MA plan under Medicare
Part C in order for these days to be
captured in the DSH calculation. We
refer readers to the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53409) for more
information and background on the
requirements for filing no pay bills for
services furnished to individuals
enrolled in a MA plan under Medicare
Part C.
Consistent with this policy, for a
hospital that is eligible for IME, direct
GME, or DSH payments, CMS only
includes MA days or discharges as
reported on the cost report and verified

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by the properly and timely submitted
claims for the services furnished to
individuals enrolled in a MA plan
under Medicare Part C associated with
those days or discharges in calculating
Medicare utilization for MDH purposes.
CMS verifies the accuracy of the MA
days and discharges reported on the cost
report using claims data; once verified,
the cost report data can then be properly
applied in the Medicare utilization
calculation.
For a hospital that is not eligible for
IME, direct GME, or DSH payments and
is not required to submit bills for
services furnished to individuals
enrolled in a MA plan under Medicare
Part C, we are clarifying that CMS will
include the MA days or discharges
associated with those services in the
Medicare utilization calculation,
regardless of whether the hospital
submitted claims for services associated
with those days or discharges provided
that the hospital submits proper
documentation, such as provider logs,
that allow the MAC to verify the MA
days or discharges as reported on the
hospital’s cost report. However, we note
that, while not required, timely
submission of claims for the services
furnished to individuals enrolled in a
MA plan under Medicare Part C allows
CMS to establish whether the hospital
meets the MDH classification criteria in
an expeditious and timely manner.
O. Adjustment to IPPS Rates Resulting
From 2-Midnight Policy
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50906 through 50954), we
adopted the 2-midnight policy, effective
for dates of admission on or after
October 1, 2013. Under the 2-midnight
policy, an inpatient admission is
generally appropriate for Medicare Part
A payment if the physician (or other
qualified practitioner) admits the
patient as an inpatient based upon the
reasonable expectation that the patient
will need hospital care that crosses at
least 2 midnights. In assessing the
expected duration of necessary care, the
physician (or other qualified
practitioner) may take into account
outpatient hospital care received prior
to inpatient admission. If the patient is
expected to need less than 2 midnights
of care in the hospital, the services
furnished should generally be billed as
outpatient services. We note that
revisions were made to this policy in
the CY 2016 OPPS/ASC final rule with
comment period (80 FR 70545). Our
actuaries estimated that the 2-midnight
policy would increase expenditures by
approximately $220 million in FY 2014
due to an expected net increase in
inpatient encounters. We used our

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
authority under section 1886(d)(5)(I)(i)
of the Act to make a reduction of 0.2
percent to the standardized amount, the
Puerto Rico standardized amount, and
the hospital-specific payment rates, and
we used our authority under section
1886(g) of the Act to make a reduction
of 0.2 percent to the national capital
Federal rate and the Puerto Rico-specific
capital rate, in order to offset this
estimated $220 million in additional
IPPS expenditures in FY 2014. We
indicated that although our exceptions
and adjustments authority should not be
routinely used in the IPPS system, we
believed that the systemic and
widespread nature of this issue justified
an overall adjustment to the IPPS rates
and such an adjustment is authorized
under section 1886(d)(5)(I)(i) of the Act.
In Shands Jacksonville Medical
Center, Inc. v. Burwell, No. 14–263
(D.D.C.) and consolidated cases,
hospitals challenged the 0.2 percent
reduction in IPPS rates to account for
the estimated $220 million in additional
FY 2014 expenditures resulting from the
2-midnight policy. In its Memorandum
Opinion, issued September 21, 2015, the
Court found that the ‘‘Secretary’s
interpretation of the exceptions and
adjustments provision is a reasonable
one’’ for this purpose. However, the
Court also ordered the 0.2 percent
reduction remanded back to the
Secretary, without vacating the rule, to
correct certain procedural deficiencies
in the promulgation of the 0.2 percent
reduction and reconsider the
adjustment. The Court did not believe it
would be appropriate to vacate the rule
because such action would, in effect,
dictate a substantive outcome based on
a procedural error and concluded that
the disruptive consequences would be
considerable.
In accordance with the Court’s order,
we published a notice with comment
period that appeared in the December 1,
2015 Federal Register (80 FR 75107),
which discussed the basis for the 0.2
percent reduction and its underlying
assumptions and invited comments on
the same in order to facilitate our
further consideration of the FY 2014
reduction. We received numerous
public comments on the notice with
comment period.
In considering these public
comments, and those on the same topic
received in response to the CY 2016
OPPS/ASC proposed rule, we continue
to recognize that the 0.2 percent
reduction issue is unique in many ways.
The underlying question of patient
status, which resulted in the creation of
the 2-midnight policy, is a complex one
with a long history, including large
improper payment rates in short-stay

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hospital inpatient claims, requests to
provide additional guidance regarding
the proper billing of those services, and
concerns about increasingly long stays
of Medicare beneficiaries as outpatients
due to hospital uncertainties about
payment. (For further discussion of this
history, we refer readers to the FY 2014
IPPS/LTCH PPS proposed and final
rules (78 FR 27644 through 27649 and
78 FR 50906 through 50954,
respectively).)
The 2-midnight policy itself and our
implementation and enforcement of it
have also evolved over time as a result
of a combination of statutory,
regulatory, and operational changes. For
example, as part of our efforts to provide
education to stakeholders on the new 2midnight policy, CMS hosted numerous
‘‘Open Door Forums,’’ conducted
national provider calls, and shared
information and answers to frequently
asked questions on the CMS Web site.
In addition, we instructed MACs to
conduct a ‘‘Probe and Educate’’ process
for inpatient claims with dates of
admission on or after October 1, 2013
through September 30, 2014, to assess
provider understanding and compliance
with the new 2-midnight policy. We
also prohibited Recovery Auditor’s postpayment medical reviews of inpatient
hospital patient status for claims with
dates of admission between October 1,
2013 and September 30, 2014.
On April 1, 2014, the Protecting
Access to Medicare Act of 2014 (Pub. L.
113–93) was enacted. Section 111 of
Public Law 113–93 permitted CMS to
continue medical review activities
under the Inpatient Probe and Educate
process through March 31, 2015. The
same law also extended the prohibition
on Recovery Auditor reviews of
inpatient hospital patient status for
claims with dates of admission through
March 31, 2015, absent evidence of
systematic gaming, fraud, abuse, or
delays in the provision of care by a
provider of services. On April 16, 2015,
the Medicare Access and CHIP
Reauthorization Act of 2015 (Pub. L.
114–10) was enacted. Section 521 of
Public Law 114–10 permitted CMS to
further extend the medical review
activities under the Inpatient Probe and
Educate process for inpatient claims
through September 30, 2015, and
extended the prohibition of Recovery
Auditor reviews of inpatient hospital
patient status for claims with dates of
admission through September 30, 2015.
CMS then announced in August 2015
that it would not approve Recovery
Auditors to conduct patient status
reviews for dates of admission of
October 1, 2015 through December 31,
2015.

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As we indicated in the CY 2016
OPPS/ASC final rule with comment
period, throughout the Probe and
Educate process, we saw positive effects
and improved provider understanding
of the 2-midnight policy. We also
discussed in the CY 2016 OPPS/ASC
final rule with comment period (80 FR
70545 through 70549) a number of
additional changes we had made and
were continuing to make to the
Recovery Audit Program and changes to
the medical review responsibilities for
Quality Improvement Organizations
(QIOs) in regard to short hospital stay
claims.
With respect to the 2-midnight policy
itself, in light of stakeholder concerns
and in our continued effort to develop
the most appropriate and applicable
framework for determining when
payment under Medicare Part A is
appropriate for inpatient admissions, in
the CY 2016 OPPS/ASC final rule with
comment period (80 FR 70545), we
modified the original ‘‘rare and
unusual’’ exceptions policy under the 2midnight policy to allow for Medicare
Part A payment on a case-by-case basis
for inpatient admissions that do not
satisfy the 2-midnight benchmark, if the
documentation in the medical record
supports the admitting physician’s
determination that the patient requires
inpatient hospital care despite an
expected length of stay that is less than
2 midnights.
We also recognized in reviewing the
public comments we received on the 0.2
percent reduction in response to the
December 1, 2015 notice with comment
period and the CY 2016 OPPS/ASC
proposed rule that, in addition to the
long history of the question of patient
status underlying the 2-midnight policy
and the statutory, regulatory, and
operational changes that have occurred
since its initial implementation, the
original estimate for the 0.2 percent
reduction had a much greater degree of
uncertainty than usual. As indicated in
the Office of the Actuary’s August 19,
2013 memorandum (which was
included as Appendix A of the
December 1, 2015 notice with comment
period (80 FR 75112 through 75114)),
the estimate depended critically on the
assumed utilization changes in the
inpatient and outpatient hospital
settings, relatively small changes would
have a disproportionate effect on the
estimated net costs, the estimate was
subject to a much greater degree of
uncertainty than usual, and the actual
results could differ significantly from
the estimate.
Lastly, in reviewing the public
comments we received on the December
1, 2015 notice with comment period, we

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also considered the fact that our
actuaries’ most recent estimate of the
impact of the 2-midnight policy varies
between a savings and a cost over the
FY 2014 to FY 2015 time period. The
memorandum describing this new
analysis is available on the CMS Web
site at: https://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html.
We still believe the assumptions
underlying the 0.2 percent reduction to
the rates put in place beginning in FY
2014 were reasonable at the time we
made them in 2013. Nevertheless, taking
all the foregoing factors into account, in
the context of this case, we believe it
would be appropriate to use our
authority under sections 1886(d)(5)(I)(i)
and 1886(g) of the Act to prospectively
remove, beginning in FY 2017, the 0.2
percent reduction to the rates put in
place beginning in FY 2014. The 0.2
percent reduction was implemented by
including a factor of 0.988 in the
calculation of the FY 2014 standardized
amount, the hospital-specific payment
rates, and the national capital Federal
rate, permanently reducing the rates for
FY 2014 and future years until the 0.988
is removed. We are proposing to
permanently remove the 0.988
reduction beginning in FY 2017 by
including a factor of (1/0.998) in the
calculation of the FY 2017 standardized
amount, the hospital-specific payment
rates, and the national capital Federal
rate.
In addition, taking all the foregoing
factors into account, and given the
unique nature of this situation in which
the court has ordered us to further
explain the assumptions underlying an
adjustment applicable to past years, we
believe it would be appropriate to use
our authority under sections
1886(d)(5)(I)(i) and 1886(g) of the Act to
temporarily increase the rates, only for
FY 2017, to address the effect of the 0.2
percent reduction to the rates in effect
for FY 2014, the 0.2 reduction to the
rates in effect for FY 2015 (recall the
0.988 factor included in the calculation
of the FY 2014 rates permanently
reduced the rates for FY 2014 and future
years until it is removed), and the 0.2
reduction to the rates in effect for FY
2016. We believe that the most
transparent, expedient, and
administratively feasible method to
accomplish this is a temporary one-time
prospective increase to the FY 2017
rates of 0.6 percent (= 0.2 percent + 0.2
percent + 0.2 percent). Specifically, we
are proposing to include a factor of
1.006 in the calculation of the
standardized amount, the hospitalspecific payment rates, and the national
capital Federal rate in FY 2017 and then

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remove this temporary one-time
prospective increase by including a
factor of (1/1.006) in the calculation of
the rates for FY 2018. While we
generally do not believe it is appropriate
in a prospective system to
retrospectively adjust rates even where
we believe a prospective change in
policy is warranted, we take this action
in the specific context of this unique
situation, in which we have been
ordered by a Federal court to further
explain the basis of an adjustment we
have imposed for past years.
In summary, for the reasons described
above, we are proposing to include a
permanent factor of (1/0.998) and a
temporary one-time factor of (1.006) in
the calculation of the FY 2017
standardized amount, the hospitalspecific payment rates, and the national
capital Federal rate. We also are
proposing to include a factor of (1/
1.006) in the calculation of the FY 2018
standardized amount, the hospitalspecific payment rates, and the national
capital Federal rate to remove the
temporary one-time factor of 1.006.
We are inviting public comments on
all aspects these proposals. The
foregoing discussion and proposals
constitute the final notice required by
the Court in the Shands Jacksonville
Medical Center, Inc. v. Burwell, No. 14–
263 (D.D.C.) and consolidated cases.
V. Proposed Changes to the IPPS for
Capital-Related Costs
A. Overview
Section 1886(g) of the Act requires the
Secretary to pay for the capital-related
costs of inpatient acute hospital services
in accordance with a prospective
payment system established by the
Secretary. Under the statute, the
Secretary has broad authority in
establishing and implementing the IPPS
for acute care hospital inpatient capitalrelated costs. We initially implemented
the IPPS for capital-related costs in the
Federal fiscal year (FY) 1992 IPPS final
rule (56 FR 43358). In that final rule, we
established a 10-year transition period
to change the payment methodology for
Medicare hospital inpatient capitalrelated costs from a reasonable costbased payment methodology to a
prospective payment methodology
(based fully on the Federal rate).
FY 2001 was the last year of the 10year transition period that was
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

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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 the regulations at 42 CFR
412.312. For the purpose of calculating
capital payments for each discharge, the
standard Federal rate is adjusted as
follows:
(Standard Federal Rate) × (DRG
Weight) × (Geographic Adjustment
Factor (GAF)) × (COLA for hospitals
located in Alaska and Hawaii) × (1 +
Capital DSH Adjustment Factor +
Capital IME Adjustment Factor, if
applicable).
In addition, under § 412.312(c),
hospitals also may receive outlier
payments under the capital IPPS for
extraordinarily high-cost cases that
qualify under the thresholds established
for each fiscal year.
B. Additional Provisions
1. Exception Payments
The regulations at 42 CFR 412.348
provide for certain exception payments
under the capital IPPS. The regular
exception payments provided under
§§ 412.348(b) through (e) were available
only during the 10-year transition
period. For a certain period after the
transition period, eligible hospitals may
have received additional payments
under the special exceptions provisions
at § 412.348(g). However, FY 2012 was
the final year hospitals could receive
special exceptions payments. For
additional details regarding these
exceptions policies, we refer readers to
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51725).
Under § 412.348(f), a hospital may
request an additional payment if the
hospital incurs unanticipated capital
expenditures in excess of $5 million due
to extraordinary circumstances beyond
the hospital’s control. Additional
information on the exception payment
for extraordinary circumstances in
§ 412.348(f) can be found in the FY 2005
IPPS final rule (69 FR 49185 and 49186).
2. New Hospitals
Under the capital IPPS, the
regulations at 42 CFR 412.300(b) define
a new hospital as a hospital that has
operated (under previous or current
ownership) for less than 2 years and
lists examples of hospitals that are not
considered new hospitals. In accordance

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with § 412.304(c)(2), under the capital
IPPS, a new hospital is paid 85 percent
of its allowable Medicare inpatient
hospital capital-related costs through its
first 2 years of operation, unless the new
hospital elects to receive full
prospective payment based on 100
percent of the Federal rate. We refer
readers to the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51725) for additional
information on payments to new
hospitals under the capital IPPS.
3. Proposed Changes in Payments for
Hospitals Located in Puerto Rico
The regulations at 42 CFR 412.374
provide 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
currently compute a separate payment
rate specific to Puerto Rico hospitals
using the same methodology used to
compute the national Federal rate for
capital-related costs. The capital-related
payment rate for hospitals located in
Puerto Rico is derived using only the
costs of hospitals located in Puerto Rico,
while the national Federal rate for
capital-related costs is derived using the
costs of all acute care hospitals
participating in the IPPS (including
hospitals located in Puerto Rico). 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.
Historically, we have established a
capital IPPS blended payment rate
structure for hospitals located in Puerto
Rico that parallels the statutory
calculation of operating IPPS payments
to hospitals located in Puerto Rico.
Capital IPPS payments to hospitals
located in Puerto Rico are currently
computed based on a blend of 25
percent of the capital IPPS Puerto Rico
rate and 75 percent of the capital IPPS
Federal rate. (For additional details on
capital IPPS payments to hospitals
located in Puerto Rico, we refer readers
to the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51725).)
As noted in section IV.A. of the
preamble of this proposed rule, section
601 of the Consolidated Appropriations
Act, 2016 (Public L. 114–113) increased
the applicable Federal percentage of the
operating IPPS payment for hospitals
located in Puerto Rico from 75 percent
to 100 percent and decreased the
applicable Puerto Rico percentage of the
operating IPPS payments for hospitals
located in Puerto Rico from 25 percent
to zero percent, applicable to discharges
occurring on or after January 1, 2016.
Consistent with historical practice,
under the broad authority of the

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Secretary granted under section 1886(g)
of the Act, we are proposing to revise
the calculation of capital IPPS payments
to hospitals located in Puerto Rico to
parallel the change in the statutory
calculation of operating IPPS payments
to hospitals located in Puerto Rico,
beginning in FY 2017. Accordingly, we
are proposing to revise § 412.374 of the
regulations to provide that, for
discharges occurring on or after October
1, 2016, capital IPPS payments to
hospitals located in Puerto Rico would
be based on 100 percent of the capital
Federal rate; that is, payments would no
longer be derived from a blend of the
capital Puerto Rico rate and the capital
Federal rate. As discussed in section I.I.
of Appendix A (Economic Analyses) of
this proposed rule, this proposed
change would result in a slight increase
in capital IPPS payments to hospitals
located in Puerto Rico because adjusted
capital IPPS payments based on the
capital Federal rate are generally higher
than capital IPPS payments based on the
capital Puerto Rico rate. In addition, we
note that this proposed change is similar
to the changes in capital IPPS payments
to hospitals located in Puerto Rico
beginning in FY 1998 and FY 2005 that
paralleled the corresponding statutory
changes in the blended payment amount
calculation required for operating IPPS
payments to hospitals located in Puerto
Rico, as provided by section 4406 of
Public Law 105–33 (62 FR 46048) and
section 504 of Public Law 108–173 (69
FR 49185), respectively.
C. Proposed Annual Update for FY 2017
The proposed annual update to the
capital PPS Federal rate, as provided for
at § 412.308(c), for FY 2017 is discussed
in section III. of the Addendum to this
proposed rule. Consistent with our
proposal to revise the calculation of
capital IPPS payments to hospitals
located in Puerto Rico to be based on
100 percent of the capital Federal rate
(and no longer based on a blend of the
capital Puerto Rico rate and the capital
Federal rate), we would discontinue use
of the Puerto Rico capital rate in the
calculation of capital IPPS payments to
hospitals located in Puerto Rico.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50906 through 50954), we
adopted the 2-midnight policy effective
for dates of admission on or after
October 1, 2013, under which an
inpatient admission is generally
appropriate for Medicare Part A
payment if the physician (or other
qualified practitioner) admits the
patient as an inpatient based upon the
reasonable expectation that the patient
will need hospital care that crosses at
least 2 midnights. At that time, our

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actuaries estimated that the 2-midnight
policy would increase expenditures by
approximately $220 million in FY 2014
due to an expected net increase in
inpatient encounters. In that same final
rule, consistent with the approach taken
for the operating IPPS standardized
amount, the Puerto Rico-specific
standardized amount, and the hospitalspecific payment rates, and using our
authority under section 1886(g) of the
Act, we made a reduction of 0.2 percent
(an adjustment factor of 0.998) to the
national capital Federal rate and the
Puerto Rico-specific capital rate to offset
the estimated increase in capital IPPS
expenditures associated with the
projected increase in inpatient
encounters that was expected to result
from the new inpatient admission
guidelines (78 FR 50746 through 50747).
As discussed in section IV.O. of the
preamble of this proposed rule, in
Shands Jacksonville Medical Center,
Inc. v. Burwell, No. 14–263 (D.D.C.) and
consolidated cases, hospitals challenged
the 0.2 percent reduction in IPPS rates
to account for the estimated $220
million in additional FY 2014
expenditures resulting from the 2midnight policy. In accordance with the
Court’s order, we published a notice
with comment period that appeared in
the December 1, 2015 Federal Register
(80 FR 75107), which discussed the
basis for the 0.2 percent reduction and
its underlying assumptions and invited
comments on the same in order to
facilitate our further consideration of
the FY 2014 reduction. In section IV.O.
of the preamble of this proposed rule,
we discuss that, in considering the
public comments we received on that
notice with comment period and those
on the same topic we received in
response to the CY 2016 OPPS/ASC
proposed rule, we continue to recognize
that the 0.2 percent reduction issue is
unique in many ways. As we discuss in
that section, the 2-midnight policy itself
and our implementation and
enforcement of it have also evolved over
time as a result of a combination of
statutory, regulatory, and operational
changes. Finally, in reviewing the
public comments received on the
December 1, 2015 notice with comment
period, we also considered the fact that
our actuaries’ most recent estimate of
the impact of the 2-midnight policy
varies between a savings and a cost over
the FY 2014 to FY 2015 time period.
(For additional details, we refer readers
to section IV.O. of the preamble of this
proposed rule.)
We still believe the assumptions
underlying the 0.2 percent reduction to
the rates put in place beginning in FY
2014 were reasonable at the time we

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made them in 2013. Nevertheless, taking
all of these factors into account and in
the context of this case, as we discuss
in more detail in section IV.O. of the
preamble of this proposed rule,
consistent with the approach proposed
for the operating IPPS rates, we believe
it would be appropriate to use our
authority under section 1886(g) of the
Act to permanently remove the 0.2
percent reduction to the capital IPPS
rate beginning in FY 2017. (As
explained previously, we are proposing
to discontinue use of the Puerto Rico
capital rate in the calculation of capital
IPPS payments to hospitals located in
Puerto Rico beginning in FY 2017.)
Specifically, we are proposing to make
an adjustment of (1/0.998) to the
national capital Federal rate to remove
the 0.2 percent reduction, consistent
with the proposed adjustment to the
operating IPPS standardized amount
and the hospital-specific payment rates.
In addition, consistent with the
approach proposed for the operating
IPPS standardized amount and hospitalspecific payment rates and for the
reasons discussed in section IV.O. of the
preamble of this proposed rule, we
believe it would be appropriate to use
our authority under section 1886(g) of
the Act to adjust the FY 2017 capital
IPPS rate to address the effects of the 0.2
percent reduction to the national capital
Federal rates in effect for FY 2014, FY
2015, and FY 2016 by proposing a onetime prospective adjustment of 1.006 in
FY 2017 to the national capital Federal
rate. For FY 2018, we also are proposing
to remove the effects of this one-time
prospective adjustment through an
adjustment of (1/1.006) to the national
capital Federal rate, consistent with the
approach proposed for the operating
IPPS standardized amount and hospitalspecific payment rates (as discussed in
section IV.O. of the preamble of this
proposed rule). We are inviting public
comments on these proposals.
We also note that, in section II.D. of
the preamble of this proposed rule, we
present a discussion of the MS–DRG
documentation and coding adjustment,
including previously finalized policies
and historical adjustments, as well as
the recoupment adjustment to the
standardized amounts under section
1886(d) of the Act that we are proposing
for FY 2017 in accordance with the
amendments made to section 7(b)(1)(B)
of Public Law 110–90 by section 631 of
the ATRA. Because section 631 of the
ATRA requires us to make a recoupment
adjustment only to the operating IPPS
standardized amount, we are not
proposing to make a similar adjustment
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operating IPPS hospital-specific rates).
This approach is consistent with our
historical approach regarding the
application of the recoupment
adjustment authorized by section
7(b)(1)(B) of Public Law 110–90.
VI. Proposed Changes for Hospitals
Excluded From the IPPS
A. Proposed Rate-of-Increase in
Payments to Excluded Hospitals for FY
2017
Certain hospitals excluded from a
prospective payment system, including
children’s hospitals, 11 cancer
hospitals, and hospitals located outside
the 50 States, the District of Columbia,
and Puerto Rico (that is, hospitals
located in the U.S. Virgin Islands,
Guam, the Northern Mariana Islands,
and American Samoa) receive payment
for inpatient hospital services they
furnish 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) of the regulations)
is set for each hospital based on the
hospital’s own cost experience in its
base year, and updated annually by a
rate-of-increase percentage. For each
cost reporting period, the updated target
amount is multiplied by total Medicare
discharges during that period and
applies as an aggregate upper limit (the
ceiling as defined in § 413.40(a)) of
Medicare reimbursement for total
inpatient operating costs for a hospital’s
cost reporting period. In accordance
with § 403.752(a) of the regulations,
RNHCIs also are subject to the rate-ofincrease limits established under
§ 413.40 of the regulations discussed
previously.
As explained in the FY 2006 IPPS
final rule (70 FR 47396 through 47398),
beginning with FY 2006, we have used
the percentage increase in the IPPS
operating market basket to update the
target amounts for children’s hospitals,
cancer hospitals, and RNHCIs.
Consistent with §§ 412.23(g),
413.40(a)(2)(ii)(A), and
413.40(c)(3)(viii), we also have used the
percentage increase in the IPPS
operating market basket to update the
target amounts for short–term acute care
hospitals located in the U.S. Virgin
Islands, Guam, the Northern Mariana
Islands, and American Samoa. As we
finalized in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50156 through
50157), for FY 2017, we will continue
to use the percentage increase in the FY
2010-based IPPS operating market
basket to update the target amounts for
children’s hospitals, cancer hospitals,
RNHCIs, and short-term acute care
hospitals located in the U.S. Virgin

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Islands, Guam, the Northern Mariana
Islands, and American Samoa.
Accordingly, for FY 2017, the rate-ofincrease percentage to be applied to the
target amount for these children’s
hospitals, cancer hospitals, RNHCIs, and
short-term acute care hospitals located
in the U.S. Virgin Islands, Guam, the
Northern Mariana Islands, and
American Samoa is the FY 2017
percentage increase in the FY 2010based IPPS operating market basket.
For this FY 2017 proposed rule, based
on IHS Global Insight, Inc.’s 2016 first
quarter forecast, we estimate that the FY
2010-based IPPS operating market
basket update for FY 2017 is 2.8 percent
(that is, the estimate of the market
basket rate-of-increase). Therefore, the
FY 2017 rate-of-increase percentage that
would be applied to the FY 2016 target
amounts in order to calculate the FY
2017 target amounts for children’s
hospitals, cancer hospitals, RNHCIs, and
short-term acute care hospitals located
in the U.S. Virgin Islands, Guam, the
Northern Mariana Islands, and
American Samoa is 2.8 percent, in
accordance with the applicable
regulations at 42 CFR 413.40. We are
proposing that if more recent data
become available for the final rule, we
would use them to calculate the IPPS
operating market basket update for FY
2017.
B. Critical Access Hospitals (CAHs)
1. Background
Section 1820 of the Act provides for
the establishment of Medicare Rural
Hospital Flexibility Programs
(MRHFPs), under which individual
States may designate certain facilities as
critical access hospitals (CAHs).
Facilities that are so designated and
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.
2. Frontier Community Health
Integration Project (FCHIP)
Demonstration
Section 123 of the Medicare
Improvements for Patients and
Providers Act of 2008 (Pub. L. 110–275),
as amended by section 3126 of the
Affordable Care Act of 2010, authorizes
a demonstration project to allow eligible
entities to develop and test new models
for the delivery of health care services
in eligible counties in order to improve
access to and better integrate the
delivery of acute care, extended care
and other health care services to

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Medicare beneficiaries. The
demonstration is titled ‘‘Demonstration
Project on Community Health
Integration Models in Certain Rural
Counties,’’ and is commonly known as
the Frontier Community Health
Integration Project (FCHIP)
demonstration.
The authorizing statute states the
eligibility criteria for entities to be able
to participate in the demonstration. An
eligible entity, as defined in section
123(d)(1)(B) of Public Law 110–275, as
amended, is an MRHFP grantee under
section 1820(g) of the Act (that is, a
CAH); and is located in a State in which
at least 65 percent of the counties in the
State are counties that have 6 or less
residents per square mile.
The authorizing statute stipulates
several other requirements for the
demonstration. Section 123(d)(2)(B) of
Public. L. 110–275, as amended, limits
participation in the demonstration to
eligible entities in not more than 4
States. Section 123(f)(1) of Public. L.
110–275 requires the demonstration
project to be conducted for a 3-year
period. In addition, section 123(g)(1)(B)
of Public. L. 110–275 requires that the
demonstration be budget neutral.
Specifically, this provision states that in
conducting the demonstration project,
the Secretary shall ensure that the
aggregate payments made by the
Secretary do not exceed the amount
which the Secretary estimates would
have been paid if the demonstration
project under the section were not
implemented. Furthermore, section
123(i) of Public. L. 110–275 states that
the Secretary may waive such
requirements of titles XVIII and XIX of
the Act as may be necessary and
appropriate for the purpose of carrying
out the demonstration project, thus
allowing the waiver of Medicare
payment rules encompassed in the
demonstration.
In January 2014, CMS released a
request for applications (RFA) for the
FCHIP demonstration. We refer readers
to the RFA on the CMS Web site at:
https://innovation.cms.gov/initiatives/
Frontier-Community-Health-IntegrationProject-Demonstration/. Using 2013 data
from the U.S. Census Bureau, CMS
identified Alaska, Montana, Nevada,
North Dakota, and Wyoming as meeting
the statutory eligibility requirement for
participation in the demonstration. The
RFA solicited CAHs in these five States
to participate in the demonstration,
stating that participation would be
limited to CAHs in four of the States. To
apply, CAHs were required to meet the
eligibility requirements in the
authorizing legislation, and, in addition,
to describe a proposal to enhance

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health-related services that would
complement those currently provided
by the CAH and better serve the
community’s needs. In addition, in the
RFA, CMS interpreted the eligible entity
definition in the statute as meaning a
CAH that receives funding through the
Rural Hospital Flexibility Program. The
RFA identified four intervention prongs,
under which specific waivers of
Medicare payment rules would allow
for enhanced payment for telemedicine,
nursing facility, ambulance, and home
health services, respectively. These
waivers were formulated with the goal
of increasing access to care with no net
increase in costs.
Since the due date for applications on
May 5, 2014, we have assessed the
feasibility of the applying CAHs’ service
delivery proposals, as well as the
potential impacts of the payment
enhancement interventions on the
overall expenditures for Medicare
services. We are selecting CAHs to
participate in the demonstration, with
the period of performance for each CAH
expected to start August 1, 2016.
We have specified the payment
enhancements for the demonstration,
and are basing our selection of CAHs for
participation, with the goal of
maintaining the budget neutrality of the
demonstration on its own terms (that is,
the demonstration will produce savings
from reduced transfers and admissions
to other health care providers, thus
offsetting any increase in payments
resulting from the demonstration).
However, because of the small size of
this demonstration and uncertainty
associated with projected Medicare
utilization and costs, we are proposing
a contingency plan to ensure that the
budget neutrality requirement in section
123 of Public. L 110–275 is met.
Accordingly, if analysis of claims data
for Medicare beneficiaries receiving
services at each of the participating
CAHs, as well as of other data sources,
including cost reports for these CAHs,
shows that increases in Medicare
payments under the demonstration
during the 3-year period are not
sufficiently offset by reductions
elsewhere, we will recoup the
additional expenditures attributable to
the demonstration through a reduction
in payments to all CAHs nationwide.
Because of the small scale of the
demonstration, we do not believe it
would be feasible to implement budget
neutrality by reducing payments to only
the participating CAHs. Therefore, in
the event that this demonstration is
found to result in aggregate payments in
excess of the amount that would have
been paid if this demonstration were not
implemented, we are proposing to

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comply with the budget neutrality
requirement by reducing payments to all
CAHs, not just those participating in the
demonstration. We believe it is
appropriate to make any payment
reductions across all CAHs because the
FCHIP demonstration is specifically
designed to test innovations that affect
delivery of services by the CAH
provider category. We believe that the
language of the statutory budget
neutrality requirement at section
123(g)(1)(B) of Public. L. 110–275
permits the agency to implement the
budget neutrality provision in this
manner. The statutory language merely
refers to ensuring that aggregate
payments made by the Secretary do not
exceed the amount which the Secretary
estimates would have been paid if the
demonstration project was not
implemented, and does not identify the
range across which aggregate payments
must be held equal.
Based on actuarial analysis using cost
report settlements for FYs 2013 and
2014, the demonstration is projected to
satisfy the budget neutrality
requirement and likely yield a total net
savings. We estimate that the total
impact of the payment recoupment
would be no greater than 0.03 percent
of CAHs’ total Medicare payments
within 1 fiscal year (that is, Medicare
Part A and Part B). For the FCHIP
demonstration, the final budget
neutrality estimates will be based on the
demonstration period, which is August
1, 2016 through July 31, 2019. The
demonstration is projected to impact
payments to participating CAHs under
both Medicare Part A and Part B. Thus,
in the event that we determine that
aggregate payments under the
demonstration exceed the payments that
would otherwise have been made, we
are proposing that CMS would recoup
payments through reductions of
Medicare payments to all CAHs under
both Medicare Part A and Part B.
Given the 3-year period of
performance of the FCHIP
demonstration and the time needed to
conduct the budget neutrality analysis,
we anticipate that, in the event the
demonstration is found not to have been
budget neutral, any excess costs would
be recouped over a period of 3 cost
reporting years, beginning in CY 2020.
We are proposing a 3-year period for
recoupment to allow for a reasonable
timeframe for the payment reduction
and to minimize any impact on CAHs’
operations.

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VII. Proposed Changes to the LongTerm Care Hospital Prospective
Payment System (LTCH PPS) for FY
2017
A. Background of the LTCH PPS

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1. Legislative and Regulatory Authority
Section 123 of the Medicare,
Medicaid, and SCHIP (State Children’s
Health Insurance Program) Balanced
Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106–113) as amended by
section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits
Improvement and Protection Act of
2000 (BIPA) (Pub. L. 106–554) provides
for payment for both the operating and
capital-related costs of hospital
inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part
A based on prospectively set rates. The
Medicare prospective payment system
(PPS) for LTCHs applies to hospitals
that are described in section
1886(d)(1)(B)(iv) of the 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 (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 12month cost reporting period ending in
FY 1997.
Section 123 of the BBRA requires the
PPS for LTCHs to be a ‘‘per discharge’’
system with a diagnosis-related group
(DRG) based patient classification
system that reflects the differences in
patient resources and costs in LTCHs.
Section 307(b)(1) of the BIPA, among
other things, mandates that the
Secretary shall examine, and may
provide for, adjustments to payments
under the LTCH PPS, including
adjustments to DRG weights, area wage
adjustments, geographic reclassification,
outliers, updates, and a disproportionate
share adjustment.
In the August 30, 2002 Federal
Register, we issued a final rule that
implemented the LTCH PPS authorized
under the BBRA and BIPA (67 FR
55954). For the initial implementation
of the LTCH PPS (FYs 2003 through FY
2007), the system used information from

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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 an 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 this section of
the preamble of this proposed rule,
when we refer to discharges, we
describe Medicare discharges.) The
August 30, 2002 final rule further
details the payment policy under the
TEFRA system (67 FR 55954).
In the August 30, 2002 final rule, we
provided for a 5-year transition period
from payments under the TEFRA system
to payments under the LTCH PPS.
During this 5-year transition period, an
LTCH’s total payment under the PPS
was based on an increasing percentage
of the Federal rate with a corresponding
decrease in the percentage of the LTCH
PPS payment that is based on
reasonable cost concepts, unless an
LTCH made a one-time election to be
paid based on 100 percent of the Federal
rate. Beginning with LTCHs’ cost
reporting periods beginning on or after
October 1, 2006, total LTCH PPS
payments are based on 100 percent of
the Federal rate.
In addition, in the August 30, 2002
final rule, we presented an in-depth

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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 FY 2016 IPPS/LTCH PPS final
rule (80 FR 49601 through 49623), we
implemented the provisions of the
Pathway for Sustainable Growth Rate
(SGR) Reform Act of 2013 (Pub. L. 113–
67), which mandated the application of
the ‘‘site neutral’’ payment rate under
the LTCH PPS for discharges that do not
meet the statutory criteria for exclusion
beginning in FY 2016. For cost reporting
periods beginning on or after October 1,
2015, discharges that do not meet
certain statutory criteria for exclusion
are paid based on the site neutral
payment rate. Discharges that do meet
the statutory criteria continue to receive
payment based on the LTCH PPS
standard Federal payment rate. For
more information on the statutory
requirements of the Pathway for SGR
Reform Act of 2013, we refer readers to
the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49601 through 49623).
Section 231 of Consolidated
Appropriations Act, 2016 (Pub. L. 114–
113), enacted December 18, 2015,
provides for a temporary exception to
the application of the site neutral
payment rate for certain discharges
representing severe wound care cases
from specific LTCHs. We will address
this statutory provision in a separate
rulemaking.
2. Criteria for Classification as an LTCH
a. Classification as an LTCH
Under the regulations at
§ 412.23(e)(1), to qualify to be paid
under the LTCH PPS, a hospital must
have a provider agreement with
Medicare. Furthermore, § 412.23(e)(2)(i),
which implements section
1886(d)(1)(B)(iv)(I) of the Act, requires
that a hospital have an average Medicare
inpatient length of stay of greater than
25 days to be paid under the LTCH PPS.
Alternatively, § 412.23(e)(2)(ii) states

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that, for cost reporting periods
beginning on or after August 5, 1997, a
hospital that was first excluded from the
PPS in 1986 and can demonstrate that
at least 80 percent of its annual
Medicare inpatient discharges in the 12month cost reporting period ending in
FY 1997 have a principal diagnosis that
reflects a finding of neoplastic disease
must have an average inpatient length of
stay for all patients, including both
Medicare and non-Medicare inpatients,
of greater than 20 days (referred to as
‘‘subclause (II)’’ LTCHs).

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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). This
discussion was further clarified in the
RY 2005 LTCH PPS final rule (69 FR
25676). In keeping with those
discussions, if the Medicare payment to
the LTCH is the full LTC–DRG payment
amount, consistent with other
established hospital prospective
payment systems, § 412.507 currently
provides that an 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
specified under § 489.30(a). However,
under the LTCH PPS, Medicare will
only pay for days for which the
beneficiary has coverage until the shortstay outlier (SSO) threshold is exceeded.
If the Medicare payment was for a SSO
case (§ 412.529), and that payment was
less than the full LTC–DRG payment
amount because the beneficiary had
insufficient remaining Medicare days,
the LTCH is currently also permitted to

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charge the beneficiary for services
delivered on those uncovered days
(§ 412.507). In the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49623), we
amended our regulations to limit the
charges that may be imposed on
beneficiaries whose discharges are paid
at the site neutral payment rate under
the LTCH PPS. In section VII.G. of the
preamble of this proposed rule, we are
proposing to amend the existing
regulations relating to the limitation on
charges to address beneficiary charges
for LTCH services provided by
subclause (II) LTCHs as part of our
proposed refinement of the payment
adjustment for subclause II LTCHs
under § 412.526. We also are proposing
to amend the regulations under
§ 412.507 to clarify our existing policy
that blended payments made to an
LTCH during its transitional period (that
is, payment for discharges occurring in
cost reporting periods beginning in FY
2016 or 2017) are considered to be a site
neutral payment rate payment.
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
under 45 CFR parts 160 and 162
(generally known as the Transactions
Rule). The Transactions Rule requires
covered entities, including covered
health care providers, to conduct certain
electronic health care transactions
according to the applicable transactions
and code sets standards.
The Department of Health and Human
Services (HHS) has a number of
initiatives designed to encourage and
support the adoption of health
information technology and promote

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nationwide health information exchange
to improve health care. The Office of the
National Coordinator for Health
Information Technology (ONC) leads
these efforts in collaboration with other
agencies, including CMS and the Office
of the Assistant Secretary for Planning
and Evaluation (ASPE). Through a
number of activities, including several
open government initiatives, HHS is
promoting the adoption of electronic
health record (EHR) technology certified
under the ONC Health Information
Technology (HIT) Certification Program
(https://www.healthit.gov/policyresearchers-implementers/2015-editionfinal-rule) developed to support secure,
interoperable, health information
exchange. We believe that the use of
certified EHRs by LTCHs (and other
types of providers that are ineligible for
the Medicare and Medicaid EHR
Incentive Programs) can effectively and
efficiently help providers improve
internal care delivery practices, support
the exchange of important information
across care partners and during
transitions of care, and enable the
reporting of electronically specified
clinical quality measures (eCQMs) (as
described elsewhere in this proposed
rule). In 2015, ONC released a document
entitled ‘‘Connecting Health and Care
for the Nation: A Shared Nationwide
Interoperability Roadmap’’ (available at:
https://www.healthit.gov/sites/default/
files/hie-interoperability/nationwideinteroperability-roadmap-final-version1.0.pdf). In the near term, the Roadmap
focuses on actions that will enable
individuals and providers across the
care continuum to send, receive, find
and use a common set of electronic
clinical information at the nationwide
level by the end of 2017. The Roadmap’s
goals also align with the Improving
Medicare Post-Acute Care
Transformation Act of 2014 (Pub. L.
113–185) (IMPACT Act), which requires
assessment data to be standardized and
interoperable to allow for exchange of
the data. Moreover, the vision described
in the Roadmap significantly expands
the types of electronic health
information, information sources, and
information users well beyond clinical
information derived from EHRs. The
Roadmap identifies four critical
pathways that health IT stakeholders
should focus on now in order to create
a foundation for long-term success: (1)
Improve technical standards and
implementation guidance for priority
data domains and associated elements;
(2) rapidly shift and align Federal, State,
and commercial payment policies from
fee-for-service to value-based models to
stimulate the demand for

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interoperability; (3) clarify and align
Federal and State privacy and security
requirements that enable
interoperability; and (4) align and
promote the use of consistent policies
and business practices that support
interoperability and address those that
impede interoperability, in coordination
with stakeholders. To support of the
goals of the Roadmap, ONC released the
2016 Interoperability Standards
Advisory (available at: https://
www.healthit.gov/standards-advisory/
2016), which suggests some of the best
available standards, terminology, and
implementation guides as well as
emerging standards to enable priority
health information exchange functions.
Providers, payers, and vendors are
encouraged to take these ‘‘best available
standards’’ into account as they
implement interoperable health
information exchange across the
continuum of care.

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B. Proposed Modifications to the
Application of the Site Neutral Payment
Rate (§ 412.522)
1. Background
Section 1206 of Pathway for SGR
Reform Act (Pub. L. 113–67) mandated
significant changes to the LTCH PPS
beginning with LTCH discharges
occurring in cost reporting periods
beginning on or after October 1, 2015.
Specifically, section 1206 required the
establishment of a site neutral payment
rate (as an alternative to the LTCH PPS
standard Federal payment rate) for
Medicare inpatient discharges from an
LTCH that fail to meet certain statutorily
defined criteria. Discharges that meet
the statutory criteria for exclusion from
the site neutral payment rate continue to
be paid based on the LTCH PPS
standard Federal payment rate.
Discharges that do not meet the
statutory criteria for exclusion are paid
based on the site neutral payment rate.
We implemented the application of the
site neutral payment rate in the FY 2016
IPPS/LTCH PPS final rule (80 FR 49601
through 49623) and codified the
requirements in the regulations at 42
CFR 412.522. The criteria for exclusion
from the site neutral payment rate
specified under section
1886(m)(6)(A)(ii) of the Act and as
implemented at § 412.522(b) are as
follows: (1) The discharge from the
LTCH does not have a principal
diagnosis relating to a psychiatric
diagnosis or to rehabilitation; (2)
admission to the LTCH was
immediately preceded by discharge
from a subsection (d) hospital; and (3)
the immediately preceding stay in a
subsection (d) hospital included at least

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3 days in an intensive care unit (ICU)
(referred to as the ICU criterion) or the
discharge from the LTCH is assigned to
a MS–LTC–DRG based on the patient’s
receipt of ventilator services of at least
96 hours (referred to as the ventilator
criterion). (We note that, for the
remainder of this section VII. of this
preamble, the phrase ‘‘LTCH PPS
standard Federal payment rate case’’
refers to an LTCH PPS case that meets
the criteria for exclusion from the site
neutral payment rate as specified under
§ 412.522(a)(2), and the phrase ‘‘site
neutral payment rate case’’ refers to an
LTCH PPS case that does not meet the
statutory patient-level criteria as
specified under § 412.522(a)(1) and,
therefore, is paid the applicable site
neutral payment rate.)
2. Technical Correction of Definition of
‘‘Subsection (d) Hospital’’ for the Site
Neutral Payment Rate (§ 412.503)
In the FY 2016 IPPS/LTCH PPS final
rule, we implemented section 1206(a) of
Public Law 113–67, which established
the new dual payment rate structure
under the LTCH PPS that began with
LTCH discharges occurring in cost
reporting periods beginning on or after
October 1, 2015. Section 1206(a)
required the establishment of a site
neutral payment rate (as an alternate to
the LTCH PPS standard Federal
payment rate) under the LTCH PPS for
Medicare inpatient LTCH discharges
that fail to meet certain statutorily
defined criteria for exclusion.
Discharges that meet the statutory
criteria for exclusion from the site
neutral payment rate continue to be
paid based on the LTCH PPS standard
Federal payment rate. Discharges that
do not meet the statutory criteria for
exclusion are paid based on the new site
neutral payment rate. In the FY 2016
IPPS/LTCH PPS final rule (80 FR 49601
through 49623), we codified the
requirements for the application of the
site neutral payment rate under the
LTCH PPS under the regulations at
§ 412.522. The statutory criteria for
exclusion from the site neutral payment
rate include a criterion that requires that
the admission to the LTCH was
immediately preceded by discharge
from a ‘‘subsection (d) hospital.’’ To
implement this criterion for purposes of
the application of the site neutral
payment rate under § 412.522, we added
a definition of a ‘‘subsection (d)
hospital’’ under § 412.503 of the
regulations. However, we made an
inadvertent cross-reference error under
§ 412.503 by referencing ‘‘§ 412.526’’
(payment provisions to a subclause II
LTCH) instead of referencing
‘‘§ 412.522’’ (application of site neutral

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payment) (80 FR 49767). That is,
currently § 412.503 specifies that a
subsection (d) hospital means ‘‘for
purposes of § 412.526,’’ when the
language should have read ‘‘for
purposes of § 412.522’’. Therefore, we
are proposing to revise § 412.503 to
correct this cross-reference error.
C. Proposed Medicare Severity LongTerm Care Diagnosis-Related Group
(MS–LTC–DRG) Classifications and
Relative Weights for FY 2017
1. Background
Section 123 of the BBRA required that
the Secretary implement a PPS for
LTCHs to replace the cost-based
payment system under TEFRA. 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 the LTCH PPS on the
use of existing (or refined) hospital
DRGs that have been modified to
account for different resource use of
LTCH patients.
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 utilized at that
time under the IPPS. As a component of
the LTCH PPS, we refer to this patient
classification system as the ‘‘long-term
care diagnosis-related groups (LTC–
DRGs).’’ Although the patient
classification system used under both
the LTCH PPS and the IPPS are the
same, the relative weights are different.
The established relative weight
methodology and data used under the
LTCH PPS result in relative weights
under the LTCH PPS that reflect the
differences in patient resource use of
LTCH patients, consistent with 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,
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

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the provisions of 42 CFR part 412,
subpart O applicable to LTCHs for
policy descriptions and payment
calculations, all references to LTC–
DRGs would be considered a reference
to MS–LTC–DRGs. For the remainder of
this section, we present the discussion
in terms of the current MS–LTC–DRG
patient classification system unless
specifically referring to the previous
LTC–DRG patient classification system
that was in effect before October 1,
2007.)
The MS–DRGs adopted in FY 2008
represent an increase in the number of
DRGs by 207 (that is, from 538 to 745)
(72 FR 47171). The MS–DRG
classifications are updated annually.
There are currently 758 MS–DRG
groupings. For FY 2017, there are 757
MS–DRG groupings that we are
proposing in conjunction with all of the
changes discussed in section II.F. of the
preamble of this proposed rule.
Consistent with section 123 of the
BBRA, as amended by section 307(b)(1)
of the BIPA, and § 412.515 of the
regulations, we use information derived
from LTCH PPS patient records to
classify LTCH discharges into distinct
MS–LTC–DRGs based on clinical
characteristics and estimated resource
needs. We then assign an appropriate
weight to the MS–LTC–DRGs to account
for the difference in resource use by
patients exhibiting the case complexity
and multiple medical problems
characteristic of LTCHs. In this section
of the proposed rule, we provide a
general summary of our existing
methodology for determining the
proposed FY 2017 MS–LTC–DRG
relative weights under the LTCH PPS.
In this proposed rule, in general, for
FY 2017, we are using our existing
methodology to determine the MS–
LTC–DRG relative weights (as discussed
in greater detail in section VII.C.3. of the
preamble of this proposed rule). As we
established when we implemented the
dual rate LTCH PPS payment structure
codified under § 412.522, beginning
with FY 2016, the annual recalibration
of the MS–LTC–DRG relative weights
are determined: (1) Using only data from
available LTCH PPS claims that would
have qualified for payment under the
new LTCH PPS standard Federal
payment rate if that rate were in effect
when claims data from time periods
before the dual rate LTCH PPS payment
structure applies were used to calculate
the relative weights; and (2) using only
data from available LTCH PPS claims
that qualify for payment under the new
LTCH PPS standard Federal payment
rate when claims data from time periods
after the dual rate LTCH PPS payment
structure applies are used to calculate

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the relative weights (80 FR 49624). That
is, under our current methodology, the
MS–LTC–DRG relative weights are not
used to determine the LTCH PPS
payment for cases paid at the site
neutral payment rate under
§ 412.522(c)(1) and data from cases paid
at the site neutral payment rate or that
would have been paid at the site neutral
payment rate if the dual rate LTCH PPS
payment structure had been in effect are
not used to develop the relative weights.
For the remainder of this discussion, we
use the phrase ‘‘applicable LTCH cases’’
or ‘‘applicable LTCH data’’ when
referring to the resulting claims data set
used to calculate the relative weights (as
described later in greater detail in
section VII.C.3.c. of the preamble of this
proposed rule). In addition, we are
proposing to continue to exclude the
data from all-inclusive rate providers
and LTCHs paid in accordance with
demonstration projects, as well as any
Medicare Advantage claims from the
MS–LTC–DRG relative weight
calculations for the reasons discussed in
section VII.C.3.c. of the preamble of this
proposed rule.
Furthermore, for FY 2017, in using
data from applicable LTCH cases to
establish proposed MS–LTC–DRG
relative weights, we are proposing to
continue to establish low-volume MS–
LTC–DRGs (that is, MS–LTC–DRGs with
less than 25 cases) using our quintile
methodology in determining the
proposed MS–LTC–DRG relative
weights because LTCHs do not typically
treat the full range of diagnoses as do
acute care hospitals. Therefore, for
purposes of determining the proposed
relative weights for the large number of
low-volume MS–LTC–DRGs, we are
proposing to group all of the lowvolume MS–LTC–DRGs into five
quintiles based on average charges per
discharge. Then, under our existing
methodology, we are proposing to
account for adjustments made to LTCH
PPS standard Federal 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 fivesixths of the geometric average length of
stay for the MS–LTC–DRG), and we are
proposing to make adjustments to
account for nonmonotonically
increasing weights, when necessary.
The methodology is premised on more
severe cases under the MS–LTC–DRG
system requiring greater expenditure of
medical care resources and higher
average charges such that, in the
severity levels within a base MS–LTC–
DRG, the relative weights should
increase monotonically with severity
from the lowest to highest severity level.

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(We discuss each of these components
of our MS–LTC–DRG relative weight
methodology in greater detail in section
VII.C.3.g. of the preamble of this
proposed rule.)
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 previously in this
section, we refer to the DRGs under the
LTCH PPS as MS–LTC–DRGs although
they are structurally identical to the
MS–DRGs used under the IPPS.
The MS–DRGs are organized into 25
major diagnostic categories (MDCs),
most of which are based on a particular
organ system of the body; the remainder
involve multiple organ systems (such as
MDC 22, Burns). Within most MDCs,
cases are then divided into surgical
DRGs and medical DRGs. Surgical DRGs
are assigned based on a surgical
hierarchy that orders operating room
(O.R.) procedures or groups of O.R.
procedures by resource intensity. The
GROUPER software program does not
recognize all ICD–10–PCS procedure
codes as procedures affecting DRG
assignment. That is, procedures that are
not surgical (for example, EKGs), or
minor surgical procedures (for example,
a 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.
Currently, for claims submitted on the
5010 format, up to 25 diagnosis codes
and 25 procedure codes are considered
for an MS–DRG assignment. This
includes one principal diagnosis and up
to 24 secondary diagnoses for severity of
illness determinations. (For additional
information on the processing of up to
25 diagnosis codes and 25 procedure
codes on hospital inpatient claims, we
refer readers to section II.G.11.c. of the
preamble of the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50127).)
Under HIPAA transactions and code
sets regulations at 45 CFR parts 160 and

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162, covered entities must comply with
the adopted transaction standards and
operating rules specified in Subparts I
through S of Part 162. Among other
requirements, by January 1, 2012,
covered entities were required to use the
ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3—
Health Care Claim: Institutional (837),
May 2006, ASC X12N/005010X223, and
Type 1 Errata to Health Care Claim:
Institutional (837) ASC X12 Standards
for Electronic Data Interchange
Technical Report Type 3, October 2007,
ASC X12N/005010X233A1 for the
health care claims or equivalent
encounter information transaction (45
CFR 162.1102(c)).
HIPAA requires covered entities to
use the applicable medical data code set
requirements when conducting HIPAA
transactions (45 CFR 162.1000).
Currently, upon the discharge of the
patient, the LTCH must assign
appropriate diagnosis and procedure
codes from the most current version of
the Internal 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,
both of which became effective October
1, 2015 (45 CFR 162.1002(c)(2) and (3)).
For additional information on the
implementation of the ICD–10 coding
system, we refer readers to section
II.F.1. of the preamble of this proposed
rule. Additional coding instructions and
examples are published in the AHA’s
Coding Clinic for ICD–10–CM/PCS.
To create the MS–DRGs (and by
extension, the MS–LTC–DRGs), base
DRGs were subdivided according to the
presence of specific secondary
diagnoses designated as complications
or comorbidities (CCs) into one, two, or
three levels of severity, depending on
the impact of the CCs on resources used
for those cases. Specifically, there are
sets of MS–DRGs that are split into 2 or
3 subgroups based on the presence or
absence of a CC or a major complication
or comorbidity (MCC). We refer readers
to section II.D. of the FY 2008 IPPS final
rule with comment period for a detailed
discussion about the creation of MS–
DRGs based on severity of illness levels
(72 FR 47141 through 47175).
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

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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 relative
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. Proposed Changes to the MS–LTC–
DRGs for FY 2017
As specified by our regulations at
§ 412.517(a), which require that the MS–
LTC–DRG classifications and relative
weights be updated annually, and
consistent with our historical practice of
using the same patient classification
system under the LTCH PPS as is used
under the IPPS, we are proposing to
update the MS–LTC–DRG classifications
effective October 1, 2016, through
September 30, 2017 (FY 2017),
consistent with the proposed changes to
specific MS–DRG classifications
presented in section II.F. of the
preamble of this proposed rule.
Accordingly, the proposed MS–LTC–
DRGs for FY 2017 presented in this
proposed rule are the same as the
proposed MS–DRGs that would be used
under the IPPS for FY 2017. In addition,
because the proposed MS–LTC–DRGs
for FY 2017 are the same as the
proposed MS–DRGs for FY 2017, the
other proposed changes that affect
proposed MS–DRG (and by extension

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proposed MS–LTC–DRG) assignments
under GROUPER Version 34.0 as
discussed in section II.G. of the
preamble of this proposed rule,
including the proposed changes to the
MCE software and the ICD–10–CM/PCS
coding system, also would be applicable
under the LTCH PPS for FY 2017. (We
note the GROUPER Version 34 is based
on ICD–10–CM/PCS diagnoses and
procedure codes, consistent with the
requirement to use ICD–10 beginning
October 1, 2015.)
3. Development of the Proposed FY
2017 MS–LTC–DRG Relative Weights
a. General Overview of the Development
of the MS–LTC–DRG Relative Weights
One of the primary goals for the
implementation of the LTCH PPS is to
pay each LTCH an appropriate amount
for the efficient delivery of medical care
to Medicare patients. The system must
be able to account adequately for each
LTCH’s case-mix in order to ensure both
fair distribution of Medicare payments
and access to adequate care for those
Medicare patients whose care is more
costly (67 FR 55984). To accomplish
these goals, we have annually adjusted
the LTCH PPS standard Federal
prospective payment system rate by the
applicable relative weight in
determining payment to LTCHs for each
case. In order to make these annual
adjustments under the dual rate LTCH
PPS payment structure, beginning with
FY 2016, we recalibrate the MS–LTC–
DRG relative weighting factors annually
using data from applicable LTCH cases
(80 FR 49614 through 49617). Under
this policy, the resulting MS–LTC–DRG
relative weights would continue to be
used to adjust the LTCH PPS standard
Federal payment rate when calculating
the payment for LTCH PPS standard
Federal payment rate cases.
The established methodology to
develop the proposed MS–LTC–DRG
relative weights is generally consistent
with the methodology established when
the LTCH PPS was implemented in the
August 30, 2002 LTCH PPS final rule
(67 FR 55989 through 55991). However,
there have been some modifications of
our historical procedures for assigning
relative weights in cases of zero volume
and/or nonmonotonicity resulting from
the adoption of the MS–LTC–DRGs,
along with the change made in
conjunction with the implementation of
the dual rate LTCH PPS payment
structure beginning in FY 21016 to use
LTCH claims data from only LTCH PPS
standard Federal payment rate cases (or
LTCH PPS cases that would have
qualified for payment under the LTCH
PPS standard Federal payment rate if

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the dual rate LTCH PPS payment
structure were in effect at the time of the
discharge) that began in FY 2016. (For
details on the modifications to our
historical procedures for assigning
relative weights in cases of zero volume
and/or nonmonotonicity, we refer
readers to the FY 2008 IPPS final rule
with comment period (72 FR 47289
through 47295) and the FY 2009 IPPS
final rule (73 FR 48542 through 48550).
For details on the change in our
historical methodology to use LTCH
claims data only from LTCH PPS
standard Federal payment rate cases to
determine the MS–LTC–DRG relative
weights, we refer readers to the FY 2016
IPPS/LTCH PPS final rule (80 FR 49614
through 49617). Under the LTCH PPS,
relative weights for each MS–LTC–DRG
are a primary element used to account
for the variations in cost per discharge
and resource utilization among the
payment groups (§ 412.515). To ensure
that Medicare patients classified to each
MS–LTC–DRG have access to an
appropriate level of services and to
encourage efficiency, we calculate a
relative weight for each MS–LTC–DRG
that represents the resources needed by
an average inpatient LTCH case in that
MS–LTC–DRG. For example, cases in an
MS–LTC–DRG with a relative weight of
2 would, on average, cost twice as much
to treat as cases in an MS–LTC–DRG
with a relative weight of 1.
b. Development of the Proposed MS–
LTC–DRG Relative Weights for FY 2017
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49625 through 49634), we
presented our policies for the
development of the MS–LTC–DRG
relative weights for FY 2016.
In this proposed rule, we are
proposing to continue to use our current
methodology to determine the MS–
LTC–DRG relative weights for FY 2017,
including the application of established
policies related to, the hospital-specific
relative value methodology, the
treatment of severity levels in the MS–
LTC–DRGs, low-volume and no-volume
MS–LTC–DRGs, adjustments for
nonmonotonicity, the steps for
calculating the MS–LTC–DRG relative
weights with a budget neutrality factor,
and only using data from applicable
LTCH cases (which includes our policy
of only using cases that would meet the
criteria for exclusion from the site
neutral payment rate (or, for discharges
occurring prior to the implementation of
the dual rate LTCH PPS payment
structure, would have met the criteria
for exclusion had those criteria been in
effect at the time of the discharge)).
In this section, we present our
proposed methodology for determining

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the proposed MS–LTC–DRG relative
weights for FY 2017, and we discuss the
effects of our proposed policies
concerning the data used to determine
the proposed FY 2017 MS–LTC–DRG
relative weights on the various
components of our existing
methodology in the discussion that
follows.
c. Data
For this proposed rule, to calculate
the proposed MS–LTC–DRG relative
weights for FY 2017, we obtained total
charges from FY 2015 Medicare LTCH
claims data from the December 2015
update of the FY 2015 MedPAR file,
which are the best available data at this
time, and we are proposing to use
Version 34 of the GROUPER to classify
LTCH cases. Consistent with our
historical practice, we use those data
and the proposed Version 34 of the MS–
LTC–DRGs in establishing the proposed
FY 2017 MS–LTC–DRG relative weights
in this proposed rule. To calculate the
proposed FY 2017 MS–LTC–DRG
relative weights under the dual rate
LTCH PPS payment structure, we are
proposing to continue to use applicable
LTCH data, which includes our policy
of only using cases that meet the criteria
for exclusion from the site neutral
payment rate (or would have met the
criteria had they been in effect at the
time of the discharge) (80 FR 49624).
Specifically, we are proposing to begin
by first evaluating the LTCH claims data
in the December 2015 update of the FY
2015 MedPAR file to determine which
LTCH cases would meet the criteria for
exclusion from the site neutral payment
rate under § 412.522(b) had the dual rate
LTCH PPS payment structure been in
effect at the time of discharge. We
identified the FY 2015 LTCH cases that
were not assigned to proposed MS–
LTC–DRGs 876, 880, 881, 882, 883, 884,
885, 886, 887, 894, 895, 896, 897, 945
and 946, which identify LTCH cases
that do not have a principal diagnosis
relating to a psychiatric diagnosis or to
rehabilitation; and that either—
• The admission to the LTCH was
‘‘immediately preceded’’ by discharge
from a subsection (d) hospital and the
immediately preceding stay in that
subsection (d) hospital included at least
3 days in an ICU, as we define under the
ICU criterion; or
• The admission to the LTCH was
‘‘immediately preceded’’ by discharge
from a subsection (d) hospital and the
claim for the LTCH discharge includes
the applicable procedure code that
indicates at least 96 hours of ventilator
services were provided during the LTCH
stay, as we define under the ventilator
criterion. Claims data from the FY 2015

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MedPAR file that reported ICD–9–CM
procedure code 96.72 were used to
identify cases involving at least 96
hours of ventilator services in
accordance with the ventilator criterion
(as FY 2015 discharges occurred prior to
the adoption of ICD–10–CM/PCS). (We
note that the corresponding ICD–10–
PCS code for cases involving at least 94
hours of ventilation services is
5A1955Z, effective October 1, 2016) (80
FR 49626 through 49627). We note that,
for purposes of developing the proposed
FY 2017 MS–LTC–DRG relative weights
using our current methodology, we did
not identify any cases that would have
been excluded from the site neutral
payment rate under the temporary
statutory provision for certain wound
care discharges from certain LTCHs
provided by Public Law 114–113 had
the dual rate LTCH PPS payment
structure been in effect at the time of the
discharge. At this time, it is uncertain
how many LTCHs and how many cases
in the claims data we are using for this
proposed rule would have met the
statutory criteria to be excluded from
the site neutral payment rate under that
statutory provision (had the dual rate
LTCH PPS payment structure been in
effect at the time of the discharge).
Therefore, for the remainder of this
section, when we refer to LTCH claims
only from cases that meet the criteria for
exclusion from the site neutral payment
rate (or would meet the criteria had they
been in effect at the time of the
discharge), such data do not include any
cases that would have been paid based
on the LTCH PPS standard Federal
payment rate under the provisions of
section 231 of Public Law 114–113, had
the dual rate LTCH PPS payment
structure been in effect at the time of the
discharge.
Then, consistent with our historical
methodology, we are proposing to
exclude any claims in the resulting data
set that were submitted by LTCHs that
are all-inclusive rate providers and
LTCHs that are reimbursed in
accordance with demonstration projects
authorized under section 402(a) of
Public Law 90–248 or section 222(a) of
Public Law 92–603. In addition,
consistent with our historical practice,
we would exclude the Medicare
Advantage (Part C) claims that were in
the resulting data set based on the
presence of a GHO Paid indicator value
of ‘‘1’’ in the MedPAR files. The claims
that remained after these three trims
(that is, the applicable LTCH data) were
then used to calculate the proposed
MS–LTC–DRG relative weights for FY
2017.
In summary, in general, in identifying
the claims data for the development of

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the proposed FY 2017 MS–LTC–DRG
relative weights in this proposed rule,
we are proposing to use claims data
after we trim the claims data of 10 allinclusive rate providers reported in the
December 2015 update of the FY 2015
MedPAR file, as well as any Medicare
Advantage claims data for cases that
would meet the criteria for exclusion
from the site neutral payment rate under
§ 412.522(b) if the dual rate LTCH PPS
payment structure were in effect at the
time of discharge. (We note that there
were no data from any LTCHs that are
paid in accordance with a
demonstration project reported in the
December 2015 update of the FY 2015
MedPAR file. However, had there been
we would trim the claims data from
those LTCHs as well, in accordance
with our established policy.) We would
use the remaining data (that is, the
applicable LTCH data) to calculate the
proposed relative weights for FY 2017.
d. Hospital-Specific Relative Value
(HSRV) Methodology
By nature, LTCHs often specialize in
certain areas, such as ventilatordependent patients. Some case types
(MS–LTC–DRGs) may be treated, to a
large extent, in hospitals that have, from
a perspective of charges, relatively high
(or low) charges. This nonrandom
distribution of cases with relatively high
(or low) charges in specific MS–LTC–
DRGs has the potential to
inappropriately distort the measure of
average charges. To account for the fact
that cases may not be randomly
distributed across LTCHs, consistent
with the methodology we have used
since the implementation of the LTCH
PPS, we are proposing to continue to
use a hospital-specific relative value
(HSRV) methodology to calculate the
proposed MS–LTC–DRG relative
weights for FY 2017. We believe that
this method removes this hospitalspecific source of bias in measuring
LTCH average charges (67 FR 55985).
Specifically, under this methodology,
we are reducing the impact of the
variation in charges across providers on
any particular MS–LTC–DRG relative
weight by converting each LTCH’s
charge for an applicable LTCH case to
a relative value based on that LTCH’s
average charge for such cases.
Under the HSRV methodology, we
standardize charges for each LTCH by
converting its charges for each
applicable LTCH case to hospitalspecific relative charge values and then
adjusting those values for the LTCH’s
case-mix. The adjustment for case-mix
is needed to rescale the hospital-specific
relative charge values (which, by
definition, average 1.0 for each LTCH).

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The average relative weight for a LTCH
is its case-mix; therefore, 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
applicable LTCH cases it treats relative
to the complexity of the applicable
LTCH cases treated by all other LTCHs
(the average LTCH PPS case-mix of all
applicable LTCH cases across all
LTCHs).
In accordance with our established
methodology, for FY 2017, we are
proposing to continue to standardize
charges for each applicable LTCH case
by first dividing the adjusted charge for
the case (adjusted for SSOs under
§ 412.529 as described in section
VII.C.3.g. (Step 3) of the preamble of this
proposed rule) by the average adjusted
charge for all applicable LTCH 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 would be multiplied
by that LTCH’s case-mix index to
determine the standardized charge for
the case.
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. By standardizing 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.

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e. Treatment of Severity Levels in
Developing the Proposed MS–LTC–DRG
Relative Weights
For purposes of determining the
proposed MS–LTC–DRG relative
weights, under our historical
methodology, there are three different
categories of MS–DRGs based on
volume of cases within specific MS–
LTC–DRGs: (1) MS–LTC–DRGs with at
least 25 applicable LTCH cases in the
data used to calculate the relative
weight, which are each assigned a
unique relative weight; (2) low-volume
MS–LTC–DRGs (that is, MS–LTC–DRGs
that contain between 1 and 24
applicable LTCH cases that are grouped
into quintiles (as described later in this
section of the proposed rule) and
assigned the relative weight of the
quintile; and (3) no-volume MS–LTC–
DRGs that 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). For FY 2017, we are proposing
to continue to use applicable LTCH
cases to establish the same volumebased categories to calculate the
proposed FY 2017 MS–LTC–DRG
relative weights.
In determining the proposed FY 2017
MS–LTC–DRG relative weights, when
necessary, we are proposing to make
adjustments to account for
nonmonotonicity, as discussed in
greater detail later in Step 6 of section
VII.C.3.g. of the preamble of this
proposed rule. We refer readers to the
discussion in the FY 2010 IPPS/RY 2010
LTCH PPS final rule for our rationale for
including an adjustment for
nonmonotonicity (74 FR 43953 through
43954).
f. Proposed Low-Volume MS–LTC–
DRGs
In order to account for MS–LTC–
DRGs with low-volume (that is, with
fewer than 25 applicable LTCH cases),
consistent with our existing
methodology, we are proposing to
continue to employ the quintile
methodology for proposed low-volume
MS–LTC–DRGs, such that we grouped
the ‘‘low-volume MS–LTC–DRGs’’ (that
is, proposed MS–LTC–DRGs that
contained between 1 and 24 applicable
LTCH cases into one of five categories
(quintiles) based on average charges (67
FR 55984 through 55995; 72 FR 47283
through 47288; and 80 FR 49628). In
cases where the initial assignment of a
low-volume MS–LTC–DRG to a quintile
resulted in nonmonotonicity within a
base-DRG, we are proposing to make
adjustments to the resulting low-volume

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MS–LTC–DRGs to preserve
monotonicity, as discussed in detail in
section VII.C.3.g. (Step 6) of the
preamble of this proposed rule.
In this proposed rule, based on the
best available data (that is, the
December 2015 update of the FY 2015
MedPAR files), we identified 259
proposed MS–LTC–DRGs that contained
between 1 and 24 applicable LTCH
cases. This list of proposed MS–LTC–
DRGs was then divided into one of the
5 low-volume quintiles, each containing
51 proposed MS–LTC–DRGs (259/5 =
51, with a remainder of 4). We assigned
the proposed low-volume MS–LTC–
DRGs to specific low-volume quintiles
by sorting the proposed low-volume
MS–LTC–DRGs in ascending order by
average charge in accordance with our
established methodology. Based on the
data available for the proposed rule, the
number of proposed MS–LTC–DRGs
with less than 25 applicable LTCH cases
is not evenly divisible by 5. Therefore,
we are proposing to employ our
historical methodology for determining
which of the low-volume quintiles
contain the additional proposed lowvolume MS–LTC–DRG. Specifically for
this proposed rule, after organizing the
proposed MS–LTC–DRGs by ascending
order by average charge, we assigned the
first 51st (1st through 51st) of proposed
low-volume MS–LTC–DRGs (with the
lowest average charge) into Quintile 1.
The 51 proposed MS–LTC–DRGs with
the highest average charge cases were
assigned into Quintile 5. Because the
average charge of the 52nd proposed
low-volume MS–LTC–DRG in the sorted
list was closer to the average charge of
the 51st proposed low-volume MS–
LTC–DRG (assigned to Quintile 1) than
to the average charge of the 53rd
proposed low-volume MS–LTC–DRG
(assigned to Quintile 2), we assigned it
to Quintile 1 (such that Quintile 1
contains 52 proposed low-volume MS–
LTC–DRGs before any adjustments for
nonmonotonicity, as discussed below).
This results in 4 of the 5 proposed lowvolume quintiles containing 52
proposed MS–LTC–DRGs (Quintiles 1,
2, 3 and 4) and one proposed lowvolume quintile containing 51 proposed
MS–LTC–DRGs (Quintile 5). Table 13A,
listed in section VI. of the Addendum to
this proposed rule and available via the
Internet on the CMS Web site, lists the
composition of the proposed lowvolume quintiles for MS–LTC–DRGs for
FY 2017.
In order to determine the proposed FY
2017 relative weights for the proposed
low-volume MS–LTC–DRGs, we are
proposing to use the five proposed lowvolume quintiles described previously.
We determined a proposed relative

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weight and (geometric) average length of
stay for each of the five proposed lowvolume quintiles using the methodology
described in section VII.C.3.g. of the
preamble of this proposed rule. We are
proposing to assign the same proposed
relative weight and average length of
stay to each of the proposed low-volume
MS–LTC–DRGs that make up an
individual low-volume quintile. We
note that, as this system is dynamic, it
is possible that the number and specific
type of MS–LTC–DRGs with a lowvolume of applicable LTCH cases would
vary in the future. Furthermore, we note
that we continue to monitor the volume
(that is, the number of applicable 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 LTCH cases grouped to
low-volume MS–LTC–DRGs and do not
result in an unintended financial
incentive for LTCHs to inappropriately
admit these types of cases.
g. Steps for Determining the Proposed
FY 2017 MS–LTC–DRG Relative
Weights
In this proposed rule, we are
proposing to continue to use our current
methodology to determine the proposed
FY 2017 MS–LTC–DRG relative weights.
In summary, to determine the
proposed FY 2017 MS–LTC–DRG
relative weights, we are proposing to
group applicable LTCH cases to the
appropriate proposed MS–LTC–DRG,
while taking into account the proposed
low-volume quintiles (as described
above) and proposed cross-walked novolume MS–LTC–DRGs (as described
later in this section). After establishing
the appropriate proposed MS–LTC–DRG
(or proposed low-volume quintile), we
calculate the proposed FY 2017 relative
weights by first removing cases with a
length of stay of 7 days or less and
statistical outliers (Steps 1 and 2 below).
Next, we adjust the number of
applicable LTCH cases in each proposed
MS–LTC–DRG (or proposed low-volume
quintile) for the effect of SSO cases
(Step 3 below). After removing
applicable LTCH cases with a length of
stay of 7 days or less (Step 1 below) and
statistical outliers (Step 2 below), which
are the SSO-adjusted applicable LTCH
cases and corresponding charges (step 3
below), we calculate ‘‘relative adjusted
weights’’ for each proposed MS–LTC–
DRG (or low-volume quintile) using the
HSRV method.
Step 1—Remove cases with a length
of stay of 7 days or less.
The first step in our calculation of the
proposed FY 2017 MS–LTC–DRG
relative weights would be to remove

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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 proposed FY 2017
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 existing relative weight
methodology, in determining the
proposed FY 2017 MS–LTC–DRG
relative weights, we are proposing to
remove LTCH cases with a length of stay
of 7 days or less from applicable LTCH
cases. (For additional information on
what is removed in this step of the
relative weight methodology, we refer
readers to 67 FR 55989 and 74 FR
43959.)
Step 2—Remove statistical outliers.
The next step in our calculation of the
proposed FY 2017 MS–LTC–DRG
relative weights would be to remove
statistical outlier cases from the LTCH
cases with a length of stay of at least 8
days. Consistent with our existing
relative weight methodology, we are
proposing to continue to define
statistical outliers as cases that are
outside of 3.0 standard deviations from
the mean of the log distribution of both
charges per case and the charges per day
for each MS–LTC–DRG. These statistical
outliers are removed prior to calculating
the relative weights because we believe
that they may represent aberrations in
the data that distort the measure of
average resource use. Including those
LTCH cases in the calculation of the
relative weights could result in an
inaccurate relative weight that does not
truly reflect relative resource use among
those MS–LTC–DRGs. (For additional
information on what is removed in this
step of the relative weight methodology,
we refer readers to 67 FR 55989 and 74
FR 43959.) After removing cases with a
length of stay of 7 days or less and
statistical outliers, we are left with
applicable LTCH cases that have a
length of stay greater than or equal to 8
days. In this proposed rule, we refer to

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these cases as ‘‘trimmed applicable
LTCH cases.’’
Step 3—Adjust charges for the effects
of SSOs.
As the next step in the calculation of
the proposed FY 2017 MS–LTC–DRG
relative weights, consistent with our
historical approach, we are proposing to
adjust each LTCH’s charges per
discharge for those remaining cases (that
is, trimmed applicable LTCH cases) for
the effects of SSOs (as defined in
§ 412.529(a) in conjunction with
§ 412.503). Specifically, we are
proposing to make this adjustment by
counting an SSO case as a fraction of a
discharge based on the ratio of the
length of stay of the case to the average
length of stay for the MS–LTC–DRG for
non-SSO cases. This has the effect of
proportionately reducing the impact of
the lower charges for the SSO cases in
calculating the average charge for the
MS–LTC–DRG. This process produces
the same result as if the actual charges
per discharge of an SSO case were
adjusted to what they would have been
had the patient’s length of stay been
equal to the average length of stay of the
MS–LTC–DRG.
Counting SSO cases as full LTCH
cases with no adjustment in
determining the proposed FY 2017 MS–
LTC–DRG relative weights would lower
the proposed FY 2017 MS–LTC–DRG
relative weight for affected proposed
MS–LTC–DRGs because the relatively
lower charges of the SSO cases would
bring down the average charge for all
cases within a proposed MS–LTC–DRG.
This would result in an
‘‘underpayment’’ for non-SSO cases and
an ‘‘overpayment’’ for SSO cases.
Therefore, we are proposing to continue
to adjust for SSO cases under § 412.529
in this manner because it would results
in more appropriate payments for all
LTCH PPS standard Federal payment
rate cases. (For additional information
on this step of the relative weight
methodology, we refer readers to 67 FR
55989 and 74 FR 43959.)
Step 4—Calculate the proposed FY
2017 MS–LTC–DRG relative weights on
an iterative basis.
Consistent with our historical relative
weight methodology, we are proposing
to calculate the proposed FY 2017 MS–
LTC–DRG relative weights using the
HSRV methodology, which is an
iterative process. First, for each SSOadjusted trimmed applicable LTCH case,
we would calculate a hospital-specific
relative charge value by dividing the
charge per discharge after adjusting for
SSOs of the LTCH case (from Step 3) by
the average charge per SSO-adjusted
discharge for the LTCH in which the
case occurred. The resulting ratio was

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then would be multiplied by the LTCH’s
case-mix index to produce an adjusted
hospital-specific relative charge value
for the case. We use an initial case-mix
index value of 1.0 for each LTCH.
For each proposed MS–LTC–DRG, we
would calculate the proposed FY 2017
relative weight by dividing the SSOadjusted average of the hospital-specific
relative charge values for applicable
LTCH cases for the proposed MS–LTC–
DRG (that is, the sum of the hospitalspecific relative charge value from
above divided by the sum of equivalent
cases from Step 3 for each proposed
MS–LTC–DRG) by the overall SSOadjusted average hospital-specific
relative charge value across all
applicable LTCH cases for all LTCHs
(that is, the sum of the hospital-specific
relative charge value from above
divided by the sum of equivalent
applicable LTCH cases from Step 3 for
each proposed MS–LTC–DRG). Using
these recalculated MS–LTC–DRG
relative weights, each LTCH’s average
relative weight for all of its SSOadjusted trimmed applicable LTCH
cases (that is, its case-mix) would be
calculated by dividing the sum of all the
LTCH’s MS–LTC–DRG relative weights
by its total number of SSO-adjusted
trimmed applicable LTCH cases. The
LTCHs’ hospital-specific relative charge
values (from previous) were then
multiplied by the hospital-specific casemix indexes. The hospital-specific casemix adjusted relative charge values
would then be used to calculate a new
set of MS–LTC–DRG relative weights
across all LTCHs. This iterative process
continues until there is convergence
between the relative weights produced
at adjacent steps, for example, when the
maximum difference was less than
0.0001.
Step 5—Determine a proposed FY
2017 relative weight for MS–LTC–DRGs
with no applicable LTCH cases.
Using the trimmed applicable LTCH
cases, we are proposing to identify the
proposed MS–LTC–DRGs for which
there were no claims in the December
2015 update of the FY 2015 MedPAR
file and, therefore, for which no charge
data was available for these proposed
MS–LTC–DRGs. Because patients with a
number of the diagnoses under those
proposed MS–LTC–DRGs may be
treated at LTCHs, consistent with our
historical methodology, we would
generally assign a proposed relative
weight to each of the no-volume
proposed MS–LTC–DRGs based on
clinical similarity and relative costliness
(with the exception of ‘‘transplant’’
proposed MS–LTC–DRGs, ‘‘error’’
proposed MS–LTC–DRGs, and proposed
MS–LTC–DRGs that indicate a principal

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diagnosis related to a psychiatric
diagnosis or rehabilitation (referred to as
the ‘‘psychiatric or rehabilitation’’ MS–
LTC–DRGs), as discussed later in this
section of the proposed rule). (For
additional information on this step of
the relative weight methodology, we
refer readers to 67 FR 55991 and 74 FR
43959 through 43960.)
We are proposing to cross-walk each
no-volume proposed MS–LTC–DRG to
another proposed MS–LTC–DRG for
which we would calculate a proposed
relative weight (determined in
accordance with the methodology
described above). Then, the ‘‘novolume’’ proposed MS–LTC–DRG
would be assigned the same proposed
relative weight (and average length of
stay) of the proposed MS–LTC–DRG to
which it was cross-walked (as described
in greater detail in this section of the
proposed rule).
Of the 757 proposed MS–LTC–DRGs
for FY 2017, we identified 358 proposed
MS–LTC–DRGs for which there are no
trimmed applicable LTCH cases (the
number identified includes the 8
‘‘transplant’’ proposed MS–LTC–DRGs,
the 2 ‘‘error’’ proposed MS–LTC–DRGs,
and the 15 ‘‘psychiatric or
rehabilitation’’ proposed MS–LTC–
DRGs, which are discussed below). We
are proposing to assign proposed
relative weights to each of the 333 novolume proposed MS–LTC–DRGs that
contained trimmed applicable LTCH
cases based on clinical similarity and
relative costliness to one of the
remaining 399 (757¥358 = 399)
proposed MS–LTC–DRGs for which we
would calculate proposed relative
weights based on the trimmed
applicable LTCH cases in the FY 2015
MedPAR file data using the steps
described previously. (For the
remainder of this discussion, we refer to
the ‘‘cross-walked’’ proposed MS–LTC–
DRGs as the proposed MS–LTC–DRGs to
which we cross-walked one of the 333
‘‘no volume’’ proposed MS–LTC–DRGs.)
Then, we generally assigned the 333 novolume proposed MS–LTC–DRG the
proposed relative weight of the crosswalked proposed MS–LTC–DRG. (As
explained below in Step 6, when
necessary, we made adjustments to
account for nonmonotonicity.)
We are proposing to cross-walk the
no-volume proposed MS–LTC–DRG to a
proposed MS–LTC–DRG for which we
would calculate proposed relative
weights based on the December 2015
update of the FY 2015 MedPAR file, and
to which it is similar clinically in
intensity of use of resources and relative
costliness as determined by criteria such
as care provided during the period of
time surrounding surgery, surgical

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approach (if applicable), length of time
of surgical procedure, postoperative
care, and length of stay. (For more
details on our process for evaluating
relative costliness, we refer readers to
the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (73 FR 48543).) We believe in
the rare event that there would be a few
LTCH cases grouped to one of the novolume proposed MS–LTC–DRGs in FY
2017, the proposed 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
clinical similarity and relative
costliness, would be expected to
generally require equivalent relative
resource use.
We are proposing to then assign the
proposed relative weight of the crosswalked proposed MS–LTC–DRG as the
proposed relative weight for the novolume proposed MS–LTC–DRG such
that both of these proposed MS–LTC–
DRGs (that is, the no-volume proposed
MS–LTC–DRG and the cross-walked
proposed MS–LTC–DRG) have the same
proposed relative weight (and average
length of stay) for FY 2017. We note
that, if the cross-walked proposed MS–
LTC–DRG had 25 applicable LTCH
cases or more, its proposed relative
weight (calculated using the
methodology described in Steps 1
through 4 above) was assigned to the novolume proposed MS–LTC–DRG as
well. Similarly, if the proposed MS–
LTC–DRG to which the no-volume
proposed MS–LTC–DRG was crosswalked had 24 or less cases and,
therefore, was designated to one of the
proposed low-volume quintiles for
purposes of determining the proposed
relative weights, we assigned the
proposed relative weight of the
applicable proposed low-volume
quintile to the no-volume proposed MS–
LTC–DRG such that both of these
proposed MS–LTC–DRGs (that is, the
no-volume proposed MS–LTC–DRG and
the proposed cross-walked MS–LTC–
DRG) have the same proposed relative
weight for FY 2017. (As we noted
previously, in the infrequent case where
nonmonotonicity involving a no-volume
proposed MS–LTC–DRG resulted,
additional adjustments as described in
Step 6 are required in order to maintain
monotonically increasing relative
weights.)
For this proposed rule, a list of the novolume proposed MS–LTC–DRGs and
the proposed MS–LTC–DRGs to which
each would cross-walk (that is, the
cross-walked proposed MS–LTC–DRGs)
for FY 2017 is shown in Table 13B,
which is listed in section VI. of the
Addendum to this proposed rule and is

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available via the Internet on the CMS
Web site.
To illustrate this methodology for
determining the proposed relative
weights for the FY 2017 proposed MS–
LTC–DRGs with no applicable LTCH
cases, we are providing the following
example, which refers to the no-volume
proposed MS–LTC–DRGs crosswalk
information for FY 2017 provided in
Table 13B.
Example: There were no trimmed
applicable LTCH cases in the FY 2015
MedPAR file that we are using for this
proposed rule for proposed MS–LTC–
DRG 61 (Acute Ischemic Stroke with
Use of Thrombolytic Agent with MCC).
We determined that proposed MS–LTC–
DRG 70 (Nonspecific Cerebrovascular
Disorders with MCC) is similar
clinically and based on resource use to
proposed MS–LTC–DRG 61. Therefore,
we assigned the same proposed relative
weight (and average length of stay) of
proposed MS–LTC–DRG 70 of 0.9156
for FY 2017 to proposed MS–LTC–DRG
61 (refer to Table 11, which is listed in
section VI. of the Addendum to this
final rule and is available via the
Internet on the CMS Web site).
Again, we note that, as this system is
dynamic, it is entirely possible that the
number of MS–LTC–DRGs with no
volume would vary in the future.
Consistent with our historical practice,
we used the most recent available
claims data to identify the trimmed
applicable LTCH cases from which we
determined the proposed relative
weights in this proposed rule.
For FY 2017, consistent with our
historical relative weight methodology,
we are proposing to establish a relative
weight of 0.0000 for the following
transplant proposed MS–LTC–DRGs:
Heart Transplant or Implant of Heart
Assist System with MCC (MS–LTC–DRG
1); Heart Transplant or Implant of Heart
Assist System without MCC (MS–LTC–
DRG 2); Liver Transplant with MCC or
Intestinal Transplant (MS–LTC–DRG 5);
Liver Transplant without MCC (MS–
LTC–DRG 6); Lung Transplant (MS–
LTC–DRG 7); Simultaneous Pancreas/
Kidney Transplant (MS–LTC–DRG 8);
Pancreas Transplant (MS–LTC–DRG 10);
and Kidney Transplant (MS–LTC–DRG
652). This is because Medicare only
covers 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
proposed 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

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proposed MS–LTC–DRGs would be
administratively burdensome. (For
additional information regarding our
treatment of transplant MS–LTC–DRGs,
we refer readers to the RY 2010 LTCH
PPS final rule (74 FR 43964).) In
addition, consistent with our historical
policy and we are proposing to establish
a relative weight of 0.0000 for the 2
‘‘error’’ proposed MS–LTC–DRGs (that
is, MS–LTC–DRG 998 (Principal
Diagnosis Invalid as Discharge
Diagnosis) and MS–LTC–DRG 999
(Ungroupable)) because applicable
LTCH cases grouped to these proposed
MS–LTC–DRGs cannot be properly
assigned to an MS–LTC–DRG according
to the grouping logic.
In this proposed rule, for FY 2017, we
are proposing to establish a proposed
relative weight equal to the respective
FY 2015 relative weight of the MS–
LTC–DRGs for the following
‘‘psychiatric or rehabilitation’’ proposed
MS–LTC–DRGs: MS–LTC–DRG 876
(O.R. Procedure with Principal
Diagnoses of Mental Illness); MS–LTC–
DRG 880 (Acute Adjustment Reaction &
Psychosocial Dysfunction); MS–LTC–
DRG 881 (Depressive Neuroses); MS–
LTC–DRG 882 (Neuroses Except
Depressive); MS–LTC–DRG 883
(Disorders of Personality & Impulse
Control); MS–LTC–DRG 884 (Organic
Disturbances & Mental Retardation);
MS–LTC–DRG 885 (Psychoses); MS–
LTC–DRG 886 (Behavioral &
Developmental Disorders); MS–LTC–
DRG 887 (Other Mental Disorder
Diagnoses); MS–LTC–DRG 894
(Alcohol/Drug Abuse or Dependence,
Left Ama); MS–LTC–DRG 895 (Alcohol/
Drug Abuse or Dependence, with
Rehabilitation Therapy); MS–LTC–DRG
896 (Alcohol/Drug Abuse or
Dependence, without Rehabilitation
Therapy with MCC); MS–LTC–DRG 897
(Alcohol/Drug Abuse or Dependence,
without Rehabilitation Therapy without
MCC); MS–LTC–DRG 945
(Rehabilitation with CC/MCC); and MS–
LTC–DRG 946 (Rehabilitation without
CC/MCC). As we discussed when we
implemented the dual rate LTCH PPS
payment structure, LTCH discharges
that are grouped to these 15 ‘‘psychiatric
and rehabilitation’’ MS–LTC–DRGs do
not meet the criteria for exclusion from
the site neutral payment rate. As such,
under the criterion for a principal
diagnosis relating to a psychiatric
diagnosis or to rehabilitation, there are
no applicable LTCH cases to use in
calculating a relative weight for the
‘‘psychiatric and rehabilitation’’
proposed MS–LTC–DRGs. In other
words, any LTCH PPS discharges
grouped to any of the 15 ‘‘psychiatric

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and rehabilitation’’ proposed MS–LTC–
DRGs will always be paid at the site
neutral payment rate, and, therefore,
those proposed MS–LTC–DRGs will
never include any LTCH cases that meet
the criteria for exclusion from the site
neutral payment rate. However, section
1886(m)(6)(B) of the Act establishes a
transitional payment method for cases
that would be paid at the site neutral
payment rate for LTCH discharges
occurring in cost reporting periods
beginning during FY 2016 or FY 2017.
Under the transitional payment method
for site neutral payment rate cases, for
LTCH discharges occurring in cost
reporting periods beginning on or after
October 1, 2016, and on or before
September 30, 2017, site neutral
payment rate cases are paid a blended
payment rate, calculated as 50 percent
of the applicable site neutral payment
rate amount for the discharge and 50
percent of the applicable LTCH PPS
standard Federal payment rate. Because
the LTCH PPS standard Federal
payment rate is based on the relative
weight of the MS–LTC–DRG, in order to
determine the transitional blended
payment for site neutral payment rate
cases grouped to one of the ‘‘psychiatric
or rehabilitation’’ proposed MS–LTC–
DRGs in FY 2017, we are proposing to
assign a proposed relative weight to
these proposed MS–LTC–DRGs for FY
2017, that would be the same as the FY
2015 relative weight (which is also the
same as the FY 2016 relative weight).
We believe that using the respective FY
2015 relative weight for each of the
‘‘psychiatric or rehabilitation’’ proposed
MS–LTC–DRGs results in appropriate
payments for LTCH cases that are paid
at the site neutral payment rate under
the transition policy provided by the
statute because there are no clinically
similar MS–LTC–DRGs for which we
were able to determine relative weights
based on applicable LTCH cases in the
FY 2015 MedPAR file data using the
steps described above. Furthermore, we
believe that it would be administratively
burdensome and introduce unnecessary
complexity to the MS–LTC–DRG
relative weight calculation to use the
LTCH discharges in the MedPAR file
data to calculate a relative weight for
those 15 ‘‘psychiatric and
rehabilitation’’ proposed MS–LTC–
DRGs to be used for the sole purpose of
determining half of the transitional
blended payment for site neutral
payment rate cases during the transition
period. (80 FR 49631 through 49632)
In summary, for FY 2017, we are
proposing to establish a proposed
relative weight (and average length of
stay thresholds) equal to the respective

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FY 2015 relative weight of the proposed
MS–LTC–DRGs for the 15 ‘‘psychiatric
or rehabilitation’’ proposed MS–LTC–
DRGs listed previously (that is, MS–
LTC–DRGs 876, 880, 881, 882, 883, 884,
885, 886, 887, 894, 895, 896, 897, 945,
and 946). Table 11, which is listed in
section VI. of the Addendum to this
proposed rule and is available via the
Internet on the CMS Web site, reflects
this proposal.
Step 6—Adjust the proposed FY 2017
MS–LTC–DRG relative weights to
account for nonmonotonically
increasing relative weights.
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 secondary
diagnosis 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
secondary diagnosis code that is a CC
(that is, complication or comorbidity).
Those cases without an MCC or a CC are
referred to as ‘‘without CC/MCC.’’ When
data do not support the creation of three
severity levels, the base MS–DRG is
subdivided into either two levels or the
base MS–DRG is not subdivided. The
two-level subdivisions could consist of
the MS–DRG with CC/MCC and the
MS–DRG without CC/MCC.
Alternatively, the other type of twolevel subdivision may consist of the
MS–DRG with MCC and the MS–DRG
without MCC.
In those base MS–LTC–DRGs that are
split into either two or three severity
levels, cases classified into the ‘‘without
CC/MCC’’ MS–LTC–DRG are expected
to have a lower resource use (and lower
costs) than the ‘‘with CC/MCC’’ MS–
LTC–DRG (in the case of a two-level
split) or both the ‘‘with CC’’ and the
‘‘with MCC’’ MS–LTC–DRGs (in the
case of a three-level split). That is,
theoretically, cases that are more severe
typically require greater expenditure of
medical care resources and would result
in higher average charges. Therefore, in
the three severity levels, relative
weights should increase by severity,
from lowest to highest. If the relative
weights decrease as severity increases
(that is, if within a base MS–LTC–DRG,
an MS–LTC–DRG with CC has a higher
relative weight than one with MCC, or
the MS–LTC–DRG ‘‘without CC/MCC’’
has a higher relative weight than either
of the others), they are nonmonotonic.
We continue to believe that utilizing
nonmonotonic relative weights to adjust
Medicare payments would result in
inappropriate payments because the
payment for the cases in the higher
severity level in a base MS–LTC–DRG

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(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). Therefore, in determining the
proposed FY 2017 MS–LTC–DRG
relative weights, consistent with our
historical methodology, we are
proposing to continue to combine MS–
LTC–DRG severity levels within a base
MS–LTC–DRG for the purpose of
computing a proposed relative weight
when necessary to ensure that
monotonicity is maintained. For a
comprehensive description of our
existing methodology to adjust for
nonmonotonicity, we refer readers to
the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43964 through 43966).
Any adjustments for nonmonotonicity
that were made in determining the
proposed FY 2017 MS–LTC–DRG
relative weights in this proposed rule by
applying this methodology are denoted
in Table 11, which is listed in section
VI. of the Addendum to this proposed
rule and is available via the Internet on
the CMS Web site.
Step 7—Calculate the proposed FY
2017 MS–LTC–DRG reclassification and
recalibration budget neutrality factor.
In accordance with the regulations at
§ 412.517(b) (in conjunction with
§ 412.503), the annual update to the
MS–LTC–DRG classifications and
relative weights is done in a budget
neutral manner such that estimated
aggregate LTCH PPS payments would be
unaffected, that is, would be neither
greater than nor less than the estimated
aggregate LTCH PPS payments that
would have been made without the MS–
LTC–DRG classification and relative
weight changes. (For a detailed
discussion on the establishment of the
budget neutrality requirement for the
annual update of the MS–LTC–DRG
classifications and relative weights, we
refer readers to the RY 2008 LTCH PPS
final rule (72 FR 26881 and 26882).)
The MS–LTC–DRG classifications and
relative weights are updated annually
based on the most recent available
LTCH claims data to reflect changes in
relative LTCH resource use (§ 412.517(a)
in conjunction with § 412.503). To
achieve the budget neutrality
requirement at § 412.517(b), under our
established methodology, for each
annual update, the MS–LTC–DRG
relative weights are uniformly adjusted
to ensure that estimated aggregate
payments under the LTCH PPS would
not be affected (that is, decreased or
increased). Consistent with that
provision, we are proposing to update
the MS–LTC–DRG classifications and

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relative weights for FY 2017 based on
the most recent available LTCH data for
applicable LTCH cases, and to continue
to apply a budget neutrality adjustment
in determining the FY 2017 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 are proposing to
continuing to use our established twostep budget neutrality methodology.
Therefore, in this proposed rule, in the
first step of our MS–LTC–DRG budget
neutrality methodology, for FY 2017, we
are proposing to calculate and apply a
normalization factor to the recalibrated
relative weights (the result of Steps 1
through 6 discussed previously) to
ensure that estimated payments are not
affected by changes in the composition
of case types or the changes to the
classification system. That is, the
proposed normalization adjustment is
intended to ensure that the recalibration
of the MS–LTC–DRG relative weights
(that is, the process itself) neither
increases nor decreases the average
case-mix index.
To calculate the proposed
normalization factor for FY 2017 (the
first step of our budget neutrality
methodology), we used the following
three steps: (1.a.) Use the most recent
available applicable LTCH cases from
the most recent available data (that is,
LTCH discharges from the FY 2015
MedPAR file) and grouped them using
the proposed FY 2017 GROUPER (that
is, proposed Version 34 for FY 2017)
and the recalibrated FY 2017 MS–LTC–
DRG relative weights (determined in
Steps 1 through 6 above) to calculate the
average case-mix index; (1.b.) group the
same applicable LTCH cases (as are
used in Step 1.a.) using the FY 2016
GROUPER (Version 33) and FY 2016
MS–LTC–DRG relative weights and
calculated the average case-mix index;
and (1.c.) compute the ratio of these
average case-mix indexes by dividing
the average CMI for FY 2016
(determined in Step 1.b.) by the average
case-mix index for FY 2017 (determined
in Step 1.a.). As a result, in determining
the proposed MS–LTC–DRG relative
weights for FY 2017, each recalibrated
MS–LTC–DRG relative weight is
multiplied by the proposed
normalization factor of 1.28094
(determined in Step 1.c.) in the first step
of the budget neutrality methodology,
which produces ‘‘normalized relative
weights.’’
In the second step of our MS–LTC–
DRG budget neutrality methodology, we
are proposing to calculate a second
budget neutrality factor consisting of the
ratio of estimated aggregate FY 2017

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LTCH PPS standard Federal payment
rate payments for applicable LTCH
cases (the sum of all calculations under
Step 1.a. mentioned previously) after
reclassification and recalibration to
estimated aggregate payments for FY
2017 LTCH PPS standard Federal
payment rate payments for applicable
LTCH cases before reclassification and
recalibration (that is, the sum of all
calculations under Step 1.b. mentioned
previously).
That is, for this proposed rule, for FY
2017, under the second step of the
budget neutrality methodology, we
determined the budget neutrality
adjustment factor using the following
three steps: (2.a.) Simulate estimated
total FY 2017 LTCH PPS standard
Federal payment rate payments for
applicable LTCH cases using the
normalized relative weights for FY 2017
and proposed GROUPER Version 34 (as
described above); (2.b.) simulate
estimated total FY 2016 LTCH PPS
standard Federal payment rate
payments for applicable LTCH cases
using the FY 2016 GROUPER (Version
33) and the FY 2016 MS–LTC–DRG
relative weights in Table 11 of the FY
2016 IPPS/LTCH PPS final rule
available on the Internet, as described in
section VI. of the Addendum of that
final rule; and (2.c.) calculate the ratio
of these estimated total payments by
dividing the value determined in Step
2.b. by the value determined in Step 2.a.
In determining the proposed FY 2017
MS–LTC–DRG relative weights, each
proposed normalized relative weight
was then multiplied by a proposed
budget neutrality factor of 0.998723 (the
value determined in Step 2.c.) in the
second step of the budget neutrality
methodology to achieve the budget
neutrality requirement at § 412.517(b).
Accordingly, in determining the
proposed FY 2017 MS–LTC–DRG
relative weights in this proposed rule,
consistent with our existing
methodology, we are proposing to apply
a proposed normalization factor of
1.28094 and a proposed budget
neutrality factor of 0.998723. Table 11,
which is listed in section VI. of the
Addendum to this proposed rule and is
available via the Internet on the CMS
Web site, lists the proposed MS–LTC–
DRGs and their respective proposed
relative weights, geometric mean length
of stay, five-sixths of the geometric
mean length of stay (used to identify
SSO cases under § 412.529(a)), and the
‘‘IPPS Comparable Thresholds’’ (used in
determining SSO payments under
§ 412.529(c)(3)), for FY 2017.

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D. Proposed Rebasing of the LTCH
Market Basket
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 mix. 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 2002based 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 42 CFR
413.40. Those types of hospitals are not
paid under a PPS. Also, the 2002 cost
structures for cancer and children’s
hospitals are noticeably different from
the cost structures for freestanding IRFs,
freestanding IPFs, and LTCHs. A
complete discussion of the 2002-based
RPL market basket can be found in the
RY 2007 LTCH PPS final rule (71 FR
27810 through 27817).
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51756), we finalized the
rebasing and revising of the 2002-based
RPL market basket by creating and
implementing a 2008-based RPL market
basket. We also discussed the creation
of a stand-alone LTCH market basket
and received several public comments,
all of which supported deriving a standalone LTCH market basket (76 FR 51756
through 51757). In the FY 2013 IPPS/
LTCH PPS final rule, we finalized the
adoption of a stand-alone 2009-based
LTCH-specific market basket that
reflects the cost structures of LTCHs
only (77 FR 53467 through 53479).
For this FY 2017 proposed rule, we
are proposing to rebase and revise the
2009-based LTCH-specific market
basket. The proposed LTCH market
basket is primarily based on Medicare
cost report data for LTCHs for 2013,

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which are for cost reporting periods
beginning on and after October 1, 2012,
and before October 1, 2013. We are
proposing to use data from cost reports
beginning in FY 2013 because these data
are the latest available complete data for
purposes of calculating cost weights for
the market basket. In the following
discussion, we provide an overview of
the proposed LTCH market basket and
describe the methodologies we are
proposing to use for determining the
operating and capital portions of the
proposed 2013-based LTCH market
basket.
2. Overview of the Proposed 2013-Based
LTCH Market Basket
Similar to the 2009-based LTCHspecific market basket, the proposed
2013-based LTCH market basket is a
fixed-weight, Laspeyres-type price
index. A Laspeyres price index
measures the change in price, over time,
of the same mix of goods and services
purchased in the base period. Any
changes in the quantity or mix (that is,
intensity) of goods and services
purchased over time are not measured.
The index itself is constructed using
three steps. First, a base period is
selected (in this proposed rule, we are
proposing to use 2013 as the base
period) and total base period
expenditures are estimated for a set of
mutually exclusive and exhaustive
spending categories, with the proportion
of total costs that each category
represents being calculated. These
proportions are called ‘‘cost weights’’ or
‘‘expenditure weights.’’ Second, each
expenditure category is matched to an
appropriate price or wage variable,
referred to as a ‘‘price proxy.’’ In almost
every instance, these price proxies are
derived from publicly available
statistical series that are published on a
consistent schedule (preferably at least
on a quarterly basis). Finally, the
expenditure weight for each cost
category is multiplied by the level of its
respective price proxy. The sum of these
products (that is, the expenditure
weights multiplied by their price levels)
for all cost categories yields the
composite index level of the market
basket in a given period. Repeating this
step for other periods produces a series
of market basket levels over time.
Dividing an index level for a given
period by an index level for an earlier
period produces a rate of growth in the
input price index over that timeframe.
As noted above, the market basket is
described as a fixed-weight index
because it represents the change in price
over time of a constant mix (quantity
and intensity) of goods and services
needed to furnish hospital services. The

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effects on total expenditures resulting
from changes in the mix of goods and
services purchased subsequent to the
base period are not measured. For
example, a hospital hiring more nurses
to accommodate the needs of patients
would increase the volume of goods and
services purchased by the hospital, but
would not be factored into the price
change measured by a fixed-weight
hospital market basket. Only when the
index is rebased would changes in the
quantity and intensity be captured, with
those changes being reflected in the cost
weights. Therefore, we rebase the
market basket periodically so that the
cost weights reflect a recent mix of
goods and services that hospitals
purchase (hospital inputs) to furnish
inpatient care.
3. Development of the Proposed 2013Based LTCH Market Basket Cost
Categories and Weights
We are inviting public comments on
our proposed methodology, discussed
below, for deriving the proposed 2013based LTCH market basket.
a. Use of Medicare Cost Report Data
The proposed 2013-based LTCH
market basket consists of six major cost
categories derived from the 2013 LTCH
Medicare cost reports (CMS Form 2552–
10), including wages and salaries,
employee benefits, contract labor,
pharmaceuticals, professional liability
insurance, and capital. After we
calculate these cost categories, we are
left with a residual cost category, which
reflects all other input costs other than
those captured in the six cost categories
above. This is the same number of cost
categories derived for the 2009-based
LTCH-specific market basket using the
2009 Medicare cost report data (CMS
Form 2552–96). These 2013 Medicare
cost reports include data for cost
reporting periods beginning on and after
October 1, 2012, and before October 1,
2013. We are proposing to use 2013 as
the base year because we believe that
the 2013 Medicare cost reports represent
the most recent, complete set of
Medicare cost report data available to
develop cost weights for an LTCH
market basket. Medicare cost report data
include costs for all patients, including
Medicare, Medicaid, and private payer.
Because our goal is to measure cost
shares for facilities that serve Medicare
beneficiaries, and are reflective of casemix and practice patterns associated
with providing services to Medicare
beneficiaries in LTCHs, we are
proposing to limit our selection of
Medicare cost reports to those from
LTCHs that have a Medicare average
length of stay (LOS) that is within a

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comparable range of their total facility
average LOS. We define the Medicare
average LOS based on data reported on
the Medicare cost report (CMS Form
2552–10) Worksheet S–3, Part I, Line 14.
We believe that applying the LOS edit
results in a more accurate reflection of
the structure of costs for Medicare
covered days. For the 2009-based LTCHspecific market basket, we used the cost
reports submitted by LTCHs with
Medicare average LOS within 15
percent (that is, 15 percent higher or
lower) of the total facility average LOS
for the hospital.
Based on our analysis of the 2013
Medicare cost reports, for the proposed
2013-based LTCH market basket, we are
proposing to use the cost reports
submitted by LTCHs with Medicare
average LOS within 25 percent (that is,
25 percent higher or lower) of the total
facility average LOS for the hospital
(this edit excludes 6 percent of LTCH
providers). Applying the proposed trim
results in a subset of LTCH Medicare
cost reports with an average Medicare
LOS of 27 days, average facility LOS of
28 days, and aggregate Medicare
utilization (as measured by Medicare
inpatient LTCH days as a percentage of
total facility inpatient LTCH days) of 66
percent. If we were to apply the same
trim as was applied for the 2009-based
LTCH-specific market basket, we would
exclude 11 percent of LTCH providers,
but the results would be very similar
with an average Medicare LOS of 27
days, average facility LOS of 27 days,
and aggregate Medicare utilization of 66
percent. The 6 percent of providers that
are excluded from the proposed 2013based LTCH market basket have an
average Medicare LOS of 29 days,
average facility LOS of 77 days, and
aggregate Medicare utilization of 12
percent. We believe that the use of this
proposed trim, instead of the trim used
to develop the 2009-based LTCHspecific market basket, is a technical
improvement because data from more
LTCHs are used while still being
reflective of case-mix and practice
patterns associated with providing
services to Medicare beneficiaries.
Using the resulting set of Medicare
cost reports, we are proposing to
calculate cost weights for seven major
cost categories of the proposed 2013based LTCH market basket (wages and
salaries, employee benefits, contract
labor, professional liability insurance,
pharmaceuticals, capital, and an ‘‘all
other’’ residual cost category). The
methodology used to develop the
proposed 2013-based LTCH market
basket cost weights is generally the
same methodology used to develop the
2009-based LTCH-specific market basket

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cost weights. We describe the detailed
methodology for obtaining costs for each
of these seven cost categories below.
(1) Wages and Salaries Costs
We are proposing to derive wages and
salaries costs as the sum of inpatient
salaries, ancillary salaries, and a
proportion of overhead (or general
service cost center) salaries as reported
on Worksheet A, Column 1. Because
overhead salary costs are attributable to
the entire LTCH, we are proposing to
only include the proportion attributable
to the Medicare allowable cost centers.
Similar to the 2009-based LTCH-specific
market basket major cost weights, we
define Medicare allowable total costs
(routine, ancillary and capital) as costs
that are eligible for payment through the
LTCH PPS. We are proposing to
estimate the proportion of overhead
salaries that are attributed to Medicare
allowable costs centers by multiplying
the ratio of Medicare allowable cost
centers’ salaries to total salaries
(Worksheet A, Column 1, Line 200) by
total overhead salaries. A similar
methodology was used to derive wages
and salaries costs in the 2009-based
LTCH-specific market basket.

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(2) Employee Benefit Costs
Similar to the 2009-based LTCHspecific market basket, we are proposing
to calculate employee benefit costs
using Worksheet S3, Part II. The
completion of Worksheet S–3, Part II is
only required for IPPS hospitals.
However, for 2013, we found that
roughly 35 percent of all LTCHs
voluntarily reported these data (similar
to prior years). We note that this
worksheet is only required to be
completed by IPPS hospitals. Our
analysis of the Worksheet S–3, Part II
data submitted by these LTCHs
indicates that we had a large enough
sample to enable us to produce a
reasonable employee benefits cost
weight. Specifically, we found that
when we recalculated the cost weight
after weighting to reflect the
characteristics of the universe of LTCHs
(type of control (nonprofit, for-profit,
and government) and by region), the
recalculation did not have a material
effect on the resulting cost weight.
Therefore, we are proposing to use
Worksheet S–3, Part II data (as was done
for the 2009-based LTCH-specific
market basket) to calculate the employee
benefit cost weight in the proposed
2013-based LTCH market basket.

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We note that, effective with the
implementation of CMS Form 2552–10
for cost reporting periods beginning on
or after May 1, 2010, CMS began
collecting employee benefits and
contract labor data on Worksheet S–3,
Part V, which is applicable to LTCHs.
Only a few LTCHs reported these data
and, therefore, we were unable to use
such a small sample to accurately reflect
these costs. Therefore, we encourage all
LTCHs to report employee benefit and
contract labor costs on Worksheet S–3,
Part V.
(3) Contract Labor Costs
Contract labor costs are primarily
associated with direct patient care
services. Contract labor costs for
services such as accounting, billing, and
legal are estimated using other
government data sources as described
below. As was done for the 2009-based
LTCH-specific market basket, we are
proposing to derive the contract labor
cost weight for the proposed 2013-based
LTCH market basket using voluntarily
reported data from Worksheet S–3, Part
II. Approximately 48 percent of LTCHs
voluntarily reported contract labor cost
on the Worksheet S–3, Part II. Our
analysis of these data indicates that we
have a large enough sample to enable us
to produce a reasonable contract labor
cost weight. Specifically, we found that
when we recalculated the cost weight
after weighting to reflect the
characteristics of the universe of LTCHs
(type of control (nonprofit, for-profit,
and government) and by region), the
recalculation did not have a material
effect on the resulting cost weight.
Therefore, as was done for the 2009based LTCH-specific market basket, we
are proposing to use Worksheet S–3,
Part II to calculate the contract labor
cost weight in the proposed 2013-based
LTCH market basket.
(4) Pharmaceutical Costs
We are proposing to calculate
pharmaceutical costs using nonsalary
costs reported on Worksheet A, Column
7, minus the amount on Worksheet A,
Column 1, for the pharmacy cost center
(Line 15) and drugs charged to patients
cost center (Line 73). A similar
methodology was used for the 2009based LTCH-specific market basket
using the CMS Form 2552–96.
(5) Professional Liability Insurance
Costs
We are proposing that professional
liability insurance (PLI) costs (often

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referred to as malpractice costs) be equal
to premiums, paid losses and selfinsurance costs reported on Worksheet
S2, Part I, Line 118, Columns 1 through
3. A similar methodology was used for
the 2009-based LTCH-specific market
basket using the CMS Form 2552–96.
(6) Capital Costs
We are proposing that capital costs be
equal to Medicare allowable capital
costs as reported on Worksheet B, Part
II, Column 26. We are proposing to
define Medicare allowable costs as cost
centers: 30 through 35, 50 through 76
(excluding 52, 61, and 75), 90 through
91 and 93. A similar methodology was
used for the 2009-based LTCH-specific
market basket using the CMS Form
2552–96.
b. Final Major Cost Category
Computation
In addition to our proposals to derive
costs for the major cost categories for
each provider using the Medicare cost
report data as previously described, we
are proposing to address outlier cases
using the following steps. First, for each
provider, we are proposing to divide the
costs for each of the six categories by the
total Medicare allowable costs to obtain
cost weights for the universe of LTCH
providers. We are proposing to define
total Medicare allowable costs reported
on Worksheet B, Part I, Column 26 for
cost centers: 30 Through 35, 50 through
76 (excluding 52, 61, and 75), 90
through 91 and 93.
We then are proposing to remove
those providers whose derived cost
weights fall in the top and bottom 5
percent of provider-specific derived cost
weights to ensure the removal of costs
for outlier cases. After the costs for
outlier cases have been removed in this
manner, we are proposing to sum the
costs for each category across all
remaining providers, and then divide
this by the sum of total Medicare
allowable costs across all remaining
providers to obtain a cost weight for the
proposed 2013-based LTCH market
basket for the given category. Finally,
we are proposing to calculate a seventh
major cost weight—the residual ‘‘All
Other’’ cost weight to reflect all
remaining costs that are not captured in
the previous six cost categories listed.
We refer readers to Table VII–1 below
for the resulting proposed cost weights
for these major cost categories.

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TABLE VII–1—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS AS CALCULATED FROM MEDICARE
COST REPORTS
Proposed 2013based LTCH
market basket
cost weight
(percent of total
costs)

Major cost categories

Wages and Salaries ....................................................................................................................................
Employee Benefits .......................................................................................................................................
Contract Labor .............................................................................................................................................
Professional Liability Insurance (Malpractice) .............................................................................................
Pharmaceuticals ..........................................................................................................................................
Capital ..........................................................................................................................................................
All Other .......................................................................................................................................................

The wages and salaries cost weight
calculated from the Medicare cost
reports for the proposed 2013-based
LTCH market basket is approximately 1
percentage point higher than the wages
and salaries cost weight for the 2009based LTCH-specific market basket,
while the contract labor cost weight is
approximately 1 percentage point lower.
The proposed 2013-based
pharmaceuticals cost weight also is
roughly 1 percentage point lower than
the cost weight for the 2009-based
LTCH-specific market basket.

As we did for the 2009-based LTCH
market basket, we are proposing to
allocate the contract labor cost weight to
the wages and salaries and employee
benefits cost weights based on their
relative proportions under the
assumption that contract labor costs are
comprised of both wages and salaries
and employee benefits. The contract
labor allocation proportion for wages
and salaries is equal to the wages and
salaries cost weight as a percent of the
sum of the wages and salaries cost
weight and the employee benefits cost

41.5
6.5
5.9
0.9
7.6
9.7
27.8

2009-based
LTCH-specific
market basket
cost weight
(percent of total
costs)
40.4
7.0
6.9
0.8
8.9
9.8
26.1

weight. This rounded percentage is 86
percent. Therefore, we are proposing to
allocate 86 percent of the contract labor
cost weight to the wages and salaries
cost weight and 14 percent to the
employee benefits cost weight. We refer
readers to Table VII–2 below that shows
the proposed wages and salaries and
employee benefit cost weights after
contract labor cost weight allocation for
both the proposed 2013-based LTCH
market basket and the 2009-based
LTCH-specific market basket.

TABLE VII–2—WAGES AND SALARIES AND EMPLOYEE BENEFITS COST WEIGHTS AFTER CONTRACT LABOR ALLOCATION
Proposed 2013based LTCH cost
weight
(percent of total
costs)

Major cost categories

Wages and Salaries ....................................................................................................................................
Employee Benefits .......................................................................................................................................
Compensation ..............................................................................................................................................

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

After the allocation of the contract
labor cost weight, the proposed 2013based wages and salaries cost weight is
0.3 percentage point higher, while the
employee benefit cost weight is 0.7
percentage point lower, relative to the
respective cost weights for the 2009based LTCH-specific market basket. As
a result, in the proposed 2013-based
LTCH market basket, the compensation
cost weight is 0.4 percentage point
lower than the compensation cost
weight for the 2009-based LTCHspecific market basket.
c. Derivation of the Detailed Operating
Cost Weights
To further divide the ‘‘All Other’’
residual cost weight estimated from the
2013 Medicare cost report data into
more detailed cost categories, we are
proposing to use the 2007 Benchmark
Input-Output (I–O) ‘‘Use Tables/Before
Redefinitions/Purchaser Value’’ for

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NAICS 622000, Hospitals, published by
the Bureau of Economic Analysis (BEA).
These data are publicly available at the
following Web site: http://www.bea.gov/
industry/io_annual.htm.
The BEA Benchmark I–O data are
scheduled for publication every 5 years
with the most recent data available for
2007. The 2007 Benchmark I–O data are
derived from the 2007 Economic Census
and are the building blocks for BEA’s
economic accounts. Therefore, they
represent the most comprehensive and
complete set of data on the economic
processes or mechanisms by which
output is produced and distributed.72
BEA also produces Annual I–O
estimates. However, while based on a
similar methodology, these estimates
reflect less comprehensive and less
detailed data sources and are subject to
72 http://www.bea.gov/papers/pdf/
IOmanual_092906.pdf.

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46.6
7.3
53.9

2009-based
LTCH-specific
cost weight
(percent of total
costs)
46.3
8.0
54.3

revision when benchmark data becomes
available. Instead of using the less
detailed Annual I–O data, we are
proposing to inflate the 2007
Benchmark I–O data forward to 2013 by
applying the annual price changes from
the respective price proxies to the
appropriate market basket cost
categories that are obtained from the
2007 Benchmark I–O data. We repeated
this practice for each year. We then
calculated the cost shares that each cost
category represents of the 2007 data
inflated to 2013. These resulting 2013
cost shares were applied to the ‘‘All
Other’’ residual cost weight to obtain
the detailed cost weights for the
proposed 2013-based LTCH market
basket. For example, the cost for Food:
Direct Purchases represents 6.5 percent
of the sum of the ‘‘All Other’’ 2007
Benchmark I–O Hospital Expenditures
inflated to 2013. Therefore, the Food:
Direct Purchases cost weight represents

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6.5 percent of the proposed 2013-based
LTCH market basket’s ‘‘All Other’’ cost
category (27.8 percent), yielding a
‘‘final’’ Food: Direct Purchases proposed
cost weight of 1.8 percent in the
proposed 2013-based LTCH market
basket (0.065 × 27.8 percent = 1.8
percent).
Using this methodology, we are
proposing to derive 18 detailed LTCH
market basket cost category weights
from the proposed 2013-based LTCH
market basket residual cost weight (27.8
percent). These categories are: (1)
Electricity; (2) Fuel, Oil, and Gasoline;
(3) Water and Sewerage; (4) Food: Direct
Purchases; (5) Food: Contract Services;
(6) Chemicals; (7) Medical Instruments;
(8) Rubber and Plastics; (9) Paper and
Printing Products; (10) Miscellaneous
Products; (11) Professional Fees: LaborRelated; (12) Administrative and
Facilities Support Services; (13)
Installation, Maintenance, and Repair
Services; (14) All Other Labor-Related
Services; (15) Professional Fees:
Nonlabor-Related; (16) Financial
Services; (17) Telephone Services; and
(18) All Other Nonlabor-Related
Services.
d. Derivation of the Detailed Capital
Cost Weights
As described in section VII.D.3.b. of
the preamble of this proposed rule, we
are proposing a capital-related cost
weight of 9.7 percent as calculated from
the 2013 Medicare cost reports for
LTCHs after applying the proposed
trims described above. We are proposing
to then separate this total capital-related
cost weight into more detailed cost
categories.
Using 2013 Medicare cost reports, we
are able to group capital-related costs
into the following categories:
Depreciation, Interest, Lease, and Other
Capital-Related costs. For each of these
categories, we are proposing to
determine what proportion of total
capital-related costs the category
represents using the data reported by
the LTCH on Worksheet A–7, which is
the same methodology used for the
2009-based LTCH-specific market
basket.
We also are proposing to allocate
lease costs across each of the remaining
detailed capital-related cost categories
as was done in the 2009-based LTCHspecific market basket. This would
result in three primary capital-related
cost categories in the proposed 2013based LTCH market basket:
Depreciation, Interest, and Other
Capital-Related costs. Lease costs are
unique in that they are not broken out
as a separate cost category in the

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proposed 2013-based LTCH market
basket. Rather, we are proposing to
proportionally distribute these costs
among the cost categories of
Depreciation, Interest, and Other
Capital-Related, reflecting the
assumption that the underlying cost
structure of leases is similar to that of
capital-related costs in general. As was
done for the 2009-based LTCH-specific
market basket, we are proposing to
assume that 10 percent of the lease costs
as a proportion of total capital-related
costs (62.3 percent) represents overhead
and to assign those costs to the Other
Capital-Related cost category
accordingly. Therefore, we are assuming
that approximately 6.2 percent (62.3
percent × 0.1) of total capital-related
costs represent lease costs attributable to
overhead, and we are proposing to add
this 6.2 percent to the 5.9 percent Other
Capital-Related cost category weight.
We are then proposing to distribute the
remaining lease costs (56.1 percent, or
62.3 percent–6.2 percent) proportionally
across the three cost categories
(Depreciation, Interest, and Other
Capital-Related) based on the proportion
that these categories comprise of the
sum of the Depreciation, Interest, and
Other Capital-Related cost categories
(excluding lease expenses). For
example, the Other Capital-Related
capital cost category represented 15.5
percent of all three cost categories
(Depreciation, Interest, and Other
Capital-Related) prior to any lease
expenses being allocated. This 15.5
percent is applied to the 56.1 percent of
remaining lease expenses so that
another 8.7 percent of lease expenses as
a percent of total capital-related costs is
allocated to the Other Capital-Related
cost category. Therefore, the resulting
proposed Other Capital-Related cost
weight is 20.8 percent (5.9 percent + 6.2
percent + 8.7 percent). This is the same
methodology used for the 2009-based
LTCH-specific market basket. The
proposed allocation of these lease
expenses are shown in Table VII–3.
Finally, we are proposing to further
divide the Depreciation and Interest cost
categories. We are proposing to separate
Depreciation cost category into the
following two categories: (1) Building
and Fixed Equipment and (2) Movable
Equipment. We also are proposing to
separate the Interest cost category into
the following two categories: (1)
Government/Nonprofit; and (2) Forprofit.
To disaggregate the depreciation cost
weight, we needed to determine the
percent of total depreciation costs for
LTCHs (after the allocation of lease
costs) that are attributable to building

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25157

and fixed equipment, which we
hereafter refer to as the ‘‘fixed
percentage.’’ We are proposing to use
depreciation and lease data from
Worksheet A–7 of the 2013 Medicare
cost reports, which is the same
methodology used for the 2009-based
LTCH-specific market basket. Based on
the 2013 LTCH Medicare cost report
data, we have determined that
depreciation costs for building and fixed
equipment account for 39 percent of
total depreciation costs, while
depreciation costs for movable
equipment account for 61 percent of
total depreciation costs. As mentioned
above, we are proposing to allocate lease
expenses among the Depreciation,
Interest, and Other Capital cost
categories. We determined that leasing
building and fixed equipment expenses
account for 86 percent of total leasing
expenses, while leasing movable
equipment expenses account for 14
percent of total leasing expenses. We are
proposing to sum the depreciation and
leasing expenses for building and fixed
equipment, as well as sum the
depreciation and leasing expenses for
movable equipment. This results in the
proposed building and fixed equipment
depreciation cost weight (after leasing
costs are included) representing 73
percent of total depreciation costs and
the movable equipment depreciation
cost weight (after leasing costs are
included) representing 27 percent of
total depreciation costs.
To disaggregate the interest cost
weight, we needed to determine the
percent of total interest costs for LTCHs
that are attributable to government and
nonprofit facilities, which we hereafter
refer to as the ‘‘nonprofit percentage,’’
because price pressures associated with
these types of interest costs tend to
differ from those for for-profit facilities.
We are proposing to use interest costs
data from Worksheet A–7 of the 2013
Medicare cost reports for LTCHs, which
is the same methodology used for the
2009-based LTCH-specific market
basket. The nonprofit percentage
determined using this method is 23
percent.
Table VII–3 below provides the
proposed detailed capital cost shares
obtained from the Medicare cost reports.
Ultimately, if finalized, these detailed
capital cost shares would be applied to
the total capital-related cost weight
determined in section VII.D.3.b. of the
preamble of this proposed rule to
separate the total capital-related cost
weight of 9.7 percent into more detailed
cost categories and weights.

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TABLE VII–3—DETAILED CAPITAL COST WEIGHTS FOR THE PROPOSED 2013-BASED LTCH MARKET BASKET
Proposed cost
shares obtained
from Medicare
cost reports
(percent of total
costs)

Cost categories

Depreciation .................................................................................................................................................
Building and Fixed Equipment .............................................................................................................
Movable Equipment ..............................................................................................................................
Interest .........................................................................................................................................................
Government/Nonprofit ..........................................................................................................................
For-profit ...............................................................................................................................................
Lease ...........................................................................................................................................................
Other ............................................................................................................................................................

22.0
16.1
5.9
9.8
2.2
7.6
62.3
5.9

Proposed detailed
capital cost shares
after allocation of
lease expenses
(percent of total
costs)
54.8
40.1
14.7
24.4
5.6
18.8
..............................
20.8

Note: Total may not add to 100 due to rounding.

e. Proposed 2013-Based LTCH Market
Basket Cost Categories and Weights
Table VII–4 below shows the
proposed cost categories and weights for

the proposed 2013-based LTCH market
basket compared to the 2009-based
LTCH-specific market basket.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

TABLE VII–4—PROPOSED 2013-BASED LTCH COST WEIGHTS COMPARED TO 2009-BASED LTCH COST WEIGHTS
Cost category

Proposed 2013based LTCH cost
weight

2009-based LTCH
cost weight

Total .............................................................................................................................................................
Compensation .......................................................................................................................................
Wages and Salaries ......................................................................................................................
Employee Benefits ........................................................................................................................
Utilities ..................................................................................................................................................
Electricity .......................................................................................................................................
Fuel, Oil, and Gasoline .................................................................................................................
Water & Sewerage ........................................................................................................................
Professional Liability Insurance ............................................................................................................
All Other Products and Services ..........................................................................................................
All Other Products ................................................................................................................................
Pharmaceuticals ............................................................................................................................
Food: Direct Purchases .................................................................................................................
Food: Contract Services ................................................................................................................
Chemicals ......................................................................................................................................
Medical Instruments ......................................................................................................................
Rubber & Plastics ..........................................................................................................................
Paper and Printing Products .........................................................................................................
Apparel ..........................................................................................................................................
Machinery and Equipment ............................................................................................................
Miscellaneous Products ................................................................................................................
All Other Services .................................................................................................................................
Labor-Related Services ........................................................................................................................
Professional Fees: Labor-related ..................................................................................................
Administrative and Facilities Support Services .............................................................................
Installation, Maintenance, and Repair Services ............................................................................
All Other: Labor-related Services ..................................................................................................
Nonlabor-Related Services ...................................................................................................................
Professional Fees: Nonlabor-related .............................................................................................
Financial services ..........................................................................................................................
Telephone Services .......................................................................................................................
Postage .........................................................................................................................................
All Other: Nonlabor-related Services ............................................................................................
Capital-Related Costs ...........................................................................................................................
Depreciation ..........................................................................................................................................
Fixed Assets ..................................................................................................................................
Movable Equipment .......................................................................................................................
Interest Costs .......................................................................................................................................
Government/Nonprofit ...................................................................................................................
For Profit ........................................................................................................................................
Other Capital-Related Costs ................................................................................................................

100.0
53.9
46.6
7.3
2.2
1.0
1.1
0.1
0.9
33.2
16.3
7.6
1.8
1.1
0.7
2.4
0.6
1.2
..............................
..............................
0.8
16.9
8.3
3.5
0.9
2.0
1.9
8.6
3.6
2.9
0.7
..............................
1.4
9.7
5.3
3.9
1.4
2.4
0.5
1.8
2.0

100.0
54.3
46.3
8.0
1.8
1.4
0.3
0.1
0.8
33.3
19.5
8.9
3.4
0.5
1.3
2.1
1.3
1.2
0.3
0.1
0.4
13.7
5.3
2.3
0.5
..............................
2.6
8.4
5.3
1.0
0.5
0.8
0.7
9.8
5.7
3.8
1.9
2.4
0.7
1.7
1.7

Note: Detail may not add to total due to rounding.

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Similar to the 2012-based IRF and
2012-based IPF market baskets, the
proposed 2013-based LTCH market
basket does not include separate cost
categories for Apparel, Machinery and
Equipment, and Postage. Due to the
small weights associated with these
detailed categories and relatively stable
price growth in the applicable price
proxy, we are proposing to include
Apparel and Machinery and Equipment
in the Miscellaneous Products cost
category and Postage in the All-Other
Nonlabor-Related Services cost category.
We note that the machinery and
equipment expenses are for equipment
that is paid for in a given year and not
depreciated over the asset’s useful life.
Depreciation expenses for movable
equipment are reflected in the capitalrelated cost weight of the proposed
2013-based LTCH market basket. For the
proposed 2013-based LTCH market
basket, we also are proposing to include
a separate cost category for Installation,
Maintenance, and Repair Services in
order to proxy these costs by a price
index that better reflects the price
changes of labor associated with
maintenance-related services.
4. Selection of Proposed Price Proxies
After computing the cost weights for
the proposed 2013-based LTCH 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 proposed
proxies for the operating portion of the
proposed 2013-based LTCH market
basket are based on Bureau of Labor
Statistics (BLS) data and are grouped
into one of the following BLS categories:
D Producer Price Indexes—Producer
Price Indexes (PPIs) measure price
changes for goods sold in markets other
than the retail market. PPIs are
preferable price proxies for goods and
services that hospitals purchase as
inputs because PPIs better reflect the
actual price changes encountered by
hospitals. For example, we are
proposing to use a PPI for prescription
drugs, rather than the Consumer Price
Index (CPI) for prescription drugs,
because hospitals generally purchase
drugs directly from a wholesaler. The
PPIs that we are proposing to use
measure price changes at the final stage
of production.
D 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 are proposing to use CPIs

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only if an appropriate PPI is not
available, or if the expenditures are
more like those faced by retail
consumers in general rather than by
purchasers of goods at the wholesale
level. For example, the CPI for food
purchased away from home is proposed
to be used as a proxy for contracted food
services.
D Employment Cost Indexes—
Employment Cost Indexes (ECIs)
measure the rate of change in employee
wage rates and employer costs for
employee benefits per hour worked.
These indexes are fixed-weight indexes
and strictly measure the change in wage
rates and employee benefits per hour.
Appropriately, they are not affected by
shifts in employment mix.
We evaluated the price proxies using
the criteria of reliability, timeliness,
availability, and relevance. Reliability
indicates that the index is based on
valid statistical methods and has low
sampling variability. Timeliness implies
that the proxy is published regularly,
preferably at least once a quarter.
Availability means that the proxy is
publicly available. Finally, relevance
means that the proxy is applicable and
representative of the cost category
weight to which it is applied. We
believe that the proposed PPIs, CPIs,
and ECIs selected meet these criteria.
Table VII–7 lists the price proxies that
we are proposing to use for the
proposed 2013-based LTCH market
basket. Below we present a detailed
explanation of the price proxies that we
are proposing for each cost category
weight. We note that many of the
proxies that we are proposing to use for
the proposed 2013-based LTCH market
basket are the same as those used for the
2009-based LTCH-specific market
basket. For further discussion on the
2009-based LTCH market basket, we
refer readers to the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53467 through
53479).
a. Price Proxies for the Operating
Portion of the Proposed 2013-Based
LTCH Market Basket
(1) Wages and Salaries

25159

of this cost category. This ECI is
calculated using the ECI for Total
Compensation for All Civilian Workers
in Hospitals (BLS series code
CIU1016220000000I) and the relative
importance of wages and salaries within
total compensation. This is the same
price proxy used in the 2009-based
LTCH-specific market basket.
(3) Electricity
We are proposing to use the PPI
Commodity for Commercial Electric
Power (BLS series code WPU0542) to
measure the price growth of this cost
category. This is the same price proxy
used in the 2009-based LTCH-specific
market basket.
(4) Fuel, Oil, and Gasoline
We are proposing to change the proxy
used for the Fuel, Oil, and Gasoline cost
category. The 2009-based LTCH-specific
market basket uses the PPI Industry for
Petroleum Refineries (BLS series code
PCU32411–32411) to proxy these
expenses.
For the proposed 2013-based LTCH
market basket, we are proposing to use
a blend of the PPI Industry for
Petroleum Refineries (BLS series code
PCU32411–32411) and the PPI
Commodity for Natural Gas (BLS series
code WPU0531). Our analysis of the
Bureau of Economic Analysis’ 2007
Benchmark Input-Output data (use table
before redefinitions, purchaser’s value
for NAICS 622000 [Hospitals]), shows
that petroleum refineries expenses
accounts for approximately 70 percent
and natural gas accounts for
approximately 30 percent of the fuel,
oil, and gasoline expenses. Therefore,
we are proposing a blended proxy of 70
percent of the PPI Industry for
Petroleum Refineries (BLS series code
PCU32411–32411) and 30 percent of the
PPI Commodity for Natural Gas (BLS
series code WPU0531). We believe that
these two price proxies are the most
technically appropriate indices
available to measure the price growth of
the Fuel, Oil, and Gasoline cost category
in the proposed 2013-based LTCH
market basket.

(2) Employee Benefits

(5) Water and Sewage
We are proposing to use the CPI for
Water and Sewerage Maintenance (All
Urban Consumers) (BLS series code
CUUR0000SEHG01) to measure the
price growth of this cost category. This
is the same price proxy used in the
2009-based LTCH-specific market
basket.

We are proposing to use the ECI for
Total Benefits for All Civilian Workers
in Hospitals to measure the price growth

(6) Professional Liability Insurance
We are proposing to proxy price
changes in hospital professional liability

We are proposing to use the ECI for
Wages and Salaries for All Civilian
Workers in Hospitals (BLS series code
CIU1026220000000I) to measure the
price growth of this cost category. This
is the same price proxy used in the
2009-based LTCH-specific market
basket.

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insurance premiums (PLI) using
percentage changes as estimated by the
CMS Hospital Professional Liability
Index. To generate these estimates, we
collected commercial insurance
premiums for a fixed level of coverage
while holding nonprice factors constant
(such as a change in the level of
coverage). This is the same price proxy
used in the 2009-based LTCH-specific
market basket.
(7) Pharmaceuticals
We are proposing to use the PPI
Commodity for Pharmaceuticals for
Human Use, Prescription (BLS series
code WPUSI07003) to measure the price
growth of this cost category. This is the
same price proxy used in the 2009based LTCH-specific market basket.
(8) Food: Direct Purchases
We are proposing to use the PPI
Commodity for Processed Foods and

Feeds (BLS series code WPU02) to
measure the price growth of this cost
category. This is the same price proxy
used in the 2009-based LTCH-specific
market basket.
(9) Food: Contract Services
We are proposing to use the CPI for
Food Away From Home (All Urban
Consumers) (BLS series code
CUUR0000SEFV) to measure the price
growth of this cost category. This is the
same price proxy used in the 2009based LTCH-specific market basket.
(10) Chemicals
We are proposing to continue to use
a four-part blended PPI composed of the
PPI Industry for Industrial Gas
Manufacturing (BLS series code
PCU325120325120P), the PPI Industry
for Other Basic Inorganic Chemical
Manufacturing (BLS series code
PCU32518–32518), the PPI Industry for

Other Basic Organic Chemical
Manufacturing (BLS series code
PCU32519–32519), and the PPI Industry
for Soap and Cleaning Compound
Manufacturing (BLS series code
PCU32561–32561). We are proposing to
update the blended weights using 2007
Benchmark I–O data, which we also are
proposing to use for the proposed 2013based LTCH market basket. The 2009based LTCH-specific market basket
included the same blended chemical
price proxy, but used the 2002
Benchmark I–O data to determine the
weights of the blended chemical price
index. The 2007 Benchmark I–O data
shows more weight for organic chemical
products and less weight for inorganic
chemical products compared to the
2002 Benchmark I–O data.
Table VII–5 below shows the
proposed weights for each of the four
PPIs used to create the blended PPI.

TABLE VII–5—BLENDED CHEMICAL PPI WEIGHTS
Name
PPI
PPI
PPI
PPI

Industry
Industry
Industry
Industry

for
for
for
for

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

2009-based LTCH
weights

32%
17
45
6

35%
25
30
10

Industrial Gas Manufacturing ................................................................
Other Basic Inorganic Chemical Manufacturing ...................................
Other Basic Organic Chemical Manufacturing ......................................
Soap and Cleaning Compound Manufacturing .....................................

(11) Medical Instruments
We are proposing to use a blend for
the Medical Instruments cost category.
The 2007 Benchmark Input-Output data
shows an approximate 50/50 split
between Surgical and Medical
Instruments and Medical and Surgical
Appliances and Supplies for this cost
category. Therefore, we are proposing a
blend composed of 50 percent of the PPI
Commodity for Surgical and Medical
Instruments (BLS code WPU1562) and
50 percent of the PPI Commodity for
Medical and Surgical Appliances and
Supplies (BLS code WPU1563). The
2009-based LTCH-specific market basket
used the single, higher level PPI
Commodity for Medical, Surgical, and
Personal Aid Devices (BLS series code
WPU156). We believe that the proposed
price proxy better reflects the mix of
expenses for this cost category as
obtained from the 2007 Benchmark I–O
data.
(12) Rubber and Plastics
We are proposing to use the PPI
Commodity for Rubber and Plastic
Products (BLS series code WPU07) to
measure the price growth of this cost
category. This is the same price proxy

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2013-based LTCH
weights

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NAICS
325120
325180
325190
325610

used in the 2009-based LTCH-specific
market basket.

(16) Administrative and Facilities
Support Services

(13) Paper and Printing Products

We are proposing to use the ECI for
Total Compensation for Private Industry
Workers in Office and Administrative
Support (BLS series code
CIU2010000220000I) to measure the
price growth of this category. This is the
same price proxy used in the 2009based LTCH-specific market basket.

We are proposing to use the PPI
Commodity for Converted Paper and
Paperboard Products (BLS series code
WPU0915) to measure the price growth
of this cost category. This is the same
price proxy used in the 2009-based
LTCH-specific market basket.
(14) Miscellaneous Products
We are proposing to use the PPI
Commodity for Finished Goods Less
Food and Energy (BLS series code
WPUFD4131) to measure the price
growth of this cost category. This is the
same price proxy used in the 2009based LTCH-specific market basket.
(15) Professional Fees: Labor-Related
We are proposing to use the ECI for
Total Compensation for Private Industry
Workers in Professional and Related
(BLS series code CIU2010000120000I) to
measure the price growth of this
category. It includes occupations such
as legal, accounting, and engineering
services. This is the same price proxy
used in the 2009-based LTCH-specific
market basket.

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(17) Installation, Maintenance, and
Repair Services
We are proposing to use the ECI for
Total compensation for All Civilian
Workers in Installation, Maintenance,
and Repair (BLS series code
CIU1010000430000I) to measure the
price growth of this new cost category.
Previously these costs were included in
the All Other: Labor-Related Services
category and were proxied by the ECI
for Total Compensation for Private
Industry Workers in Service
Occupations (BLS series code
CIU2010000300000I). We believe that
this index better reflects the price
changes of labor associated with
maintenance-related services and its
incorporation represents a technical
improvement to the market basket.
(18) All Other: Labor-Related Services

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We are proposing to use the ECI for
Total Compensation for Private Industry
Workers in Service Occupations (BLS
series code CIU2010000300000I) to
measure the price growth of this cost
category. This is the same price proxy
used in the 2009-based LTCH-specific
market basket.
(19) Professional Fees: NonlaborRelated
We are proposing to use the ECI for
Total Compensation for Private Industry
Workers in Professional and Related
(BLS series code CIU2010000120000I) to
measure the price growth of this
category. This is the same price proxy
that we are proposing to use for the
Professional Fees: Labor-related cost
category and the same price proxy used
in the 2009-based LTCH-specific market
basket.
(20) Financial Services
We are proposing to use the ECI for
Total Compensation for Private Industry
Workers in Financial Activities (BLS
series code CIU201520A000000I) to
measure the price growth of this cost
category. This is the same price proxy
used in the 2009-based LTCH-specific
market basket.
(21) Telephone Services
We are proposing to use the CPI for
Telephone Services (BLS series code
CUUR0000SEED) to measure the price
growth of this cost category. This is the
same price proxy used in the 2009based LTCH-specific market basket.
(22) All Other: Nonlabor-Related
Services
We are proposing to use the CPI for
All Items Less Food and Energy (BLS
series code CUUR0000SA0L1E) to
measure the price growth of this cost
category. We believe that using the CPI
for All Items Less Food and Energy
avoids double counting of changes in
food and energy prices as they are
already captured elsewhere in the
market basket. This is the same price
proxy used in the 2009-based LTCHspecific market basket.
b. Price Proxies for the Capital Portion
of the Proposed 2013-Based LTCH
Market Basket

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

(1) Capital Price Proxies Prior to Vintage
Weighting
We are proposing to apply the same
price proxies to the detailed capitalrelated cost categories as were applied
in the 2009-based LTCH-specific market
basket, which are described and
provided in Table VII–7. We also are
proposing to continue to vintage weight
the capital price proxies for
Depreciation and Interest to capture the
long-term consumption of capital. This

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vintage weighting method is the same
method that was used for the 2009based LTCH-specific market basket and
is described in section VII.D.4.b.(2) of
the preamble of this proposed rule.
We are proposing to proxy the
Depreciation: Building and Fixed
Equipment cost category by BEA’s
Chained Price Index for Nonresidential
Construction for Hospitals and Special
Care Facilities (BEA Table 5.4.4. Price
Indexes for Private Fixed Investment in
Structures by Type); the Depreciation:
Movable Equipment cost category by the
PPI Commodity for Machinery and
Equipment (BLS series code WPU11);
the Nonprofit Interest cost category by
the average yield on domestic municipal
bonds (Bond Buyer 20-bond index); the
For-Profit Interest cost category by the
average yield on Moody’s Aaa bonds
(Federal Reserve); and the Other
Capital-Related cost category by the
CPI–U for Rent of Primary Residence
(BLS series code CUUS0000SEHA). We
believe that these are the most
appropriate proxies for LTCH capitalrelated costs that meet our selection
criteria of relevance, timeliness,
availability, and reliability.
(2) Vintage Weights for Price Proxies
Because capital is acquired and paid
for over time, capital-related expenses
in any given year are determined by
both past and present purchases of
physical and financial capital. The
vintage-weighted capital-related portion
of the proposed 2013-based LTCH
market basket is intended to capture the
long-term consumption of capital, using
vintage weights for depreciation
(physical capital) and interest (financial
capital). These vintage weights reflect
the proportion of capital-related
purchases attributable to each year of
the expected life of building and fixed
equipment, movable equipment, and
interest. We are proposing to use vintage
weights to compute vintage-weighted
price changes associated with
depreciation and interest expenses.
Capital-related costs are inherently
complicated and are determined by
complex capital-related purchasing
decisions, over time, based on such
factors as interest rates and debt
financing. In addition, capital is
depreciated over time instead of being
consumed in the same period it is
purchased. By accounting for the
vintage nature of capital, we are able to
provide an accurate and stable annual
measure of price changes. Annual nonvintage price changes for capital are
unstable due to the volatility of interest
rate changes and, therefore, do not
reflect the actual annual price changes
for LTCH capital-related costs. The

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25161

capital-related component of the
proposed 2013-based LTCH market
basket reflects the underlying stability
of the capital-related acquisition
process.
To calculate the vintage weights for
depreciation and interest expenses, we
first needed a time series of capitalrelated purchases for building and fixed
equipment and movable equipment. We
found no single source that provides an
appropriate time series of capital-related
purchases by hospitals for all of the
above components of capital purchases.
The early Medicare cost reports did not
have sufficient capital-related data to
meet this need. Data we obtained from
the American Hospital Association
(AHA) did not include annual capitalrelated purchases. However, we were
able to obtain data on total expenses
back to 1963 from the AHA.
Consequently, we are proposing to use
data from the AHA Panel Survey and
the AHA Annual Survey to obtain a
time series of total expenses for
hospitals. We then are proposing to use
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 2013. We are
proposing to separate these depreciation
expenses into annual amounts of
building and fixed equipment
depreciation and movable equipment
depreciation as determined earlier.
From these annual depreciation
amounts, we derived annual end-of-year
book values for building and fixed
equipment and movable equipment
using the expected life for each type of
asset category. While data are not
available that are specific to LTCHs, we
believe that this information for all
hospitals serves as a reasonable
alternative for the pattern of
depreciation for LTCHs. We used the
AHA data and methodology to derive
the FY 2010-based IPPS capital market
basket (78 FR 50604), and the capital
components of the 2012-based IRF (80
FR 47062) and 2012-based IPF market
baskets (80 FR 46672).
To continue to calculate the vintage
weights for depreciation and interest
expenses, we also needed to account for
the expected lives for building and fixed
equipment, movable equipment, and
interest for the proposed 2013-based
LTCH market basket. We are proposing
to calculate the expected lives using
Medicare cost report data for 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

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estimated expected life of an asset if the
rates of depreciation were to continue at
current year levels, assuming straightline depreciation. Using this proposed
method, we determined the average
expected life of building and fixed
equipment to be equal to 18 years, and
the average expected life of movable
equipment to be equal to 8 years. For
the expected life of interest, we believe
that vintage weights for interest should
represent the average expected life of
building and fixed equipment because,
based on previous research described in
the FY 1997 IPPS final rule (61 FR
46198), the expected life of hospital
debt instruments and the expected life
of buildings and fixed equipment are
similar. We note that for the 2009-based
LTCH-specific market basket, we used
2009 Medicare cost reports for LTCHs to
determine the expected life of building
and fixed equipment and movable
equipment (77 FR 53467 through
53479). The 2009-based LTCH-specific
market basket was based on an expected
average life of building and fixed
equipment of 20 years and an expected
average life of movable equipment of 8
years.
Multiplying these expected lives by
the annual depreciation amounts results
in annual year-end asset costs for
building and fixed equipment and

movable equipment. We then calculated
a time series, beginning in 1964, of
annual capital purchases by subtracting
the previous year’s asset costs from the
current year’s asset costs.
For the building and fixed equipment
and movable equipment vintage
weights, we are proposing to use the
real annual capital-related purchase
amounts for each asset type to capture
the actual amount of the physical
acquisition, net of the effect of price
inflation. These real annual capitalrelated purchase amounts are produced
by deflating the nominal annual
purchase amount by the associated price
proxy as provided earlier in this
proposed rule. For the interest vintage
weights, we are proposing to use the
total nominal annual capital-related
purchase amounts to capture the value
of the debt instrument (including, but
not limited to, mortgages and bonds).
Using these capital-related purchase
time series specific to each asset type,
we are proposing to calculate the
vintage weights for building and fixed
equipment, for movable equipment, and
for interest.
The vintage weights for each asset
type are deemed to represent the
average purchase pattern of the asset
over its expected life (in the case of
building and fixed equipment and

interest, 18 years, and in the case of
movable equipment, 8 years). For each
asset type, we are proposing to use the
time series of annual capital-related
purchase amounts available from 2013
back to 1964. These data allow us to
derive thirty-three 18-year periods of
capital-related purchases for building
and fixed equipment and interest, and
forty-three 8-year periods of capitalrelated purchases for movable
equipment. For each 18-year period for
building and fixed equipment and
interest, or 8-year period for movable
equipment, we are proposing to
calculate annual vintage weights by
dividing the capital-related purchase
amount in any given year by the total
amount of purchases over the entire 18year or 8-year period. This calculation
was done for each year in the 18-year or
8-year period and for each of the periods
for which we have data. We then
calculated the average vintage weight
for a given year of the expected life by
taking the average of these vintage
weights across the multiple periods of
data.
The vintage weights for the capitalrelated portion of the proposed 2013based LTCH market basket and the
2009-based LTCH-specific market basket
are presented in Table VII–6 below.

TABLE VII–6—PROPOSED 2013-BASED LTCH MARKET BASKET AND 2009-BASED LTCH-SPECIFIC MARKET BASKET
VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE PROXIES
Building and fixed equipment

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Year 1

2013-based
18 years

2009-based
20 years

Movable equipment

Interest

2013-based
8 years

2009-based
8 years

2013-based
18 years

2009-based
20 years

1 ...............................................................
2 ...............................................................
3 ...............................................................
4 ...............................................................
5 ...............................................................
6 ...............................................................
7 ...............................................................
8 ...............................................................
9 ...............................................................
10 .............................................................
11 .............................................................
12 .............................................................
13 .............................................................
14 .............................................................
15 .............................................................
16 .............................................................
17 .............................................................
18 .............................................................
19 .............................................................
20 .............................................................

0.044
0.046
0.048
0.050
0.051
0.051
0.051
0.052
0.053
0.056
0.058
0.059
0.061
0.062
0.062
0.063
0.066
0.067
........................
........................

0.034
0.037
0.039
0.042
0.043
0.045
0.046
0.047
0.049
0.051
0.053
0.053
0.053
0.054
0.055
0.057
0.059
0.059
0.061
0.062

0.104
0.110
0.117
0.124
0.128
0.132
0.140
0.145
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

0.102
0.108
0.114
0.123
0.129
0.134
0.142
0.149
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

0.029
0.031
0.034
0.037
0.039
0.042
0.043
0.046
0.049
0.054
0.059
0.063
0.068
0.072
0.076
0.080
0.086
0.091
........................
........................

0.021
0.024
0.026
0.029
0.032
0.035
0.037
0.040
0.043
0.047
0.050
0.053
0.055
0.059
0.062
0.068
0.073
0.077
0.082
0.086

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

1.000

1.000

1.000

1.000

1.000

1.000

Note: Numbers may not add to total due to rounding.
1 Vintage weight in the last year (for example, year 18 for the proposed 2013-based LTCH market basket) is applied to the most recent data
point and prior vintage weights are applied going back in time. For example, year 18 vintage weight would be applied to the 2017q3 price proxy
level, year 17 vintage weight would be applied to the 2016q3 price proxy level, etc.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
The process of creating vintageweighted price proxies requires
applying the vintage weights to the
price proxy index where the last applied
vintage weight in Table VII–6 is applied
to the most recent data point. We have
provided on the CMS Web site an
example of how the vintage weighting
price proxies are calculated, using
example vintage weights and example

price indices. The example can be found
under the following CMS Web site link:
http://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trendsand-Reports/MedicareProgramRates
Stats/MarketBasketResearch.html in the
zip file titled ‘‘Weight Calculations as
described in the IPPS FY 2010 Proposed
Rule.’’

25163

c. Summary of Price Proxies of the
Proposed 2013-Based LTCH Market
Basket
Table VII–7 below shows both the
operating and capital price proxies that
we are proposing to use for the
proposed 2013-based LTCH market
basket.

TABLE VII–7—PROPOSED PRICE PROXIES FOR THE PROPOSED 2013-BASED LTCH MARKET BASKET
Cost description

Price proxies

Total ............................................................................................
Compensation ......................................................................
Wages and Salaries .....................................................

....................................................................................................
....................................................................................................
ECI for Wages and Salaries for All Civilian Workers in Hospitals.
ECI for Total Benefits for All Civilian Workers in Hospitals ......
....................................................................................................
PPI Commodity for Commercial Electric Power ........................
Blend of the PPI Industry for Petroleum Refineries and PPI
Commodity for Natural Gas.
CPI–U for Water and Sewerage Maintenance ..........................
....................................................................................................
CMS Hospital Professional Liability Insurance Premium Index
....................................................................................................
....................................................................................................
PPI Commodity for Pharmaceuticals for human use, prescription.
PPI Commodity for Processed Foods and Feeds .....................
CPI–U for Food Away From Home ...........................................
Blend of Chemical PPIs .............................................................
Blend of the PPI Commodity for Surgical and Medical Instruments and PPI Commodity for Medical and Surgical Appliances and Supplies.
PPI Commodity for Rubber and Plastic Products .....................
PPI Commodity for Converted Paper and Paperboard Products.
PPI Commodity for Finished Goods Less Food and Energy ....
....................................................................................................
....................................................................................................
ECI for Total Compensation for Private Industry Workers in
Professional and Related.
ECI for Total Compensation for Private Industry Workers in
Office and Administrative Support.
ECI for Total Compensation for Civilian Workers in Installation, Maintenance, and Repair.
ECI for Total Compensation for Private Industry Workers in
Service Occupations.
....................................................................................................
ECI for Total Compensation for Private Industry Workers in
Professional and Related.
ECI for Total Compensation for Private Industry Workers in Financial Activities.
CPI–U for Telephone Services ..................................................
CPI–U for All Items Less Food and Energy ..............................
....................................................................................................
....................................................................................................
BEA chained price index for nonresidential construction for
hospitals and special care facilities—vintage weighted (18
years).
PPI Commodity for machinery and equipment—vintage
weighted (8 years).
....................................................................................................
Average yield on domestic municipal bonds (Bond Buyer 20
bonds)—vintage weighted (18 years).
Average yield on Moody’s Aaa bonds—vintage weighted (18
years).
CPI–U for Rent of Primary Residence ......................................

Employee Benefits ........................................................
Utilities .................................................................................
Electricity ......................................................................
Fuel, Oil, and Gasoline .................................................
Water & Sewerage .......................................................
Professional Liability Insurance ...........................................
Malpractice ...................................................................
All Other Products and Services ................................................
All Other Products .......................................................................
Pharmaceuticals ...........................................................
Food: Direct Purchases ................................................
Food: Contract Services ...............................................
Chemicals .....................................................................
Medical Instruments .....................................................
Rubber & Plastics .........................................................
Paper and Printing Products ........................................
Miscellaneous Products ................................................
All Other Services .......................................................................
Labor-Related Services .......................................................
Professional Fees: Labor-related .................................
Administrative and Facilities Support Services ............
Installation, Maintenance & Repair Services ...............
All Other: Labor-related Services .................................
Nonlabor-Related Services ..................................................
Professional Fees: Nonlabor-related ............................
Financial services .........................................................

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Telephone Services ......................................................
All Other: Nonlabor-related Services ............................
Capital-Related Costs ..........................................................
Depreciation .........................................................................
Fixed Assets .................................................................
Movable Equipment ......................................................
Interest Costs .......................................................................
Government/Nonprofit ..................................................
For Profit .......................................................................
Other Capital-Related Costs ................................................

Weight
100.0
53.9
46.6
7.3
2.2
1.0
1.1
0.1
0.9
0.9
33.2
16.3
7.6
1.8
1.1
0.7
2.4
0.6
1.2
0.8
16.9
8.3
3.5
0.9
2.0
1.9
8.6
3.6
2.9
0.7
1.4
9.7
5.3
3.9
1.4
2.4
0.5
1.8
2.0

Note: Sum of the cost weights for the detailed categories may not add to total cost weight for subcategory or total market basket due to
rounding.

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d. Proposed FY 2017 Market Basket
Update for LTCHs
For FY 2017 (that is, October 1, 2016,
through September 30, 2017), we are
proposing to use an estimate of the
proposed 2013-based LTCH market
basket to update payments to LTCHs
based on the best available data.
Consistent with historical practice, we
estimate the LTCH 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 2016
forecast with history through the fourth
quarter of 2015, the projected market
basket update for FY 2017 is 2.7
percent. Therefore, consistent with our
historical practice of estimating market

basket increases based on the best
available data, we are proposing a
market basket update of 2.7 percent for
FY 2017. Furthermore, because the
proposed FY 2017 annual update is
based on the most recent market basket
estimate for the 12-month period
(currently 2.7 percent), we also are
proposing that if more recent data
become subsequently available (for
example, a more recent estimate of the
market basket), we would use such data,
if appropriate, to determine the FY 2017
annual update in the final rule. (As
discussed in greater detail in section
V.A.2. of the Addendum to this
proposed rule, we are proposing an
annual update of 2.7 percent to the
LTCH PPS standard Federal payment
rate for FY 2017 under proposed
§ 412.523(c)(3)(xiii) of the regulations.)
Using the current 2009-based LTCHspecific market basket and IGI’s first
quarter 2016 forecast for the market

basket components, the FY 2017 market
basket update would be 2.8 percent
(before taking into account any statutory
adjustment). Therefore, the update
based on the proposed 2013-based
LTCH market basket is currently 0.1
percentage point lower. This lower
update is primarily due to the lower
pharmaceutical cost weight in the
proposed 2013-based market basket (7.6
percent) compared to the 2009-based
LTCH-specific market basket (8.9
percent). This is partially offset by the
higher cost weights associated with All
Other Services (such as Professional
Fees and Installation, Maintenance, and
Repair Services) for the proposed 2013based LTCH market basket relative to
the 2009-based LTCH-specific market
basket. Table VII–8 below compares the
proposed 2013-based LTCH market
basket and the 2009-based LTCHspecific market basket percent changes.

TABLE VII–8—PROPOSED 2013-BASED LTCH MARKET BASKET AND 2009-BASED LTCH-PECIFIC MARKET BASKET
PERCENTAGE CHANGES, FY 2011 THROUGH FY 2019
Proposed 2013-based LTCH
market basket index percent
change

Fiscal year (FY)
Historical data:
FY 2011 ........................................................................................................
FY 2012 ........................................................................................................
FY 2013 ........................................................................................................
FY 2014 ........................................................................................................
FY 2015 ........................................................................................................
Average 2011–2015 .....................................................................................
Forecast:
FY 2016 ........................................................................................................
FY 2017 ........................................................................................................
FY 2018 ........................................................................................................
FY 2019 ........................................................................................................
Average 2016–2019 .....................................................................................

2009-based LTCH market
basket index percent change

2.3
1.9
2.1
1.8
1.8
2.0

2.6
2.3
2.3
1.9
2.2
2.3

2.0
2.7
3.0
3.1
2.7

2.2
2.8
3.1
3.1
2.8

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Note that these market basket percent changes do not include any further adjustments as may be statutorily required.
Source: IHS Global Insight, Inc. 1st quarter 2016 forecast.

Over the time period covering 2011
through 2015, the average growth rate of
the proposed 2013-based LTCH market
basket is roughly 0.3 percentage point
lower than the 2009-based LTCHspecific market basket. The lower
growth rate is primarily a result of the
lower pharmaceutical cost weight in the
proposed 2013-based market basket
compared to the 2009-based LTCHspecific market basket. Historically, the
price growth of pharmaceutical costs
has exceeded the price growth rates for
most of the other market basket cost
categories. Therefore, a lower
pharmaceutical cost weight would, all
else equal, result in a lower market
basket update. As stated above, the
pharmaceutical cost weights for the
proposed 2013-based LTCH market
basket and the 2009-based LTCH-

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specific market basket are based on the
2013 and 2009 Medicare cost report data
for LTCHs, respectively.
e. Proposed FY 2017 Labor-Related
Share
As discussed in section V.B. of the
Addendum to this proposed rule, under
the authority of section 123 of the BBRA
as amended by section 307(b) of the
BIPA, we established an adjustment to
the LTCH PPS payments to account for
differences in LTCH area wage levels
(§ 412.525(c)). The labor-related portion
of the LTCH PPS standard Federal
payment 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

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proportion of total costs that are related
to, influenced by, or vary with the local
labor market. As discussed in more
detail below and similar to the 2009based LTCH-specific market basket, we
classify a cost category as labor-related
and include it in the labor-related share
if the cost category is defined as being
labor-intensive and its cost varies with
the local labor market. As stated in the
FY 2016 IPPS/LTCH PPS final rule (80
FR 49798), the labor-related share for FY
2016 was defined as the sum of the FY
2016 relative importance of Wages and
Salaries; Employee Benefits;
Professional Fees: Labor-Related
Services; Administrative and Facilities
Support Services (formerly referred to as
Administrative and Business Support
Services); All Other: Labor-related
Services; and a portion of the Capital

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
Costs from the 2009-based LTCHspecific market basket.
We proposed to 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
and the cost categories in the proposed
2013-based LTCH market basket, we are
proposing to include in thelabor-related
share for FY 2017 the sum of the FY
2017 relative importance of Wages and
Salaries; Employee Benefits;
Professional Fees: Labor-Related;
Administrative and Facilities Support
Services; Installation, Maintenance, and
Repair Services; All Other: Labor-related
Services; and a portion of the CapitalRelated cost weight from the proposed
2013-based LTCH market basket. As
noted in section VII.D.3.e. of the
preamble of this proposed rule, for the
proposed 2013-based LTCH market
basket, we have proposed the creation of
a separate cost category for Installation,
Maintenance, and Repair services.
These expenses were previously
included in the ‘‘All Other’’ Laborrelated Services cost category in the
2009-based LTCH-specific market
basket, along with other services,
including, but not limited to, janitorial,
waste management, security, and dry
cleaning/laundry services. Because
these services tend to be labor-intensive
and are mostly performed at the facility
(and, therefore, unlikely to be purchased
in the national market), we continue to
believe that they meet our definition of
labor-related services.
For the development of the 2009based LTCH-specific market basket, in
an effort to more accurately determine
the share of professional fees for
services such as accounting and
auditing services, engineering services,
legal services, and management and
consulting services that should be
included in the labor-related share, we
used data from a survey of IPPS
hospitals regarding the proportion of
those fees that go to companies that are
located beyond their own local labor
market. The results from this survey
were then used to separate a portion of
the Professional Fees cost category into
labor-related and nonlabor-related costs.
These results and our allocation
methodology are discussed in more
detail in the FY 2012 IPPS/LTCH PPS

final rule (76 FR 51766). For the
proposed 2013-based LTCH market
basket, we are proposing to apply these
survey results using this same
methodology to separate the
Professional Fees cost category into
Professional Fees: Labor-related and
Professional Fees: Nonlabor-related cost
categories. We believe that using the
survey results serves as an appropriate
proxy for the purchasing patterns of
professional services for LTCHs because
they also are providers of institutional
care.
In addition to the professional
services listed above, we are proposing
to classify expenses under NAICS 55,
Management of Companies and
Enterprises, into the Professional Fees:
Labor-related and Professional Fees:
Nonlabor-related cost categories, as was
done for the 2009-based LTCH-specific
market basket. The NAICS 55 industry
is mostly comprised of corporate,
subsidiary, and regional managing
offices (otherwise referred to as home
offices). As stated above, we classify a
cost category as labor-related and
include it in the labor-related share if
the cost category is labor-intensive and
if its costs vary with the local labor
market. We believe that many of the
costs associated with NAICS 55 are
labor-intensive and vary with the local
labor market. However, data indicate
that not all LTCHs with home offices
have home offices located in their local
labor market. Therefore, we are
proposing to include in the labor-related
share only a proportion of the NAICS 55
expenses based on the methodology
described below.
For the 2009-based LTCH-specific
market basket, we used data primarily
from the Medicare cost reports and a
CMS database of Home Office Medicare
Records (HOMER) (a database that
provides city and state information
(addresses) for home offices) and
determined that 13 percent of the total
number of 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). Therefore, we
classified 13 percent of these costs into
the ‘‘Professional Fees: Labor-related
Services’’ cost category and the
remaining 87 percent into the
‘‘Professional Fees: Nonlabor-related

25165

Services’’ cost category. For a detailed
discussion of this analysis, we refer
readers to the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53478).
For the proposed 2013-based LTCH
market basket, we conducted a similar
analysis of home office data. For
consistency, we believe that it is
important for our analysis on home
office data to be conducted on the same
LTCHs used to derive the proposed
2013-based LTCH market basket cost
weights. The Medicare cost report
requires a hospital to report information
regarding their home office provider.
Approximately 56 percent of LTCHs
reported some type of home office
information on their Medicare cost
report for 2013 (for example, home
office number, city, state, zip code, or
name). For those providers for which we
were able to identify which MSA the
LTCH’s home office was located, we
then compared the home office MSA
with the LTCH facility’s MSA.
We found that 7 percent of the LTCHs
with home offices had those home
offices located in the same MSA as their
facilities. We then concluded that these
providers were located in the same local
labor market as their home office. As a
result, we are proposing to apportion
the NAICS 55 expense data by this
percentage. Therefore, we are proposing
to classify 7 percent of these costs into
the ‘‘Professional Fees: Labor-related
Services’’ cost category and the
remaining 93 percent of these costs into
the ‘‘Professional Fees: Nonlabor-related
Services’’ cost category.
Using this proposed method and the
IGI forecast for the first quarter 2016 of
the proposed 2013-based LTCH market
basket, the proposed LTCH labor-related
share for FY 2017 would be the sum of
the FY 2017 relative importance of each
labor-related cost category. Consistent
with our proposal to update the laborrelated share with the most recent
available data, the labor-related share
for this proposed rule reflects IGI’s first
quarter 2016 forecast of the proposed
2013-based LTCH market basket. Table
VII–9 below shows the proposed FY
2017 relative importance labor-related
share using the proposed 2013-based
LTCH market basket and the FY 2016
relative importance labor-related share
using the 2009-based LTCH-specific
market basket.

TABLE VII–9—LTCH LABOR-RELATED SHARE
FY 2017
Proposed laborrelated share 1
Wages and Salaries ....................................................................................................................................
Employee Benefits .......................................................................................................................................

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46.6
7.3

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labor related
share 2
44.6
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TABLE VII–9—LTCH LABOR-RELATED SHARE—Continued
FY 2017
Proposed laborrelated share 1

FY 2016 Final
labor related
share 2

Professional Fees: Labor-related ................................................................................................................
Administrative and Facilities Support Services ...........................................................................................
Installation, Maintenance, and Repair Services 3 ........................................................................................
All Other: Labor-related Services ................................................................................................................
Subtotal ........................................................................................................................................................
Labor-related portion of capital (46%) .........................................................................................................

3.5
0.9
2.1
1.9
62.3
4.3

2.2
0.5
—
2.5
57.9
4.1

Total Labor-Related Share ...................................................................................................................

66.6

62.0

1 Based

on the proposed 2013-based LTCH Market Basket, IHS Global Insight, Inc. 1st quarter 2016 forecast.
Register, 80 FR 49478.
Maintenance, and Repair services costs were previously included in the All Other: Labor-related Services cost weight of the
2009-based LTCH-specific market basket.
2 Federal

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3 Installation,

The proposed labor-related share for
FY 2017 is the sum of the proposed FY
2017 relative importance of each laborrelated cost category, and would reflect
the different rates of price change for
these cost categories between the base
year (2013) and FY 2017. The sum of the
proposed relative importance for FY
2017 for operating costs (Wages and
Salaries, Employee Benefits,
Professional Fees: Labor-Related,
Administrative and Facilities Support
Services, Installation, Maintenance, and
Repair Services, All Other: Labor-related
Services) would be 62.3 percent, as
shown in Table VII–9 above. We are
proposing that the portion of capitalrelated costs that is influenced by the
local labor market is estimated to be 46
percent, which is the same percentage
applied to the 2009-based LTCHspecific market basket (77 FR 53478).
Because the relative importance for
capital-related costs under our
proposals would be 9.4 percent of the
proposed 2013-based LTCH market
basket in FY 2017, we are proposing to
take 46 percent of 9.4 percent to
determine the proposed labor-related
share of capital-related costs for FY
2017 (.46 × 9.4). The result would be 4.3
percent, which we are proposing to add
to 62.3 percent for the operating cost
amount to determine the total proposed
labor-related share for FY 2017.
Therefore, the labor-related share that
we are proposing to use for the LTCH
PPS in FY 2017 would be 66.6 percent.
This proposed labor-related share is
determined using the same methodology
as employed in calculating all previous
LTCH labor-related shares. We also are
proposing that, if more recent data
become available, (for example, an
updated estimate of the labor-related
share) we would use such data to
determine the FY 2017 labor-related
share for the final rule.
The proposed FY 2017 labor-related
share using the proposed 2013-based

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LTCH market basket is 4.6 percentage
points higher than the FY 2016 laborrelated share using the 2009-based
LTCH-specific market basket. The
primary reason for a higher labor-related
share, which we describe in more detail
below, is a result of the change in the
quantity of labor, particularly for
professional services, outpacing the
change in quantity of products (which
are not included in the labor-related
share) between 2009 and 2013, which
more than offsets the faster relative
growth in prices for products.
Roughly three-quarters of the 4.6
percentage point difference is the result
of higher base year cost weights for the
Professional Fees: Labor-Related,
Administrative and Facilities Support
Services, All Other: Labor-Related
services, and Installation, Maintenance,
and Repair services cost categories for
the proposed 2013-based LTCH market
basket compared to the 2009-based
LTCH-specific market basket. We refer
to these cost categories collectively as
‘‘Labor-Related Services.’’ As stated
earlier, installation, maintenance and
repair costs were previously classified
in the All Other: Labor-Related services
cost category of the 2009-based LTCHspecific market basket.
In aggregate, the base year cost
weights for the Labor-Related Services
cost categories in the proposed 2013based LTCH market basket are 3.0
percentage points higher than the 2009based LTCH-specific market basket cost
weights. As described in section
VII.D.3.e. of the preamble of this
proposed rule, the detailed cost
categories of the LTCH market basket
(including the Labor-Related Services
cost categories) are derived by
multiplying the ‘‘All Other’’ residual
cost weight (which reflects all
remaining costs that are not captured in
the six major cost category weights
calculated using the LTCH Medicare
Cost Report data (Wages and Salaries,

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Employee Benefits, Contract Labor,
Professional Liability Insurance,
Pharmaceuticals, and Capital)) by the
detailed cost weights calculated from
the Benchmark I–O data. Therefore, the
differences between the Labor-related
Services cost weights between the
proposed 2013-based LTCH market
basket and the 2009-based LTCHspecific market basket are a function of
the change in the ‘‘All Other’’ residual
cost category weight and changes to the
Benchmark I–O data. Approximately 0.6
percentage point of the 3.0 percentage
point difference is attributable to the
higher ‘‘All Other’’ residual cost
category weight of the proposed 2013based LTCH market basket compared to
the 2009-based LTCH-specific market
basket, while the remaining 2.4
percentage points is due to the changes
in the Benchmark I–O cost weights
derived from the 2007 data used in the
proposed 2013-based LTCH market
basket and the 2002 data used in the
2009-based LTCH-specific market
basket.
Roughly one-quarter of the 4.6
percentage point difference between the
proposed FY 2017 labor-related share
using the proposed 2013-based LTCH
market basket and the FY 2016 laborrelated share using the 2009-based
LTCH-specific market basket is a result
of the Compensation cost weight. There
are two key factors causing this
differential. First, using the 2013
Medicare cost reports, we calculated a
Compensation cost weight that is 53.9
percent for the proposed 2013-based
LTCH market basket, which reflects
both the change in price and change in
quantity of compensation. This is 0.9
percentage point higher than the FY
2013 relative importance moving
average using the 2009-based LTCHspecific market basket (53.0 percent),
which only reflects relative price
changes between 2009 and 2013.
Second, the relative price growth from

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FY 2013 to the payment year between
the 2009-based LTCH-specific market
basket and the proposed 2013-based
LTCH market basket also contributes to
the difference. For the 2009-based
LTCH-specific market basket, the
relative importance for compensation
decreases from 53.0 percent in FY 2013
to 52.7 percent in FY 2016, a reduction
of 0.3 percentage point. For the
proposed 2013-based LTCH market
basket, the base weight of 53.9 percent
in 2013 is the same as the relative
importance in FY 2017. These two
factors combined produce the 1.2
percentage point difference in the
relative importance for compensation in
FY 2016 and FY 2017 as shown in Table
VII–9.
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. Only
when the index is rebased would
changes in the quantity and intensity be
captured, with those changes being
reflected in the cost weights. Therefore,
we rebase the market basket periodically
so that the cost weights reflect recent
mix of goods and services that hospitals
purchase (hospital inputs) to furnish
inpatient care.
E. Proposed Changes to the LTCH PPS
Payment Rates and Other Proposed
Changes to the LTCH PPS for FY 2017

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1. Overview of Development of the
LTCH PPS Standard Federal Payment
Rates
The basic methodology for
determining LTCH PPS standard
Federal prospective payment rates is
currently set forth at 42 CFR 412.515
through 412.536. In this section, we
discuss the factors that we are proposing
to use to update the LTCH PPS standard
Federal payment rate for FY 2017, that
is, effective for LTCH discharges
occurring on or after October 1, 2016
through September 30, 2017. Under the
dual rate LTCH PPS payment structure
required by statute, beginning with FY
2016, only LTCH discharges that meet
the criteria for exclusion from the site
neutral payment rate are paid based on
the LTCH PPS standard Federal
payment rate specified at § 412.523. (For
additional details on our finalized
policies related to the dual rate LTCH
PPS payment structure required by
statute, we refer readers to the FY 2016

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IPPS/LTCH PPS final rule (80 FR 49601
through 49623).)
For details on the development of the
initial 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 standard Federal rate
as implemented under § 412.523(c)(3),
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); FY 2010
IPPS/RY 2010 LTCH PPS final rule (74
FR 44021 through 44030); FY 2011
IPPS/LTCH PPS final rule (75 FR 50443
through 50444); FY 2012 IPPS/LTCH
PPS final rule (76 FR 51769 through
51773); FY 2013 IPPS/LTCH PPS final
rule (77 FR 53479 through 53481); FY
2014 IPPS/LTCH PPS final rule (78 FR
50760 through 50765); FY 2015 IPPS/
LTCH PPS final rule (79 FR 50176
through 50180) and FY 2016 IPPS/LTCH
PPS final rule (80 FR 49634 through
49637).
In this FY 2017 proposed rule, we
present our proposed policies related to
the annual update to the LTCH PPS
standard Federal payment rate for FY
2017, which includes the annual market
basket update. Consistent with our
historical practice of using the best data
available, we also are proposing to use
more recent data to determine the FY
2017 annual market basket update to the
LTCH PPS standard Federal payment
rate in the final rule.
The application of the proposed
update to the LTCH PPS standard
Federal payment rate for FY 2017 is
presented in section V.A. of the
Addendum to this proposed rule. The
components of the proposed annual
market basket update to the LTCH PPS
standard Federal payment rate for FY
2017 are discussed below, including the
reduction to the annual update for
LTCHs that fail to submit quality
reporting data for FY 2017 as required
by the statute (as discussed in section
VII.E.2.c. of the preamble of this
proposed rule). In addition, we are
proposing to make an adjustment to the
LTCH PPS standard Federal payment
rate to account for the estimated effect
of the proposed changes to the area
wage level adjustment for FY 2017 on
estimated aggregate LTCH PPS
payments, in accordance with
§ 412.523(d)(4) (as discussed in section

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25167

V.A. of the Addendum to this proposed
rule).
2. Proposed FY 2017 LTCH PPS
Standard Federal Payment Rate Annual
Market Basket Update
a. Overview
Historically, the Medicare program
has used a market basket to account for
input 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. We adopted
the 2009-based LTCH-specific market
basket for use under the LTCH PPS
beginning in FY 2013. For additional
details on the historical development of
the market basket used under the LTCH
PPS, we refer readers to the FY 2013
IPPS/LTCH PPS final rule (77 FR 53467
through 53476). For FY 2017, we are
proposing to rebase and revise the 2009based LTCH-specific market basket. The
proposed LTCH market basket is
primarily based on Medicare cost report
data for LTCHs for 2013. We refer
readers to section VII.D. of this
preamble of this proposed rule for a
complete discussion of the proposed
LTCH market basket and a description
of the methodologies we are proposing
to use for determining the operating and
capital-related portions of the proposed
2013-based LTCH market basket.
Section 3401(c) of the Affordable Care
Act provides for certain adjustments to
any annual update to the LTCH PPS
standard Federal payment rate and
refers to the timeframes associated with
such adjustments as a ‘‘rate year’’
(which are discussed in more detail in
section VII.C.2.b. of the preamble of this
proposed rule.) We note that because
the annual update to the LTCH PPS
policies, rates, and factors now occurs
on October 1, we adopted the term
‘‘fiscal year’’ (FY) rather than ‘‘rate
year’’ (RY) under the LTCH PPS
beginning October 1, 2010, to conform
with the standard definition of the
Federal fiscal year (October 1 through
September 30) used by other PPSs, such
as the IPPS (75 FR 50396 through
50397). Although the language of
sections 3004(a), 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 standard Federal
payment rate, including the provisions
of the Affordable Care Act, we use

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‘‘fiscal year’’ rather than ‘‘rate year’’ for
2011 and subsequent years.

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b. Proposed Market Basket Under the
LTCH PPS for FY 2017
Under the authority of section 123 of
the BBRA as amended by section 307(b)
of the BIPA, we adopted a 2009-based
LTCH-specific market basket for use
under the LTCH PPS beginning in FY
2013. The 2009-based LTCH-specific
market basket is based solely on the
Medicare cost report data submitted by
LTCHs and, therefore, specifically
reflects the cost structures of only
LTCHs. For additional details on the
development of the 2009-based LTCHspecific market basket, we refer readers
to the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53467 through 53476).
For FY 2017, as noted earlier, we are
proposing to rebase and revise the 2009based LTCH-specific market basket to
reflect a 2013 base year. We are
proposing to use 2013 cost reports
beginning in FY 2013 because these
represent the most recent, complete set
of Medicare cost report data for
purposes of calculating cost weights for
the LTCH market basket.
We believe that the proposed 2013based LTCH market basket
appropriately reflects the cost structure
of LTCHs, as discussed in greater detail
in section VII.D. of the preamble of this
proposed rule. In this proposed rule, we
are proposing to use the proposed 2013based LTCH market basket to update the
LTCH PPS standard Federal payment
rate for FY 2017.
c. Revision of Certain Market Basket
Updates as Required by the Affordable
Care Act
Section 1886(m)(3)(A) of the Act, as
added by section 3401(c) of the
Affordable Care Act, specifies that, for
rate year 2010 and each subsequent rate
year through 2019, any annual update to
the LTCH PPS standard Federal
payment 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’’) 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.

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Section 1886(b)(3)(B)(xi)(II) of the Act
defines the MFP adjustment as equal to
the 10-year moving average of changes
in annual economy-wide, private
nonfarm business multifactor
productivity (as projected by the
Secretary for the 10-year period ending
with the applicable fiscal year, calendar
year, cost reporting period, or other
annual period). Under our methodology,
the end of the 10-year moving average
of changes in the MFP coincides with
the end of the appropriate fiscal year
update period. In addition, the MFP
adjustment that is applied in
determining any annual update to the
LTCH PPS standard Federal payment
rate is the same adjustment that is
required to be applied in determining
the applicable percentage increase
under the IPPS under section
1886(b)(3)(B)(i) of the Act, as they are
both based on a fiscal year. (We refer
readers to section IV.A.1. of the
preamble of FY 2016 IPPS/LTCH PPS
final rule for more information on the
current MFP adjustment.)
d. Proposed Adjustment to the LTCH
PPS Standard Federal Payment Rate
Under the Long-Term Care Hospital
Quality Reporting Program (LTCH QRP)
In accordance with section 1886(m)(5)
of the Act, as added by section 3004(a)
of the Affordable Care Act, the Secretary
established the Long-Term Care
Hospital Quality Reporting Program
(LTCH QRP). The reduction in the
annual update to the LTCH PPS
standard Federal payment rate for
failure to report quality data under the
LTCH QRP for FY 2014 and subsequent
fiscal years is codified under
§ 412.523(c)(4) of the regulations. (As
previously noted, although the language
of section 3004(a) of the Affordable Care
Act refers to years 2011 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 use ‘‘fiscal
year’’ rather than ‘‘rate year’’ for 2011
and subsequent years.) The LTCH QRP,
as required for FY 2014 and subsequent
fiscal years by section 1886(m)(5)(A)(i)
of the Act, applies a 2.0 percentage
point reduction to any update under
§ 412.523(c)(3) for an LTCH that does
not submit quality reporting data to the
Secretary in accordance with section
1886(m)(5)(C) of the Act with respect to
such a year (that is, in the form and
manner and at the time specified by the
Secretary under the LTCH QRP)
(§ 412.523(c)(4)(i)). Section

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1886(m)(5)(A)(ii) of the Act provides
that the application of the 2.0
percentage points reduction may result
in an annual update that is less than 0.0
for a year, and may result in LTCH PPS
payment rates for a year being less than
such LTCH PPS payment rates for the
preceding year (§ 412.523(c)(4)(iii)).
Furthermore, section 1886(m)(5)(B) of
the Act specifies that the 2.0 percentage
points reduction is applied in a
noncumulative manner, such that any
reduction made under section
1886(m)(5)(A) of the Act shall apply
only with respect to the year involved,
and shall not be taken into account in
computing the LTCH PPS payment
amount for a subsequent year
(§ 412.523(c)(4)(ii)). We discuss the
application of the 2.0 percentage point
reduction under § 412.523(c)(4)(i) in our
discussion of the proposed annual
market basket update to the LTCH PPS
standard Federal payment rate for FY
2017 in section VII.E.2.e. of the
preamble of this proposed rule. (For
additional information on the history of
the LTCH QRP, including the statutory
authority and the selected measures, we
refer readers to section VIII.C. of the
preamble of this proposed rule.)
e. Proposed Annual Market Basket
Update Under the LTCH PPS for FY
2017
Consistent with our historical
practice, we estimate the market basket
update and the MFP adjustment based
on IGI’s forecast using the most recent
available data. Based on IGI’s first
quarter 2016 forecast, the FY 2017 full
market basket increase for the LTCH
PPS using the proposed 2013-based
LTCH market basket is 2.7 percent, as
discussed in section VII.D.4.d. of the
preamble of this proposed rule. The
current estimate of the MFP adjustment
for FY 2017 based on IGI’s first quarter
2016 forecast is 0.5 percent, as
discussed in section IV.B. of the
preamble of this proposed rule. In
addition, consistent with our historical
practice, we are proposing to use a more
recent estimate of the market basket
increase and the MFP adjustment to
determine the FY 2017 market basket
update and the MFP adjustment for FY
2017 in the final rule.
For FY 2017, section 1886(m)(3)(A)(i)
of the Act requires that any annual
update to the LTCH PPS standard
Federal payment rate be reduced by the
productivity adjustment (‘‘the MFP
adjustment’’) described in section
1886(b)(3)(B)(xi)(II) of the Act.
Consistent with the statute, we are
proposing to reduce the full FY 2017
market basket increase by the proposed
FY 2017 MFP adjustment. To determine

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the proposed market basket update for
LTCHs for FY 2017, as reduced by the
MFP adjustment, consistent with our
established methodology, we subtracted
the proposed FY 2017 MFP adjustment
from the proposed FY 2017 market
basket update. Furthermore, sections
1886(m)(3)(A)(ii) and 1886(m)(4)(F) of
the Act requires that any annual update
to the LTCH PPS standard Federal
payment rate for FY 2017 be reduced by
the ‘‘other adjustment’’ described in
paragraph (4), which is 0.75 percentage
point for FY 2017. Therefore, following
application of the productivity
adjustment, we are proposing to further
reduce the proposed adjusted market
basket update (that is, the proposed full
market basket increase less the proposed
MFP adjustment) by the ‘‘other
adjustment’’ specified by sections
1886(m)(3)(A)(ii) and 1886(m)(4) of the
Act. (For additional details on our
established methodology for adjusting
the market basket increase by the MFP
and the ‘‘other adjustment’’ required by
the statute, we refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51771).)
For FY 2017, section 1886(m)(5) of the
Act requires that, for LTCHs that do not
submit quality reporting data as
required under the LTCH QRP, any
annual update to an LTCH PPS standard
Federal payment rate, after application
of the adjustments required by section
1886(m)(3) of the Act, shall be further
reduced by 2.0 percentage points.
Therefore, the proposed update to the
LTCH PPS standard Federal payment
rate for FY 2017 for LTCHs that fail to
submit quality reporting data under the
LTCH QRP, the full LTCH PPS market
basket increase, subject to an adjustment
based on changes in economy-wide
productivity (‘‘the MFP adjustment’’) as
required under section 1886(m)(3)(A)(i)
of the Act and an additional reduction
required by sections 1886(m)(3)(A)(ii)
and 1886(m)(4) of the Act, will also be
further reduced by 2.0 percentage
points.
In this proposed rule, in accordance
with the statute, we are proposing to
reduce the proposed FY 2017 full
market basket increase of 2.7 percent
(based on IGI’s first quarter 2016
forecast of the proposed 2013-based
LTCH market basket) by the proposed
FY 2017 MFP adjustment of 0.5
percentage point (based on IGI’s first
quarter 2016 forecast). Following
application of the proposed productivity
adjustment, the proposed adjusted
market basket update of 2.2 percent (2.7
percent minus 0.5 percentage point) was
then reduced by 0.75 percentage point,
as required by sections 1886(m)(3)(A)(ii)
and 1886(m)(4)(F) of the Act. Therefore,

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under the authority of section 123 of the
BBRA as amended by section 307(b) of
the BIPA, we are proposing an annual
market basket update under to the LTCH
PPS standard Federal payment rate for
FY 2017 of 1.45 percent (that is, the
most recent estimate of the proposed
LTCH PPS market basket increase of 2.7
percent, less the proposed MFP
adjustment of 0.5 percentage point, and
less the 0.75 percentage point required
under section 1886(m)(4)(F) of the Act).
Accordingly, we are proposing to revise
§ 412.523(c)(3) by adding a new
paragraph (xiii), which would specify
that the LTCH PPS standard Federal
payment rate for FY 2017 is the LTCH
PPS standard Federal payment rate for
the previous LTCH PPS year updated by
1.45 percent, and as further adjusted, as
appropriate, as described in
§ 412.523(d). For LTCHs that fail to
submit quality reporting data under the
LTCH QRP, under § 412.523(c)(3)(xiii)
in conjunction with § 412.523(c)(4), we
are proposing to further reduce the
proposed annual update to the LTCH
PPS standard Federal payment rate by
2.0 percentage points in accordance
with section 1886(m)(5) of the Act.
Accordingly, we are proposing an
annual update to the LTCH PPS
standard Federal payment rate of -0.55
percent (that is, 1.45 percent minus 2.0
percentage points) for FY 2017 for
LTCHs that fail to submit quality
reporting data as required under the
LTCH QRP. As stated above, consistent
with our historical practice, we are
proposing to use more recent estimate of
the market basket and the MFP
adjustment to establish an annual
update to the LTCH PPS standard
Federal payment rate for FY 2017 under
§ 412.523(c)(3)(xiii) in the final rule.
(We note that, consistent with historical
practice, we also are proposing to
adjusted the proposed FY 2017 LTCH
PPS standard Federal payment rate by
an area wage level budget neutrality
factor in accordance with
§ 412.523(d)(4) (as discussed in section
V.B.5. of the Addendum to this
proposed rule).)
3. Proposed Update Under the Payment
Adjustment for ‘‘Subclause (II)’’ LTCHs
Under the LTCH PPS payment
adjustment for ‘‘subclause (II) LTCHs’’
at § 412.526(c)(1)(ii), we established
that, for cost reporting periods
beginning during fiscal years after FY
2015, the target amount (used to
determine the adjusted payment for
Medicare inpatient operating costs
under reasonable cost-based
reimbursement rules) will equal the
hospital’s target amount for the previous
cost reporting period updated by the

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applicable annual rate-of-increase
percentage specified in § 413.40(c)(3) for
the subject cost reporting period (79 FR
50197). For FY 2017, in accordance with
§ 412.526(c)(1)(ii) of the regulations, we
are proposing that, for cost reporting
periods beginning during FY 2017, the
update to the target amount for the
payment adjustment for ‘‘subclause (II)’’
LTCHs would be 2.8 percent, which is
the estimated market basket update for
FY 2017 to the rate-of-increase limits for
certain hospitals excluded from the
IPPS that are paid on a reasonable cost
basis (that is, the applicable annual rateof-increase percentage under
§ 413.40(c)(3)), which is discussed in
section VI. of the preamble of this
proposed rule, is the FY 2017 rate-ofincrease percentage estimate for
updating the target amounts, and is
equal to the estimated percentage
increase in the FY 2010-based IPPS
operating market basket, in accordance
with applicable regulations at § 413.40.
Based on IGI’s 2016 first quarter
forecast, with historical data through the
2015 fourth quarter, we estimate that the
FY 2010-based IPPS operating market
basket update for FY 2017 is 2.8 percent
(that is, the estimate of the market
basket rate-of-increase). Therefore, the
proposed rate-of-increase percentage
that would be applied to the FY 2016
target amounts in order to determine the
FY 2017 target amounts for ‘‘subclause
(II) LTCHs’’ under § 412.526(c)(1)(i) is
2.8 percent. This is the same applicable
annual rate-of-increase percentage that
would be provided for FY 2017 under
§ 413.40(c)(3), as discussed in section
VI. of the preamble of this proposed
rule. Consistent with our historical
practice of using the best available data,
if more recent data become available (for
example, a more recent estimate of the
market basket increase), we propose to
use such data, if appropriate, to
determine the FY 2017 rate-of-increase
percentage to determine the FY 2017
target amounts for ‘‘subclause (II)
LTCHs’’ in the final rule.
F. Proposed Modifications to the ‘‘25Percent Threshold Policy’’ Payment
Adjustments (§§ 412.534 and 412.536)
The ‘‘25-percent threshold policy’’ is
a per discharge payment adjustment in
the LTCH PPS that is applied to
payments for Medicare patient
discharges from an LTCH when the
number of such patients originating
from any single referring hospital is in
excess of the applicable threshold for a
given cost reporting period (such
threshold is generally set at 25 percent,
with exceptions for rural and urban
single or MSA-dominant hospitals). If
an LTCH exceeds the applicable

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threshold during a cost reporting period,
payment for the discharge that puts the
LTCH over its threshold and all
discharges subsequent to that discharge
in the cost reporting period from the
referring hospital are adjusted at cost
report settlement (discharges not in
excess of the threshold are unaffected by
the 25-percent threshold policy). Each
cost reporting period begins a new
threshold determination, so subsequent
cost reporting periods are unaffected by
failure to meet the applicable percentage
threshold requirements in a prior
period.
The adjusted payment amount for
those discharges that are subject to the
current 25-percent threshold policy is
calculated as the lesser of the applicable
LTCH PPS payment amount or the IPPS
equivalent amount. We note that the
IPPS equivalent amount under the 25percent threshold policy differs
somewhat from the IPPS comparable per
diem amount applicable under the site
neutral payment rate policy at
§ 412.522(c)(1)(i) and the short-stay
outlier (SSO) policy at § 412.529(d)(4).
For a discussion of the calculation of the
IPPS comparable per diem amount
under § 412.529(d)(4) and the IPPS
equivalent amount under existing
§§ 412.534(f) and 412.536(e), including
details on the differences in the
calculations, we refer readers to our
response to comments in the FY 2014
IPPS/LTCH PPS final rule (78 FR
50772).
The 25-percent threshold policy was
originally established in the FY 2005
IPPS final rule for LTCH hospitalwithin-hospitals (HwHs) and satellites
(69 FR 49191 through 49214). It
addressed patient shifting driven by
financial considerations, rather than
patient benefit. Specifically, it
addressed the negative incentives that
result from the co-location of facilities
which created incentives for behaviors
which result in two hospital stays, and
two Medicare payments, for what was
essentially one episode of patient care—
and a financial windfall for both
providers, as compared to acute care
hospitals that were not co-located with
an LTCH. It also addressed statutory
limits for LTCHs, namely concerns that
these LTCHs were, in essence, behaving
as long-term care ‘‘units’’ of the colocated hospitals (an arrangement
prohibited under section 1886(d)(1)(B)
of the Act). In order to discourage such
activities, CMS initially established a
payment adjustment at § 412.534 for
discharges in which the patient was
admitted to the LTCH location from a
co-located referring hospital in excess of
an applicable percentage threshold.
Implementation was phased in, but

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ultimately was generally set at a 25percent threshold after specified phasein periods. A full discussion of the
original 25-percent threshold policy is
contained in the FY 2005 IPPS final rule
(69 FR 49191 through 49214).
While initially limited to co-located
facilities, in keeping with the
suggestions of MedPAC and certain
other commenters, CMS noted that it
would continue to monitor claims data
for signs that common ownership
between hospitals that did not share a
location also encouraged discharge and
admission decisions based on
reimbursement rather than clinical
considerations (69 FR 49202 through
19203). This continued monitoring,
including analysis of discharge patterns
from the FY 2005 MedPAR files,
identified additional patterns of patient
shifting and worrisome admission
practices between LTCHs and referring
hospitals that were not co-located that
were similar to the patterns identified in
the FY 2004 MedPAR files between colocated LTCHs and their host hospitals.
In response to these findings, CMS
expanded the 25-percent threshold
policy in the RY 2008 LTCH PPS final
rule to include all LTCHs and LTCH
satellite facilities through the
amendment of § 412.534 (including
those certain LTCHs which had been
grandfathered from the original policy
established in the FY 2005 rule) and the
addition of § 412.536 (governing
patients admitted from hospitals not colocated with the LTCH). A full
discussion of this policy can be found
in the RY 2008 LTCH PPS final rule (72
FR 26919 through 26944).
The resulting 25-percent threshold
policy was to have been phased in over
3 years, and, when fully implemented,
the 25-percent threshold policy would
have applied to nearly all LTCHs or
LTCH satellites and remote locations
admitting patients from any hospital,
regardless of the location or ownership
of the referring hospital. (For the
remainder of this section, we refer to the
policies under § 412.534 and § 412.536
collectively as the ‘‘25-percent threshold
policy’’ unless otherwise indicated.)
However, several laws mandated
delayed implementation of the policy,
including, most recently, section 1206
of the Pathway for Sustainable Growth
Rate (SGR) Reform Act (Pub. L. 113–67).
Section 1206(b)(1)(B) provides a
permanent exemption from the
application of the 25-percent threshold
policy for co-located LTCHs that were
excluded from the original policy in the
FY 2005 IPPS final rule. Section
1206(b)(1)(A) extended prior moratoria
on the full implementation of the 25percent threshold policy until cost

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reporting periods beginning on or after
either July 1, 2016 (for LTCHs subject to
42 CFR 412.534) or October 1, 2016 (for
LTCHs subject to 42 CFR 412.536). For
more details on the various laws that
delayed the full implementation of the
25 percent threshold policy, we refer
readers to the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50356 through 50357).
With the impending expiration of the
most recent statutory delay of the full
implementation of the 25-percent
threshold policy and the recent
implementation of a dual rate payment
system for the revised LTCH PPS for
cost reporting periods beginning on or
after October 1, 2015, we have received
many questions concerning the
mechanics of the revised payment
system, especially in relation to the
application of the 25-percent threshold
policy under § 412.534 and § 412.536,
and how those sections will interact.
The questions generally involved how
CMS would implement the policy for
LTCHs with multiple locations. Other
questions included how site neutral
payment rate discharges would be
treated under the policy and how CMS
would determine whether a hospital
was located in a rural or MSA-dominant
area. As a result of the confusion
reflected in those questions, we are
proposing to revise our existing policies
in an effort to simplify the application
of the 25-percent threshold policy.
Specifically, we are proposing to
sunset both §§ 412.534 and 412.536 and
adopt a unified 25-percent threshold
policy at new § 412.538. If finalized, this
provision would apply to payments for
discharges occurring on or after October
1, 2016. The applicable percentage
thresholds would generally remain at 25
percent. In keeping with our current
policy at § 412.534(h) and
§ 412.536(a)(2), under proposed new
§ 412.538(a), the adjustment would not
be applicable to ‘‘subclause (II)’’ LTCHs
described at section 1886(d)(1)(B)(iv)(II)
of the Act and § 412.23(e)(2)(ii) or,
consistent with the statute and as
codified in the regulations at
§ 412.534(a) and § 412.536(a)(1)(ii),
those HwHs described in
§ 412.23(e)(2)(i) that meet the criteria in
§ 412.22(f) (‘‘grandfathered HwHs’’).
(Section 1206(b)(1)(B) of the Pathway
for SGR Reform Act provides for a
statutory exclusion from the 25-percent
threshold policy for ‘‘grandfathered
HwHs,’’ which was codified in the
regulations at § 412.534(a) and
§ 412.536(a)(1)(ii) in the FY 2015 IPPS/
LTCH PPS final rule at (79 FR 50186)).
In keeping with our current policy at
§ 412.534(c)(2) and § 412.536(h)(2), we
are further proposing that LTCH
discharges that reached high-cost outlier

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status at the referring hospital would
not be subject to the 25-percent
threshold policy (that is, LTCH
discharges which had been high-cost
outlier cases at the referring hospital
would only be included in an LTCH’s
total Medicare discharges and, therefore,
would not count as having been
admitted from that referring hospital. In
other words, LTCH discharges that were
high-cost outlier cases at the referring
hospital would not be counted in the
numerator (but would be counted in the
denominator) when determining
whether the LTCH exceeded the
applicable percentage threshold from
that referring hospital). As we discussed
in the FY 2005 IPPS final rule, we
continue to believe that it is appropriate
to treat high-cost outlier cases as though
they had come from a different hospital
because a case which reaches high-cost
outlier status has received a full
complement of services and, therefore,
any transfer from a hospital to an LTCH
cannot be said to be premature or
inappropriate. In addition, consistent
with our current policy, under this
proposal, both the LTCH PPS standard
Federal payment rate cases and the site
neutral payment rate cases would be
subject to the 25-percent threshold
policy at proposed new § 412.538 and,
therefore, would be included in the
determination of whether an LTCH has
exceeded its threshold. In conjunction
with this proposal, we are proposing
conforming changes to § 412.522(c)(2)
(adjustments for payments under the
site neutral payment rate) and
§ 412.525(d)(5) (adjustments for
payments under the LTCH PPS standard
Federal payment rate) to include the
proposed adjustment for the limitation
on LTCH admissions from referring
hospitals (that is, the proposed revised
25-percent threshold policy) under new
§ 412.538. Lastly, we are also proposing
that Medicare Advantage (MA)
discharges would not be considered
under the revised 25-percent threshold
policy at proposed new § 412.538,
consistent with our current policy.
(Consistent with these proposals, for the
remainder of this section, when we refer
to ‘‘Medicare discharges,’’ we mean a
hospital’s Medicare discharges that were
not paid under an MA plan (and in the
case of an LTCH, all LTCH PPS
discharges, that is, both the LTCH PPS
standard Federal payment rate cases and
the site neutral payment rate cases).)
Under our proposed revised 25percent threshold policy at proposed
new § 412.538, we are proposing to
calculate the numerator and
denominator for the ‘‘applicable
percentage threshold’’ by using the CMS

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Certification Number (CCN) on hospital
claims submitted to Medicare.
Specifically, we would determine
whether the applicable percentage
threshold was exceeded based on the
Medicare discharges from the entire
LTCH that were admitted from each
referring hospital. The CCN is used on
Medicare claims to identify the hospital
which discharged the patient, and thus
we believe that using the CCN to
identify the discharging LTCH and
referring hospital is an appropriate and
administratively straight-forward
process to implement this proposed
revision. We believe that this proposed
approach would simplify the
application of the 25-percent threshold
policy because it provides transparency
in identifying both the discharging
LTCH and the referring hospital. Under
this proposed approach, an LTCH’s
percentage of Medicare discharges from
a given referring hospital would be
determined during settlement of a cost
report by dividing the LTCH’s total
number of Medicare discharges in the
cost reporting period (based on the CCN
on the claims) that were admitted
directly from a given referring hospital
(again determined by the CCN on the
referring hospital’s claims) that did not
receive a high-cost outlier payment
(based on the referring hospital’s claims)
by the LTCH’s total number of Medicare
discharges in the cost reporting period.
In other words, at cost report settlement,
each LTCH’s Medicare discharges from
a given referring hospital (that did not
receive a high-cost outlier payment)
during that cost reporting period would
be evaluated chronologically based on
the discharge date from the LTCH, such
that the Medicare discharge that results
in the LTCH exceeding or remaining in
excess of its applicable percentage
threshold would be subject to the
payment adjustment at proposed new
§ 412.538(c). Attribution of the Medicare
discharge from a specific LTCH and a
specific referring hospital would be
determined according to the CCN on the
Medicare claim submitted by the
provider (that is, the LTCH’s CCN
would be determined from the LTCH’s
claim; the referring hospital’s CCN by its
claim), which generally comprises all
locations of a single hospital (and for a
single LTCH, includes satellite facilities
and remote locations, as applicable). For
example, the CCN of an LTCH with 3
locations is ‘‘902000’’ and the CCN of a
specific referring hospital with 2
locations is ‘‘900001.’’ During its cost
reporting period, LTCH ‘‘902000’’ has a
total of 60 Medicare discharges (10
discharges from the first location, 20
discharges from the second location,

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and 30 discharges from the third
location). Of those 60 Medicare
discharges, 25 Medicare discharges (that
did not receive a high-cost outlier
payment) came directly from hospital
‘‘900001’’ (10 discharges from the first
location, and 15 discharges from the
second location). LTCH ‘‘902000’s’’
percentage of Medicare discharges from
referring hospital ‘‘900001’’ would be
calculated as 25 divided by 60, or 41.7
percent. The location of the discharging
LTCH and the referring hospital is not
relevant, and only the aggregate
Medicare discharge counts would be
used in the proposed calculation when
determining if a payment adjustment
under proposed new § 412.538 is
applicable at cost report settlement.
Under proposed new §§ 412.538 (b)
and (c), we are proposing, in general,
that payment would be adjusted for
LTCH Medicare discharges originating
from a single referring hospital during a
given cost reporting period when that
Medicare discharge results in a
percentage of Medicare discharges (that
did not receive a high-cost outlier
payment) from that referring hospital
that exceeds that LTCH’s applicable
percentage threshold (that is, goes above
‘‘25 percent’’ of that LTCH’s total
Medicare discharges). In other words, in
general, we would continue to calculate
separate percentages for each hospital
from which an LTCH admits patients,
and compare those referring hospitals’
percentage of Medicare discharges
(excluding those cases that received a
high-cost outlier payment) to the
LTCH’s applicable percentage threshold,
and the payment adjustment would then
be applied to any of the Medicare
discharges that cause the LTCH to
exceed or remain in excess of the
applicable percentage threshold.
Medicare discharges not in excess of the
threshold (which includes those that
received a high-cost outlier payment at
the referring hospital) would continue
to be unaffected by the 25-percent
threshold policy. As adjusted, the net
payment amount to an LTCH for each of
its Medicare discharges beyond the
applicable percentage threshold would
continue to be the lesser of the
applicable LTCH PPS payment amount
or an IPPS equivalent amount. The IPPS
equivalent amount under the current 25percent threshold policy is set forth in
existing regulations at § 412.534(f) and
§ 412.536(e). As we are proposing to
sunset these provisions, we are
proposing to codify the existing
definition of ‘‘IPPS equivalent amount’’
under our proposed revised 25-percent
threshold policy at proposed new
§ 412.538(f). (For a detailed description

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of the calculation of the IPPS equivalent
amount, we refer readers to the RY 2007
LTCH PPS proposed rule (71 FR 4698
through 4700), which was finalized in
the corresponding final rule (71 FR
27875)). As noted previously, the IPPS
equivalent amount under the 25-percent
threshold policy differs somewhat from
the IPPS comparable amount applicable
under the site neutral payment rate and
the SSO policy (78 FR 50772).
In addition, consistent with our
existing policy at § 412.534(d) and
§ 412.536(c), under proposed new
§ 412.538(f), we are proposing a 50percent threshold for rural LTCHs (as
defined under § 412.503) in lieu of the
generally applicable 25-percent
threshold. If finalized, payment to such
LTCHs would not be adjusted unless the
rural LTCH’s Medicare discharges from
a single referring hospital (excluding
those that received a high-cost outlier
payment), which exceeded 50 percent of
the LTCH’s total Medicare discharges
(that is, we would continue to apply an
applicable percentage threshold of 50
percent from any single referring
hospital to rural LTCHs).
We also are proposing to maintain at
proposed new § 412.538(e)(3) the
current special treatment of an LTCH
located in an MSA with an MSAdominant hospital at § 412.534(e) and
§ 412.536(d). As defined in those
regulations, an MSA-dominant hospital
is a hospital that has discharged more
than 25 percent of the total hospital’s
Medicare discharges in the MSA in
which it is located. For LTCHs located
in an MSA-dominant area (that is
located in an MSA with an MSAdominant hospital), the LTCH’s
applicable percentage threshold would
continue to be the percentage of total
Medicare hospital discharges in the
MSA from the MSA-dominant hospital
during the LTCH’s applicable cost
reporting period, but in no case is less
than 25 percent or more than 50
percent. (That is, as is the case under
our current policy, for an LTCH located
in an MSA-dominant area, it would
have a single applicable percentage
threshold for all of that LTCH’s referring
hospitals under the special treatment
provided under proposed new
§ 412.538(e)(3). We are proposing to use
our existing definition of ‘‘MSAdominant hospital’’ under both
§ 412.534(e) and § 412.536(d) of the
regulations to also define the term under
§ 412.103. We are further proposing to
codify definitions for the terms ‘‘MSA’’
(which we are proposing to define as an
Metropolitan Statistical Area, as defined
by the Executive Office of Management
and Budget) and ‘‘MSA-dominant area’’
(which we are proposing to define as an

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MSA in which an MSA-dominant
hospital is located) under § 412.103.
(Information on OMB’s MSA
delineations based on the 2010
standards can be found at: http://www.
whitehouse.gov/sites/default/files/omb/
assets/fedreg_2010/06282010_metro_
standards-Complete.pdf.)
Under this proposed special treatment
at §§ 412.538(e)(2) and (3) for LTCHs
with multiple locations, we are further
proposing that all locations of the LTCH
paid under the LTCH PPS must be rural
or located in an MSA-dominant area (as
applicable); otherwise the special
treatment would not apply and the
applicable percentage threshold would
be 25 percent. Under our existing
regulations, the applicable percentage
threshold for each location is
determined independently of any other
location of the hospital (meaning that, if
an LTCH had one rural and one urban
location, the applicable percentage
threshold for the rural location would
be 50 percent and the applicable
percentage threshold for the urban
location would be 25 percent). However,
under our proposal, the applicable
percentage threshold would apply to the
LTCH as a whole entity (based on its
CCN). Therefore, we believe that it
would be appropriate to apply the rural
and MSA-dominant ‘‘special’’
applicable percentage thresholds based
on the LTCH as a whole as well.
Furthermore, we believe that LTCHs
with locations that do not fall in these
special treatment categories would have
sufficient access across its locations to
admit patients from multiple hospitals
such that, as a whole, the LTCH should
be able to draw from a diverse enough
population to meet the proposed 25percent threshold criteria. For these
reasons, at this time we do not believe
that it would be appropriate or
necessary to apply these special
percentages unless the LTCH is
exclusively rural or located exclusively
in an MSA-dominant area (as
applicable). Therefore, we are proposing
to require all locations of an LTCH to be
rural or located within an MSAdominant area in order to qualify for
special treatment under proposed new
§§ 412.538(e)(2) and (3) (that is, an
adjusted applicable percentage
threshold).
In summary, for discharges occurring
on or after October 1, 2016, we are
proposing to establish a single
consolidated admission threshold
policy (generally a 25-percent threshold
policy) at proposed new § 412.538, in
conjunction with proposing to sunset
the existing 25-percent threshold
policies at §§ 412.534 and 412.536,
effective October 1, 2016. Under this

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proposed single 25-percent threshold
policy, LTCH PPS payment for LTCH
discharges from a single referring
hospital in excess of the LTCH’s
applicable percentage threshold for that
referring hospital would be adjusted.
We are proposing that the applicable
percentage threshold would generally be
25 percent (with proposed special
treatment for exclusively rural LTCHs
and LTCHs exclusively located in an
MSA-dominant area). The proposed 25percent threshold policy would be
applicable to all LTCHs except
‘‘subclause (II)’’ LTCHs and
‘‘grandfathered HwHs.’’ Under this
proposal, LTCH discharges which
reached high-cost outlier status at the
referring hospital from which the
patient was discharged directly to the
LTCH would be treated as though they
had come from a different referring
hospital and, therefore, would not be
counted as a Medicare discharge from
that referring hospital. We also are
proposing that MA discharges would
not be included in this proposed policy.
In addition, the proposed revised 25percent policy would apply to all LTCH
PPS discharges (that is, both LTCH PPS
standard Federal payment rate and site
neutral payment rate cases).
Under this proposal, we would
evaluate the ‘‘applicable percentage
threshold’’ based on the sum of the
locations covered by the LTCH’s and
referring hospitals’ Medicare provider
agreement, and would implement this
policy using the LTCH’s and the
referring hospitals’ CCN. We are
proposing that an LTCH’s percentage of
Medicare discharges from a given
hospital would be determined by
dividing the LTCH’s number of
Medicare discharges in the cost
reporting period (based on the LTCH’s
CCN) that were admitted directly from
a given referring hospital (based on the
hospital’s CCN) that did not receive a
high-cost outlier payment during the
stay at that referring hospital by the
LTCH’s total number of Medicare
discharges in the cost reporting period
(based on the LTCH’s CCN). Under
proposed new § 412.538, in general, the
LTCH PPS payment would be adjusted
for LTCH Medicare discharges from a
single referring hospital (that did not
receive a high cost-outlier payment) that
exceed the applicable percentage
threshold (generally 25 percent). If an
LTCH exceeds its applicable threshold
during a cost reporting period, which
would be determined at cost report
settlement, we are proposing to adjust
payment for Medicare discharges in
excess of the applicable percentage
threshold (including the Medicare

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discharge which causes the LTCH to
exceed the applicable percentage
threshold), and Medicare discharges not
in excess of the applicable percentage
threshold would continue to be
unaffected by the 25-percent threshold
policy (that is, the payment for such
discharges would not be adjusted). As
adjusted, the payment amount for a
LTCH Medicare discharge that is found
to be at or beyond the applicable
percentage threshold would continue to
receive the lesser of the applicable
LTCH PPS payment amount or an IPPS
equivalent amount.
G. Proposed Refinement to the Payment
Adjustment for ‘‘Subclause II’’ LTCHs
As part of our FY 2015 IPPS/LTCH
PPS rulemaking cycle, under the
authority provided by section 1206(d)(2)
of the Pathway to SGR Reform Act (Pub.
L. 113–67), we adopted an adjustment to
the LTCH PPS payment for LTCHs
classified under section
1886(d)(1)(B)(iv)(II) of the Act
(‘‘subclause (II) LTCHs’’), which are
described in 42 CFR 412.23(e)(2)(ii).
Under this adjustment, subclause (II)
LTCHs receive payment under the
LTCH PPS that is generally equivalent
to an amount determined under the
reasonable cost-based payment rules for
both operating and capital-related costs
under 42 CFR part 413 (that is, an
amount generally equivalent to an
amount determined under the TEFRA
payment system methodology, which
could be called a ‘‘TEFRA-like’’
methodology). For more information on
this adjustment, we refer readers to the
FY 2015 IPPS/LTCH PPS final rule (79
FR 50193 through 50197). As initially
adopted, this ‘‘TEFRA-like’’ payment
adjustment for subclause (II) LTCHs did
not incorporate the limitation on
charges to Medicare beneficiaries
policies under the TEFRA payment
system. Alignment of the limitation on
charges to beneficiaries and related
billing requirements would result in
administrative simplification for the
cost report submission and settlement
process under the payment adjustment
for subclause (II) LTCHs specified at
§ 412.526.
In this proposed rule, we are
proposing to revise the limitation on
charges to beneficiaries policy and
related billing requirements for
subclause (II) LTCHs like what is done
in the TEFRA payment system context
for cost reporting periods beginning on
or after October 1, 2016, which would
align our beneficiary charge policies
(and related billing procedures) with the
reasonable cost-based ‘‘TEFRA-like’’
payment adjustment under § 412.526.
The adjusted LTCH PPS payment to

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subclause (II) LTCHs under § 412.526 is
considered the full LTCH PPS payment
(that is, the LTCH PPS standard Federal
payment rate or site neutral payment
rate, as applicable), and as such, under
current policy that payment applies to
the LTCH’s costs for services furnished
until the high-cost outlier threshold is
met (existing § 412.507(a)). Under this
proposal, for a subclause (II) LTCH, the
Medicare payment would only apply to
the LTCH’s costs incurred for the days
used to calculate the Medicare payment
(that is, days for which the patient has
a benefit day available). Furthermore, in
addition to the applicable Medicare
deductible and coinsurance amounts
(and for items and services as specified
under § 489.20(a)), we would specify
that the LTCH may only charge the
beneficiary for services provided during
the stay that were not the basis for the
adjusted LTCH PPS payment amount
under § 412.526. If finalized, subclause
(II) LTCHs would be treated the same as
IPPS-excluded hospitals paid under the
TEFRA payment system for purposes of
the limitation on charges to
beneficiaries and related billing
requirements.
In this proposed rule, using the broad
authority conferred upon the Secretary
under section 123(a)(1) of the BBRA, as
amended by section 307(b) of the BIPA,
in conjunction with the authority
provided under section 1206(d)(2) of
Public Law 113–67, we are proposing to
revise § 412.507 to limit allowable
charges to beneficiaries treated at
subclause (II) LTCHs as is done under
the TEFRA payment system in order to
align our beneficiary charge policies
with the reasonable cost-based ‘‘TEFRAlike’’ payment adjustments under
§ 412.526. Specifically, we are
proposing to revise § 412.507 to specify
that, for cost reporting periods
beginning on or after October 1, 2016,
the Medicare payment made to
subclause (II) LTCHs (as defined at
§ 412.23(e)(2)(ii)) only applies to the
hospital’s costs on the days used to
calculate the Medicare payment (that is,
days for which the patient has a benefit
day available). Furthermore, proposed
revised § 412.507 would specify that, for
cost reporting periods beginning on or
after October 1, 2016, the hospital may
only charge the Medicare beneficiary for
the applicable deductible and
coinsurance amounts (under §§ 409.82,
409.83 and 409.87) for items and
services as specified under § 489.20(a),
and for services provided during the
stay that were not the basis for the
adjusted LTCH PPS payment amount
under § 412.526.

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VIII. Quality Data Reporting
Requirements for Specific Providers
and Suppliers
We seek to promote higher quality
and more efficient healthcare for
Medicare beneficiaries. This effort is
supported by the adoption of widely
agreed-upon quality measures. We have
worked with relevant stakeholders to
define quality measures for most
settings and to measure various aspects
of care for most Medicare beneficiaries.
These measures assess structural aspects
of care, clinical processes, patient
experiences with care, care
coordination, and improving patient
outcomes.
We have implemented quality
reporting programs for multiple care
settings, including:
• Hospital inpatient services under
the Hospital Inpatient Quality Reporting
(IQR) Program (formerly referred to as
the Reporting Hospital Quality Data for
Annual Payment Update (RHQDAPU)
Program);
• Hospital outpatient services under
the Hospital Outpatient Quality
Reporting (OQR) Program (formerly
referred to as the Hospital Outpatient
Quality Data Reporting Program (HOP
QDRP));
• Care furnished by physicians and
other eligible professionals under the
Physician Quality Reporting System
(PQRS, formerly referred to as the
Physician Quality Reporting Program
Initiative (PQRI));
• Inpatient rehabilitation facilities
under the Inpatient Rehabilitation
Facility Quality Reporting Program (IRF
QRP);
• Long-term care hospitals under the
Long-Term Care Hospital Quality
Reporting Program (LTCH QRP) (also
referred to as the LTCHQR Program);
• PPS-exempt cancer hospitals under
the PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program;
• Ambulatory surgical centers under
the Ambulatory Surgical Center Quality
Reporting (ASCQR) Program;
• Inpatient psychiatric facilities
under the Inpatient Psychiatric
Facilities Quality Reporting (IPFQR)
Program;
• Home health agencies under the
home health quality reporting program
(HH QRP); and
• Hospice facilities under the Hospice
Quality Reporting Program.
We have also implemented the EndStage Renal Disease Quality Incentive
Program, Hospital Readmissions
Reduction Program, HAC Reduction
Program, and Hospital VBP Program
(described further below) that link
payment to performance.

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In implementing the Hospital IQR
Program and other quality reporting
programs, we have focused on measures
that have high impact and support CMS
and HHS priorities for improved quality
and efficiency of care for Medicare
beneficiaries. Our goal for the future is
to align the clinical quality measure
requirements of the Hospital IQR
Program with various other Medicare
and Medicaid programs, including those
authorized by the Health Information
Technology for Economic and Clinical
Health (HITECH) Act, so that the
reporting burden on providers will be
reduced. As appropriate, we will
consider the adoption of clinical quality
measures with electronic specifications
so that the electronic collection of
performance information is a seamless
component of care delivery.
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 adoption of
standards for capturing, formatting, and
transmitting the data elements that
make up the measures. However, once
these activities are accomplished,
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 reporting
burden to hospitals. We believe that in
the near future, collection and reporting
of data elements through EHRs will
greatly simplify and streamline
reporting for various CMS quality
reporting programs, and that hospitals
will be able to switch primarily to EHRbased data reporting for many measures
that are currently manually chartabstracted and submitted to CMS for the
Hospital IQR Program.
We also have implemented a Hospital
VBP Program under section 1886(o) of
the Act, described in the Hospital
Inpatient VBP Program final rule (76 FR
26490 through 26547). We most recently
adopted additional policies for the
Hospital VBP Program in section IV.I. of
the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49544 through 49570). Under the
Hospital VBP Program, hospitals receive
value-based incentive payments based
on their performance with respect to
performance standards for a
performance period for the fiscal year
involved. The measures under the
Hospital VBP Program must be selected
from the measures (other than
readmission measures) specified under
the Hospital IQR Program as required by
section 1886(o)(2)(A) of the Act.
In selecting measures for the Hospital
IQR Program, we are mindful of the
conceptual framework we have
developed for the Hospital VBP

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Program. Because measures adopted for
the Hospital VBP Program must first
have been adopted and reported under
the Hospital IQR Program, these two
programs are linked and the reporting
infrastructure for the programs overlap.
We view the Hospital VBP Program as
the next step in promoting higher
quality care for Medicare beneficiaries
by transforming Medicare from a
passive payer of claims into an active
purchaser of quality healthcare for its
beneficiaries. Value-based purchasing is
an important step to revamping how
care and services are paid for, moving
increasingly toward rewarding better
value, outcomes, and innovations.
We also view the HAC Reduction
Program, authorized by section 1886(p)
of the Act, as added by section 3008 of
the Affordable Care Act, and the
Hospital VBP Program, as related but
separate efforts to reduce HACs. The
Hospital VBP Program is an incentive
program that awards payments to
hospitals based on quality performance
on a wide variety of measures, while the
HAC Reduction Program creates a
payment adjustment resulting in
payment reductions for poorly
performing hospitals based on their
rates of HACs.
In the preamble of this proposed rule,
we are proposing changes to the
following Medicare quality reporting
systems:
• In section VIII.A, the Hospital IQR
Program.
• In section VIII.B., the PCHQR
Program.
• In section VIII.C., the LTCH QRP.
• In section VIII.D., the IPFQR
Program.
In addition, in section VIII.E. of the
preamble of this proposed rule, we are
proposing changes to the Medicare and
Medicaid EHR Incentive Programs for
eligible hospitals and CAHs.
A. Hospital Inpatient Quality Reporting
(IQR) Program
1. Background
a. History of the Hospital IQR Program
We refer readers to the FY 2010 IPPS/
LTCH PPS final rule (74 FR 43860
through 43861) and the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50180
through 50181) for detailed discussions
of the history of the Hospital IQR
Program, including the statutory history,
and to the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50217 through 50249)
and the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49660 through 49692) for
the measures we have adopted for the
Hospital IQR Program measure set
through the FY 2019 payment
determination and subsequent years.

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b. Maintenance of Technical
Specifications for Quality Measures
We refer readers to the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49640
through 49641) for a discussion of the
maintenance of technical specifications
for quality measures for the Hospital
IQR Program. We also refer readers to
the FY 2015 IPPS/LTCH PPS final rule
(79 FR 50202 through 50203) for
additional detail on the measure
maintenance process.
In addition, we believe that it is
important to have in place a
subregulatory process to incorporate
nonsubstantive updates to the measure
specifications for measures we have
adopted for the Hospital IQR Program so
that these measures remain up-to-date.
We refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53504
through 53505) and the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50203) for
our policy for using a subregulatory
process to make nonsubstantive updates
to measures used for the Hospital IQR
Program. We recognize that some
changes made to measures undergoing
maintenance review are substantive in
nature and might not be appropriate for
adoption using a subregulatory process.
We will continue to use rulemaking to
adopt substantive updates made to
measures we have adopted for the
Hospital IQR Program.
In this proposed rule, we are not
proposing any changes to our policies
on the measures maintenance process or
for using the subregulatory process to
make nonsubstantive updates to
measures used for the Hospital IQR
Program.
c. Public Display of Quality Measures
Section 1886(b)(3)(B)(viii)(VII) of the
Act was amended by the Deficit
Reduction Act (DRA) of 2005. Section
5001(a) of the DRA requires that the
Secretary establish procedures for
making information regarding measures
submitted available to the public after
ensuring that a hospital has the
opportunity to review its data before
they are made public. We refer readers
to the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50776 through 50778) for a
more detailed discussion about public
display of quality measures.
The Hospital Compare Web site is an
interactive Web tool that assists
beneficiaries by providing information
on hospital quality of care to those who
need to select a hospital. For more
information on measures reported to
Hospital Compare, we refer readers to
the Web site at: http://
www.medicare.gov/hospitalcompare.
Other information not reported to

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Hospital Compare may be made
available on other CMS Web sites, such
as https://data.medicare.gov.
In this proposed rule, we are not
proposing any changes to these policies.
2. Process for Retaining Previously
Adopted Hospital IQR Program
Measures for Subsequent Payment
Determinations
We refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53512
through 53513), for our finalized
measure retention policy. Pursuant to
this policy, when we adopt measures for
the Hospital IQR Program beginning
with a particular payment
determination, we automatically
readopt these measures for all
subsequent payment determinations
unless we propose to remove, suspend,
or replace the measures. In this
proposed rule, we are not proposing any
changes to this policy.
3. Removal and Suspension of Hospital
IQR Program Measures
a. Considerations in Removing Quality
Measures From the Hospital IQR
Program

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As discussed above, we generally
retain measures from the previous year’s
Hospital IQR Program measure set for
subsequent years’ measure sets except
when we specifically propose to
remove, suspend, or replace a measure.
We refer readers to the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50185) and
the FY 2015 IPPS/LTCH PPS final rule
(79 FR 50203 through 50204) for more
information on the criteria we consider
for removing quality measures. We refer
readers to the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49641 through 49643)
for more information on the additional
factors we consider in removing quality
measures and the factors we consider in
order to retain measures. In the FY 2015
IPPS/LTCH PPS final rule (79 FR 50203
through 50204), we also finalized our
proposal to clarify the criteria for
determining when a measure is
‘‘topped-out.’’ In this proposed rule, we
are not proposing any changes to these
policies.
b. Proposed Removal of Hospital IQR
Program Measures for the FY 2019
Payment Determination and Subsequent
Years
We are proposing to remove the
following 15 measures for the FY 2019
payment determination and subsequent
years. Some of these measures we are
proposing to remove in their entirety;
one of these measures, VTE–6 Incidence
of Potentially Preventable Venous
Thromboembolism, we are proposing to

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remove just in the electronic form as
discussed further below:
• AMI–2: Aspirin Prescribed at
Discharge for AMI (NQF #0142);
• AMI–7a: Fibrinolytic Therapy
Received Within 30 minutes of Hospital
Arrival;
• AMI–10: Statin Prescribed at
Discharge;
• HTN: Healthy Term Newborn (NQF
#0716);
• PN–6: Initial Antibiotic Selection
for Community-Acquired Pneumonia
(CAP) in Immunocompetent Patients
(NQF #0147);
• SCIP–Inf–1a: Prophylactic
Antibiotic Received Within One Hour
Prior to Surgical Incision (NQF #0527);
• SCIP–Inf–2a: Prophylactic
Antibiotic Selection for Surgical
Patients (NQF #0528);
• SCIP–Inf–9: Urinary Catheter
Removed on Postoperative Day 1
(POD1) or Postoperative Day 2 (POD2)
with Day of Surgery Being Day Zero;
• STK–4 Thrombolytic Therapy (NQF
#0437);
• VTE–3: Venous Thromboembolism
Patients with Anticoagulation Overlap
Therapy (NQF #0373);
• VTE–4: Venous Thromboembolism
Patients Receiving Unfractionated
Heparin (UFH) with Dosages/Platelet
Count Monitoring by Protocol (or
Nomogram);
• VTE–5: Venous Thromboembolism
Discharge Instructions;
• VTE–6: Incidence of Potentially
Preventable Venous Thromboembolism;
• Participation in a Systematic
Clinical Database Registry for Nursing
Sensitive Care; and
• Participation in a Systematic
Clinical Database Registry for General
Surgery.
Removal of these measures is
discussed in more detail below.
(1) Proposed Removal of Structural
Measures
We are proposing to remove two
structural measures for the FY 2019
payment determination and subsequent
years: (1) Participation in a Systematic
Clinical Database Registry for Nursing
Sensitive Care; and (2) Participation in
a Systematic Clinical Database Registry
for General Surgery, because
performance on these measures does not
result in better patient outcomes—
removal factor 4 (80 FR 49641). These
measures were originally adopted in the
RHQDAPU Program FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43870
through 43872) to monitor participation
in systematic clinical database registries
for the Hospital IQR Program. By design,
the measures do not provide
information on patient outcomes,

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because hospitals are asked only
whether they participate in registries. In
the future, we will consider other more
effective measures to include in the
program. As a result, we believe that the
burden to retain these measures
outweighs the benefits. Therefore, we
are proposing to remove these two
structural measures from the Hospital
IQR Program for the FY 2019 payment
determination and subsequent years.
(2) Proposed Removal of ‘‘Topped-Out’’
Chart-Abstracted Measures
We are proposing to remove two
measures in their chart-abstracted
forms: (1) STK–4: Thrombolytic
Therapy (NQF #0437) and (2) VTE–5:
VTE Discharge Instructions, because
measure performance among hospitals
is so high and unvarying that
meaningful distinctions and
improvements in performance can no
longer be made (‘‘topped-out’’
measures)—removal factor 1 (80 FR
49641). The chart-abstracted version of
STK–4 was adopted into the program in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51634); and the chart-abstracted
version of VTE–5 was adopted into the
program in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51636). One factor we
consider in determining whether a
measure should be retained or removed
from the program is whether the
measure is ‘‘topped-out.’’ We have
previously adopted two criteria for
determining the ‘‘topped-out’’ status of
Hospital IQR Program measures: (1)
Statistically indistinguishable
performance at the 75th and 90th
percentiles; and (2) truncated coefficient
of variation ≤0.10 (80 FR 49642). These
measures meet both of these criteria. We
believe that the burdens of retaining
these measures outweigh the benefits,
and therefore, are proposing to remove
the chart-abstracted versions of STK–4
and VTE–5 for the FY 2019 payment
determination and subsequent years.
(3) Proposed Removal of Certain eCQMs
We are proposing to remove the
electronic versions of AMI–7a, HTN,
PN–6, SCIP–Inf–9, VTE–3, VTE–4, VTE–
5, VTE–6, STK–4, AMI–2, AMI–10,
SCIP–Inf–1a, and SCIP–Inf–2a,
beginning with the FY 2019 payment
determination. Each measure is
discussed in more detail below.
(a) Removal of eCQMs in Alignment
With the Medicare and Medicaid EHR
Incentive Programs
We are proposing to remove 13
eCQMs from both the Hospital IQR
Program and the Medicare and
Medicaid EHR Incentive Programs in
order for hospitals to focus on a smaller,

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more specific subset of eCQMs while
keeping the programs aligned.
We refer readers to section VIII.A.8.a.
and section VIII.A.10.d. of the preamble
of this proposed rule for details on our
proposed changes to eCQM reporting
requirements for the Hospital IQR
Program to align with the Medicare and
Medicaid EHR Incentive Programs. We
also refer readers to section
VIII.A.3.b.(3) of the preamble of this
proposed rule for our proposals to
remove these 13 eCQMs from the
Medicare and Medicaid EHR Incentive
Programs. We believe that a coordinated
reduction in the overall number of
eCQMs in both programs would reduce
burden on hospitals and improve the
quality of reported data by enabling
hospitals to focus on a smaller, more
specific subset of eCQMs. We are
proposing these changes in response to
public comments for the Hospital IQR
Program in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49694), which
recommended that CMS adopt a lesser
number of eCQMs.
(i) AMI–7a
We are proposing to remove the AMI–
7a: Fibrinolytic Therapy Received
Within 30 minutes of Hospital Arrival
eCQM, because performance or
improvement on this measure does not
result in better patient outcomes—
removal factor 4 (80 FR 49641). In the
FY 2016 IPPS/LTCH PPS final rule, we
removed the chart-abstracted version of
AMI–7a because the reporting burden
outweighed the benefit of posting very
few hospitals’ measure rates. This
measure’s specifications resulted in very
high denominator exclusion rates.
Consequently, the vast majority of
abstracted AMI cases were excluded
from AMI–7a measure rates. Most acute
myocardial infarction (AMI) patients
receive percutaneous coronary
intervention (PCI) instead of fibrinolytic
therapy (80 FR 49647). We do not
believe that the mode of reporting
(eCQM versus chart-abstracted) would
cause the number of cases reported to
differ since most AMI patients would
still receive PCI instead of fibrinolytic
therapy. In the FY 2016 IPPS/LTCH PPS
final rule, we retained the electronic
version of this measure for alignment
purposes with the Medicare and
Medicaid EHR Incentive Programs (80
FR 49644). As discussed above, we are
proposing to focus on a smaller, more
specific subset of eCQMs in both the
Hospital IQR and Medicare and
Medicaid EHR Incentive Programs. As a
result, the burdens related to retaining
this measure outweigh the benefits.
Therefore, we are proposing to remove
the AMI–7a eCQM from the Hospital

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IQR Program for the FY 2019 payment
determination and subsequent years.
(ii) STK–4, AMI–2, AMI–10, SCIP–Inf–
1a, and SCIP–Inf–2a
We are proposing to remove the: (1)
STK–4: Thrombolytic Therapy (NQF
#0437); (2) AMI–2: Aspirin Prescribed at
Discharge for AMI (NQF #0142); (3)
AMI–10: Statin Prescribed at Discharge;
(4) SCIP–Inf–1a: Prophylactic Antibiotic
Received Within One Hour Prior to
Surgical Incision (NQF #0527); and (5)
SCIP–Inf–2a: Prophylactic Antibiotic
Selection for Surgical Patients (NQF
#0528) eCQMs, because measure
performance among hospitals is so high
and unvarying that meaningful
distinctions and improvements in
performance can no longer be made—
removal factor 1 (80 FR 49641). We note
that the NQF has changed the
endorsement designations of the AMI–2,
AMI–10, SCIP–Inf–1a, and SCIP–Inf–2a
chart abstracted measures and eCQM
versions to either ‘‘reserve status’’ or
‘‘endorsement removed’’ (available at:
http://www.qualityforum.org/QPS/
QPSTool.aspx), because there is no
opportunity for improvement.
We refer readers to section
VIII.A.3.b.(2) of the preamble of this
proposed rule for our proposal also to
remove the chart-abstracted form of the
STK–4 measure due to ‘‘topped-out’’
status. The electronic version of the
STK–4 measure was adopted into the
Hospital IQR Program in the FY 2014
IPPS/LTCH PPS final rule (78 FR 50784)
to promote programmatic alignment, as
it was a part of a measure set that was
already included in the Medicare and
Medicaid EHR Incentive Programs’
Electronic Reporting Pilot for Eligible
Hospitals and CAHs (75 FR 44418 and
76 FR 74489).
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50781), we removed the
chart-abstracted versions of AMI–2 and
AMI–10 due to ‘‘topped-out’’ status.
However, as noted in FY 2015 IPPS/
LTCH PPS final rule (79 FR 50245), we
readopted these measures, though only
in the electronic form, because we
believed that we should continue
aligning the Hospital IQR Program and
the Medicare EHR Incentive Program in
order to minimize reporting burden and
to facilitate the transition to reporting of
eCQMs. We believed that voluntary
reporting of these measures would
further that aim. In addition, we
believed that allowing hospitals the
option to electronically report ‘‘toppedout’’ measures would provide them with
an opportunity to test the accuracy of
their EHR reporting systems.
Similarly, in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50208), we

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removed the chart-abstracted versions of
SCIP–Inf–1a and SCIP–Inf–2a,
previously referred to as SCIP–Inf–1 and
SCIP–Inf–2 respectively, due to their
‘‘topped-out’’ status. However, as stated
in that rule, we retained the electronic
versions of these measures, because we
believed this provided CMS with an
opportunity to monitor ‘‘topped-out’’
measures for performance decline. It
also simplified alignment between the
Hospital IQR and Medicare EHR
Incentive Program for eligible hospitals
and provided a more straight-forward
approach to educate stakeholders on
electronic reporting options (79 FR
50208).
As discussed above, we are proposing
to focus on a smaller, more specific
subset of eCQMs for the Hospital IQR
Program and both the Medicare and
Medicaid EHR Incentive Programs.
Therefore, in light of their ‘‘topped out’’
status, the burden of retaining these
measures outweighs the benefits. Thus,
we are proposing to remove the STK–4,
AMI–2, AMI–10, SCIP–Inf–1a, and
SCIP–Inf–2a eCQMs from the Hospital
IQR Program for the FY 2019 payment
determination and subsequent years.
(b) HTN
We are proposing to remove the HTN:
Healthy Term Newborn (NQF #0716)
eCQM, because it is no longer feasible
to implement the measure
specifications—removal factor 7 (80 FR
49642). In the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50249), we added HTN,
only as an eCQM, not as a claims-based
measure. Although the claims-based
version of the HTN measure has never
been part of the Hospital IQR Program,
the claims-based HTN measure concept
was used to develop the HTN eCQM.
The measure steward has made
substantial revisions to the claims-based
version of this measure such that the
focus is no longer on the number of
healthy term newborns, but the number
of unexpected complications in term
newborns. The numerator of the revised
measure has been restructured to assess
the presence of severe or moderate
complications after term birth, while the
original measure looked for the absence
of several types of complications after
term birth. For the revised measure
specifications, we refer readers to:
https://www.cmqcc.org/focus-areas/
quality-metrics/unexpectedcomplications-term-newborns. In
addition, the measure steward is no
longer maintaining the claims-based
version of HTN or supporting the
maintenance of the original eCQM
version of HTN that was developed by
CMS and adopted in the Hospital IQR
Program. Therefore, it is not feasible to

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
continue to include a measure that is no
longer supported by the steward. As a
result, we are proposing to remove the
HTN eCQM from the Program for the FY
2019 payment determination and
subsequent years.
(c) PN–6 and SCIP–Inf–9
We are proposing to remove the: (1)
PN–6: Initial Antibiotic Selection for
Community-Acquired Pneumonia (CAP)
in Immunocompetent Patients (NQF
#0147) and (2) SCIP–Inf–9: Urinary
Catheter Removed on Postoperative Day
1 (POD1) or Postoperative Day 2
((POD2) with Day of Surgery Being Day
Zero) eCQMs, because it is no longer
feasible to implement the measure
specifications—removal factor 7 (80 FR
49642). While the electronic versions
were retained, the chart-abstracted
versions of PN–6 and SCIP–Inf–9 were
determined to be ‘‘topped-out’’ and
were removed from the Hospital IQR
Program measure set in the FY 2015
IPPS/LTCH PPS final rule (79 FR 50204
through 50208).
These two eCQMs have undergone
significant changes to their logic
expression during the previous annual
update.73 There are a number of data
capture requirements that cannot be
represented adequately in the eCQM
form due to their conceptual
complexity. Specifically, for PN–6,
hospital feedback has indicated
difficulties with interpreting several
critical timing requirements, such as for
intensive care unit populations,
emergency department and inpatient
admission transitions, steroid therapy,
and pre-admission medications. In
addition, hospitals raised concern about
the inability to account for variation in
recording of the interpretation of
laboratory results. For SCIP–Inf–9,
feedback from hospitals has indicated
that it is difficult to interpret the
appropriate timing of elements
associated with both the insertion and
removal of a catheter. This is

particularly problematic, because of the
variety of patient locations encountered
before and after surgery, as well as
transfers among units. While these
variations for both PN–6 and SCIP–Inf–
9 can be accounted for through chartbased manual abstraction, we have had
great difficulties in translating and
maintaining these options for electronic
reporting. Therefore, we are proposing
to remove both the PN–6 and SCIP–Inf–
9 eCQMs from the Hospital IQR Program
for the FY 2019 payment determination
and subsequent years.
(d) VTE–3, VTE–4, VTE–5, and VTE–6
We are proposing to remove the four
VTE eCQMs: (1) VTE–3: Venous
Thromboembolism Patients with
Anticoagulation Overlap Therapy (NQF
#0373); (2) VTE–4: Venous
Thromboembolism Patients Receiving
Unfractionated Heparin (UFH) with
Dosages/Platelet Count Monitoring by
Protocol (or Nomogram); (3) VTE–5:
Venous Thromboembolism Discharge
Instructions; and (4) VTE–6: Incidence
of Potentially Preventable Venous
Thromboembolism, because it is no
longer feasible to implement the
measures specifications—removal factor
7 (80 FR 49642). Many of the chartabstracted versions of these measures
were determined to be ‘‘topped-out’’.
While the electronic versions of VTE–3
and VTE–4 were retained, the chartabstracted versions were determined to
be ‘‘topped-out’’ and were removed
from the Hospital IQR Program measure
set in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49643) and the FY 2015
IPPS/LTCH PPS final rule (79 FR
50205), respectively. In addition, as
described above in section VIII.A.3.b.(2)
of the preamble of this proposed rule,
we are proposing to remove the chartabstracted version of VTE–5 for the FY
2019 payment determination and
subsequent years due to its ‘‘toppedout’’ status. The electronic version of

25177

VTE–5 was adopted in the FY 2014
IPPS/LTCH PPS final rule (78 FR
50784). Finally, the chart-abstracted
version of VTE–6, however, continues to
be included in the Hospital IQR
Program measure set because chart
abstractors can manually find required
data elements in clinical notes and not
in structured data fields.
Nonetheless, a majority of hospitals
do not have the ability to capture
required data elements, such as
diagnostic study results/reports and
location of the specific vein in which
deep vein thrombosis was diagnosed, in
discrete structured data fields to support
these eCQMs, because they are often
found as free text in clinical notes
instead. It is exceedingly difficult for
hospitals to implement the measure
specifications in the absence of these
functional requirements. Furthermore,
as discussed above, we are proposing to
focus on a smaller, more specific subset
of eCQMs in the Hospital IQR Program
and both the Medicare and Medicaid
EHR Incentive Programs. Therefore, in
light of their ‘‘topped out’’ statuses and
the infeasibility of implementing the
measure specifications, the burden of
retaining these measures outweighs the
benefits. As a result, we are proposing
to remove the VTE–3, VTE–4, VTE–5,
and VTE–6 eCQMs from the Hospital
IQR Program for the FY 2019 payment
determination and subsequent years.
(4) Summary of Measures Proposed for
Removal
The table below lists the measures we
are proposing for removal. We are
inviting public comment on our
proposals to remove these 15 measures
(eCQMs, structural, and chartabstracted) from the Hospital IQR
Program for the FY 2019 payment
determination and subsequent years.
We note that STK–4 and VTE–5 are
listed twice—once as an eCQM and
again as a chart-abstracted measure.

MEASURES PROPOSED FOR REMOVAL FOR THE FY 2019 PAYMENT DETERMINATION AND SUBSEQUENT YEARS

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Electronic Clinical Quality Measures
•
•
•
•
•
•
•
•
•
•
•

AMI–2: Aspirin Prescribed at Discharge for AMI (NQF #0142)
AMI–7a: Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival
AMI–10: Statin Prescribed at Discharge
HTN: Healthy Term Newborn (NQF #0716)
PN–6: Initial Antibiotic Selection for Community-Acquired Pneumonia (CAP) in Immunocompetent Patients (NQF #0147)
SCIP-Inf-1a: Prophylactic Antibiotic Received within 1 Hour Prior to Surgical Incision (NQF #0527)
SCIP-Inf-2a: Prophylactic Antibiotic Selection for Surgical Patients (NQF #0528)
SCIP-Inf-9: Urinary Catheter Removed on Postoperative Day 1 (POD1) or Postoperative Day 2 (POD2) with Day of Surgery Being Day Zero
STK–4: Thrombolytic Therapy (NQF #0437)
VTE–3: Venous Thromboembolism Patients with Anticoagulation Overlap Therapy (NQF #0373)
VTE–4: Venous Thromboembolism Patients Receiving Unfractionated Heparin (UFH) with Dosages/Platelet Count Monitoring by Protocol (or
Nomogram)

73 Technical Release Notes: 2015 Annual Update
of 2014 Eligible Hospitals and Eligible Professionals

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Electronic Clinical Quality Measures (eCQMs).
Available at: https://www.cms.gov/Regulations-and-

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MEASURES PROPOSED FOR REMOVAL FOR THE FY 2019 PAYMENT DETERMINATION AND SUBSEQUENT YEARS—
Continued
Electronic Clinical Quality Measures
• VTE–5: Venous Thromboembolism Discharge Instructions
• VTE–6: Incidence of Potentially Preventable VTE *
Structural Measures
• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care
• Participation in a Systematic Clinical Database Registry for General Surgery
Chart-Abstracted Measures
• STK–4: Thrombolytic Therapy (NQF #0437)
• VTE–5: VTE Discharge Instructions
* Retained in chart-abstracted form.

4. Previously Adopted Hospital IQR
Program Measures for the FY 2018 and
FY 2019 Payment Determination and
Subsequent Years
The Hospital IQR Program has
previously finalized 68 measures as
outlined in the table below:

PREVIOUSLY ADOPTED HOSPITAL IQR PROGRAM MEASURES FOR THE FY 2018 PAYMENT DETERMINATION AND
SUBSEQUENT YEARS
Short name

Measure name

NQF #

NHSN
CAUTI ........................................
CDI .............................................
CLABSI ......................................
Colon and Abdominal
Hysterectomy SSI.
HCP ............................................
MRSA Bacteremia .....................

National Healthcare Safety Network (NHSN) Catheter-associated Urinary Tract Infection
(CAUTI) Outcome Measure.
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Clostridium
difficile Infection (CDI) Outcome Measure.
National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream Infection
(CLABSI) Outcome Measure.
American College of Surgeons—Centers for Disease Control and Prevention (ACS–CDC) Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure.
Influenza Vaccination Coverage Among Healthcare Personnel .....................................................
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Methicillinresistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure.

0138
1717
0139
0753
0431
1716

Chart-Abstracted
ED–1 * ........................................
ED–2 * ........................................
Imm-2 .........................................
PC–01 * ......................................
Sepsis ........................................
STK–04 * ....................................
VTE–5 * ......................................
VTE–6 * ......................................

Median Time from ED Arrival to ED Departure for patients Admitted ED Patients .......................
Admit Decision Time to ED Departure Time for Admitted Patients ...............................................
Influenza Immunization ...................................................................................................................
Elective Delivery (Collected in aggregate, submitted via Web-based tool or electronic clinical
quality measure).
Severe Sepsis and Septic Shock: Management Bundle (Composite Measure) ............................
Thrombolytic Therapy .....................................................................................................................
Venous Thromboembolism Discharge Instructions ........................................................................
Incidence of Potentially Preventable Venous Thromboembolism ..................................................

0495
0497
1659
0469
0500
0437
+
+

Claims-Based Outcome

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

MORT–30–AMI ..........................
MORT–30–CABG ......................
MORT–30–COPD ......................
MORT–30–HF ............................
MORT–30–PN ............................
MORT–30–STK ..........................
READM–30–AMI ........................

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Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Myocardial Infarction (AMI) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Heart Failure
(HF) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Pneumonia
Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Ischemic Stroke
Hospital 30-Day All-Cause Risk-Standardized Readmission Rate (RSRR) Following Acute Myocardial Infarction (AMI) Hospitalization.

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25179

PREVIOUSLY ADOPTED HOSPITAL IQR PROGRAM MEASURES FOR THE FY 2018 PAYMENT DETERMINATION AND
SUBSEQUENT YEARS—Continued
Short name

Measure name

READM–30–CABG ....................

Hospital 30-Day, All-Cause, Unplanned, Risk-Standardized Readmission Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) Surgery.
Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Chronic
Obstructive Pulmonary Disease (COPD) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Heart
Failure (HF) Hospitalization.
Hospital-Wide All-Cause Unplanned Readmission Measure (HWR) .............................................
Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Pneumonia Hospitalization.
30-Day Risk Standardized Readmission Rate Following Stroke Hospitalization ...........................
Hospital-Level 30-Day, All-Cause Risk-Standardized Readmission Rate (RSRR) Following
Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA).
Excess Days in Acute Care after Hospitalization for Acute Myocardial Infarction .........................
Excess Days in Acute Care after Hospitalization for Heart Failure ...............................................
Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total
Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA).
Death Rate among Surgical Inpatients with Serious Treatable Complications ..............................
Patient Safety for Selected Indicators (Composite Measure) ........................................................

READM–30–COPD ....................
READM–30–HF .........................
READM–30–HWR ......................
READM–30–PN .........................
READM–30–STK .......................
READM–30–THA/TKA ...............
AMI Excess Days .......................
HF Excess Days ........................
Hip/knee complications ..............
PSI 04 ........................................
PSI 90 ........................................

NQF #
2515
1891
0330
1789
0506
N/A
1551
N/A
N/A
1550
0351
0531

Claims-Based Payment
AMI payment ..............................
HF Payment ...............................
PN Payment ...............................
THA/TKA Payment .....................
MSPB .........................................

Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for
Acute Myocardial Infarction (AMI).
Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care For
Heart Failure (HF).
Hospital-Level, Risk-Standardized Payment Associated with a 30-day Episode-of-Care For
Pneumonia.
Hospital-Level, Risk-Standardized Payment Associated with an Episode-of-Care for Primary
Elective Total Hip Arthroplasty and/or Total Knee Arthroplasty.
Payment-Standardized Medicare Spending Per Beneficiary (MSPB) ............................................

2431
2436
2579
N/A
2158

Electronic Clinical Quality Measures (eCQMs)
AMI–2 .........................................
AMI–7a .......................................
AMI–8a .......................................
AMI–10 .......................................
CAC–3 ........................................
EHDI–1a .....................................
ED–1* .........................................
ED–2 * ........................................
HTN ............................................
PC–01 * ......................................
PC–05 ........................................
PN–6 ..........................................

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

SCIP-Inf-1a ................................
SCIP-Inf-2a ................................
SCIP-Inf-9 ..................................
STK–02 ......................................
STK–03 ......................................
STK–04 * ....................................
STK–05 ......................................
STK–06 ......................................
STK–08 ......................................
STK–10 ......................................
VTE–1 ........................................
VTE–2 ........................................
VTE–3 ........................................
VTE–4 ........................................
VTE–5 * ......................................
VTE–6 * ......................................

Aspirin Prescribed at Discharge for AMI ........................................................................................
Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival .............................................
Primary PCI Received Within 90 Minutes of Hospital Arrival .........................................................
Statin Prescribed at Discharge .......................................................................................................
Home Management Plan of Care Document Given to Patient/Caregiver ......................................
Hearing Screening Prior to Hospital Discharge ..............................................................................
Median Time from ED Arrival to ED Departure for Admitted ED Patients .....................................
Admit Decision Time to ED Departure Time for Admitted Patients ...............................................
Healthy Term Newborn ...................................................................................................................
Elective Delivery (Collected in aggregate, submitted via Web-based tool or electronic clinical
quality measure).
Exclusive Breast Milk Feeding ** ....................................................................................................
Initial Antibiotic Selection for Community-Acquired Pneumonia (CAP) in Immunocompetent Patients.
Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision ................................
Prophylactic Antibiotic Selection for Surgical Patients ...................................................................
Urinary Catheter Removed on Postoperative Day 1 (POD1) or Postoperative Day 2 (POD2)
with Day of Surgery Being Day Zero.
Discharged on Antithrombotic Therapy ..........................................................................................
Anticoagulation Therapy for Atrial Fibrillation/Flutter ......................................................................
Thrombolytic Therapy .....................................................................................................................
Antithrombotic Therapy by the End of Hospital Day Two ..............................................................
Discharged on Statin Medication ....................................................................................................
Stroke Education .............................................................................................................................
Assessed for Rehabilitation ............................................................................................................
Venous Thromboembolism (VTE) Prophylaxis ...............................................................................
Intensive Care Unit Venous Thromboembolism (VTE) Prophylaxis ...............................................
Venous Thromboembolism Patients with Anticoagulation Overlap Therapy .................................
Venous Thromboembolism Patients Receiving Unfractionated Heparin with Dosages/Platelet
Count Monitoring by Protocol (or Nomogram).
Venous Thromboembolism Discharge Instructions ........................................................................
Incidence of Potentially Preventable Venous Thromboembolism ..................................................

0142
+

0163
+
+

1354
0495
0497
0716
0469
0480
0147
0527
0528
+

0435
0436
0437
0438
0439
+

0441
0371
0372
0373
+

+
+

Patient Survey
HCAHPS ....................................

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HCAHPS + 3-Item Care Transition Measure (CTM–3) ..................................................................

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PREVIOUSLY ADOPTED HOSPITAL IQR PROGRAM MEASURES FOR THE FY 2018 PAYMENT DETERMINATION AND
SUBSEQUENT YEARS—Continued
Short name

Measure name

NQF #

Structural
Registry for Nursing Sensitive
Care.
Registry for General Surgery .....
Patient Safety Culture ................
Safe Surgery Checklist ..............

Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care ...................

N/A

Participation in a Systematic Clinical Database Registry for General Surgery ..............................
Hospital Survey on Patient Safety Culture .....................................................................................
Safe Surgery Checklist Use ............................................................................................................

N/A
N/A
N/A

* Measure listed twice, as both chart-abstracted and electronic clinical quality measure.
** Measure name has been shortened. Please refer to annually updated measure specifications on the CMS eCQI Resource Center Page for
further information: https://www.healthit.gov/newsroom/ecqi-resource-center.
+ Endorsement removed.

PREVIOUSLY ADOPTED HOSPITAL IQR PROGRAM MEASURES FOR THE FY 2019 PAYMENT DETERMINATION AND
SUBSEQUENT YEARS
Short name

Measure name

NQF #

Claims-Based Payment
Cellulitis Payment ......................
GI Payment ................................
Kidney/UTI Payment ..................

Cellulitis Clinical Episode-Based Payment Measure ......................................................................
Gastrointestinal Hemorrhage Clinical Episode-Based Payment Measure .....................................
Kidney/Urinary Tract Infection Clinical Episode-Based Payment Measure ....................................

5. Expansion and Updating of Quality
Measures
We refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53510
through 53512) for a discussion of the
considerations we use to expand and
update quality measures under the
Hospital IQR Program. In this proposed
rule, we are not proposing any changes
to these policies.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

6. Proposed Refinements to Existing
Measures in the Hospital IQR Program
We are proposing refinements to two
claims-based measures: (1) PN Payment:
Hospital-Level, Risk-Standardized 30Day Episode-of-Care Payment Measure
for Pneumonia; and (2) PSI 90: Patient
Safety and Adverse Events Composite
(previously known as the Patient Safety
for Selected Indicators Composite
Measure). We discuss these proposed
refinements in more detail below. In
addition, we refer readers to section
VIII.A.9.a. of the preamble of this
proposed rule where we are inviting
public comment on our intent to update
the MORT–30–STK measure to include
the NIH Stroke Scale as a measure of
stroke severity in the risk-adjustment in
future rulemaking.
a. Proposed Expansion of the Cohort for
the PN Payment Measure: HospitalLevel, Risk-Standardized Payment
Associated With a 30-Day Episode-ofCare for Pneumonia (NQF #2579)
(1) Background
For FY 2018 payment determination
and subsequent years, we are proposing

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a refinement of the CMS hospital-level,
risk-standardized payment associated
with a 30-day episode-of-care for
pneumonia (NQF #2579) (PN Payment).
The proposed refinement expands the
measure cohort to align with the
following Hospital IQR Program
measures: (1) Hospital 30-day, AllCause, Risk-Standardized Mortality Rate
(RSMR) Following Pneumonia
Hospitalization (NQF #0468) (MORT–
30–PN); (2) Hospital 30-day, All-Cause,
Risk-Standardized Readmission Rate
(RSRR) Following Pneumonia
Hospitalization (NQF #0506) (READM–
30–PN); and (3) Excess Days in Acute
Care After Hospitalization for
Pneumonia (an improved measure to the
previously developed measure entitled
‘‘30-day Post-Hospital Pneumonia
Discharge Care Transition Composite’’
(NQF #0707) (PN Excess Days).
The expansion of the measure cohort
for the MORT–30–PN and the READM–
30–PN was finalized in the FY 2016
IPPS/LTCH PPS final rule (80 FR 49660)
and is expected to be publicly reported
beginning in July 2016. We refer readers
to section VIII.A.7.b. of the preamble of
this proposed rule where we are
proposing the PN Excess Days measure
for inclusion in the Hospital IQR
Program for FY 2019 payment
determination and subsequent years.
For the purposes of describing the
refinement of this measure, we note that
‘‘cohort’’ is defined as the
hospitalizations, or ‘‘index admissions,’’
that are included in the measure and
evaluated to ascertain the total
payments made on behalf of the

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N/A
N/A

Medicare beneficiary for a 30-day
episode-of-care. The cohort is the set of
hospitalizations that meets all of the
inclusion and exclusion criteria. We are
proposing an expansion to this set of
hospitalizations.
The previously adopted PN Payment
measure (79 FR 50227 through 50231)
includes hospitalizations for patients
with a principal discharge diagnosis of
pneumonia using the International
Classification of Diseases, 9th Edition,
Clinical Modification (ICD–9–CM),
which includes viral and bacterial
pneumonia. For more cohort details on
the measure as currently implemented,
we refer readers to the measure
methodology report, with the measure
risk adjustment statistical model, in the
AMI, HF, PN, and Hip/Knee
Arthroplasty Payment Updates zip file
on our Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/
HospitalQualityInits/MeasureMethodology.html.
This proposed measure refinement
would expand the measure cohort to
include hospitalizations for patients
with a: (1) Principal discharge diagnosis
of pneumonia, including not only viral
or bacterial pneumonia, but also
aspiration pneumonia; and (2) principal
discharge diagnosis of sepsis (but not
severe sepsis) with a secondary
diagnosis of pneumonia (including viral
or bacterial pneumonia and aspiration
pneumonia) coded as present on
admission (POA). This refinement to the
pneumonia cohort was proposed for
several reasons, which were previously

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

discussed in the FY 2016 IPPS/LTCH
PPS final rule for the MORT–30–PN and
READM–30–PN measures (80 FR 49653
through 49660). We believe that refining
this measure is appropriate for the
following reasons. First, recent evidence
has shown an increase in the use of
sepsis as principal discharge diagnosis
codes among patients hospitalized with
pneumonia.74 Pneumonia patients with
this principal diagnosis code were not
included in the original MORT–30–PN
and READM–30–PN measure cohorts,
and including them would better
capture the complete patient population
of a hospital with patients receiving
clinical management and treatment for
pneumonia. In addition, because
patients with a principal diagnosis of
sepsis are not included in the original
MORT–30–PN and READM–30–PN
measure specifications, efforts to
evaluate changes over time in
pneumonia outcomes could be biased as
coding practices change. Lastly, a
published article75 also demonstrated
wide variation in the use of sepsis codes
as principal discharge diagnosis for
pneumonia patients across hospitals,
which can potentially bias efforts to
compare hospital performance on the
MORT–30–PN and READM–30–PN
measures.
The proposal to align the PN Payment
measure cohort with those of the
MORT–30–PN, READM–30–PN, and
proposed PN Excess Days measures
would address the changing coding
patterns in which patients with
pneumonia are increasingly given a
principal discharge diagnosis code of
sepsis in combination with a secondary
discharge diagnosis of pneumonia that
is POA. Moreover, expanding the PN
Payment measure cohort would ensure
that the measure captures the broader
population of patients admitted for
pneumonia that may have been
excluded from the previously adopted
measure. Finally, the expansion of the
cohort for the PN Payment measure
harmonizes the cohort of this measure
with the MORT–30–PN, the READM–
30–PN, and the proposed PN Excess
Days measures.
The proposed PN Payment measure
(MUC15–378), which includes this
expanded measure cohort was included
74 Lindenauer PK, Lagu T, Shieh MS, Pekow PS,
Rothberg MB. Association of diagnostic coding with
trends in hospitalizations and mortality of patients
with pneumonia, 2003–2009. Journal of the
American Medical Association. Apr 4
2012;307(13):1405–1413.
75 Rothberg MB, Pekow PS, Priya A, Lindenauer
PK. Variation in diagnostic coding of patients with
pneumonia and its association with hospital riskstandardized mortality rates: a cross-sectional
analysis. Annals of Internal Medicine. Mar 18
2014;160(6):380–388.

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on a publicly available document
entitled ‘‘2015 Measures Under
Consideration List’’ for December 1,
2015 (available at: http://
www.qualityforum.org/
ProjectMaterials.aspx?projectID=75367)
and has been reviewed by the NQF
Measure Applications Partnership
(MAP) Hospital Workgroup. The revised
measure was conditionally supported
pending the examination of
sociodemographic status (SDS) factors
and NQF review and endorsement of the
measure update, as referenced in the
MAP 2016 Final Recommendations
Report (available at: http://
www.qualityforum.org/map/).76
In regard to MAP stakeholder
concerns that the proposed PN Payment
measure may need to be adjusted for
SDS, we understand the important role
that sociodemographic status plays in
the care of patients. However, we
continue to have concerns about
holding hospitals to different standards
for the outcomes of their patients of
diverse sociodemographic status,
because we do not want to mask
potential disparities or minimize
incentives to improve the outcomes of
disadvantaged populations. We
routinely monitor the impact of
sociodemographic status on hospitals’
results on our measures.
The NQF is currently undertaking a 2year trial period in which new measures
and measures undergoing maintenance
review will be assessed to determine if
risk-adjusting for sociodemographic
factors is appropriate. For 2 years, NQF
will conduct a trial of temporarily
allowing inclusion of sociodemographic
factors in the risk-adjustment approach
for some performance measures. At the
conclusion of the trial, NQF will issue
recommendations on future permanent
inclusion of sociodemographic factors.
During the trial, measure developers are
expected to submit information such as
analyses and interpretations as well as
performance scores with and without
sociodemographic factors in the risk
adjustment model.
Furthermore, the Office of the
Assistant Secretary for Planning and
Evaluation (ASPE) is conducting
research to examine the impact of
sociodemographic status on quality
measures, resource use, and other
measures under the Medicare program
as directed by the IMPACT Act. We will
closely examine the findings of the
ASPE reports and related Secretarial
recommendations and consider how
76 Spreadsheet of MAP 2016 Final
Recommendations Available at: http://
www.qualityforum.org/map/.

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they apply to our quality programs at
such time as they are available.
The refined PN Payment measure will
be submitted to NQF for reendorsement
as part of the next Cost and Resource
Use project which is expected in the
first quarter of 2017. We will work to
minimize any potential confusion when
publicly reporting the updated measure
to ensure that the refined measure
would not be confused with the
originally adopted measure.
(2) Overview of Measure Change
The proposed measure refinement
expands the cohort. As the measure is
currently specified, the cohort includes
hospitalizations for patients with a
principal discharge diagnosis of
pneumonia using the ICD–9–CM, which
includes viral and bacterial pneumonia
(79 FR 50227 through 50231). This
refinement would expand the cohort to
also include hospitalizations for
patients with a: (1) Principal discharge
diagnosis of pneumonia, including not
only viral or bacterial pneumonia, but
also aspiration pneumonia; and (2)
principal discharge diagnosis of sepsis
(but not severe sepsis) with a secondary
diagnosis of pneumonia (including viral
or bacterial pneumonia and aspiration
pneumonia) coded as POA.
For the ICD–9–CM and ICD–10–CM
codes that define the expanded PN
Payment cohort, we refer readers to the
2016 Reevaluation and Re-specifications
Report of the Hospital-Level 30-Day
Risk-Standardized Pneumonia Payment
Measure—Pneumonia Payment Version
3.1 in the AMI, HF, PN, and Hip/Knee
Arthroplasty Payment Updates zip file
on our Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/
HospitalQualityInits/MeasureMethodology.html.
The data sources, exclusion criteria,
assessment of the total payment
outcome, and 3 year reporting period all
remain unchanged.
(3) Risk Adjustment
The statistical modeling approach as
well as the measure calculation remains
unchanged from the previously adopted
measure. The risk adjustment approach
also remains unchanged; however, to
maintain model performance, we
conducted variable reselection, or
reevaluation of the variables used, to
ensure the model risk variables are
appropriate for the discharge diagnoses
included in the expanded cohort.
The previously adopted pneumonia
payment risk-adjustment model

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includes 48 variables.77 As a result of
the variable reselection process, the
revised risk-adjustment model includes
a total of 57 variables—37 of the same
variables that are in the previously
adopted model as well as 20 additional
variables. However, there are 11
variables from the previously adopted
model that are not included in the
revised model. For details on variable
reselection and the full measure
specifications of the proposed change to
the measure, we refer readers to the
2016 Reevaluation and Re-specifications
Report of the Hospital-Level 30-Day
Risk-Standardized Pneumonia Payment
Measure—Pneumonia Payment Version
3.1 in the AMI, HF, PN, and Hip/Knee
Arthroplasty Payment Updates zip file
on our Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/
HospitalQualityInits/MeasureMethodology.html.
(4) Estimated Effects of the Cohort
Expansion
Using administrative claims data for
the FY 2016 payment determination
(which included discharges between
July 2011 and June 2014), we simulated
and analyzed the effects of the proposed
cohort refinements on the PN Payment
measure (NQF #2579) as if these
changes had been applied for FY 2016
payment determination. We note that
these statistics are for illustrative
purposes only, and we are not
proposing to revise measure
calculations for the FY 2016 payment
determination.
In the FY 2010 IPPS/LTCH PPS final
rule (74 FR 43881), we established that
if a hospital has fewer than 25 eligible
cases combined over a measure’s
reporting period, we would replace the
hospital’s data with a footnote
indicating that the number of cases is
too small to reliably determine how well
the hospital is performing. These cases
are still used to calculate the measure;
however, for hospitals with fewer than
25 eligible cases, the hospital’s Risk
Standardization Payment (RSP) and RSP
interval estimates are not publicly
reported for the measure. We refer
readers to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50221), the FY 2012
IPPS/LTCH PPS final rule (76 FR
51641), the FY 2013 IPPS/LTCH PPS
77 Kim N, Ott L, Hsieh A, et al. 2015 ConditionSpecific Measure Updates and Specifications
Report, Hospital-Level 30-Day Risk-Standardized
Payment Measures—Acute Myocardial Infarction
(Version 4.0), Heart Failure (Version 2.0),
Pneumonia (Version 2.0). Available at: https://www.
cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/
Measure-Methodology.html. Accessed Date: March
16, 2016.

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final rule (77 FR 53537), the FY 2014
IPPS/LTCH PPS final rule (78 FR
50819), and the FY 2016 IPPS/LTCH
PPS final rule (80 FR 24588) for details
on our sampling and case thresholds for
the FY 2016 payment determination and
subsequent years. Expanding the
measure cohort to include a broader
population of patients as proposed
would add a large number of patients,
as well as additional hospitals (which
would now meet the minimum
threshold of 25 eligible cases for public
display), to the PN Payment measure
(NQF #2579). The increase in the size of
the measure cohort proposed in this rule
also is estimated to change results for
some hospitals as detailed below.
The previously adopted PN Payment
measure cohort includes 901,764
patients and 4,685 hospitals for the FY
2016 payment determination
(administrative claims from July 2011–
June 2014). We noted the following
effects for the PN Payment measure if
the proposed expanded cohort is
applied for FY 2016 payment
determinations: (1) The cohort would
increase to include an additional
386,143 patients across all hospitals
(creating a total measure cohort size of
1,287,907 patients); (2) an additional 81
hospitals would meet the minimum 25
patient case volume threshold over the
3-year reporting period and, as a result,
would be publicly reported for the
measure; and (3) 31.7 percent of the
refined measure cohort would consist of
patients who fall into the expanded set
of hospitalizations.
The expansion of the cohort leads to
an overall increase in the mean national
payment of $16,116 when compared to
the mean national payment of $14,294
for the previously adopted cohort. This
leads to an increase in the RSP outcome
of $1,822 or 12.7 percent due to the
higher mean payments for patients
added to the cohort. An individual
hospital’s average payment category or
reclassification of outlier status of
‘‘higher than the U.S. national
payment,’’ ‘‘no different than the U.S.
national payment,’’ or ‘‘less than the
U.S. national payment’’ may change as
demonstrated in the 2016 Reevaluation
and Re-specifications Report of the
Hospital-Level 30-Day RiskStandardized Pneumonia Payment
measure—Pneumonia Payment Version
3.1, which can be found in the AMI, HF,
PN, and Hip/Knee Arthroplasty
Payment Updates zip file on our Web
site at: https://www.cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html.
Overall, we estimate that 1.4 percent
of hospitals included in the previously

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adopted measure would change
categorization from greater than average
to average payment, 9.3 percent would
change from average to greater than
average payment, and 8.5 percent would
change from average to less than average
payment. Finally, 1.8 percent of
hospitals would change from less than
average to average payment. Therefore,
there would be an increase in the
number of hospitals considered outliers
and a shift in some hospitals’ outlier
status classification. We reiterate that
these statistics are for illustrative
purposes only, and we are not
proposing to revise measure
calculations for the FY 2016 payment
determination; our proposal would
affect the FY 2018 payment
determination and subsequent years.
A detailed description of the
refinements to the PN Payment measure
(NQF #2579) and the estimated effects
of the change are available in the 2016
Reevaluation and Re-specifications
Report of the Hospital-Level 30-Day
Risk-Standardized Pneumonia Payment
Measure—Pneumonia Payment Version
3.1 in the AMI, HF, PN, and Hip/Knee
Arthroplasty Payment Updates zip file
on our Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/
HospitalQualityInits/MeasureMethodology.html.
We are inviting public comment on
our proposal to refine the HospitalLevel, Risk-Standardized Payment
Associated with a 30-day Episode-ofCare For Pneumonia (NQF #2579) (PN
Payment) measure for the FY 2018
payment determination and subsequent
years as described above.
b. Proposed Adoption of Modified PSI
90: Patient Safety and Adverse Events
Composite Measure (NQF #0531)
(1) Background
We are proposing to adopt
refinements to the Agency for
Healthcare Research and Quality
(AHRQ) Patient Safety and Adverse
Events Composite (NQF #0531) for the
Hospital IQR Program beginning with
the FY 2018 payment determination and
subsequent years. In summary, the PSI
90 measure was refined to reflect the
relative importance and harm associated
with each component indicator to
provide a more reliable and valid signal
of patient safety events. We believe
refining the PSI 90 measure will provide
strong incentives for hospitals to ensure
that patients are not harmed by the
medical care they receive, a critical
consideration in quality improvement.
In the FY 2009 IPPS/LTCH PPS final
rule (73 FR 48607 through 48610), we

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adopted the Complication/Patient Safety
for Selected Indicators Composite
Measure (NQF #0531) in the Hospital
IQR Program beginning with the FY
2010 payment determination as an
important measure of patient safety and
adverse events. In the FY 2015 IPPS/
LTCH PPS final rule, we updated the
title of the measure to Patient Safety for
Selected Indicators Composite Measure
(NQF #0531), to be consistent with the
NQF (79 FR 50211). As previously
adopted, the PSI 90 measure consisted
of eight component indicators: (1) PSI 3
Pressure Ulcer Rate; (2) PSI 6 Iatrogenic
Pneumothorax Rate; (3) PSI 7 Central
Venous Catheter-Related Blood Stream
Infections Rate; (4) PSI 8 Postoperative
Hip Fracture Rate; (5) PSI 12
Perioperative Pulmonary Embolism/
Deep Vein Thrombosis Rate; (6) PSI 13
Postoperative Sepsis Rate; (7) PSI 14
Postoperative Wound Dehiscence Rate;
and (8) PSI 15 Accidental Puncture and
Laceration Rate.78
The currently adopted eight-indicator
version of the measure underwent an
extended NQF maintenance
reendorsement in the 2014 NQF Patient
Safety Committee due to concerns with
the underlying component indicators
and their composite weights. In the
NQF-Endorsed Measures for Patient
Safety, Final Report,79 the NQF Patient
Safety Committee deferred their final
decision for the PSI 90 measure until
the following measure evaluation cycle.
In the meantime, AHRQ worked to
address many of the NQF stakeholders’
concerns about the PSI 90 measure,
which subsequently completed NQF
maintenance re-review and received
reendorsement on December 10, 2015.
The PSI 90 measure’s extended NQF
reendorsement led to several changes to
the measure.80 First, the name of the PSI
90 measure has changed to ‘‘Patient
Safety and Adverse Events Composite’’
(NQF #0531) (herein referred to as the
‘‘modified PSI 90’’). Second, the
modified PSI 90 measure includes the
addition of three indicators: (1) PSI 09
Perioperative Hemorrhage or Hematoma
78 NQF-Endorsed Measures for Patient Safety,
Final Report. Available at: http://
www.qualityforum.org/Publications/2015/01/NQFEndorsed_Measures_for_Patient_Safety,_Final_
Report.aspx.
79 NQF-Endorsed Measures for Patient Safety,
Final Report available at: http://
www.qualityforum.org/Publications/2015/01/NQFEndorsed_Measures_for_Patient_Safety,_Final_
Report.aspx.http://www.qualityforum.org/
Publications/2015/01/NQF-Endorsed_Measures_
for_Patient_Safety,_Final_Report.aspx.
80 National Quality Forum QPS Measure
Description for ‘‘Patient Safety for Selected
Indicators (modified version of PSI90) (Composite
measure)’’ found at: https://www.qualityforum.org/
QPS/MeasureDetails.aspx?standardID=321&
print=0&entityTypeID=3.

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Rate; (2) PSI 10 Physiologic and
Metabolic Derangement Rate; and (3)
PSI 11 Postoperative Respiratory Failure
Rate. Third, PSI 12, Perioperative
Pulmonary Embolism (PE) or Deep Vein
Thrombosis (DVT) Rate, and PSI 15,
Accidental Puncture or Laceration Rate,
have been respecified in the modified
PSI 90 measure. Fourth, PSI 07 Central
Venous Catheter-Related Blood Stream
Infection Rate has been removed in the
modified PSI 90 measure. Fifth, the
weighting of component indicators in
the modified PSI 90 measure is based
not only on the volume of each of the
patient safety and adverse events, but
also the harms associated with the
events. We consider these changes to
the modified PSI 90 measure to be
substantive changes to the measure.
Therefore, we are proposing to adopt
refinements to the PSI 90 measure for
the Hospital IQR Program beginning
with the FY 2018 payment
determination and subsequent years. We
explain the modified PSI 90 measure
more fully below, and also refer readers
to the measure description on the NQF
Web site at: https://
www.qualityforum.org/QPS/
MeasureDetails.aspx?standardID=321&
print=0&entityTypeID=3. We are also
proposing to modify the reporting
periods for FYs 2018 and 2019 payment
determinations and subsequent years as
detailed further below.
We note that the proposed modified
PSI 90 measure (MUC15–604) was
included on a publicly available
document entitled 2015 Measures
Under Consideration for December 1,
2015 81 in compliance with section
1890A(a)(2) of the Act, and was
reviewed by the MAP. The MAP
supported this measure stating that,
‘‘the PSI measures were developed to
identify harmful healthcare related
events that are potentially preventable.
Three additional PSIs have been added
to this updated version of the measure.
PSIs were better linked to important
changes in clinical status with ‘harm
weights’ that are based on diagnoses
that were assigned after the
complication. This is intended to allow
the measure to more accurately reflect
the impact of the events.’’ 82 The
measure received support for inclusion
in the Hospital IQR Program as
referenced in the MAP Final
Recommendations Report.83
81 2015 Measures Under Consideration List
Available at: http://www.qualityforum.org/
ProjectMaterials.aspx?projectID=75367.
82 MAP Final Recommendations. Available at:
http://www.qualityforum.org/map/.
83 MAP Final Recommendations. Available at:
http://www.qualityforum.org/map/.

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(2) Overview of the Measure Changes
First, the name of the PSI 90 measure
has changed from the ‘‘Patient Safety for
Selected Indicators Composite Measure’’
to the ‘‘Patient Safety and Adverse
Events Composite’’ (NQF #0531) to
more accurately capture the indicators
included in the measure.
Second, the PSI 90 measure has
expanded from eight to 10 component
indicators. The modified PSI 90
measure is a weighted average of the
following 10 risk-adjusted and
reliability-adjusted individual
component PSI rates:
• PSI 03 Pressure Ulcer Rate;
• PSI 06 Iatrogenic Pneumothorax
Rate;
• PSI 08 Postoperative Hip Fracture
Rate;
• PSI 09 Postoperative Hemorrhage or
Hematoma Rate; *
• PSI 10 Physiologic and Metabolic
Derangement Rate; *
• PSI 11 Postoperative Respiratory
Failure Rate; *
• PSI 12 Perioperative Pulmonary
Embolism (PE) or Deep Vein
Thrombosis (DVT) Rate;
• PSI 13 Postoperative Sepsis Rate;
• PSI 14 Postoperative Wound
Dehiscence Rate; and
• PSI 15 Accidental Puncture or
Laceration Rate.84
(* Denotes new component for the
modified PSI 90 measure)
As stated above, the modified PSI 90
measure also removed PSI 07 Central
Venous Catheter-Related Blood Stream
Infection Rate, because of potential
overlap with the CLABSI measure (NQF
#0139), which has been included in the
Hospital IQR Program since the FY 2011
IPPS/LTCH PPS final rule (75 FR 50201
through 50202), the HAC Reduction
Program since the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50717), and the
Hospital VBP Program since the FY
2013 IPPS/LTCH PPS final rule (77 FR
53597 through 53598).
In response to stakeholder concerns,
highlighted in the NQF 2014 Patient
Safety Report,85 the modified PSI 90
measure also respecified two
component indicators, PSI 12 and PSI
15. Specifically, for PSI 12 Perioperative
PE or DVT Rate, the NQF received
public comments concerning the
inclusion of: (1) Extracorporeal
membrane oxygenation (ECMO)
procedures in the denominator; and (2)
intra-hospital variability in the
84 http://www.qualityforum.org/QPS/0531.
85 NQF Endorsed Measures for Patient Safety,
Final Report. Available at: http://
www.qualityforum.org/Publications/2015/01/NQFEndorsed_Measures_for_Patient_Safety,_Final_
Report.aspx.

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documentation of calf vein thrombosis
(which has uncertain clinical
significance). As such, the modified PSI
12 component indicator no longer
includes ECMO procedures in the
denominator or isolated deep vein
thrombosis of the calf veins in the
numerator. PSI 15 also was respecified
further to focus on the most serious
intraoperative injuries—those that were
unrecognized until they required a
subsequent reparative procedure. The
modified denominator of PSI 15 now is
limited to discharges with an
abdominal/pelvic operation, rather than
including all medical and surgical
discharges. In addition, to identify
events that are more likely to be
clinically significant and preventable,
the PSI 15 numerator was modified to
require both: (1) A diagnosis of an
accidental puncture and/or laceration;
and (2) an abdominal/pelvic reoperation
one or more days after the index
surgery.
Finally, the NQF Patient Safety
Review Committee raised concerns
about the weighting scheme of the
component indicators. In prior versions
of the measure, the weights of each
component PSI were based solely on
volume (numerator rates). In the
modified PSI 90 measure, the rates of
each component PSI are weighted based
on statistical and empirical analyses of
volume, excess clinical harm associated
with the PSI, and disutility (individual
preference for a health state linked to a
harm, such as death or disability. The
final weight for each component
indicator is the product of harm weights
and volume weights (numerator
weights). Harm weights are calculated
by multiplying empirical estimates of
excess harms associated with the patient
safety event by the utility weights
linked to each of the harms. Excess
harms are estimated using statistical
models comparing patients with a safety
event to those without a safety event in
a Medicare fee-for-service sample.
Volume weights are calculated based on
the number of safety events for the
component indicators in an all-payer
reference population. For more
information on the modified PSI 90
measure and component indicators, we
refer readers to Quality Indicator
Empirical Methods available online at:
www.qualityindicators.ahrq.gov.
(3) Risk Adjustment
The risk adjustment and statistical
modeling approaches of the models
remain unchanged in the modified PSI
90 measure. In summary, the predicted
value for each case is computed using
a modeling approach that includes, but
is not limited to, applying a Generalized

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Estimating Equation (GEE) hierarchical
model (logistic regression with hospital
random effect) and covariates for
gender, age, Modified MS–DRG
(MDRG), Major Diagnostic Category,
transfer in, point of origin not available,
procedure days not available, and
AHRQ comorbidity (COMORB).
The expected rate for each of the
indicators is computed as the sum of the
predicted value for each case divided by
the number of cases for the unit of
analysis of interest (that is, the hospital).
The risk-adjusted rate for each of the
indicators is computed using indirect
standardization as the observed rate
divided by the expected rate, multiplied
by the reference population rate. For
more details about risk adjustment, we
refer readers to: http://
www.qualityindicators.ahrq.gov/
Downloads/Resources/Publications/
2015/Empirical_Methods_2015.pdf. As
stated above, we are not proposing any
changes to the risk adjustment for this
measure.
(4) Proposed Reporting Periods
The PSI 90 measure is a claims-based
measure that has been calculated using
24-months of data. For the FY 2018 and
FY 2019 payment determinations,
measure rates would be calculated using
reporting periods of July 1, 2014
through June 30, 2016 and July 1, 2015
through June 30, 2017, respectively.
However, because hospitals began ICD–
10–CM/PCS implementation on October
1, 2015, these reporting periods for the
FY 2018 and FY 2019 payment
determinations would require using
both ICD–9 and ICD–10 claims data to
calculate measure performance.
Since the ICD–10 transition was
implemented on October 1, 2015, we
have been monitoring our systems, and
so far, claims are processing normally.
The measure steward, AHRQ, has been
reviewing the measure for any potential
issues related to the conversion of
approximately 70,000 ICD–10 coded
operating room procedures 86 (https://
www.cms.gov/icd10manual/fullcode_
cms/P1616.html), which could directly
affect the modified PSI 90 component
indicators. In addition, to meet program
requirements and implementation
schedules, our system would require an
ICD–10 risk-adjusted version of the
AHRQ QI PSI software 87 by December
86 International Classification of Diseases, (ICD–
10–CM/PCS) Transition—Background. Available at:
http://www.cdc.gov/nchs/icd/icd10cm_pcs_
background.htm.
87 The AHRQ QI Software is the software used to
calculate PSIs and the composite measure. More
information is available at: http://
www.qualityindicators.ahrq.gov/Downloads/
Resources/Publications/2015/Empirical_Methods_
2015.pdf.

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2016 for the FY 2018 payment
determination year. At this time, a risk
adjusted ICD–10 version of the modified
PSI 90 Patient Safety and Adverse
Events Composite software is not
expected to be available until late CY
2017.
To address the above issues, we are
proposing to modify the reporting
periods for the FYs 2018 and 2019
payment determinations and beyond.
For the FY 2018 payment
determination, we are proposing to use
a 15-month reporting period spanning
July 1, 2014 through September 30,
2015. The 15-month reporting period
would only apply to the FY 2018
payment determination and would only
use ICD–9 data. For the FY 2019
payment determination, we are
proposing to use a 21-month reporting
period spanning October 1, 2015
through June 30, 2017. The 21-month
reporting period would only apply to
the FY 2019 payment determination and
would only use ICD–10 data. For all
subsequent payment determinations
after FY 2019, we are proposing to use
the standard 24-month reporting period,
which would only use ICD–10 data. In
order to align the modified PSI 90
measure and the use of ICD–9 and ICD–
10 data across CMS hospital quality
programs, we are proposing similar
modifications for FYs 2018 and 2019
payment determinations and beyond in
the HAC Reduction Program, as set forth
in section IV.I.5.b. of the preamble of
this proposed rule, and similar
modifications to the performance period
for the Hospital VBP Program FY 2018
program year, as set forth in section
IV.H.2. of the preamble of this proposed
rule.
Prior to deciding to propose
abbreviated reporting periods for the FY
2018 and FY 2019 payment
determinations, we took several factors
into consideration, including the
recommendations of the measure
steward, the feasibility of using a
combination of ICD–9 and ICD–10 data
without the availability of the
appropriate measure software,
minimizing provider burden, program
implementation timelines, and the
reliability of using shortened reporting
periods, as well as the importance of
continuing to publicly report this
measure. We believe that using a 15month reporting period for the FY 2018
payment determination and a 21-month
reporting period for the FY 2019
payment determination best serves the
need to provide important information
on hospital patient safety and adverse
events by allowing sufficient time to
process the claims data and calculate
the measures, while minimizing

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reporting burden and program
disruption. We will continue to test
ICD–10 data that are submitted in order
to ensure the accuracy of measure
calculations, to monitor and assess the
translation of measure specifications to
ICD–10 as well as potential coding
variation, and to assess any impacts on
measure performance.
We note that a prior reliability
analysis of the PSI 90 measure (not the
modified PSI 90 measure) showed that
the majority of hospitals attain a
moderate or high level of reliability after
a 12-month reporting period.88
Although the modified PSI 90 measure
has undergone substantial changes since
this analysis, we believe that measure
scores would continue to be reliable for
the above proposed reporting periods,
because the NQF, which reendorsed the
modified version, found it to be reliable
using 12 months of data.89 In
establishing the revised reporting
periods for the modified PSI 90
measure, we also relied upon an
analysis by Mathematica Policy
Research, a CMS contractor, which
found that the measure was most
reliable with a 24-month reporting
period and unreliable with a reporting
period of less than 12 months.90
Therefore, we believe that the proposed
abbreviated reporting periods for the
modified PSI 90 measure would
produce reliable data because the
reporting periods are still greater than
12 months.
(5) Proposed Adoption of the Modified
PSI 90 Measure

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In summary, the PSI 90 measure was
revised to reflect the relative importance
and harm associated with each
component indicator to provide a more
reliable and valid signal of patient safety
events. We believe that adopting the
modified PSI 90 measure would
continue to provide strong incentives
for hospitals to ensure that patients are
not harmed by the medical care they
receive, which is a critical consideration
in quality improvement.
88 Mathematica Policy Research (November 2011).
Reporting period and reliability of AHRQ, CMS 30day and HAC Quality Measures—Revised.
Available at: http://www.cms.gov/Medicare/
Quality-Initiatives-Patient-Assessment-Instruments/
hospital-value-based-purchasing/Downloads/
HVBP_Measure_Reliability-.pdf.
89 ‘‘Patient Safety 2015 Final Report’’ is available
at: http://www.qualityforum.org/Publications/2016/
02/Patient_Safety_2015_Final_Report.aspx.
90 Mathematica Policy Research (November 2011).
Reporting period and reliability of AHRQ, CMS 30day and HAC Quality Measures—Revised.
Available at: http://www.cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/
hospital-value-basedpurchasing/Downloads/HVBP_
Measure_Reliability-.pdf.

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We are inviting public comment on
our proposal to adopt the modified PSI
90 measure (NQF #0531) for the
Hospital IQR Program beginning with
the FY 2018 payment determination. We
will continue to use the currently
adopted eight-indicator version of the
PSI 90 measure in the Hospital IQR
Program for FY 2017. We also are
inviting public comment on the
proposals to revise the reporting periods
for this measure as described above: (1)
A 15-month reporting period using only
ICD–9 data for the FY 2018 payment
determination; (2) a 21-month reporting
period using only ICD–10 data for the
FY 2019 payment determination; and (3)
a 24-month reporting period using only
ICD–10 data for the FY 2020 payment
determination and subsequent years.
7. Proposed Additional Hospital IQR
Program Measures for the FY 2019
Payment Determination and Subsequent
Years
We are proposing to add four new
measures to the Hospital IQR Program
for the FY 2019 payment determination
and subsequent years. We are proposing
to adopt three clinical episode-based
payment measures:
• Aortic Aneurysm Procedure
Clinical Episode-Based Payment (AA
Payment) Measure;
• Cholecystectomy and Common
Duct Exploration Clinical EpisodeBased Payment (Chole and CDE
Payment) Measure; and
• Spinal Fusion Clinical EpisodeBased Payment (SFusion Payment)
Measure.
In addition, we are proposing to adopt
one required outcome measure: Excess
Days in Acute Care After
Hospitalization for Pneumonia.
The proposed measures were
included on a publicly available
document entitled ‘‘2015 Measures
Under Consideration’’ 91 in compliance
with section 1890A(a)(2) of the Act, and
they were reviewed by the MAP as
discussed in its MAP Pre-Rulemaking
Report and Spreadsheet of MAP 2016
Final Recommendations.92
Below, we discuss each of the above
measures in more detail.
a. Proposed Adoption of Three Clinical
Episode-Based Payment Measures
(1) Background
Clinical episode-based payment
measures are clinically coherent
91 Measure

Applications Partnership: List of
Measures Under Consideration (MUC) for December
1, 2015. Available at: http://www.qualityforum.org/
ProjectMaterials.aspx?projectID=75367.
92 Spreadsheet of MAP 2016 Final
Recommendations Available at: http://
www.qualityforum.org/map/.

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groupings of healthcare services that can
be used to assess providers’ resource
use. Combined with other clinical
quality measures, they contribute to the
overall picture of providers’ clinical
effectiveness and efficiency. Episodebased performance measurement allows
meaningful comparisons between
providers based on resource use for
certain clinical conditions or
procedures, as noted in the NQF report
for the ‘‘Episode Grouper Evaluation
Criteria’’ project available at: http://
www.qualityforum.org/Publications/
2014/09/Evaluating_Episode_Groupers_
_A_Report_from_the_National_Quality_
Forum.aspx and in various peerreviewed articles.93 We are proposing
three clinical episode-based payment
measures for inclusion in the Hospital
IQR Program beginning with the FY
2019 payment determination: (1) Aortic
Aneurysm Procedure Clinical EpisodeBased Payment (AA Payment) Measure;
(2) Cholecystectomy and Common Duct
Exploration Clinical Episode-Based
Payment (Chole and CDE Payment)
Measure; and (3) Spinal Fusion Clinical
Episode-Based Payment (SFusion
Payment) Measure. The proposed
measures capture Medicare payment for
services related to the episode
procedure and take into account
beneficiaries’ clinical complexity as
well as geographic payment differences.
We are proposing these clinical
episode-based measures to supplement
the Hospital IQR Program’s Medicare
Spending per Beneficiary (MSPB)
Measure. The proposed measures also
support our mission to provide better
healthcare for individuals, better health
for populations, and lower costs for
healthcare. We note that these measures
were reviewed by the MAP and did not
receive support for adoption into the
Hospital IQR Program, as discussed in
its MAP Pre-Rulemaking Report and
Spreadsheet of MAP 2016 Final
Recommendations.94 The result of the
MAP vote for the proposed measures
was as follows: (1) Aortic Aneurysm
Procedure Clinical Episode-Based
Payment Measure: 8 percent support, 32
percent conditional support, and 60
percent do not support; (2)
Cholecystectomy and Common Duct
Exploration Clinical Episode-Based
Payment Measure: 20 percent support,
28 percent conditional support, and 52
percent do not support; and (3) Spinal
93 For example: Hussey, P. S., Sorbero, M.
E.,Mehrotra, A., Liu, H., & Damberg, S. L.: (2009).
Episode-Based Performance Measurement and
Payment: Making It a Reality. Health Affairs, 28(5),
1406–1417. Doi:10.1377/hlthaff.28.5.1406.
94 Spreadsheet of MAP 2016 Final
Recommendations. Available at: http://www.quality
forum.org/map/.

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Fusion Clinical Episode-Based Payment
Measure: 16 percent support, 36 percent
conditional support, and 48 percent do
not support. MAP stakeholders
expressed concerns that the proposed
measures: (1) Overlap with the Medicare
Spending per Beneficiary (MSPB)
Measure; 95 (2) are not NQF-endorsed;
(3) may need to be adjusted for
sociodemographic status (SDS); and (4)
fail to link outcomes to quality because
they do not reflect appropriateness of
care.
In response to MAP stakeholder
concerns that the clinical episode-based
payment measures overlap with the
MSPB measure, we note that unlike the
overall MSPB measure, the clinical
episode-based payment measures assess
payment variation at the procedure level
and only include services that are
clinically related to the named episode
procedure (for example, the spinal
fusion measure includes inpatient
admissions for ‘‘medical back
problems’’ that occur following the
initial spinal fusion procedure since the
admission is likely a result of
complications from the initial
procedure).
With respect to MAP stakeholder
concerns that the clinical episode-based
payment measures are not NQFendorsed, section 1886(b)(3)(B)(IX)(bb)
of the Act provides that in the case of
a specified area or medical topic
determined appropriate by the Secretary
for which a feasible and practical
measure has not been endorsed by the
entity with a contract under section
1890(a) of the Act, the Secretary may
specify a measure that is not so
endorsed as long as due consideration is
given to measures that have been
endorsed or adopted by a consensus
organization identified by the Secretary.
We considered other existing measures
related to payment that have been
endorsed by the NQF and other
consensus organizations, but we were
unable to identify any NQF-endorsed (or
other consensus organization endorsed)
payment measures that assess the aortic
aneurysm procedure, cholecystectomy
and common duct exploration, or spinal
fusion. However, these proposed
clinical episode-based payment
measures will be submitted to NQF for
endorsement as part of the next Cost
and Resource Use project.
In regard to MAP stakeholder
concerns that the clinical episode-based
payment measures may need to be
95 MSPB measure specifications can be found in
the ‘‘Medicare Spending Per Beneficiary (MSPB)
Measure Overview,’’ available at: http://www.
qualitynet.org/dcs/ContentServer?c=Page&
pagename=QnetPublic%2FPage%2FQnetTier3&
cid=1228772053996.

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adjusted for SDS, we refer readers to
section VIII.A.6.a.(1) of the preamble of
this proposed rule for a discussion of
our policy on SDS factors. Finally,
regarding MAP stakeholder concerns
that the clinical episode-based payment
measures fail to link outcomes to quality
because they do not reflect
appropriateness of care, we believe that
the proposed measures cover topics of
critical importance to quality in the
inpatient hospital setting. 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.
While we recognize that high or low
payments to hospitals are difficult to
interpret in isolation, high payments for
services may implicitly be associated
with poor quality of care (for example,
preventable readmissions, procedure
complications, or emergency room
usage).
Although the MAP did not support
inclusion of these clinical episode-based
payment measures in the Hospital IQR
Program,96 stakeholders have requested
to have more condition-specific and
procedure-specific measures, similar to
the MSPB measure included in the
Hospital IQR Program, as described in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51623). We believe that
including condition- and procedurespecific payment measures will provide
hospitals with actionable feedback that
will better equip them to implement
targeted improvements in comparison to
an overall payment measure alone.
Further, we believe that supplementing
the MSPB measure with conditionspecific and procedure-specific
measures will provide both overall
hospital-level and detailed information
on high-cost and high-prevalence
conditions and procedures to better
inform their future spending plans.
Moreover, the payment measures will
help consumers and other payers and
providers identify hospitals involved in
the provision of efficient care for certain
procedures.
The three procedures selected for the
clinical episode-based payment
measures were chosen based on the
following criteria: (1) The condition
constitutes a significant share of
Medicare payments and potential
savings for hospitalized patients during
and surrounding a hospital stay; (2)
96 Spreadsheet of MAP 2016 Final
Recommendations. Available at: http://
www.qualityforum.org/map/.

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there was a high degree of agreement
among clinical experts consulted for
this project that standardized Medicare
payments for services provided during
this episode can be linked to the care
provided during the hospitalization; (3)
episodes of care for the condition are
comprised of a substantial proportion of
payments and potential savings for postacute care, indicating episode payment
differences are driven by utilization
outside of the MS–DRG payment; (4)
episodes of care for the condition reflect
high variation in post discharge
payments, enabling differentiation
among hospitals; and (5) the medical
condition is managed by general
medicine physicians or hospitalists and
the surgical conditions are managed by
surgical subspecialists, enabling
comparison between similar
practitioners. These selection criteria
were also used for the three clinical
episode-based payment measures
finalized in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49664 through
49665).
The measures follow the general
construction of episode-based measures
previously adopted in the Hospital IQR
Program: The NQF-endorsed MSPB
measure finalized in the FY 2012 IPPS/
LTCH PPS final rule for the Hospital
IQR Program (76 FR 51626 through
74529); and the three clinical episodebased payment measures for kidney/
UTI, cellulitis, and gastrointestinal
hemorrhage finalized in the FY 2016
IPPS/LTCH PPS final rule (80 FR
49674). Similar to these previously
adopted measures, the proposed
measures include standardized
payments for Medicare Part A and Part
B services and are risk adjusted for
individual patient characteristics and
other factors (for example, the MS–DRG
of the index inpatient stay). However,
unlike the MSPB measure, the clinical
episode-based payment measures only
include Medicare Part A and Part B
services that are clinically related to the
named episode procedure. The clinical
episode-based payment measures are
price-standardized, risk-adjusted ratios
that compare a provider’s resource use
against the resource use of other
providers within a reporting period (that
is, the measure calculation includes
eligible episodes occurring within a 1year timeframe). Similar to the MSPB
measure though, the ratio allows for
ease of comparison over time as it
obviates the need to adjust for inflation.
Each clinical episode-based payment
measure is calculated as the ratio of the
Episode Amount for each provider
divided by the episode-weighted
median Episode Amount across all
providers. To calculate the Episode

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Amount for each provider, one
calculates the average of the ratio of the
observed episode payment over the
expected episode payment (as predicted
in risk adjustment), and then multiplies
this quantity by the average observed

episode payment level across all
providers nationally. The denominator
for a provider’s measure is the episode
weighted national median 97 of Episode
Amounts across all providers. A clinical
episode-based payment measure of less

than 1 indicates that a given provider’s
resource use is less than that of the
national median provider during a
reporting period. Mathematically, this is
represented in equation (A) below.

Where:
Oij = observed episode payment for episode
i in provider j,
Eij = expected episode payment for episode
i in provider j,
Oi∈I = average observed episode payment
across all episodes i nationally, and
nj = total number of episodes for provider j.

percentile to approximately $62,000 at
the 95th percentile—that is partially
driven by variation in postdischarge
payment clinically-related to the
inpatient hospitalization.98 These
clinically-related postdischarge
payments may be an indicator of the
quality of care provided during the
hospitalization. Specifically, higher
quality hospital treatment may yield
lower postdischarge payment.

performed during the index hospital
stay.

(b) Overview of Measure

(a) Background
Inpatient hospital stays and
associated services assessed by the
proposed Aortic Aneurysm Procedure
Clinical Episode-Based Payment (AA
Payment) measure have high payments
with substantial variation. In CY 2014,
Medicare FFS beneficiaries experienced
more than 22,000 aortic aneurysm
procedure episodes triggered by related
inpatient stays. Payment-standardized,
risk-adjusted episode payment for these
episodes (payment for the
hospitalization plus payment for
clinically related services in the episode
window) totaled nearly $760 million in
CY 2014, with a mean episode payment
of over $33,000. There is substantial
variation in aortic aneurysm procedure
episode payment—ranging from
approximately $21,000 at the 5th

The proposed AA Payment measure
includes the set of medical services
related to a hospital admission for an
aortic aneurysm procedure, including
treatment, follow-up, and postacute
care. The measure includes two clinical
subtypes: (1) Abdominal Aortic
Aneurysm Procedure; and (2) Thoracic
Aortic Aneurysm Procedure. Clinical
subtypes are included in the measure
construction to distinguish relatively
homogeneous subpopulations of
patients whose health conditions
significantly influence the form of
treatment and the expected postdischarge outcomes and risks. The risk
adjustment model is estimated
separately for each clinical subtype,
such that the measure compares
observed spending for an episode of a
given clinical subtype only to expected
spending among episodes of that
subtype. This measure, like the NQFendorsed MSPB measure (NQF #2158),
assesses the payment for services
initiated during an episode that spans
the period immediately prior to, during,
and following a beneficiary’s hospital
stay (the ‘‘episode window’’, discussed
in more detail below). In contrast to the
MSPB measure, however, this proposed
measure includes Medicare payments
for services during the episode window
only if they are clinically related to the
aortic aneurysm procedure that was

97 Example of episode weighted median: If there
are 2 hospitals and one hospital had an measure
score of 1.5 and another had one of 0.5, but the first

had 4 episodes and the second only 1, then the
episode-weighted median would be 1.5 (that is, 0.5,
1.5, 1.5, 1.5, 1.5).

(2) Proposed Aortic Aneurysm
Procedure Clinical Episode-Based
Payment (AA Payment) Measure

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(c) Data Sources
The proposed AA Payment measure is
a claims-based measure. It uses Part A
and Part B Medicare administrative
claims data from Medicare FFS
beneficiaries hospitalized for an aortic
aneurysm procedure. The reporting
period for the measure is 1 year (that is,
the measure calculation includes
eligible episodes occurring within a 1year timeframe). For example, for the FY
2019 payment determination, the
reporting period would be CY 2017.
(d) Measure Calculation
The proposed AA Payment measure
sums the Medicare payment amounts
for clinically related Part A and Part B
services provided during the episode
window and attributes them to the
hospital at which the index hospital
stay occurred. Medicare payments
included in this episode-based measure
are standardized and risk-adjusted.
Similar to the MSPB measure’s
construction, this measure is expressed
as a risk-adjusted ratio, which allows for
ease of comparison over time, without
the need to adjust for inflation. The
numerator is the Episode Amount,
calculated as the average of the ratios of
the observed episode payment over the
expected episode payment (as predicted
in risk adjustment), multiplied by the
average observed episode payment level
across all providers nationally. The
denominator for a provider’s measure is
the episode weighted national median
of Episode Amounts across all
providers. An aortic aneurysm
procedure episode begins 3 days prior to
the initial (index) admission and
extends 30 days following the discharge
from the index hospital stay. For
detailed measure specifications, we
refer readers to the clinical episode98 Statistics based on Acumen’s testing of episode
definition on Medicare FFS population using
Medicare Parts A and B claims.

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Each of the three measures we are
proposing is described further below,
followed by explanations of payment
standardization and risk adjustment. For
detailed measure specifications, we
refer readers to the clinical episodebased payment measures report entitled,
‘‘Measure Specifications: Hospital
Clinical Episode-Based Payment
Measures for Aortic Aneurysm
Procedure, Cholecystectomy and
Common Duct Exploration, and Spinal
Fusion’’ available at: http://
www.qualitynet.org > Hospital-Inpatient
> Claims-Based Measures > EpisodeBased Payment Measures.

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based payment measures report entitled,
‘‘Measure Specifications: Hospital
Clinical Episode-Based Payment
Measures for Aortic Aneurysm
Procedure, Cholecystectomy and
Common Duct Exploration, and Spinal
Fusion’’ and available at: http://
www.qualitynet.org > Hospital-Inpatient
> Claims-Based Measures > EpisodeBased Payment Measures.
(e) Cohort
The proposed AA Payment measure
cohort includes Medicare FFS
beneficiaries hospitalized for an aortic
aneurysm procedure. Measure
exclusions are discussed in more detail
in section VIII.A.7.a.(5) of the preamble
of this proposed rule.
We are inviting public comment on
our proposal to adopt the Aortic
Aneurysm Procedure Clinical EpisodeBased Payment (AA Payment) measure
to the Hospital IQR Program measure set
for the FY 2019 payment determination
and subsequent years as discussed in
this section.
(3) Proposed Cholecystectomy and
Common Duct Exploration Clinical
Episode-Based Payment (Chole and CDE
Payment) Measure

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(a) Background
Inpatient hospital stays and
associated services assessed by the
proposed Cholecystectomy and
Common Duct Exploration Clinical
Episode-Based Payment (Chole and CDE
Payment) measure have high payments
with substantial variation. In CY 2014,
Medicare FFS beneficiaries experienced
more than 48,000 cholecystectomy and
common duct exploration episodes
triggered by related inpatient stays.
Payment-standardized, risk-adjusted
episode payment for these episodes
(payment for the hospitalization plus
the payment for clinically related
services in the episode window) totaled
nearly $690 million in CY 2014, with a
mean episode payment of over $14,000.
There is substantial variation in
cholecystectomy and common duct
exploration episode payment—ranging
from approximately $11,000 at the 5th
percentile to approximately $22,000 at
the 95th percentile—that is partially
driven by variation in postdischarge
payment clinically-related to the
inpatient hospitalization.99 These
clinically-related postdischarge
payments may be an indicator of the
quality of care provided during the
hospitalization. Specifically, higher
99 Statistics based on Acumen’s testing of episode
definition on Medicare FFS population using
Medicare Parts A and B claims.

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quality hospital treatment may yield
lower postdischarge payment.
(b) Overview of Measure
The proposed Chole and CDE
Payment measure includes the set of
medical services related to a hospital
admission for a cholecystectomy and
common duct exploration, including
treatment, follow-up, and postacute
care. This measure, like the NQFendorsed MSPB measure (NQF #2158),
assesses the payment for services
initiated during an episode that spans
the period immediately prior to, during,
and following a beneficiary’s hospital
stay (the ‘‘episode window’’, discussed
in more detail below). In contrast to the
MSPB measure, however, this measure
includes Medicare payments for
services during the episode window
only if they are clinically related to the
cholecystectomy and common duct
exploration that was performed during
the index hospital stay.
(c) Data Sources
The proposed Chole and CDE
Payment measure is a claims-based
measure. It uses Part A and Part B
Medicare administrative claims data
from Medicare FFS beneficiaries
hospitalized for a cholecystectomy and
common duct exploration. The
reporting period for the measure is 1
year (that is, the measure calculation
includes eligible episodes occurring
within a 1-year timeframe). For
example, for the FY 2019 payment
determination, the reporting period
would be CY 2017.
(d) Measure Calculation
The proposed Chole and CDE
Payment measure sums the Medicare
payment amounts for clinically related
Part A and Part B services provided
during the episode window and
attributes them to the hospital at which
the index hospital stay occurred.
Medicare payments included in this
episode-based measure are standardized
and risk-adjusted. Similar to the MSPB
measure’s construction, this measure is
expressed as a risk-adjusted ratio, which
allows for ease of comparison over time,
without need to adjust for inflation. The
numerator is the Episode Amount,
calculated as the average of the ratios of
the observed episode payment over the
expected episode payment (as predicted
in risk adjustment), multiplied by the
average observed episode payment level
across all providers nationally. The
denominator for a provider’s measure is
the episode weighted national median
of Episode Amounts across all
providers. A cholecystectomy and
common duct exploration episode

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begins 3 days prior to the initial (index)
admission and extends 30 days
following the discharge from the index
hospital stay. For detailed measure
specifications, we refer readers to the
clinical episode-based payment
measures report entitled, ‘‘Measure
Specifications: Hospital Clinical
Episode-Based Payment Measures for
Aortic Aneurysm Procedure,
Cholecystectomy and Common Duct
Exploration, and Spinal Fusion’’ and
available at: http://www.qualitynet.org >
Hospital-Inpatient > Claims-Based
Measures > Episode-Based Payment
Measures.
(e) Cohort
The proposed Chole and CDE
Payment measure cohort includes
Medicare FFS beneficiaries hospitalized
for cholecystectomy and common duct
exploration. Measure exclusions are
discussed in more detail in section
VIII.A.7.a.(5) of the preamble of this
proposed rule below.
We are inviting public comment on
our proposal to adopt the
Cholecystectomy and Common Duct
Exploration Clinical Episode-Based
Payment (Chole and CDE Payment)
measure to the Hospital IQR Program
measure set for the FY 2019 payment
determination and subsequent years as
discussed in this section.
(4) Proposed Spinal Fusion Clinical
Episode-Based Payment (SFusion
Payment) Measure
(a) Background
Inpatient hospital stays and
associated services assessed by the
proposed Spinal Fusion Clinical
Episode-Based Payment (SFusion
Payment) measure have high payments
with substantial variation. In CY 2014,
Medicare FFS beneficiaries experienced
nearly 60,000 spinal fusion episodes
triggered by related inpatient stays.
Payment-standardized, risk-adjusted
episode payment for these episodes
(payment for the hospitalization plus
the payment for clinically related
services in the episode window) totaled
over $2 billion in CY 2014, with a mean
episode payment of over $35,000. There
is substantial variation in spinal fusion
episode payment—ranging from
approximately $27,000 at the 5th
percentile to approximately $56,000 at
the 95th percentile—that is partially
driven by variation in postdischarge
payment clinically-related to the
inpatient hospitalization.100 These
clinically-related postdischarge
100 Statistics based on Acumen’s testing of
episode definition on Medicare FFS population
using Medicare Parts A and B claims.

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payments may be an indicator of the
quality of care provided during the
hospitalization. Specifically, higher
quality hospital treatment may yield
lower postdischarge payment.
(b) Overview of Measure
The proposed SFusion Payment
measure includes the set of medical
services related to a hospital admission
for a spinal fusion, including treatment,
follow-up, and postacute care. The
measure includes five clinical subtypes:
(1) Anterior Fusion—Single; (2) Anterior
Fusion—2 Levels; (3) Posterior/
Posterior-Lateral Approach Fusion—
Single; (4) Posterior/Posterior-Lateral
Approach Fusion—2 or 3 Levels; and (5)
Combined Fusions. The clinical
subtypes are included in the measure
construction to distinguish relatively
homogeneous subpopulations of
patients whose health conditions
significantly influence the form of
treatment and the expected outcomes
and risks. The risk adjustment model is
estimated separately for each clinical
subtype, such that the measure
compares observed spending for an
episode of a given clinical subtype only
to expected spending among episodes of
that subtype. A similar measure, the
Lumbar Spinal Fusion/Refusion Clinical
Episode-Based Payment Measure, was
proposed for inclusion in the Hospital
IQR Program in the FY 2016 IPPS/LTCH
PPS proposed rule (80 FR 24570–
24571). Based on public comment
regarding the heterogeneity of the spinal
fusion patient population, we decided
not to finalize the measure for the
Hospital IQR Program at that time (80
FR 49668 through 49674). We have
since refined the measure by including
more granular subtypes of fusions of the
lumbar spine to create more
homogenous patient cohorts.
This proposed measure, like the NQFendorsed MSPB measure (NQF #2158),
assesses the payment for services
initiated during an episode that spans
the period immediately prior to, during,
and following a beneficiary’s hospital
stay (the ‘‘episode window’’, discussed
in more detail below). In contrast to the
MSPB measure, however, this measure
includes Medicare payments for
services during the episode window
only if they are clinically related to the
spinal fusion procedure that was
performed during the index hospital
stay.
(c) Data Sources
The proposed SFusion Payment
measure is a claims-based measure. It
uses Part A and Part B Medicare
administrative claims data from
Medicare FFS beneficiaries hospitalized

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for spinal fusion. The reporting period
for the measure is 1 year (that is, the
measure calculation includes eligible
episodes occurring within a 1-year
timeframe). For example, for the FY
2019 payment determination, the
reporting period would be CY 2017.
(d) Measure Calculation
The proposed SFusion Payment
measure sums the Medicare payment
amounts for clinically related Part A
and Part B services provided during the
episode window and attributes them to
the hospital at which the index hospital
stay occurred. Medicare payments
included in this episode-based measure
are standardized and risk-adjusted.
Similar to the MSPB measure’s
construction, this measure is expressed
as a risk-adjusted ratio, which allows for
ease of comparison over time, without
need to adjust for inflation. The
numerator is the Episode Amount,
calculated as the average of the ratios of
the observed episode payment over the
expected episode payment (as predicted
in risk adjustment), multiplied by the
average observed episode payment level
across all providers nationally. The
denominator for a provider’s measure is
the episode weighted national median
of Episode Amounts across all
providers. A spinal fusion episode
begins 3 days prior to the initial (index)
admission and extends 30 days
following the discharge from the index
hospital stay.
For detailed measure specifications,
we refer readers to the clinical episodebased payment measures report entitled,
‘‘Measure Specifications: Hospital
Clinical Episode-Based Payment
Measures for Aortic Aneurysm
Procedure, Cholecystectomy and
Common Duct Exploration, and Spinal
Fusion’’ available at: http://
www.qualitynet.org > Hospital-Inpatient
> Claims-Based Measures > EpisodeBased Payment Measures.
(e) Cohort

Frm 00245

(5) Exclusion Criteria
For a full list of the MS–DRG,
procedure, and diagnosis codes used to
identify beneficiaries included in the
final cohort for each of the proposed
episode-based payment measures, we
refer readers to the report entitled,
‘‘Measure Specifications: Hospital
Clinical Episode-Based Payment
Measures for Aortic Aneurysm
Procedure, Cholecystectomy and
Common Duct Exploration, and Spinal
Fusion’’ available at: http://
www.qualitynet.org > Hospital-Inpatient
> Claims-Based Measures > EpisodeBased Payment Measures.
Episodes for beneficiaries that meet
any of the following criteria are
excluded from all three measures: (1)
Lack of continuous enrollment in
Medicare Part A and Part B from 90
days prior to the episode through the
end of the episode with traditional
Medicare fee-for-service as the primary
payer; (2) Death date during episode
window; or (3) Enrollment in Medicare
Advantage anytime from 90 days prior
to the episode through the end of the
episode.
In addition, claims that meet any of
the following criteria do not trigger, or
open, an episode for all three measures:
(1) Claims with data coding errors,
including missing date of birth or death
dates preceding the date of the trigger
event; (2) Claims with standardized
payment ≤ 0; (3) Admissions to
hospitals that Medicare does not
reimburse through the IPPS system (for
example, cancer hospitals, critical
access hospitals, hospitals in Maryland);
or (4) Transfers (by which a transfer is
defined based on the claim discharge
code) are not considered index
admissions. In other words, these cases
do not generate new episodes; neither
the hospital that transfers a patient to
another hospital, nor the receiving
hospital will have an index admission
or associated admission attributed to
them.
(6) Standardization

The proposed SFusion Payment
measure cohort includes Medicare FFS
beneficiaries hospitalized for spinal
fusion. Measure exclusions are
discussed in more detail in section
VIII.A.7.a.(5) of the preamble of this
proposed rule below.
We are inviting public comment on
our proposal to adopt the Spinal Fusion
Clinical Episode-Based Payment
(SFusion Payment) measure to the
Hospital IQR Program measure set for
the FY 2019 payment determination and
subsequent years as discussed in this
section.

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Standardization, or payment
standardization, is the process of
adjusting the allowed charge for a
Medicare service to facilitate
comparisons of resource use across
geographic areas. Medicare payments
included in these proposed episodebased measures would be standardized
according to the standardization
methodology previously finalized for
the MSPB measure in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51627). The
methodology removes geographic
payment differences, such as wage
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index, incentive payment adjustments,
and other add-on payments that support
broader Medicare program goals, such
as add-on payments for indirect
graduate medical education (IME) and
add-ons for serving a disproportionate
share of uninsured patients.101
(7) Risk Adjustment
Risk adjustment uses patient claims
history to account for case-mix variation
and other factors. The steps used to
calculate risk-adjusted payments align
with the NQF-endorsed MSPB measure
(NQF #2158) method as specified in the
FY 2012 IPPS/LTCH PPS final rule (76
FR 51624 through 51626). For more
details on the specifications for the risk
adjustment employed in the proposed
episode-based payment measures, we
refer readers to the report entitled,
‘‘Measure Specifications: Hospital
Clinical Episode-Based Payment
Measures for Aortic Aneurysm
Procedure, Cholecystectomy and
Common Duct Exploration, and Spinal
Fusion’’ available at: http://
www.qualitynet.org > Hospital-Inpatient
> Claims-Based Measures > EpisodeBased Payment Measures.
We are inviting public comment on
our proposals to add three clinical
episode-based payment measures as
stated above for the FY 2019 payment
determination and subsequent years.
b. Proposed Adoption of Excess Days in
Acute Care After Hospitalization for
Pneumonia (PN Excess Days) Measure

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

(1) Background
Pneumonia is a priority area for
outcomes measurement because it is a
common condition associated with
considerable morbidity, mortality, and
healthcare spending. Pneumonia was
the third most common principal
discharge diagnosis among patients with
Medicare in 2011.102 Pneumonia also
accounts for a large fraction of
hospitalization costs, and it was the
seventh most expensive condition billed
to Medicare, accounting for 3.7 percent
of the total national costs for all
Medicare hospitalizations in 2011.103
Some of the costs for pneumonia can
be attributed to high acute care
101 An overview of payment standardization can
be found in the ‘‘CMS Price (Payment)
Standardization—Basics’’ document available at:
http://www.qualitynet.org/dcs/ContentServer?c=
Page&pagename=QnetPublic%2FPages
%2FQnetTier4&cid=1228772057350.
102 Agency for Healthcare Research and Quality
(AHRQ). Healthcare Cost and Utilization Project
(HCUP) http://hcupnet.ahrq.gov/.
103 Torio CM, Andrews RM. National Inpatient
Hospital Costs: The Most Expensive Conditions by
Payer, 2011. HCUP Statistical Brief #160. 2013;
http://hcup-us.ahrq.gov/reports/statbriefs/
sb160.jsp.

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utilization for post-discharge
pneumonia patients in the form of
readmissions, observation stays, and
emergency department (ED) visits.
Patients admitted for pneumonia have
disproportionately high readmission
rates, and that readmission rates
following discharge for pneumonia are
highly variable across hospitals in the
United States.104 105
For the previously adopted Hospital
IQR Program measure, Hospital 30-Day
All-Cause Risk-Standardized
Readmission Rate (RSRR) following
Pneumonia Hospitalization (NQF
#0506) (hereinafter referred to as
READM–30–PN) (80 FR 49654 through
49660), publicly reported 30-day riskstandardized readmission rates for
pneumonia ranged from 12.9 percent to
24.8 percent for the time period between
July 2012 and June 2015.106 However,
during the post-discharge period,
patients are not only at risk of requiring
readmission. Emergency Department
(ED) visits represent a significant
proportion of post-discharge acute care
utilization. Two recent studies
conducted in patients of all ages have
shown that 9.5 percent of patients
return to the ED within 30 days of
hospital discharge and approximately
12 percent of these patients are
discharged from the ED, and thus are
not captured by the READM–30–PN
Measure.107 108
In addition, over the past decade, the
use of observation stays has rapidly
increased. Specifically, between 2001
and 2008, the use of observation
services increased nearly three-fold,109
and significant variation has been
demonstrated in the use of observation
services.
104 Lindenauer PK, Bernheim SM, Grady JN, et al.
The performance of US hospitals as reflected in
risk-standardized 30-day mortality and readmission
rates for medicare beneficiaries with pneumonia. J
Hosp Med. 2010;5(6):E12–18.
105 Dharmarajan K, Hsieh AF, Lin Z, et al.
Hospital readmission performance and patterns of
readmission: retrospective cohort study of Medicare
admissions. BMJ. 2013;347:f6571.
106 Dorsey K, Grady J, Desai N, Lindenauer P, et
al. 2016 Condition-Specific Measures Updates and
Specifications Report: Hospital-Level RiskStandardized Readmission Measures for Acute
Myocardial Infarction, Heart Failure, and
Pneumonia. 2016.
107 Rising KL, White LF, Fernandez WG, Boutwell
AE.: Emergency Department Visits After Hospital
Discharge: A Missing Part of the Equation. Annals
of Emergency Medicine. 2013(0).
108 Vashi AA, Fox JP, Carr BG, et al.: Use of
hospital-based acute care among patients recently
discharged from the hospital. JAMA: the journal of
the American Medical Association. Jan 23
2013;309(4):364–371.
109 Venkatesh AK GB, Gibson Chambers JJ, Baugh
CW, Bohan JS, Schuur JD. Use of Observation Care
in US Emergency Departments, 2001 to 2008. PLoS
One. September 2011;6(9):e24326.

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Thus, in the context of the previously
adopted and publicly reported READM–
30–PN measure, the increasing use of
ED visits and observation stays has
raised concerns that the READM–30–PN
measure does not capture the full range
of unplanned acute care in the postdischarge period. In particular, some
policymakers and stakeholders have
expressed concern that high use of
observation stays in some cases could
replace readmissions, and hospitals
with high rates of observation stays in
the post-discharge period may therefore
have low readmission rates that do not
more fully reflect the quality of care.110
In response to these concerns, we
improved on a previously developed
measure, which is not currently part of
the Hospital IQR Program measure set,
titled, ‘‘30-Day Post-Hospital
Pneumonia Discharge Care Transition
Composite’’ (NQF #0707—NQF
endorsement removed). The improved
measure entitled Excess Days in Acute
Care after Hospitalization for
Pneumonia (PN Excess Days) is a riskadjusted outcome measure for
pneumonia that incorporates the full
range of acute care use that patients may
experience post-discharge: Hospital
readmissions, observation stays, and ED
visits. We are proposing this PN Excess
Days measure for inclusion in the
Hospital IQR Program for the FY 2019
payment determination and subsequent
years.
The proposed PN Excess Days
measure assesses all-cause acute care
utilization for post-discharge
pneumonia patients for several reasons.
First, from the patient perspective, acute
care utilization for any cause is
undesirable. It is costly, exposes
patients to additional risks of medical
care, interferes with work and family
care, and imposes significant burden on
caregivers. Second, limiting the measure
to inpatient utilization may make it
susceptible to gaming. Finally, this
measure includes all-cause acute care
utilization because it is often hard to
exclude quality concerns and
accountability based on the documented
cause of a hospital visit.
Although the original measure was
NQF-endorsed, this improved measure
has not yet been NQF-endorsed. Section
1886(b)(3)(B)(IX)(bb) of the Act provides
that in the case of a specified area or
medical topic determined appropriate
by the Secretary for which a feasible and
practical measure has not been endorsed
by the entity with a contract under
section 1890(a) of the Act, the Secretary
110 Carlson J. Readmissions are down, but
observational-status patients are up and that could
skew Medicare numbers. Modern Healthcare. 2013.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
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.
While we considered other existing
measures related to care transitions and
post-discharge acute care utilization that
have been endorsed by NQF or other
consensus organizations, but we were
unable to identify any NQF-endorsed (or
other consensus organization endorsed)
measures that assess the full range of
post-discharge acute care use that
patients may experience. Existing
process measures capture many
important domains of care transitions
such as education, medication
reconciliation, and follow-up, but all
require chart review and manual
abstraction. Existing outcome measures
are focused entirely on readmissions or
complications and do not include
observation stays or ED visits. We are
not aware of any other measures that
assess the quality of transitional care by
measuring 30-day risk-standardized
days in acute care (hospital
readmissions, observation stays, and ED
visits) following hospitalization for
pneumonia that have been endorsed or
adopted by a consensus organization,
and we have not found any other
feasible and practical measures on this
topic. However, we note that this
measure has been submitted to NQF for
endorsement proceedings as part of the
All-Cause Admissions and
Readmissions project in January 2016.
The proposed PN Excess Days
measure was developed in conjunction
with the previously adopted Hospital
IQR Program measures, Excess Days in
Acute Care after Hospitalization for
Acute Myocardial Infarction (AMI
Excess Days) (80 FR 49690) and
Hospital 30-Day Excess Days in Acute
Care after Hospitalization for Heart
Failure (HF Excess Days) (80 FR 49690).
All three measures assess the same
outcome and use the same riskadjustment methodology. They differ
only in the target population and the
specific risk variables included.
When we finalized the AMI Excess
Days and HF Excess Days measures for
the FY 2018 payment determination and
subsequent years, stakeholders
expressed concern about the interaction
between Medicare payment policy
regarding admissions spanning two
midnights and the AMI Excess Days and
HF Excess Days measures (80 FR 49686
through 49687). We continue to believe
that the ‘‘2-midnight’’ policy or any
changes to such policy will not
influence the outcome of Excess Days in
Acute Care measures, as all
postdischarge days in acute care are

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captured whether they are billed as
inpatient or outpatient days (80 FR
49686 through 49687).
The proposed PN Excess Days
measure (MUC15–391) was included on
a publicly available document entitled
‘‘2015 Measures Under Consideration
List’’ for December 1, 2015 (available at:
http://www.qualityforum.org/
ProjectMaterials.aspx?projectID=75367)
and has been reviewed by the NQF
Measure Applications Partnership
(MAP) Hospital Workgroup. The
measure was conditionally supported
pending the examination of
sociodemographic status (SDS) factors
and NQF review and endorsement of the
measure update, as referenced in the
MAP 2016 Final Recommendations
Report (available at: http://
www.qualityforum.org/map/).111 We
refer readers to section VIII.A.6.a.(1) of
the preamble of this proposed rule for
a discussion of our policy on SDS
factors. As stated above, we note that
this measure has been submitted to NQF
for endorsement proceedings as part of
the All-Cause Admissions and
Readmissions project in January 2016.
(2) Overview of Measure
The proposed PN Excess Days
measure is a risk-standardized outcome
measure that compares the number of
days that patients, discharged from a
hospital for pneumonia, are predicted to
spend in acute care across the full
spectrum of possible events (hospital
readmissions, observation stays, and ED
visits) to the days that patients are
expected to spend based on their degree
of illness as defined using principal
diagnosis and comorbidity data from
administrative claims.
(3) Data Sources
The proposed PN Excess Days
measure is claims-based. It uses Part A
and Part B Medicare administrative
claims data from Medicare FFS
beneficiaries hospitalized for
pneumonia. To determine eligibility for
inclusion in the measure, we also use
Medicare enrollment data. As proposed,
the measure would use 3 years of data.
For example, for the FY 2019 payment
determination, the reporting period
would be July 2014 through June 2017.
(4) Outcome
The outcome of the proposed PN
Excess Days measure is the excess
number of days patients spend in acute
care (hospital readmissions, observation
stays, and ED visits) per 100 discharges
111 Spreadsheet of MAP 2016 Final
Recommendations Available at: http://
www.qualityforum.org/map/.

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during the first 30 days after discharge
from the hospital, relative to the number
spent by the same patients discharged
from an average hospital. The measure
defines days in acute care as days spent:
(1) In an ED; (2) admitted to observation
status; or (3) admitted as an unplanned
readmission for any cause within 30
days from the date of discharge from the
index pneumonia hospitalization.
Readmission days are calculated as the
discharge date minus the admission
date. Admissions that extend beyond
the 30-day follow-up period are
truncated on day 30. Observation days
are calculated by the hours in
observation, rounded up to the nearest
half day. Based on the recommendation
of our technical expert panel convened
as part of developing this measure, an
ED treat-and-release visit is counted as
one half day. ED visits are not counted
as a full day because the majority of
treat-and-release visits last fewer than
12 hours.
‘‘Planned’’ readmissions are those
planned by providers for anticipated
medical treatment or procedures that
must be provided in the inpatient
setting. This measure excludes planned
readmissions using the planned
readmission algorithm previously
developed for the READM–30–PN
measure (78 FR 50786 through 50787).
The planned readmission algorithm is a
set of criteria for classifying admissions
as planned among the general Medicare
population using Medicare
administrative claims data. The
algorithm identifies admissions that are
typically planned and may occur within
30 days of discharge from the hospital.
The planned readmission algorithm has
three fundamental principles: (1) A few
specific, limited types of care are always
considered planned (transplant surgery,
maintenance chemotherapy/
immunotherapy, rehabilitation); (2)
otherwise, a planned readmission is
defined as a non-acute readmission for
a scheduled procedure; and (3)
admissions for acute illness or for
complications of care are never planned.
A more detailed discussion of
exclusions follows in section
VIII.A.7.b.(6) of the preamble of this
proposed rule.
The measure counts all use of acute
care occurring in the 30-day postdischarge period. For example, if a
patient returns to the ED three times, the
measure counts each ED visit as a halfday. Similarly, if a patient has two
hospitalizations within 30 days, the
days spent in each are counted. We take
this approach to capture the full patient
experience of need for acute care in the
post-discharge period.

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(5) Cohort
We defined the eligible cohort using
the same criteria as the previously
adopted Hospital IQR Program measure,
READM–30–PN (80 FR 49654 through
49660). The READM–30–PN cohort
criteria are included in a report posted
on our Measure Methodology Web page,
under the ‘‘Downloads’’ section in the
‘‘AMI, HF, PN, COPD, and Stroke
Readmission Updates’’ zip file on our
Web site at: http://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/
HospitalQualityInits/MeasureMethodology.html.
The cohort includes Medicare FFS
patients aged 65 years or older: (1) With
a principal discharge diagnosis of
pneumonia, a principal discharge
diagnosis of aspiration pneumonia, or a
principal discharge diagnosis of sepsis
(not including severe sepsis) who also
have a secondary diagnosis of
pneumonia present on admission; (2)
enrolled in Part A and Part B Medicare
for the 12 months prior to the date of
admission, and enrolled in Part A
during the index admission; (3) who
were discharged from a non-Federal
acute care hospital; (4) who were not
transferred to another acute care facility;
and (5) who were alive at discharge.
The measure cohort is also
harmonized with the previously
adopted Hospital IQR Program measure,
the MORT–30–PN measure (80 FR
49837), and the proposed refined cohort
for the PN Payment measure proposed
in section VIII.A.6.a. of the preamble of
this proposed rule.
For the ICD–9–CM and ICD–10–CM
codes that define the measure
development cohort, we refer readers to
the ‘‘Excess Days in Acute Care after
Hospitalization for Pneumonia Version
1.0’’ in the Pneumonia Excess Days in
Acute Care zip file on our Web site at:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html.

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(6) Exclusion Criteria
The proposed PN Excess Days
measure excludes the following
admissions from the measure cohort: (1)
Hospitalizations without at least 30 days
of post-discharge enrollment in Part A
and Part B FFS Medicare, because the
30-day outcome cannot be assessed in
this group since claims data are used to
determine whether a patient was
readmitted, was placed under
observation, or visited the ED; (2)
discharged against medical advice,
because providers did not have the
opportunity to deliver full care and

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prepare the patient for discharge; and
(3) hospitalizations for patients with an
index admission within 30 days of a
previous index admission, because
additional pneumonia admissions
within 30 days are part of the outcome,
and we choose not to count a single
admission both as an index admission
and a readmission for another index
admission.
(7) Risk-Adjustment
The proposed PN Excess Days
measure adjusts for variables that are
clinically relevant and have strong
relationships with the outcome. The
measure seeks to adjust for case-mix
differences among hospitals based on
the clinical status of the patient at the
time of the index admission.
Accordingly, only comorbidities that
convey information about the patient at
that time or in the 12 months prior, and
not complications that arise during the
course of the index hospitalization, are
included in the risk adjustment. The
measure does not adjust for patients’
admission source or their discharge
disposition (for example, skilled nursing
facility) because these factors are
associated with the structure of the
healthcare system, not solely patients’
clinical comorbidities. Patients’
admission source and discharge
disposition may be influenced by
regional differences in the availability of
post-acute care providers and practice
patterns. These regional differences
might exert undue influence on results.
In addition, patients’ admission source
and discharge disposition are not
audited and are not as reliable as
diagnosis codes. The proposed PN
Excess Days measure uses the same riskadjustment variables as the READM–30–
PN (73 FR 48614).
The outcome is risk adjusted using a
two-part random effects model. This
statistical model, often referred to as a
‘‘hurdle’’ model, accounts for the
structure of the data (patients clustered
within hospitals) and the observed
distribution of the outcome.
Specifically, it models the number of
acute care days for each patient as: (1)
a probability that they have a non-zero
number of days; and (2) a number of
days, given that this number is nonzero. The first part is specified as a logit
model, and the second part is specified
as a Poisson model, with both parts
having the same risk-adjustment
variables and each part having a random
effect. This is an accepted statistical
method that explicitly estimates how
much of the variation in acute care days
is accounted for by patient risk factors,
how much by the hospital where the
patient is treated, and how much is

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explained by neither. This model is
used to calculate the predicted
(including random effects) and expected
(assuming random effects are zero)
number of days for each patient. The
average difference between the
predicted and expected number of days
for each patient for each hospital is used
to construct the risk-standardized
Excess Days in Acute Care. For more
details about risk-adjustment for this
proposed measure, we refer readers to
the ‘‘Pneumonia Excess Days in Acute
Care’’ zip file on our Web site at: http://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html.
(8) Calculating Excess Acute Care Days
The proposed PN Excess Days
measure is calculated as the difference
between the average of the predicted
number of days spent in acute care for
patients discharged from each hospital
and the average number of days that
would have been expected if those
patients had been cared for at an average
hospital, and then the difference is
multiplied by 100 so that the measure
result represents PN Excess Days per
100 discharges. We multiply the final
measure by 100 to be consistent with
the reporting of the previously adopted
READM–30–PN measure that is
reported as a rate (that is, a 25 percent
rate is equivalent to 25 out of 100
discharges) (80 FR 49654 through
49660), as well as the AMI Excess Days
(80 FR 49690) and HF Excess Days (80
FR 49685) measures. A positive result
indicates that patients spend more days
in acute care post-discharge than
expected if admitted to an average
performing hospital with a similar case
mix; a negative result indicates that
patients spend fewer days in acute care
than expected if admitted to an average
performing hospital with a similar case
mix. A negative PN Excess Days
measure score reflects better quality.
We are inviting public comment on
our proposal to adopt the PN Excess
Days measure for the FY 2019 payment
determination and subsequent years as
described above.
c. Summary of Previously Adopted and
Newly Proposed Hospital IQR Program
Measures for the FY 2019 Payment
Determination and Subsequent Years
The table below outlines the proposed
Hospital IQR Program measure set for
the FY 2019 payment determination and
subsequent years, and includes both
previously adopted measures and
measures newly proposed in this
proposed rule. Measures proposed for
removal in section VIII.A.3.b. of the

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preamble of this proposed rule are not
included in this chart.

PROPOSED HOSPITAL IQR PROGRAM MEASURE SET FOR THE FY 2019 PAYMENT DETERMINATION AND SUBSEQUENT
YEARS
Short name

Measure name

NQF No.

NHSN
CAUTI ........................................
CDI .............................................
CLABSI ......................................
Colon and Abdominal
Hysterectomy SSI.
HCP ............................................
MRSA Bacteremia .....................

National Healthcare Safety Network (NHSN) Catheter-associated Urinary Tract Infection
(CAUTI) Outcome Measure.
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Clostridium
difficile Infection (CDI) Outcome Measure.
National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream Infection
(CLABSI) Outcome Measure.
American College of Surgeons—Centers for Disease Control and Prevention (ACS–CDC) Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure.
Influenza Vaccination Coverage Among Healthcare Personnel .....................................................
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Methicillinresistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure.

0138
1717
0139
0753
0431
1716

Chart-abstracted
ED–1 * ........................................
ED–2 * ........................................
Imm-2 .........................................
PC–01 * ......................................
Sepsis ........................................
VTE–6 ........................................

Median Time from ED Arrival to ED Departure for Admitted ED Patients .....................................
Admit Decision Time to ED Departure Time for Admitted Patients ...............................................
Influenza Immunization ...................................................................................................................
Elective Delivery (Collected in aggregate, submitted via Web-based tool or electronic clinical
quality measure).
Severe Sepsis and Septic Shock: Management Bundle (Composite Measure) ............................
Incidence of Potentially Preventable Venous Thromboembolism ..................................................

0495
0497
1659
0469
0500
+

Claims-based Outcome
MORT–30–AMI ..........................
MORT–30–CABG ......................
MORT–30–COPD ......................
MORT–30–HF ............................
MORT–30–PN ............................
MORT–30–STK ..........................
READM–30–AMI ........................
READM–30–CABG ....................
READM–30–COPD ....................
READM–30–HF .........................
READM–30–HWR ......................
READM–30–PN .........................
READM–30–STK .......................
READM–30–THA/TKA ...............

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

AMI Excess Days .......................
HF Excess Days ........................
PN Excess Days ** .....................
Hip/knee complications ..............
PSI 04 ........................................
PSI 90 ........................................

Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Myocardial Infarction (AMI) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) Surgery.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Heart Failure
(HF) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Ischemic Stroke
Hospital 30-Day All-Cause Risk-Standardized Readmission Rate (RSRR) Following Acute Myocardial Infarction (AMI) Hospitalization.
Hospital 30-Day, All-Cause, Unplanned, Risk-Standardized Readmission Rate (RSRR) Following Coronary Artery Bypass Graft (CABG) Surgery.
Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Chronic
Obstructive Pulmonary Disease (COPD) Hospitalization.
Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Heart
Failure (HF) Hospitalization.
Hospital-Wide All-Cause Unplanned Readmission Measure (HWR) .............................................
Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Pneumonia Hospitalization.
30-Day Risk Standardized Readmission Rate Following Stroke Hospitalization ...........................
Hospital-Level 30-Day, All-Cause Risk-Standardized Readmission Rate (RSRR) Following
Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA).
Excess Days in Acute Care after Hospitalization for Acute Myocardial Infarction .........................
Excess Days in Acute Care after Hospitalization for Heart Failure ...............................................
Excess Days in Acute Care after Hospitalization for Pneumonia ..................................................
Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total
Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA).
Death Rate among Surgical Inpatients with Serious Treatable Complications ..............................
Patient Safety for Selected Indicators Composite Measure, Modified PSI 90 (Updated Title: Patient Safety and Adverse Events Composite).

0230
2558
1893
0229
0468
N/A
0505
2515
1891
0330
1789
0506
N/A
1551
N/A
N/A
N/A
1550
0351
0531

Claims-based Payment
AMI Payment .............................
HF Payment ...............................
PN Payment ...............................

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Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for
Acute Myocardial Infarction (AMI).
Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care For
Heart Failure (HF).
Hospital-Level, Risk-Standardized Payment Associated with a 30-day Episode-of-Care For
Pneumonia.

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PROPOSED HOSPITAL IQR PROGRAM MEASURE SET FOR THE FY 2019 PAYMENT DETERMINATION AND SUBSEQUENT
YEARS—Continued
Short name

Measure name

THA/TKA Payment .....................

Hospital-Level, Risk-Standardized Payment Associated with an Episode-of-Care for Primary
Elective Total Hip Arthroplasty and/or Total Knee Arthroplasty.
Payment-Standardized Medicare Spending Per Beneficiary (MSPB) ............................................
Cellulitis Clinical Episode-Based Payment Measure ......................................................................
Gastrointestinal Hemorrhage Clinical Episode-Based Payment Measure .....................................
Kidney/Urinary Tract Infection Clinical Episode-Based Payment Measure ....................................
Aortic Aneurysm Procedure Clinical Episode-Based Payment Measure .......................................
Cholecystectomy and Common Duct Exploration Clinical Episode-Based Payment Measure .....
Spinal Fusion Clinical Episode-Based Payment Measure .............................................................

MSPB .........................................
Cellulitis Payment ......................
GI Payment ................................
Kidney/UTI Payment ..................
AA Payment ** ............................
Chole and CDE Payment ** .......
SFusion Payment ** ...................

NQF No.
N/A
2158
N/A
N/A
N/A
N/A
N/A
N/A

Electronic Clinical Quality Measures (eCQMs)
AMI–8a .......................................

Primary PCI Received Within 90 Minutes of Hospital Arrival .........................................................

CAC–3 ........................................
ED–1 * ........................................
ED–2 * ........................................
EHDI–1a .....................................
PC–01 * ......................................

Home Management Plan of Care Document Given to Patient/Caregiver ......................................
Median Time from ED Arrival to ED Departure for Admitted ED Patients .....................................
Admit Decision Time to ED Departure Time for Admitted Patients ...............................................
Hearing Screening Prior to Hospital Discharge ..............................................................................
Elective Delivery (Collected in aggregate, submitted via Web-based tool or electronic clinical
quality measure).
Exclusive Breast Milk Feeding *** ...................................................................................................
Discharged on Antithrombotic Therapy ..........................................................................................
Anticoagulation Therapy for Atrial Fibrillation/Flutter ......................................................................
Antithrombotic Therapy by the End of Hospital Day Two ..............................................................
Discharged on Statin Medication ....................................................................................................
Stroke Education .............................................................................................................................
Assessed for Rehabilitation ............................................................................................................
Venous Thromboembolism Prophylaxis .........................................................................................
Intensive Care Unit Venous Thromboembolism Prophylaxis .........................................................

PC–05 ........................................
STK–02 ......................................
STK–03 ......................................
STK–05 ......................................
STK–06 ......................................
STK–08 ......................................
STK–10 ......................................
VTE–1 ........................................
VTE–2 ........................................

0163
+

0495
0497
1354
0469
0480
0435
0436
0438
0439
+

0441
0371
0372

Patient Survey
HCAHPS ....................................

HCAHPS + 3-Item Care Transition Measure (CTM-3) ...................................................................

0166
0228

Structural Measures
Patient Safety Culture ................

Hospital Survey on Patient Safety Culture .....................................................................................

N/A

Safe Surgery Checklist ..............

Safe Surgery Checklist Use ............................................................................................................

N/A

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

* Measure listed twice, as both chart-abstracted and electronic clinical quality measure.
** Newly proposed measures for the FY 2019 payment determination and for subsequent years.
*** Measure name has been shortened. Please refer to annually updated electronically clinical quality measure specifications on the CMS eCQI
Resource Center Page for further information: https://www.healthit.gov/newsroom/ecqi-resource-center.
+ NQF endorsement has been removed.

8. Proposed Changes to Policies on
Reporting of eCQMs
For a discussion of our previously
finalized eCQMs and policies, we refer
readers to the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50807 through 50810;
50811 through 50819), the FY 2015
IPPS/LTCH PPS final rule (79 FR 50241
through 50253; 50256 through 50259;
and 50273 through 50276), and the FY
2016 IPPS/LTCH PPS final rule (80 FR
49692 through 49698; and 49704
through 49709).
We are proposing two changes to our
policies with respect to eCQMs
reporting to require that hospitals: (1)
Submit data for an increased number of
eCQMs as further detailed below; and
(2) report a full year of data. These
proposals are made in conjunction with
our proposals in section VIII.A.3.b.(3) of

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the preamble of this proposed rule to
remove 13 eCQMs from the Hospital
IQR Program and proposals in sections
VIII.A.10.d. and VIII.E.2.b. of the
preamble of this proposed rule to align
requirements for the Hospital IQR and
the Medicare and Medicaid EHR
Incentive Programs.
In addition, we are clarifying that for
three measures (ED–1, ED–2, and PC–
01), our previously finalized policy that
hospitals must submit a full year of
chart-abstracted data regardless of
whether data also are submitted
electronically continues to apply.

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a. Proposed Requirement That Hospitals
Report on All eCQMs in the Hospital
IQR Program Measure Set for the CY
2017 Reporting Period/FY 2019
Payment Determination and Subsequent
Years
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49698), we finalized our
policy to require hospitals to submit one
quarter of data (either Q3 or Q4) for 4
self-selected eCQMs for the CY 2016
reporting period/FY 2018 payment
determination by February 28, 2017.
Furthermore, in that final rule (80 FR
49694), we signaled our intent to
propose increasing the reporting
requirement to 16 eCQMs in future
rulemaking. In this proposed rule, we
are proposing to require reporting of a
full calendar year of data for all eCQMs
in the Hospital IQR Program measure set

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
for the CY 2017 reporting period/FY
2019 payment determination and
subsequent years.
Requiring hospitals to electronically
report a greater number of eCQMs
furthers our goal of expanding
electronic reporting in the Hospital IQR
Program, which we believe will improve
patient outcomes by providing more
robust data to support quality
improvement efforts. As stated above,
this proposal is made in conjunction
with our proposals in section
VIII.A.3.b.(3) of the preamble of this
proposed rule to remove thirteen
eCQMs from the Hospital IQR Program
and proposals in sections VIII.A.10.d.
and VIII.E.2.b. of the preamble of this
proposed rule to align requirements for
the Hospital IQR and the Medicare and
Medicaid EHR Incentive Programs. In
addition, as discussed in section
VIII.A.3.b.(3) of the preamble of this
proposed rule, we believe that removing
certain eCQMs for which the chartabstracted versions have been
determined to be ‘‘topped-out’’ will
reduce certification burden and
implementation hurdles, enabling
hospitals to focus efforts on successfully
implementing a smaller subset of
eCQMs. If our proposals to remove 13
eCQMs in section VIII.A.3.b.(3) of the
preamble of this proposed rule is
finalized as proposed, hospitals would
be required to report on a total 15
eCQMs for the CY 2017 reporting
period/FY 2019 payment determination.
While the number of required eCQMs
would increase as compared to that
required for the CY 2016 reporting
period/FY 2018 payment determination
(that is, from 4 to 15 eCQMs), we believe
that a coordinated reduction in the
overall number of eCQMs (from 28 to 15
eCQMs) in both the Hospital IQR and
Medicare and Medicaid EHR Incentive
Programs will reduce certification
burden on hospitals and improve the
quality of reported data by enabling
hospitals to focus on a smaller, more
specific subset of eCQMs.
In crafting this proposal, we also
considered proposing to require a lesser
number of eCQMs—that hospitals
submit eight of the available eCQMs
(that is, in other words, 8 of the
proposed 15 eCQMs as discussed above)
for the CY 2017 reporting period/FY
2019 payment determination.
Specifically, hospitals would submit a
full calendar year of data on an annual
basis for eight of the available eCQMs
whether reporting only for the Hospital
IQR Program or if reporting for both the
Medicare and Medicaid EHR Incentive
Programs and the Hospital IQR Program
for the CY 2017 reporting period/FY
2019 payment determination. Reporting

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on all eCQMs in the Hospital IQR
Program measure set would begin with
the CY 2018 reporting period/FY 2020
payment determination and subsequent
years.
Ultimately we chose to propose to
require reporting on all the proposed
eCQMs for the CY 2017 reporting
period/FY 2019 payment determination,
because we believe that requiring
hospitals to report measures
electronically is in line with our goals
to move towards eCQM reporting and to
align with the Medicare and Medicaid
EHR Incentive Programs. We believe
that the CY 2017/FY 2019 payment
determination is the appropriate time to
require eCQM reporting because
hospitals have had several years to
report data electronically for the
Medicare and Medicaid EHR Incentive
Programs and Hospital IQR Program (3
years of voluntary reporting and 2 years
of reporting as part of a pilot). Based
upon data collected by CMS, currently,
95 percent of hospitals attest to
successful eCQM reporting under the
Medicare and Medicaid EHR Incentive
Programs.
b. Proposed Requirement That Hospitals
Report a Full Year of eCQM Data
In the FY 2016 IPPS/LTCH PPS final
rule, we finalized our policy to require
hospitals to submit one quarter of data
(either Q3 or Q4) for 4 self-selected
eCQMs for the CY 2016 reporting
period/FY 2018 payment determination
by February 28, 2017 (80 FR 49698). As
previously stated, we believe that the
CY 2017/FY 2019 payment
determination is the appropriate time to
require eCQM reporting because
hospitals have had several years to
report data electronically for the
Medicare and Medicaid EHR Incentive
Programs and for the Hospital IQR
Program. As such, we are proposing that
for the CY 2017 reporting period/FY
2019 payment determination and
subsequent years, hospitals must submit
one year’s worth of eCQM data for each
required eCQM. For example, for the
ED–1 eCQM, hospitals would be
required to submit one year of data
(covering Q1, Q2, Q3, and Q4), instead
of just one quarter of data (either Q3 or
Q4) as previously required.
We hope to address stakeholder
concerns associated with increasing the
number of eCQMs for which reporting
will be required proactively by reducing
burden on hospitals by aligning data
submission deadlines between the
Hospital IQR Program and the Medicare
EHR Incentive Program. We note that
deadlines for the Medicaid EHR
Incentive Program differ by State, and
therefore our proposal to align data

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25195

submission deadlines for eCQMs
applies only to the Hospital IQR
Program and the Medicare EHR
Incentive Program and not to the
Medicaid EHR Incentive Program. For
more details on Hospital IQR Program
reporting requirements and eCQM
submission deadlines, we refer readers
to section VIII.A.10.d.(5) of the
preamble of this proposed rule.
c. Clarification Regarding Data
Submission for ED–1, ED–2, PC–01,
STK–4, VTE–5, and VTE–6
In the FY 2016 IPPS/LTCH PPS final
rule, we finalized our policy that
hospitals must continue to submit data
on ED–1, ED–2, PC–01, STK–4, VTE–5,
and VTE–6 via chart abstraction as
previously required and that the results
would be publicly displayed (80 FR
49695–49698). We also finalized,
however, that hospitals may choose to
submit electronic data on any of these
6 measures in addition to the chartabstraction requirements to meet the
requirement to report 4 of 28 eCQMs (80
FR 49695–49698). As discussed in
section VIII.A.3.b.(3)(a)(ii) of the
preamble of this proposed rule, we are
proposing to remove the electronic
version of the STK–4 measure. As
discussed in section VIII.A.3.b.(3)(d) of
the preamble of this proposed rule, we
are proposing to remove the electronic
version of the VTE–5 and VTE–6
measure. Lastly, in section VIII.A.3.b.(2)
of the preamble of this proposed rule,
we are proposing to remove the chartabstracted versions of the STK–4 and
VTE–5 measures. If these proposals are
finalized as proposed, the STK–4 and
VTE–5 measures will be completely
removed from the Hospital IQR Program
measure set, but the VTE–6 measure
would continue to be included in its
chart-abstracted form.
For the FY 2019 payment
determination and subsequent years, we
are clarifying that requirements for the
chart-abstracted versions of ED–1, ED–2,
PC–01, and VTE–6 remain the same as
previously finalized. Hospitals must
submit a full calendar year of data
(covering Q1, Q2, Q3, and Q4) via chartabstraction regardless of whether data
also are submitted electronically in
accordance with the applicable
submission requirements. However, we
note that if our proposal that hospitals
submit a full calendar year of eCQM
data for each required eCQM is finalized
as proposed above, data submission for
the chart-abstracted version of these
measures will differ from those
submitted electronically (quarterly basis
for chart-abstracted measures versus
annual basis for electronic measures).

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

We are inviting public comment on
our proposals to require that hospitals:
(1) Submit data for all eCQMs included
in the Hospital IQR Program measure
set; and (2) report a full year of data for
the CY 2017 reporting period/FY 2019
payment determination and subsequent
years, as discussed above.
9. Possible New Quality Measures and
Measure Topics for Future Years
We are providing information about
new quality measures and measure
topics under consideration for future
inclusion in the Hospital IQR Program.
We are considering to propose in future
rulemaking: (1) A refined version of the
Stroke Scale for the Hospital 30-Day
Mortality Following Acute Ischemic
Stroke Hospitalization Measure; (2) a
new measure, the National Healthcare
Safety Network (NHSN) Antimicrobial
Use Measure (NQF #2720); and (3) one
or more potential measures of
behavioral health for the inpatient
hospital setting, including measures
previously adopted for the IPFQR
Program (80 FR 46694), for adoption
into the Hospital IQR Program measure
set. Also, we are considering public
reporting of Hospital IQR Program data
stratified by race, ethnicity, sex, and
disability on Hospital Compare. These
topics are further discussed below.
a. Potential Inclusion of the National
Institutes of Health (NIH) Stroke Scale
for the Hospital 30-Day Mortality
Following Acute Ischemic Stroke
Hospitalization Measure Beginning as
Early as the FY 2022 Payment
Determination

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

(1) Background
Mortality following stroke is an
important adverse outcome that can be
measured reliably and objectively and is
influenced by the quality of care
provided to patients during their initial
hospitalization; therefore, mortality is
an appropriate measure of quality of
care following stroke
hospitalization.112 113 Specifically, poststroke mortality rates have been shown
to be influenced by critical aspects of
care such as response to complications,
speediness of delivery of care,
organization of care, and appropriate
imaging.114 115 116 117 Therefore, we are
112 Weir NU, Sandercock PA, Lewis SC, Signorini
DF, Warlow CP. Variations between countries in
outcome after stroke in the International Stroke
Trial (IST). Stroke. Jun 2001;32(6):1370–1377.
113 DesHarnais SI, Chesney JD, Wroblewski RT,
Fleming ST, McMahon LF, Jr. The Risk-Adjusted
Mortality Index. A new measure of hospital
performance. Med Care. Dec 1988;26(12):1129–
1148.
114 Hong KS, Kang DW, Koo JS, et al. Impact of
neurological and medical complications on 3-

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refining the previously adopted CMS
Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate (RSMR)
following Acute Ischemic Stroke
Hospitalization Measure (hereafter
referred to as the Stroke 30-day
Mortality Rate) (78 FR 50802) by
changing the measure’s risk adjustment
to include stroke severity. We are
considering proposing this refinement
to the measure in the future.
The previously adopted Stroke 30-day
Mortality Rate (78 FR 50802) includes
42 risk variables, but does not include
an assessment of stroke severity. For
more details on the measure as currently
adopted and implemented, we refer
readers to its measure methodology
report and measure risk-adjustment
statistical model in the AMI, HF, PN,
COPD, and Stroke Mortality Update zip
file on our Web site at: http://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/
HospitalQualityInits/MeasureMethodology.html.
In the future, we are considering
proposing a refinement to the Stroke 30day Mortality Rate for several reasons.
First, the refined measure would allow
for more rigorous risk adjustment by
incorporating the NIH Stroke Scale
(discussed in more detail below) as an
assessment of stroke severity.118
Second, the inclusion of the NIH Stroke
Scale is aligned with and supportive of
clinical guidelines, as use of the NIH
Stroke Scale to assess stroke severity
upon acute ischemic stroke patient
presentation is Class I recommended in
the American Heart Association and
American Stroke Association (AHA/
ASA) guidelines.119 Third, clinicians
month outcomes in acute ischaemic stroke.
European journal of neurology: the official journal
of the European Federation of Neurological
Societies. Dec 2008;15(12):1324–1331.
115 Lingsma HF, Dippel DW, Hoeks SE., et al.
Variation between hospitals in patient outcome
after stroke is only partly explained by differences
in quality of care: results from the Netherlands
Stroke Survey.[Reprint in Ned Tijdschr Geneeskd.
2008 Sep 27;152(39):2126–32; PMID: 18856030].
Journal of Neurology, Neurosurgery & Psychiatry.
2008;79(8):888–894.
116 Reeves MJ, Smith E, Fonarow G, Hernandez A,
Pan W, Schwamm LH. Off-hour admission and inhospital stroke case fatality in the get with the
guidelines-stroke program. Stroke. Feb
2009;40(2):569–576.
117 Smith MA, Liou JI, Frytak JR, Finch MD. 30day survival and rehospitalization for stroke
patients according to physician specialty.
Cerebrovascular diseases (Basel, Switzerland).
2006;22(1):21–26.
118 NIH Stroke Scale. Available at: http://
www.nihstrokescale.org/.
119 Jauch EC, Saver JL, Adams HP, Jr., et al.
Guidelines for the early management of patients
with acute ischemic stroke: a guideline for
healthcare professionals from the American Heart
Association/American Stroke Association. Stroke.
Mar 2013;44(3):870–947.

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and stakeholders, including AHA, ASA,
and other professional organizations,
highlight the importance of including an
assessment of stroke severity in riskadjustment models of stroke mortality.
Therefore, the refined Stroke 30-day
Mortality Rate is responsive to
comments received from the feedback of
measure developers during measure
development, the Technical Expert
Panel, and the NQF endorsement
process (78 FR 50802). Fourth, in
addition to a modestly higher c-statistic,
which evaluates the measure’s ability to
discriminate or differentiate between
high and low performing hospitals, the
refined Stroke 30-day Mortality Rate
includes a more parsimonious risk
model than the publicly reported stroke
mortality measure, with a total of 20 risk
adjustment variables including the NIH
Stroke Scale, compared to the current
use of 42 risk adjustment variables.
Initial stroke severity score, such as
the NIH Stroke Scale score, is one of the
strongest predictors of mortality in
ischemic stroke patients,120 121 122 and is
part of the national guidelines on stroke
care.123 The NIH Stroke Scale is a 15item neurologic examination stroke
scale used to provide a quantitative
measure of stroke-related neurologic
deficit. The NIH Stroke Scale evaluates
the effect of acute ischemic stroke on a
patient’s level of consciousness,
language, neglect, visual-field loss,
extra-ocular movement, motor strength,
ataxia (the loss of full control of bodily
movements), dysarthria (difficult or
unclear articulation of speech), and
sensory loss. The NIH Stroke Scale was
designed to be a simple, valid, and
reliable tool that can be administered at
the bedside consistently by neurologists,
physicians, nurses, or therapists. In
October 2016, codes for the NIH Stroke
Scale are expected to be added to the
International Statistical Classification of
Diseases and Related Health Problems
10th Revision (ICD–10). The currently
adopted measure covers 3 years of
120 Fonarow GC, Saver JL, Smith EE, et al.
Relationship of national institutes of health stroke
scale to 30-day mortality in medicare beneficiaries
with acute ischemic stroke. J Am Heart Assoc. Feb
2012;1(1):42–50.
121 Nedeltchev K, Renz N, Karameshev A, et al.
Predictors of early mortality after acute ischaemic
stroke. Swiss Medical Weekly. 2010;140(17–
18):254–259.
122 Smith EE, Shobha N, Dai D, et al. Risk score
for in-hospital ischemic stroke mortality derived
and validated within the Get With the GuidelinesStroke Program. Circulation. Oct 12
2010;122(15):149615041496–1504.
123 Jauch EC, Saver JL, Adams HP, Jr., et al.
Guidelines for the early management of patients
with acute ischemic stroke: a guideline for
healthcare professionals from the American Heart
Association/American Stroke Association. Stroke.
Mar 2013;44(3):870–947.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
claims data using administrative claims
from July 2011–June 2014. In order to
give hospitals time to adjust to reporting
the NIH Stroke Scale, we are
considering this measure refinement for
as early as the July 2017 through June
2020 reporting period (3 years of data),
which would correspond to the FY 2022
payment determination in the Hospital
IQR Program.
The measure refinement was
developed in collaboration with the
AHA/ASA. We sought to update the
current publicly reported measure to
include an assessment of stroke severity
at this time, because it has become
feasible to do so due to both the
increased use of the NIH Stroke Scale
related to the AHA/ASA guidelines that
recommend administering the NIH
Stroke Scale on all stroke patients, as
well as due to the upcoming availability
to obtain the scores through claims data
(incorporation into ICD–10).
The Stroke 30-day Mortality Rate
(MUC15–294) with the refined risk
adjustment was included on a publicly
available document entitled ‘‘List of
Measures under Consideration for
December 1, 2015’’ with identification
number MUC15–294, (available at:
http://www.qualityforum.org/
ProjectMaterials.aspx?projectID=75367)
and has been reviewed by the MAP. The
MAP conditionally supported this
measure pending NQF review and
endorsement and asked that CMS
consider a phased approach in regards
to implementation to avoid multiple
versions of the same measure.124 The
MAP also noted that mortality is not the
most meaningful outcome for stroke
patients and to consider cognitive or
functional outcomes such as impaired
capacity.125 The Stroke 30-day Mortality
Rate with the refined risk adjustment
was submitted to NQF for endorsement
in the neurology project on January 15,
2016.

b. Potential Inclusion of National
Healthcare Safety Network (NHSN)
Antimicrobial Use Measure (NQF
#2720)

The measure cohort for the refined
measure would not be substantively
different from the currently adopted,
publicly reported Stroke 30-day
Mortality Rate. In addition, the data
sources, three-year reporting period,
inclusion and exclusion criteria, as well
as the assessment of the outcome of
mortality would all align with the
currently adopted measure.

(1) Background
The emergence of antibiotic drug
resistance is a clinical and public health
problem that threatens the effective
prevention and treatment of bacterial
infections. The CDC estimates that each
year at least two million people become
infected with bacteria that are resistant
to antibiotics, and at least 23,000 people
die as a direct result of these drugresistant bacterial infections. In
addition, antibiotic resistance
contributes an estimated $20 billion in
excess direct healthcare costs.126
In order to promote the efficiency and
coordination of efforts to detect,
prevent, and control antibiotic
resistance, HHS announced in 2015 the
establishment of the Presidential
Advisory Council on Combating
Antibiotic-Resistant Bacteria (Advisory
Council).127 The Advisory Council

124 Spreadsheet of MAP 2016 Final
Recommendations Available at: http://
www.qualityforum.org/map/.
125 Spreadsheet of MAP 2016 Final
Recommendations Available at: http://
www.qualityforum.org/map/.

126 Centers for Disease Control and Prevention.
Antibiotic Resistance Threats in the United States,
2013. Available from: http://www.cdc.gov/
drugresistance/threat-report-2013/.
127 Centers for Disease Control and Prevention.
Presidential Advisory Council on Combating

(2) Overview of Measure Change

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

(3) Risk Adjustment
The statistical modeling, measure
calculation, and risk-adjustment
calculation for this refined measure
would align with the currently adopted
Stroke 30-day Mortality Rate. However,
we reselected risk variables, resulting in
a final model with 20 risk-adjustment
variables including the NIH Stroke Scale
as an assessment of stroke severity. For
the full measure specifications of the
refined measure, we refer readers to the
AMI, HF, PN, COPD, and Stroke
Mortality Update zip file on our Web
site at: http://www.cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html.
In summary, we are considering
proposing in the future a refinement of
the Stroke 30-day Mortality Rate, which
would change the risk adjustment to
include an assessment of stroke severity,
in the Hospital IQR Program for as early
as the July 2017–June 2020 reporting
period/FY 2022 payment determination
and for subsequent years.
We are inviting comments on the
possibility of a future proposal of
refinements to the previously adopted
Hospital 30-Day Mortality Following
Acute Ischemic Stroke Hospitalization
Measure to include the NIH Stroke Scale
beginning as early as the FY 2022
payment determination.

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makes recommendations to the
Secretary regarding policies to support
the implementation of the National
Strategy for Combating AntibioticResistant Bacteria 128 and the National
Action Plan for Combating AntibioticResistant Bacteria.129 Evidence is
accumulating that programs dedicated
to optimizing inpatient antibiotic use,
known as antimicrobial stewardship
programs (ASPs), may slow the
emergence of antibiotic resistance and
improve appropriateness of
antimicrobial use and patient
outcomes.130 131 132 Therefore, the CDC
and several professional societies have
published guidelines and resources to
support hospitals in implementing
antimicrobial stewardship programs.133
In the future, we are considering
proposing the NHSN Antimicrobial Use
measure to advance national efforts to
reduce the emergence of antibiotic
resistance by enabling hospitals and
CMS to assess national trends of
antibiotic use to facilitate improved
stewardship by comparing antibiotic use
that hospitals report to antibiotic use
that is predicted based on nationally
aggregated data. The measure was
included on a publicly available
document entitled ‘‘List of Measures
Under Consideration for December 1,
2015,’’ 134 in compliance with section
1890A(a)(2) of the Act. The measure
received conditional support, pending
CDC recommendation that the measure
is ready for use in public reporting as
referenced in the MAP 2016 Final
Antibiotic-Resistant Bacteria. Available from:
http://www.hhs.gov/ash/carb/index.html.
128 National Strategy for Combating AntibioticResistant Bacteria, 2014. Available from: https://
www.whitehouse.gov/sites/default/files/docs/carb_
national_strategy.pdf.
129 National Action Plan for Combating
Antibiotic-Resistant Bacteria, 2015. Available from:
https://www.whitehouse.gov/sites/default/files/
docs/national_action_plan_for_combating_
antibotic-resistant_bacteria.pdf.
130 Davey P, Brown E, Charani E, Fenelon L,
Gould IM, Holmes A, et al. Interventions to improve
antibiotic prescribing practices for hospital
inpatients. Cochrane Database Syst Rev.
2013;4:CD003543.
131 Feazel LM, Malhotra A, Perencevich EN,
Kaboli P, Diekema DJ, Schweizer ML. Effect of
antibiotic stewardship programmes on Clostridium
difficile incidence: a systematic review and metaanalysis. J Antimicrob Chemother. 2014;69(7):1748–
54. http://jac.oxfordjournals.org/content/69/7/
1748.full.pdf.
132 Kaki R, Elligsen M, Walker S, Simor A, Palmay
L, Daneman N. Impact of antimicrobial stewardship
in critical care: a systematic review. J Antimicrob
Chemother. 2011;66(6):1223–30.
133 Centers for Disease Control and Prevention.
Core Elements of Hospital Antibiotic Stewardship
Programs. Available from: http://www.cdc.gov/
getsmart/healthcare/implementation/coreelements.html.
134 2015 Measures Under Consideration List
Available at: http://www.qualityforum.org/
ProjectMaterials.aspx?projectID=75367.

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Recommendations.135 The MAP
recognized the high importance of
antimicrobial stewardship and
conditionally supported the inclusion of
this measure in the Hospital IQR
Program while acknowledging that
additional testing may be necessary to
address feasibility issues for public
reporting, quality implications of
measuring the amount of antibiotics
used versus appropriate use of
antibiotics, and risk-adjustment.
Further, MAP noted these issues should
be addressed before the measure is
reported on Hospital Compare.136 The
measure received endorsement from
NQF on December 10, 2015.137

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

(2) Overview of Measure
The NHSN Antimicrobial Use
measure assesses antibiotic use in
hospitals based on medication
administration data that hospitals
collect electronically at the point of
care. The measure compares antibiotic
use that hospitals report, via electronic
file submissions to the CDC’s NHSN, to
antibiotic use that is predicted based on
nationally aggregated data. Data on
administered antibiotics are required to
be extracted from an electronic
medication administration record
(eMAR) 138 and/or bar coded medication
administration (BCMA) system.139 The
antibiotic use data that are in scope for
this measure include antibiotic agents
administered to adult and pediatric
patients in a specified set of ward and
intensive care unit (ICU) locations.
Locations include adult and pediatric
medical, medical/surgical, and surgical
wards and adult and pediatric medical,
medical/surgical, and surgical ICUs as
defined by the NHSN at: http://
www.cdc.gov/nhsn/PDFs/pscManual/
15LocationsDescriptions_current.pdf.
The measure is comprised of a
discrete set of risk-adjusted summary
ratios, known as Standardized
Antimicrobial Administration Ratios
(SAARS), which summarize observed135 Spreadsheet of MAP 2016 Final
Recommendations Available at: http://
www.qualityforum.org/map/.
136 Spreadsheet of MAP 2016 Final
Recommendations Available at: http://
www.qualityforum.org/map/.
137 http://www.qualityforum.org/QPS/2720.
138 eMAR is defined as technology that
automatically documents the administration of
medication into CEHRT using electronic tracking
sensors (for example, radio frequency identification
(RFID)) or electronically readable tagging such as
bar coding (77 FR 54034).
139 Barcode Medication Administration (BCMA)
System is defined as a system that allows users to
electronically document medications at the bedside
or other points-of-care using an electronically
readable format. More information. Available at:
http://www.ahrq.gov/downloads/pub/advances/
vol3/wideman.pdf.

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to-predicted antibacterial use for one of
sixteen antibiotic agent-patient care
location combinations. The specific
antibiotic agent-location combinations
were selected based on extensive
consultation with infectious disease
physicians and pharmacists at the
forefront of ASPs. The specified
categories of antibiotic agents include:
• Broad spectrum agents
predominantly used for hospital-onset/
multi-drug resistant bacteria;
• Broad spectrum agents
predominantly used for communityacquired infection;
• Anti-MRSA agents; and
• Agents predominantly used for
surgical site infection prophylaxis.
The SAARs are designed to serve as
high value targets or high-level
indicators for hospital ASPs to assess
hospital antimicrobial use. A SAAR that
is not significantly different from 1.0
indicates ‘‘expected’’ antibiotic use. A
SAAR that is above 1.0 may indicate
excessive antibiotic use or a SAAR that
is below 1.0 may indicate antibiotic
underuse. We note that the SAARs do
not provide a definitive indication of
antibiotic appropriateness of use.
Outlier SAAR values should prompt
hospitals to do further analysis to assess
overuse, underuse, or inappropriate use
of antibacterial medications. In
addition, the SAARS may be used by
hospital ASPs to identify opportunities
to improve antibiotic use and gauge the
impact of stewardship efforts.
(3) Data Sources
The data submission and reporting
standard procedures for the NHSN
Antimicrobial Use measure have been
set forth by the CDC for NHSN
participation, in general, and for
submission of measure data. We refer
readers to the CDC’s NHSN Web site
(http://www.cdc.gov/nhsn) for detailed
data submission and reporting
procedures. Although the NHSN
Antimicrobial Use measure is not
specified as an eCQM, manual data
entry is not available. Data must be
electronically extracted from an
eMAR 140 and/or BCMA system.141 The
format for data submission must adhere
to the data format prescribed by the CDC
140 eMAR is defined as technology that
automatically documents the administration of
medication into CEHRT using electronic tracking
sensors (for example, radio frequency identification
(RFID)) or electronically readable tagging such as
bar coding (77 FR 54034).
141 Barcode Medication Administration (BCMA)
System is defined as a system that allows users to
electronically document medications at the bedside
or other points-of-care using an electronically
readable format. More information available at:
http://www.ahrq.gov/downloads/pub/advances/
vol3/wideman.pdf.

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HL7 Clinical Data Architecture (CDA)
Implementation Guide available at:
http://www.cdc.gov/nhsn/cdaportal/
toolkits/guidetocdaversions.html.
(4) Measure Calculation
Each SAAR is an observed to
expected ratio and is calculated by
dividing the numerator, or total number
of observed antimicrobial days (days of
therapy reported by a healthcare facility
for a specified category of antimicrobial
agents in a specified patient care
location or group of locations), by the
denominator, or expected (predicted on
the basis of nationally aggregated AU
data for a healthcare facility’s use of a
specified category of antimicrobial
agents in a specified patient care
location or group of locations) number
of antimicrobial days, for each antibiotic
agent category-patient care location
combination. The total number of
observed antimicrobial days for each
patient care location is defined as the
aggregated sum of days for which any
amount of a specific antibiotic agent
within an antibiotic agent category was
administered as documented in the
eMAR or BCMA system. The predicted
number of antimicrobial days for each
patient care location is determined by
multiplying the observed days present
by the corresponding antimicrobial use
rate in the standard population obtained
from the relevant regression model.
Hospital patient care locations other
than adult and pediatric medical,
medical/surgical, and surgical wards
and adult and pediatric medical,
medical/surgical, and surgical ICUs are
excluded from this measure. For more
information regarding the specifications
for the Antimicrobial Use measure, we
refer readers to the NHSN Antimicrobial
Use and Resistance Module (AUR):
http://www.cdc.gov/nhsn/PDFs/
pscManual/11pscAURcurrent.pdf.
We are inviting public comment on
the possibility of future inclusion of the
NHSN Antimicrobial Use Measure (NQF
#2720).
c. Potential Measures for Behavioral
Health in the Hospital IQR Program
Although the IPFQR Program
incorporates measures of inpatient
psychiatric treatment (80 FR 46694), the
Hospital IQR Program does not include
any measures directly related to
behavioral health. Based on MedPAC
analyses, over a third of Medicare
inpatient psychiatric admissions are
treated ‘‘in acute care hospital beds not
within distinct-part psychiatric
units.’’ 142 Thus, there may be a gap in
142 Medicare Payment Advisory Commission
(U.S.). (2010). MedPAC June 2010 Report to the

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understanding the quality of care given
to inpatient psychiatric patients not
paid for under the IPFQR Program.
To address this gap, we are inviting
public comments on potential
behavioral health quality measures
appropriate to include in the Hospital
IQR Program in future years, including
the possible use of one or more
measures previously adopted in the
IPFQR Program (80 FR 46417).

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

d. Potential Public Reporting of Quality
Measures Data Stratified by Race,
Ethnicity, Sex, and Disability and
Future Hospital Quality Measures That
Incorporate Health Equity
We are seeking comment on the
possibility of including Hospital IQR
Program measure data stratified by race,
ethnicity, sex, and disability on Hospital
Compare, if feasible and appropriate
(that is, statistically appropriate, etc.) in
the future. By stratification, we mean
that we would report quality measures
for each group of a given category (age,
race, sex, and disability status). For
example, if we were to report the
Hospital-Wide All-Cause Unplanned
Readmission Measure (HWR) (NQF
#1789) stratified by sex, we would
report a hospital’s measure result for
females and then again separately for
males, in addition to reporting a
hospital’s unstratified rate, as is
currently displayed.
In addition, we are also seeking
comment on potential hospital quality
measures, including composite
measures, for inclusion in the Hospital
IQR Program measure set and thus,
future postings on Hospital Compare,
that could help consumers and
stakeholders not only assess the
measurement of the quality of care
furnished by hospitals in inpatient
settings, but also monitor trends in
health equity.
Any data pertaining to these areas that
are recommended for collection through
measure reporting for the Hospital IQR
Program and public disclosure on
Hospital Compare, would be addressed
through a separate and future noticeand-comment rulemaking.
We are inviting public comment on
the possibility of future inclusion of
stratified quality measures data on
Hospital Compare and on stratification
categories, including any categories not
specified in this preamble. We are also
seeking comment on potential future
hospital quality measures that
incorporate health equity.
Congress: . Washington, DC: MedPAC, available at:
http://www.medpac.gov/documents/reports/Jun10_
Ch06.pdf?sfvrsn=0.

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10. Form, Manner, and Timing of
Quality Data Submission
a. Background
Sections 1886(b)(3)(B)(viii)(I) and
(b)(3)(B)(viii)(II) of the Act state that the
applicable percentage increase for FY
2015 and each subsequent year shall be
reduced 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 data required to be
submitted on measures specified by the
Secretary in a form and manner, and at
a time, specified by the Secretary.
Previously, the applicable percentage
increase for FY 2007 and each
subsequent fiscal year until FY 2015
was reduced by 2.0 percentage points
for subsection (d) hospitals failing to
submit data in accordance with the
description above. In accordance with
the statute, the FY 2016 payment
determination began the second year
that the Hospital IQR Program will
reduce the applicable percentage
increase by one-quarter of such
applicable percentage increase.
In order to participate in the Hospital
IQR Program, hospitals must meet
specific procedural, data collection,
submission, and validation
requirements. For each Hospital IQR
Program payment determination, we
require that hospitals submit data on
each specified measure in accordance
with the measure’s specifications for a
particular period of time. The data
submission requirements, Specifications
Manual, and submission deadlines are
posted on the QualityNet Web site at:
http://www.QualityNet.org/. Hospitals
must register and submit quality data
through the secure portion of the
QualityNet Web site. There are
safeguards in place in accordance with
the HIPAA Security Rule to protect
patient information submitted through
this Web site.
b. Procedural Requirements for the FY
2019 Payment Determination and
Subsequent Years
The Hospital IQR Program’s
procedural requirements are codified in
regulation at 42 CFR 412.140. We refer
readers to these codified regulations for
participation requirements, as further
explained by the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50810 through
50811). In this proposed rule, we are not
proposing any changes to these
procedural requirements.
However, as discussed below in
section VIII.A.11. of the preamble of this
proposed rule, we are proposing to
amend § 412.140(d)(2) in connection

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with our proposal to modify our
validation processes beginning with the
FY 2020 payment determination.
c. Data Submission Requirements for
Chart-Abstracted Measures
We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51640
through 51641), the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53536 through
53537), and the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50811) for details
on the Hospital IQR Program data
submission requirements for chartabstracted measures. In this proposed
rule, we are not proposing any changes
to the data submission requirements for
chart-abstracted measures.
d. Proposed Alignment of the Hospital
IQR Program With the Medicare and
Medicaid EHR Incentive Programs for
Eligible Hospitals and CAHs
(1) Background
We refer readers to the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50256
through 50259) and the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49705
through 49709) for our policies aligning
eCQM data reporting and submission
periods on a calendar year basis for both
the Medicare EHR Incentive Program for
eligible hospitals and CAHs and the
Hospital IQR Program for the FY 2017
payment determination and subsequent
years for the Hospital IQR Program.
In this section, we are proposing the
following changes to the Hospital IQR
Program to further align eCQM data
reporting for the Hospital IQR Program
with the Medicare and Medicaid EHR
Incentive Programs: (1) Maintaining the
eCQM data certification process we
previously adopted for the FY 2018
payment determination, including
requiring hospitals to report eCQM data
using either the 2014 or 2015 Edition of
the Office of the National Coordinator
for Health Information Technology’s
(ONC’s) certified electronic health
record technology (CEHRT) for the CY
2017 reporting period/FY 2019 payment
determination; and (2) requiring the use
of the 2015 Edition of CEHRT beginning
with the CY 2018 reporting period/FY
2020 payment determination and
subsequent years.
In addition, we are proposing to
require eCQM data submission by the
end of 2 months following the close of
the reporting period calendar year for
the CY 2017 reporting period/FY 2019
payment determination and subsequent
years to further align eCQM data
reporting for the Hospital IQR Program
with the Medicare EHR Incentive
Program. These proposals are discussed
in more detail below.

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(2) Proposed Continuation of eCQM
Certification Processes for the FY 2019
Payment Determination and Proposals
for Subsequent Years
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49705 through 49708), we
finalized policies regarding eCQM
certification for the FY 2018 payment
determination. Specifically, we
finalized that: (1) Hospitals can report
using either the 2014 or 2015 Edition of
CEHRT for the CY 2016 reporting
period/FY 2018 payment determination
since certification to the 2015 Edition is
expected to be available in 2016; and (2)
hospitals must submit eCQM data via
Quality Reporting Document
Architecture (QRDA) Category I file (80
FR 49707–49708). In addition, hospitals
may use third parties to submit QRDA
I files on their behalf (80 FR 49706) and
can either use abstraction or pull the
data from non-certified sources in order
to then input these data into CEHRT for
capture and reporting QRDA I (80 FR
49706).
We are proposing to continue these
eCQM certification policies.
Specifically, for the CY 2017 reporting
period/FY 2019 payment determination
(not subsequent years), we are
proposing to require that hospitals
report using either the 2014 or 2015
Edition of CEHRT as previously
required. We note that we are proposing
to change these policies, however, for
the CY 2018 reporting period/FY 2020
payment determination as discussed in
the following section.
In addition, for the CY 2017 reporting
period/FY 2019 payment determination
and subsequent years, we are proposing
that hospitals: (1) Must submit eCQM
data via QRDA I files as previously
required; (2) may continue to use a third
party to submit QRDA I files on their
behalf; and (3) continue to either use
abstraction or pull the data from noncertified sources in order to then input
these data into CEHRT for capture and
reporting QRDA I. This would align the
Hospital IQR Program with the
Medicare EHR Incentive Program. We
refer readers to section VIII.E.2.c. of the
preamble of this proposed rule for
discussion of the proposed certification
requirements for the Medicare EHR
Incentive Program.
We are inviting comment on these
proposals. In addition, we refer readers
to section VIII.A.11.b.(4) of the preamble
of this proposed rule where we
encourage hospitals to take advantage of
eCQM pre-submission testing tools to

help reduce submission errors related to
improperly formatted QRDA I files.
(3) Proposed Required Use of EHR
Technology Certified to the 2015
Edition for the FY 2020 Payment
Determination and Subsequent Years
As stated in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49705), some
commenters requested that hospitals be
given the opportunity to use the most
recent version of the CEHRT (2015
Edition) for the CY 2016 reporting
period/FY 2018 payment determination
if they are able. We believe this
requirement will mitigate the existing
vendor issue of system comparability
between hospitals and vendors and
facilitate consistency regarding the
version of CEHRT to which vendors are
certified by establishing uniformity in
the version of the product used.
Therefore, we are proposing to require
the use of EHR technology certified to
the 2015 Edition beginning with the CY
2018 reporting period for the FY 2020
payment determination and subsequent
years. This would align the Hospital
IQR Program with the Medicare EHR
Incentive Program. We refer readers to
section VIII.E.2.c. of the preamble of this
proposed rule for discussion of the
proposed certification requirements for
the Medicare EHR Incentive Program.
We are inviting public comment on
our proposal to require the use of EHR
technology certified to the 2015 Edition
for the CY 2018 reporting period/FY
2020 payment determination and
subsequent years as stated above.
(4) Proposed Electronic Submission
Deadlines for the FY 2019 Payment
Determination and Subsequent Years
We refer readers to the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50256
through 50259) and the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49705
through 49708) for our previously
adopted policies to align eCQM data
reporting and submission periods for
both the Medicare EHR Incentive
Program for eligible hospitals and CAHs
and the Hospital IQR Program for the FY
2018 payment determination.
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50249 through 50252), we
finalized our policy that hospitals may
voluntarily report 16 electronic
measures by submitting one quarter of
eCQM data from CY Q1 (January 1March 31, 2015), CY Q2 (April 1-June
30, 2015), or CY Q3 (July 1-September
30) by November 30, 2015. In the FY

2016 IPPS/LTCH PPS final rule (80 FR
49693 through 49698), for the FY 2018
payment determination, we finalized a
policy that hospitals must submit one
quarter of data (either Q3 or Q4 of CY
2016) for at least 4 eCQMs by the
submission deadline of February 28,
2017.
In this year’s proposed rule, in order
to align the Hospital IQR Program eCQM
data submission deadline with that of
the Medicare EHR Incentive Program,
which requires eCQM data submission
by the end of two months following the
close of the reporting period calendar
year (80 FR 62896 through 62897), we
are proposing to establish an eCQM
submission deadline for the Hospital
IQR Program which requires eCQM data
submission by the end of two months
following the close of the calendar year
for the CY 2017 reporting period/FY
2019 payment determination and
subsequent years. For example, for the
CY 2017 reporting period/FY 2019
payment determination, hospitals
would be required to submit eCQM data
for the Hospital IQR Program by
February 28, 2018, which is the end of
2 months following the close of the
calendar year (December 31, 2017). This
would align the Hospital IQR Program
with the Medicare EHR Incentive
Program deadlines. We note that
deadlines for the Medicaid (not
Medicare) EHR Incentive Program differ
by State, and therefore our proposal to
align data submission deadlines for
eCQMs applies only to the Hospital IQR
Program and the Medicare EHR
Incentive Program and not to the
Medicaid EHR Incentive Program. For
more information about the Medicaid
EHR Incentive Program for eligible
hospitals and CAHs, we refer readers to:
https://www.cms.gov/Regulations-andGuidance/Legislation/
EHRIncentivePrograms/Eligible_
Hospital_Information.html.
We are inviting public comment on
our proposal to align the Hospital IQR
Program eCQM submission deadline
with that of the Medicare EHR Incentive
Program for the CY 2017 reporting
period/FY 2019 payment determination
and subsequent years as discussed
above.
(5) Summary of Alignment
We are proposing to align the Hospital
IQR Program with the Medicare and
Medicaid EHR Incentive Programs as
summarized below:

Alignment of Hospital IQR Program with both the Medicare and Medicaid EHR Incentive Programs
• Proposed removal of 13 eCQMs
• Proposed requirement for submission of all available eCQMs

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Alignment of Hospital IQR Program with both the Medicare and Medicaid EHR Incentive Programs
• Proposed requirement for annual submission of four quarters of eCQM data
• Proposed continued use of 2014 or 2015 CEHRT for CY 2017 reporting period/FY2019 payment determination
• Proposed use of 2015 CEHRT for CY 2018 reporting period/FY2020 payment determination
Alignment of Hospital IQR Program with only the Medicare EHR Incentive Program
• Proposed submission of eCQM data 2 months following the close of the calendar year

e. Sampling and Case Thresholds for the
FY 2019 Payment Determination and
Subsequent Years
We refer readers to the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50221), the
FY 2012 IPPS/LTCH PPS final rule (76
FR 51641), the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53537), and the FY
2014 IPPS/LTCH PPS final rule (78 FR
50819) for details on our sampling and
case thresholds for the FY 2016
payment determination and subsequent
years. In the FY 2016 IPPS/LTCH PPS
final rule (80 FR 24588), we revised our
sampling and case thresholds policy so
that, for the FY 2018 payment
determination and subsequent years,
hospitals will be required to submit
population and sample size data only
for those measures that a hospital
submits as chart-abstracted measures
under the Hospital IQR Program.
We are not proposing any changes to
our sampling and case thresholds policy
in this proposed rule.

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f. HCAHPS Requirements for the FY
2019 Payment Determination and
Subsequent Years
We refer readers to the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50220), the
FY 2012 IPPS/LTCH PPS final rule (76
FR 51641 through 51643), the FY 2013
IPPS/LTCH PPS final rule (77 FR 53537
through 53538), and the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50819
through 50820) for details on
previously-adopted HCAHPS
requirements. We also refer hospitals
and HCAHPS survey vendors to the
official HCAHPS Web site at http://
www.hcahpsonline.org for new
information and program updates
regarding the HCAHPS Survey, its
administration, oversight, and data
adjustments. In this proposed rule, we
are not proposing any changes to the
HCAHPS requirements.
g. Data Submission Requirements for
Structural Measures for the FY 2019
Payment Determination and Subsequent
Years
We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51643
through 51644) and the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53538
through 53539) for details on the data

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submission requirements for structural
measures. In this proposed rule, we are
not proposing any changes to data
submission requirements for structural
measures.
h. Data Submission and Reporting
Requirements for HAI Measures
Reported via NHSN
For details on the data submission
and reporting requirements for HAI
measures reported via the CDC’s NHSN
Web site, we refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51629 through 51633; 51644 through
51645), the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53539), the FY 2014
IPPS/LTCH PPS final rule (78 FR 50821
through 50822), and the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50259
through 50262). The data submission
deadlines are posted on the QualityNet
Web site at: http://www.QualityNet.
org/. In this proposed rule, we are not
proposing any changes to data
submission and reporting requirements
for HAI measures reported via the
NHSN.
11. Proposed Modifications to the
Existing Processes for Validation of
Hospital IQR Program Data
a. Background
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53539 through 53553), we
finalized the processes and procedures
for validation of chart-abstracted
measures in the Hospital IQR Program
for the FY 2015 payment determination
and subsequent years; the FY 2013
IPPS/LTCH PPS final rule also contains
a comprehensive summary of all
procedures finalized in previous years
that are still in effect. We refer readers
to the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50822 through 50835), the
FY 2015 IPPS/LTCH PPS final rule (79
FR 50262 through 50273), and the FY
2016 IPPS/LTCH PPS final rule (80 FR
49710 through 49712) for detailed
information on the modifications to
these processes finalized for the FY
2016, FY 2017, and FY 2018 payment
determinations and subsequent years.
In this proposed rule, we are
proposing to update the validation
process in order to incorporate a process
for validating eCQM data.

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b. Proposed Modifications to the
Existing Processes for Validation of
Hospital IQR Program Data
(1) Background
In this proposed rule, we are
proposing to update the existing process
for validation of Hospital IQR Program
data, which has previously included up
to 600 hospitals for chart-abstracted
validation, to also include eCQM
validation of up to 200 hospitals, for a
total of up to 800 hospitals for
validation for the FY 2020 payment
determination and subsequent years.
Specifically, 200 hospitals would be
randomly selected for eCQM validation
but among those hospitals some may be
granted Extraordinary Circumstances
Exception (ECE) waivers or meet other
exclusion criteria (discussed in
additional detail below) potentially
resulting in a number totaling less than
200 hospitals that actually participate in
eCQM validation. Furthermore, we are
proposing that hospitals would be
required to submit timely and complete
medical record information from the
Electronic Health Records (EHR) for at
least 75 percent of sampled records, but
would not be scored on the basis of
measure accuracy for FY 2020 payment
determinations.
As we stated in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53555),
determining the equivalence of eCQM
data and chart-abstracted measures data
requires extensive testing given that the
data for the Hospital IQR Program
support public reporting for both the
Hospital IQR and the Hospital VBP
Programs; in addition, for the Hospital
VBP Program, the data are used to
calculate hospitals’ performance on a
subset of measures which tie payment
directly to measure performance. As
described in the Hospital IQR Program
discussion in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50258), we have
received anecdotal comments about
performance level differences between
chart-abstracted and eCQM data. We
stated that we did not have sufficient
data to be able to confirm or refute the
accuracy of those comments (79 FR
50258). In order to substantiate or refute
the existence of performance-level
differences between eCQM data and

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chart-abstracted measure data, we
believe that we must collect more eCQM
data and develop a process for
validating the accuracy of that data.
As a result, we conducted a validation
pilot test for eCQMs (discussed below).
Our findings from this pilot test have
informed what we believe the initial
future direction of eCQM validation in
the Hospital IQR Program should be. In
this proposed rule, we are proposing to
adopt a validation process for eCQM
data submissions beginning in spring of
CY 2018, as further explained below.
(2) Validation Pilot Test
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50269 through 50273), we
finalized a proposal to conduct a
validation pilot test for eCQMs in FY
2015. The results of the pilot test
yielded measure record matching rates
(that is, the rates of medical record
abstracted values as compared to the
values reported in the QRDA I file) of
less than 50 percent for all of the
measures reported. For all measures, the
inconsistencies between abstracted
values and values reported in the QRDA
I files appear to be mainly due to
missing data rather than actual
differences in reported versus abstracted
values. The highest rate of accuracy was
48 percent on both the STK–04 and
VTE–1 eCQM measures. In addition, all
of the participating hospitals
demonstrated significant difficulty in
reporting the ED–1 and ED–2 eCQM
measures due to the ED Admit Date/
Time data element, which contributed
to the ED measure mismatch rates.
Specifically, hospitals systematically
reported a later date and time for the
decision to admit a patient to the
hospital in the QRDA I file than that
identified by the Clinical Data
Abstraction Center (CDAC) in the
review of the medical record.
Follow-up interviews conducted by
CDAC revealed that low accuracy rates

and reporting difficulties were a result
of a lack of targeted outreach and
education efforts at the time of the pilot
to adequately prepare participating
hospitals for the specific reporting
mechanisms. In order to improve data
accuracy and diminish reporting
difficulties, the CMS Outreach and
Education contractor (EOC) as well as
the Validation Support Contractor (VSC)
plan to continue to conduct provider
education follow-up and refine the
validation process. We will work in
conjunction with the EOC and VSC to
enlarge the cohort of eligible hospitals
that are able to successfully submit
QRDA I files, as well as encourage
hospitals that were not able to
successfully submit QRDA I files to
participate in follow-up interviews.
These follow-up interviews will inform
the eCQM validation process moving
forward, and allow us to derive ‘‘best
reporting practices’’ to consider once we
begin scoring the measures.
(3) Proposal To Validate eCQMs
Beginning Spring CY 2018/FY 2020
Payment Determination
In response to the findings of the pilot
test and in light of our proposal to
increase the number of eCQMs on
which hospitals are required to submit
data for the Hospital IQR Program in
section VIII.A.8.a. of the preamble of
this proposed rule, we believe that it is
increasingly important to validate
eCQM data to ensure the accuracy of
future information submitted by
hospitals and reported to the public.
Therefore, we are proposing to adopt a
validation process for eCQM data
submissions beginning in spring of CY
2018, as further explained below.
(a) Number and Selection of Hospitals
We are proposing to validate eCQM
data submitted by up to 200 hospitals
selected via random sample.
Furthermore, we are proposing that the

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Current Validation Process Number of Hospitals

following hospitals be excluded from
this random sample of 200 hospitals
selected for eCQM validation:
• Any hospital selected for chartabstracted measure validation; and
• Any hospital that has been granted
a Hospital IQR Program ‘‘Extraordinary
Circumstances Exemption’’ for the
applicable eCQM reporting period.
We acknowledge that the burden
associated with both the chartabstracted and eCQM validation
processes would be significant. We do
not intend to impose an undue burden
on any hospital by requiring that it be
subject to more than one of these
processes in a program year. Thus, if a
hospital is selected for chart-abstracted
targeted or random validation, we are
proposing that hospital would be
excluded from the eCQM validation
sample.
In addition, although our targeted
criteria permit that a hospital may be
selected for chart-abstracted validation
even if it has been granted an
Extraordinary Circumstances Exemption
with respect to one or more chartabstracted measures for the applicable
data collection period (77 FR 53552
through 53553), if a hospital is granted
an Extraordinary Circumstances
Exemption with respect to eCQM
reporting for the applicable eCQM
reporting period, we are proposing that
the hospital would be excluded from the
eCQM validation sample due to its
inability to supply data for validation.
We note that due to these proposed
exclusions, the total number of hospitals
validated for eCQMs might be less than
200.
Adding the proposed eCQM
validation would result in a total of 800
hospitals in the validation process, as
described in the below tables.

Proposed Validation Process Number of Hospitals

Chart-Abstracted Random ............................................
Chart-Abstracted Targeted ...........................................

400
200

Chart-Abstracted Random ............................................
Chart-Abstracted Targeted ...........................................
eCQM: random .............................................................

400
200
200

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

600

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

800

We believe that as we expand the
required reporting of eCQMs in the
Hospital IQR Program, we need to
validate eCQM data to ensure the
accuracy of information submitted by
hospitals and reported to the public, as
well as for future consideration of
eCQMs for potential use in the Hospital
VBP Program. In addition, during the

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first round of eCQM validation, we
could better assess strategies to offset
the resources required to conduct a
scored method of eCQM validation for
future rulemaking cycles.
We are inviting public comment on
our proposals for the FY 2020 payment
determination and subsequent years to:
(1) Validate eCQM data submitted by up

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to 200 hospitals selected via random
sample; and (2) to exclude any hospital
selected for chart-abstracted measure
validation as well as any hospital that
has been granted a Hospital IQR
Program ‘‘Extraordinary Circumstances
Exemption’’ for the applicable eCQM
reporting period as discussed above.

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(b) Number of Cases
We are proposing to randomly select
32 cases (individual patient-level
reports) from the QRDA I file submitted
per hospital selected for eCQM
validation. Each randomly selected case
(individual patient-level report)
contains eCQM data elements 143 for one
patient for one or more eCQMs available
in the program’s eCQM measure set. The
CDAC would then request that each of
the selected hospitals submit patient
medical record data for each of their 32
randomly selected cases (transmitted by
the hospital to the Clinical Data
Warehouse) within 30 days of the
medical records request date. We refer
readers to our discussion in section
VIII.A.11.b.(3)(c) of the preamble of this
proposed rule, below, for more
information on our proposed
submission requirements.
Based on the statistical properties of
estimates as discussed below, we
believe that a sample size of 32 cases is
necessary to assess hospital
performance on eCQMs. More
specifically, at the individual hospital
level, if we assume the average
agreement rate between the QRDA I file
data and data abstracted from the
patient medical record is around 90
percent, and we want the hospital’s
confidence interval to vary by no more
than plus or minus 10 percentage points
(80 to 100 percent), then we need to
select at least 32 cases per year. Also, 32
cases aligns with the number of cases
currently selected for chart-abstracted
validation of clinical process of care
measures. We currently select eight
cases per quarter per hospital, which
equates to 32 cases annually (79 FR
50264).
We are inviting public comment on
our proposal to randomly select 32 cases
from the QRDA I file submitted per
hospital selected for eCQM validation
for the FY 2020 payment determination
and subsequent years as discussed
above.

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(c) Submission Requirements
We are proposing to require hospitals
selected for eCQM validation to submit
timely and complete medical record
information to CMS on eCQMs selected
for the validation sample. These are
defined below.
143 A data element is a representation of a clinical
concept that represents a patient state or attribute.
This may be a diagnosis, lab value, sex, etc., which
is encoded using standardized terminologies. The
e-specifications for an eCQM include the data
elements, logic, and definitions for that measure,
available from: https://www.cms.gov/Regulationsand-Guidance/Legislation/EHRIncentivePrograms/
Electronic_Reporting_Spec.html.

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Consistent with the Hospital IQR
Program chart-abstracted and NHSN
validation submission deadline, which
is 30 calendar days following the
medical records request date listed on
the CDAC request form (76 FR 51645),
we are proposing to require eCQM
validation submission by 30 calendar
days following the medical records
request date listed on the CDAC request
form for the FY 2020 payment
determination and subsequent years.
Also, we are proposing to require
sufficient patient level information
(defined below) necessary to match the
requested medical record to the original
Hospital IQR Program submitted eCQM
measure data record for the FY 2020
payment determination and subsequent
years. Sufficient patient level
information is defined as the entire
medical record that sufficiently
documents the eCQM measure data
elements, which would include but
would not be limited to, patient arrival
date and time, inpatient admission date,
and discharge date from inpatient
episode of care. Lastly, we are proposing
that, if selected as part of the random
sample for eCQM validation, a hospital
would be required to submit records in
PDF file format through QualityNet
using the Secure File Transfer (SFT) for
the FY 2020 payment determination and
subsequent years. The data submission
deadlines and additional details about
the eCQM validation procedures would
be posted on the QualityNet Web site at:
http://www.QualityNet.org/.
We are inviting public comment on
our proposals regarding eCQM
validation submission requirements for
the FY 2020 payment determination and
subsequent years as discussed above.
(d) Scoring: Summary of Previously
Adopted Chart-Abstracted Measure
Validation Scoring
We refer readers to the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50226
through 50227), the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53539 through
53553), the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50832 through 50833),
and the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50268 through 50269), for a
detailed description of our previously
adopted scoring methodology for chartabstracted measure data.
We note that we are not proposing
any changes to our chart-abstracted
measures validation. We are providing
this information as background for our
discussion of eCQM validation scoring.
Under the current validation process for
the Hospital IQR Program there are 600
hospitals (400 randomly sampled and
200 targeted) selected for validation on
a yearly basis. As stated above, those

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25203

selected for chart-abstracted measure
validation would not be eligible for
selection to participate in eCQM
validation. For chart-abstracted measure
validation, the CDAC contractor
requests hospitals to submit 8 randomly
selected medical charts on a quarterly
basis from which data were abstracted
and submitted by the hospital to the
Clinical Data Warehouse (for a total of
32 charts per year). Under the validation
methodology, once the CDAC contractor
receives the charts, it reabstracts the
same data submitted by the hospitals
and calculates the percentage of
matching Hospital IQR Program
measure numerators and denominators
for each measure within each chart
submitted by the hospital. Each selected
case has multiple measures included in
the validation score. Consistent with
previous years, each quarter and clinical
topic is treated as a stratum for variance
estimation purposes (70 FR 47423).
As in previous years, for the FY 2020
payment determination, the overall
validation score from the chartabstracted measure validation will be
used to determine a hospital’s overall
annual payment update. Specifically, if
a hospital fails chart-abstracted
validation, it would not receive the full
annual payment update. If a hospital
passes chart-abstracted validation, and
also meets the other Hospital IQR
Program requirements, it would be
eligible to receive the full annual
payment update. Consistent with
previous years, a hospital must attain at
least a 75 percent validation score (the
percentage of matching Hospital IQR
Program measure numerators and
denominators for each measure within
each chart submitted by the hospital)
based upon chart-abstracted data
validation to pass the validation
requirement and to be eligible for a full
annual payment update, if all other
Hospital IQR Program requirements are
met.
(e) Scoring: Proposals for eCQM
Validation Scoring
For the FY 2020 payment
determination, for hospitals selected for
eCQM validation, we are proposing to
require submission of at least 75 percent
of sampled eCQM measure medical
records in a timely and complete
manner. However, unlike chartabstracted validation, which requires a
hospital to attain at least a 75 percent
validation score, we are proposing that
the accuracy of eCQM data (the extent
to which data abstracted for validation
matches the data submitted in the
QRDA I file) submitted for validation
would not affect a hospital’s validation
score for the FY 2020 payment

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determination only. This is further
explained below.
Public comments on the FY 2015
IPPS/LTCH PPS final rule suggested
further refinements to the process for
eCQM validation. Specifically, several
commenters urged CMS to implement
the recommendations of a March 2014
Government Accountability Office
(GAO) report to develop a
comprehensive data collection strategy,
which includes testing for and
mitigation of reliability issues arising
from variance in certified EHR systems
tested to different CQM specifications
(79 FR 50272). Commenters in the FY
2016 IPPS/LTCH PPS final rule (80 FR
49711) expressed concern over the
barriers hospitals encounter associated
with reporting eCQMs and encouraged
CMS to ensure that a diverse group of
hospitals and certified EHRs are
represented to inform an assessment of
the work required to make eCQM
validation feasible, reliable, and valid.
In response to these concerns, in light
of operational capacity limitations, and
due to the time necessary to analyze
eCQM validation results, we are
proposing that eCQM data would be
validated, but initially (meaning for the
FY 2020 payment determination only),
the measure accuracy would not affect
hospitals’ validation scores.
In other words, although hospitals
would be required to submit eCQM data
in a timely and complete manner, we
are proposing that hospitals would not
be required to attain at least a 75 percent
validation score (the percentage of
matching Hospital IQR Program
measure numerators and denominators
for each measure within each chart
submitted by the hospital) based upon
QRDA I validation to pass the validation
requirement and to be eligible for a full
annual payment update. Hospitals that
submit at least 75 percent of sampled
eCQM measure medical records (even if
those records do not produce a
validation score of at least 75 percent)
in a timely manner (that is, within 30
days of the date listed on the CDAC
medical records request) would not be
subject to payment reduction. However,
hospitals that fail to submit timely and
complete information for at least 75
percent of requested records would not
meet the eCQM validation requirement
and would be subject to payment
reduction. For example, if a hospital
submits timely and complete
information for at least 75 percent of
requested records, but comparison of
the QRDA I file and the abstracted data
results in a validation score of 28
percent, the hospital still would pass
validation and be eligible for a full
annual payment update.

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Hospitals that pass either chartabstracted or eCQM validation
requirements would receive their full
annual payment update, assuming all
other Hospital IQR Program
requirements are met. Hospitals that fail
to attain at least a 75-percent validation
score for chart-abstracted validation or
fail to submit timely and complete data
for 75 percent of requested records for
eCQM validation, would not receive
their full annual payment update.
In addition, we are proposing to
update our regulations at 42 CFR
412.140(d)(2) to reflect the above
proposals and to specify that the 75
percent score would only apply to chartabstracted validation.
We are inviting public comment on
our eCQM validation scoring proposals
for the FY 2020 payment determination
as discussed above.
(4) Reimbursement for eCQM Validation
To align with the chart-abstracted
validation process, which reimburses
hospitals at a rate of $3.00 per chart (78
FR 50956) for submitting charts
electronically via Secure File Transfer
(SFT), we are proposing to similarly
reimburse hospitals at a rate of $3.00 per
chart for submitting charts
electronically via Secure File Transfer
(SFT) for eCQM validation for the FY
2020 payment determination and
subsequent years. We also refer readers
to section X.B.6. of the preamble of this
proposed rule for more information
regarding the collection of information
for eCQM validation.
We are inviting public comment on
our proposal to reimburse hospitals at a
rate of $3.00 per chart for eCQM
validation for the FY 2020 payment
determination and subsequent years as
discussed above.
(5) eCQM Pre-Submission Testing
We are encouraging hospitals to test
their eCQM submissions prior to annual
reporting using an available CMS presubmission validation tool for electronic
reporting—the Pre-submission
Validation Application (PSVA), which
can be downloaded from the Secure File
Transfer (SFT) section of the QualityNet
Secure Portal at https://
cportal.qualitynet.org/QNet/pgm_
select.jsp. The PSVA is a downloadable
tool that operates on a user’s system to
allow submitters to catch and correct
errors prior to data submission to CMS.
It provides validation feedback within
the submitter’s system and allows valid
files to be separated and submitted
while identifying invalid files for error

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correction.144 While the PSVA does not
guarantee the accuracy of data in a
hospital’s QRDA I file, it helps to reduce
submission errors related to improperly
formatted QRDA I files. Pre-submission
testing would assist in proactively
identifying inconsistencies in data
mapping, a process used in data
warehousing by which different data
models are linked to each other using a
defined set of methods to characterize
the data in a specific definition.145
12. Data Accuracy and Completeness
Acknowledgement (DACA)
Requirements for the FY 2019 Payment
Determination and Subsequent Years
We refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53554) for
previously-adopted details on DACA
requirements. We are not proposing any
changes to the DACA requirements in
this proposed rule.
13. Public Display Requirements for the
FY 2019 Payment Determination and
Subsequent Years
We refer readers to the FY 2008 IPPS/
LTCH PPS final rule (72 FR 47364), the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50230), the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51650), the FY 2013
IPPS/LTCH PPS final rule (77 FR
53554), the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50836), the FY 2015
IPPS/LTCH PPS final rule (79 FR
50277), and the FY 2016 final rule (80
FR 49712 through 49713) for details on
public display requirements. The
Hospital IQR Program quality measures
are typically reported on the Hospital
Compare Web site at: http://
www.medicare.gov/hospitalcompare,
but on occasion are reported on other
CMS Web sites such as https://
data.medicare.gov. We are not
proposing any changes to our public
display requirements in this proposed
rule.
14. Reconsideration and Appeal
Procedures for the FY 2019 Payment
Determination and Subsequent Years
We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51650
through 51651), the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50836), and 42
CFR 412.140(e) for details on
reconsideration and appeal procedures
for the FY 2017 payment determination
and subsequent years. We are not
144 PSVA Demonstration and eCQM Question and
Answer Session. Available at: http://
www.qualityreportingcenter.com/wp-content/
uploads/2016/03/3–10–16-eCQM_PSVADemonstration_FINAL508.pdf.
145 Data Mapping Definition Available at: https:
//www.techopedia.com/definition/6750/datamapping.

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proposing any changes to the
reconsideration and appeals procedures
in this proposed rule.

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15. Proposed Changes to the Hospital
IQR Program Extraordinary
Circumstances Extensions or
Exemptions (ECE) Policy
We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51651
through 51652), the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50836 through
50837), the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50277), the FY 2016
IPPS/LTCH PPS final rule (80 FR
49713), and 42 CFR 412.140(c)(2) for
details on the Hospital IQR Program
ECE policy. We also refer readers to the
QualityNet Web site at http://
www.QualityNet.org/ for our current
requirements for submission of a request
for an extension or exemption.
In this proposed rule, we are
proposing to update our ECE policy by:
(1) Extending the general ECE request
deadline for non-eCQM circumstances
from 30 to 90 calendar days following
an extraordinary circumstance; and (2)
establishing a separate submission
deadline for ECE requests related to
eCQM reporting circumstances to be
April 1 following the end of the
reporting calendar year. We are
proposing that these policies would
apply beginning in FY 2017 as related
to extraordinary circumstance events
that occur on or after October 1, 2016.
a. Proposal To Extend the General ECE
Request Deadline for Non-eCQM
Circumstances
In the past, we have allowed hospitals
to submit an ECE request form for noneCQM measures within 30 calendar
days following an event that causes
hardship and prevents them from
providing data for non-eCQM measures
(76 FR 51652). In certain circumstances,
however, it may be difficult for
hospitals to timely evaluate the impact
of a certain extraordinary event within
30 calendar days. We believe that
extending the deadline to 90 calendar
days would allow hospitals more time
to determine whether it is necessary and
appropriate to submit an ECE request
and to provide a more comprehensive
account of the ‘‘event’’ in their ECE
request form to CMS. For example, if a
hospital has suffered damage due to a
hurricane on January 1, it would have
until March 31 to submit an ECE form
via the QualityNet Secure Portal, mail,
email, or secure fax as instructed on the
ECE form. This proposed timeframe (90
calendar days) also aligns with the ECE
request deadlines for the Hospital VBP
Program (78 FR 50706), the HAC
Reduction Program (80 FR 49580) and

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the Hospital Readmissions Reduction
Program (80 FR 49542 through 49543),
all of which at least partially rely on the
same data collection.
b. Proposal To Establish a Separate
Submission Deadline for ECE Requests
Related to eCQMs
In addition, we are proposing to
establish a separate submission deadline
for ECE requests with respect to eCQM
reporting, such that hospitals must
submit a request by April 1 following
the end of the reporting calendar year.
We are proposing that this deadline for
ECE requests with respect to eCQM
reporting would first apply with an
April 1, 2017 deadline and apply for
subsequent eCQM reporting years. For
example, for data collected for the CY
2016 reporting period (through
December 31, 2016), hospitals would
have until April 1, 2017 to submit an
ECE request. This timeframe also aligns
with the Medicare and Medicaid EHR
Incentive Programs’ typical annual
hardship request deadline (77 FR 54104
through 54109), which we believe
would help reduce burden for hospitals.
We are inviting public comment on
our proposals related to the Hospital
IQR Program’s ECE policy beginning FY
2017 as described above.
B. PPS-Exempt Cancer Hospital Quality
Reporting (PCHQR) Program
1. Background
Section 3005 of the Affordable Care
Act added new sections 1866(a)(1)(W)
and (k) to the Act. Section 1866(k) of the
Act establishes a quality reporting
program for hospitals described in
section 1886(d)(1)(B)(v) of the Act
(referred to as ‘‘PPS-Exempt Cancer
Hospitals’’ or ‘‘PCHs’’) that specifically
applies to PCHs that meet the
requirements under 42 CFR 412.23(f).
Section 1866(k)(1) of the Act states that,
for FY 2014 and each subsequent fiscal
year, a PCH must submit data to the
Secretary in accordance with section
1866(k)(2) of the Act with respect to
such fiscal year. For additional
background information, including
previously finalized measures and other
policies for the PCHQR Program, we
refer readers to the following final rules:
FY 2013 IPPS/LTCH PPS final rule (77
FR 53556 through 53561); the FY 2014
IPPS/LTCH PPS final rule (78 FR 50838
through 50846); the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50277 through
50288); and the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49713 through
49723).

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2. Proposed Criteria for Removal and
Retention of PCHQR Program Measures
We have received public comments
on past proposed rules asking that we
clarify our policy for measure retention
and removal. We generally retain
measures from the previous year’s
PCHQR Program measure set for
subsequent years’ measure sets, except
when we specifically propose to remove
or replace a measure. With respect to
measure removal, we believe it is
important to be transparent in
identifying criteria that we would use to
evaluate a measure for potential removal
from the PCHQR Program. We also
believe that we should align these
criteria between our programs whenever
possible.
Therefore, we are proposing the
following measure removal criteria for
the PCHQR Program, which are based
on criteria established in the Hospital
IQR Program (80 FR 49641 through
49642):
• Measure performance among PCHs
is so high and unvarying that
meaningful distinctions and
improvements in performance can no
longer be made (‘‘topped-out’’
measures);
• A measure does not align with
current clinical guidelines or practice;
• The availability of a more broadly
applicable measure (across settings or
populations) or the availability of a
measure that is more proximal in time
to desired patient outcomes for the
particular topic;
• Performance or improvement on a
measure does not result in better patient
outcomes;
• The availability of a measure that is
more strongly associated with desired
patient outcomes for the particular
topic;
• Collection or public reporting of a
measure leads to negative unintended
consequences other than patient harm;
and
• It is not feasible to implement the
measure specifications.
For the purposes of considering
measures for removal from the program,
we would consider ‘‘topped-out’’ to be
that there is statistically
indistinguishable performance at the
75th and 90th percentiles and that the
truncated coefficient of variation is less
than or equal to 0.10.
However, we recognize that there are
times when measures may meet some of
the outlined criteria for removal from
the program, but continue to bring value
to the program. Therefore, we are
proposing the following criteria for
consideration in determining whether to
retain a measure in the PCHQR Program,

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which also are based on criteria
established in the Hospital IQR Program
(80 FR 49641 through 49642):
• Measure aligns with other CMS and
HHS policy goals;
• Measure aligns with other CMS
programs, including other quality
reporting programs; and
• Measure supports efforts to move
PCHs towards reporting electronic
measures.
We welcome public comments on
these proposed measure removal and
retention criteria.
3. Retention and Proposed Update to
Previously Finalized Quality Measures
for PCHs Beginning With the FY 2019
Program Year
a. Background

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In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53556 through 53561), we
finalized five quality measures for the
FY 2014 program year and subsequent
years. In the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50837 through 50847),
we finalized one new quality measure
for the FY 2015 program year and
subsequent years and 12 new quality
measures for the FY 2016 program year
and subsequent years. In the FY 2015
IPPS/LTCH PPS final rule (79 FR 50278
through 50280), we finalized one new
quality measure for the FY 2017
program year and subsequent years. In
the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49713 through 49719), we
finalized three new CDC NHSN
measures for the FY 2018 program year
and subsequent years, and finalized the
removal of six previously finalized
measures for fourth quarter (Q4) 2015
discharges and subsequent years. We
refer readers to the final rules referenced
in section VIII.B.1. of the preamble of
this proposed rule for more information
regarding these previously finalized
measures.
We are not proposing for FY 2019 to
remove any of the measures previously
finalized for the FY 2018 program year
from the PCHQR measure set. However,
we are proposing to update the
Oncology: Radiation Dose Limits to
Normal Tissues (NQF #0382) measure,
described below.
b. Proposed Update of Oncology:
Radiation Dose Limits to Normal
Tissues (NQF #0382) Measure for FY
2019 Program Year and Subsequent
Years
Beginning with the FY 2019 program
year, we are proposing to update the
specifications of the Oncology:
Radiation Dose Limits to Normal
Tissues (NQF #0382) measure. This
measure was originally finalized in the

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FY 2014 IPPS/LTCH PPS final rule (78
FR 50841 through 50842). In November
2014, subsequent to our adoption of the
measure in the PCHQR Program,
updated specifications were endorsed
by the NQF.
The updated measure specifications
expand the patient cohort to include
patients receiving 3D conformal
radiation therapy for breast or rectal
cancer in addition to patients receiving
3D conformal radiation therapy for lung
or pancreatic cancers (the original
cohort).146 For additional information
about the original measure cohort, we
refer readers to the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50842), in which
we introduced the measure to the
PCHQR Program. In 2012, breast cancer
was the most common cancer among
women, and the second most common
cause of cancer related deaths for
women.147 For 2016, the National
Institutes of Health estimates that there
will be approximately 135,000 new
cases of colorectal cancer in the United
States, with approximately 39,000 of
these cases being rectal cancer.148
As these cancer types are so
prevalent, we believe that the expansion
of the measure cohort to include breast
and rectal cancer patients is important
to ensuring the delivery of high quality
care in the PCH setting. In compliance
with section 1890A(a)(2) of the Act, this
measure update was included in a
publicly available document, ‘‘List of
Measures under Consideration for
December 1, 2015.’’ 149 The MAP, a
multi-stakeholder group convened by
the NQF, reviews the measures under
consideration for the PCHQR Program,
among other Federal programs, and
provides input on those measures to the
Secretary. The MAP’s 2016
recommendations for quality measures
under consideration are captured in the
following document: ‘‘Process and
Approach for MAP Pre-Rulemaking
Deliberations 2015–2016’’ (http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=
81599). The MAP expressed conditional
support for the update of Oncology:
Radiation Dose Limits to Normal
Tissues. The MAP’s conditional support
was solely pending annual NQF review,
and was not based on significant
146 Available at: http://www.qualityforum.org/
QPS/0382.
147 CDC Breast Cancer Statistics. Available at:
http://www.cdc.gov/cancer/breast/statistics/.
148 NIH Colorectal Cancer Incidence and
Mortality. Available at: http://www.cancer.gov/
types/colorectal/hp/rectal-treatment-pdq.
149 CMS List of Measures under Consideration.
Available at: http://www.qualityforum.org/
WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=
81172.

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concerns. We considered the input and
recommendations provided by the MAP,
and the importance of aligning with
NQF-endorsed specifications of
measures whenever possible, in
proposing this update for the PCHQR
Program.
We welcome public comments on this
proposal for the Oncology: Radiation
Dose Limits to Normal Tissues measure
cohort expansion for the FY 2019
program year and subsequent years.
4. Proposed New Quality Measure
Beginning With the FY 2019 Program
Year
a. Considerations in the Selection of
Quality Measures
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53556), the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50837
through 50838), and the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50278), we
indicated that we have taken a number
of principles into consideration when
developing and selecting measures for
the PCHQR Program, and that many of
these principles are modeled on those
we use for measure development and
selection under the Hospital IQR
Program. In this proposed rule, we are
not proposing any changes to the
principles we consider when
developing and selecting measures for
the PCHQR Program.
Section 1866(k)(3)(A) of the Act
requires that any measure specified by
the Secretary must have been endorsed
by the entity with a contract under
section 1890(a) of the Act (the NQF is
the entity that currently holds this
contract). Section 1866(k)(3)(B) of the
Act provides an exception under which,
in the case of a specified area or medical
topic determined appropriate by the
Secretary for which a feasible and
practical measure has not been endorsed
by the entity with a contract under
section 1890(a) of the Act, the Secretary
may specify a measure that is not so
endorsed as long as due consideration is
given to measures that have been
endorsed or adopted by a consensus
organization.
Using the principles for measure
selection in the PCHQR Program, we are
proposing one new measure, described
below.
b. Proposed Adoption of the Admissions
and Emergency Department (ED) Visits
for Patients Receiving Outpatient
Chemotherapy Measure
We are proposing to adopt the
Admissions and Emergency Department
(ED) Visits for Patients Receiving
Outpatient Chemotherapy measure for
the FY 2019 program year and

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subsequent years. Cancer care is a
priority area for outcome measurement
because cancer is an increasingly
prevalent condition associated with
considerable morbidity and mortality. In
2015, there were more than 1.6 million
new cases of cancer in the United
States.150 Each year, about 22 percent of
cancer patients receive
chemotherapy,151 with Medicare
payments for cancer treatment totaling
$34.4 billion in 2011 or almost 10
percent of Medicare fee-for-service
(FFS) spending.152 With an increasing
number of cancer patients receiving
chemotherapy in a hospital outpatient
department,153 a growing body of peerreviewed literature identifies unmet
needs in the care provided to these
patients. This gap in care may be due to
reasons including: (1) Delayed onset of
side effects that patients must manage at
home; (2) patients assuming that little
can be done and not seeking assistance;
and (3) limited access to and
communication with providers who can
tailor care to the individual.154 As a
result, cancer patients that receive
chemotherapy in a hospital outpatient
department require more frequent acute
care in the hospital setting and
experience more adverse events than
cancer patients that are not receiving
chemotherapy.155 156 157
150 American Cancer Society. ‘‘Cancer Facts &
Figures 2015.’’ Available at: http://www.cancer.org/
acs/groups/content/@editorial/documents/
document/acspc-044552.pdf.
151 Klodziej, M., J.R. Hoverman, J.S. Garey, J.
Espirito, S. Sheth, A. Ginsburg, M.A. Neubauer, D.
Patt, B. Brooks, C. White, M. Sitarik, R. Anderson,
and R. Beveridgel. ‘‘Benchmarks for Value in
Cancer Care: An Analysis of a Large Commercial
Population.’’ Journal of Oncology Practice, Vol. 7,
2011, pp. 301–306.
152 Sockdale, H., K. Guillory. ‘‘Lifeline: Why
Cancer Patients Depend on Medicare for Critical
Coverage.’’ Available at: http://www.acscan.org/
content/wp-content/uploads/2013/06/2013Medicare-Chartbook-Online-Version.pdf.
153 Vandervelde, Aaron, Henry Miller, and
JoAnna Younts. ‘‘Impact on Medicare Payments of
Shift in Site of Care for Chemotherapy
Administration.’’ Washington, DC: Berkeley
Research Group, June 2014. Available at: http://
www.communityoncology.org/UserFiles/BRG_
340B_SiteofCare_ReportF_6–9–14.pdf.
154 McKenzie, H., L. Hayes, K. White, K. Cox, J.
Fethney, M. Boughton, and J. Dunn.
‘‘Chemotherapy Outpatients’ Unplanned
Presentations to Hospital: A Retrospective Study.’’
Supportive Care in Cancer, Vol. 19, No. 7, 2011, pp.
963–969.
155 Sadik, M., K. Ozlem, M. Huseyin, B.
AliAyberk, S. Ahmet, and O. Ozgur. ‘‘Attributes of
Cancer Patients Admitted to the Emergency
Department in One Year.’’ World Journal of
Emergency Medicine, Vol. 5, No. 2, 2014, pp. 85–
90. Available at: http://www.ncbi.nlm.nih.gov/pmc/
articles/PMC4129880/#ref4.
156 Hassett, M.J., J. O’Malley, J.R. Pakes, J.P.
Newhouse, and C.C. Earle. ‘‘Frequency and Cost of
Chemotherapy-Related Serious Adverse Effects in a
Population Sample of Women with Breast Cancer.’’
Journal of the National Cancer Institute, Vol. 98,
No. 16, 2006, pp. 1108–1117.

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Unmet patient needs resulting in
admissions and ED visits related to
chemotherapy treatment pose a heavy
financial burden and affect patients’
quality of life. Based on available
commercial claims data, in 2010 the
national average cost of a
chemotherapy-related admission was
$22,000, and the average cost of a
chemotherapy-related ED visit was
$800.158 Furthermore, admissions and
ED visits can reduce patients’ quality of
life by affecting their physical and
emotional well-being, disrupting their
schedules, decreasing their desire to
engage in work and social activities, and
increasing the burden on their
family.159 160
Hospital admissions and ED visits
among cancer patients are often caused
by manageable side effects.
Chemotherapy treatment can have
severe, predictable side effects. Recent
studies of cancer outpatients show the
most commonly cited symptoms and
reasons for unplanned hospital visits
following chemotherapy treatment are
pain, anemia, fatigue, nausea and/or
vomiting, fever and/or febrile
neutropenia, shortness of breath,
dehydration, diarrhea, and anxiety/
depression.161 These hospital visits may
be due to conditions related to the
cancer itself or to side effects of
chemotherapy. However, treatment
plans and guidelines exist to support
the management of these conditions.
PCHs that provide outpatient
chemotherapy should implement
appropriate care to minimize the need
for acute hospital care for these adverse
events. Guidelines from the American
Society of Clinical Oncology, National
Comprehensive Cancer Network,
Oncology Nursing Society, Infectious
Diseases Society of America, and other
157 Foltran, L., G. Aprile, F.E. Pisa, P. Ermacora,
N. Pella, E. Iaiza, E. Poletto, SE. Lutrino, M. Mazzer,
M. Giovannoni, G.G. Cardellino, F. Puglisi, and G.
Fasola. ‘‘Risk of Unplanned Visits for Colorectal
Cancer Outpatients Receiving Chemotherapy: A
Case-Crossover Study.’’ Supportive Care in Cancer,
Vol. 22, No. 9, 2014, pp. 2527–2533.
158 Fitch, K., and B. Pyenson. ‘‘Cancer Patients
Receiving Chemotherapy: Opportunities for Better
Management.’’ Available at: http://
us.milliman.com/uploadedFiles/insight/research/
health-rr/cancer-patients-receivingchemotherapy.pdf.
159 McKenzie, H., L. Hayes, K. White, K. Cox, J.
Fethney, M. Boughton, and J. Dunn.
‘‘Chemotherapy Outpatients’ Unplanned
Presentations to Hospital: A Retrospective Study.’’
Supportive Care in Cancer, Vol. 19, No. 7, 2011, pp.
963–969.
160 Hassett, M.J., J. O’Malley, J.R. Pakes, J.P.
Newhouse, and C.C. Earle. ‘‘Frequency and Cost of
Chemotherapy-Related Serious Adverse Effects in a
Population Sample of Women with Breast Cancer.’’
Journal of the National Cancer Institute, Vol. 98,
No. 16, 2006, pp. 1108–1117.
161 Ibid.

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professional societies recommend
evidence-based interventions to prevent
and treat common side effects and
complications of chemotherapy.
Appropriate outpatient care should
reduce potentially avoidable hospital
admissions and ED visits for these
issues and improve cancer patients’
quality of life.
This measure aims to assess the care
provided to cancer patients and
encourage quality improvement efforts
to reduce the number of unplanned
inpatient admissions and ED visits
among cancer patients receiving
chemotherapy in a PCH outpatient
setting. Improved PCH management of
these potentially preventable
symptoms—including anemia,
dehydration, diarrhea, emesis, fever,
nausea, neutropenia, pain, pneumonia,
or sepsis—could reduce unplanned
admissions and ED visits for these
conditions. Measuring unplanned
admissions and ED visits for cancer
patients receiving outpatient
chemotherapy would provide PCHs
with an incentive to improve the quality
of care for these patients by taking steps
to prevent and better manage side
effects and complications from
treatment. In addition, this measure
meets two National Quality Strategy
priorities: (1) Promoting effective
communication and coordination of
care; and (2) promoting the most
effective prevention and treatment
practices for the leading causes of
mortality.
We are proposing to adopt this
measure under the exception authority
in section 1866(k)(3)(B) of the Act under
which, in the case of a specified area or
medical topic determined appropriate
by the Secretary for which a feasible and
practical measure has not been endorsed
by the entity with a contract under
section 1890(a) of the Act, the Secretary
may specify a measure that is not so
endorsed as long as due consideration is
given to measures that have been
endorsed or adopted by a consensus
organization. Existing measures that the
NQF has endorsed focus on processes of
care related to outpatient cancer care.
This proposed measure aligns with
the intent of two process measures we
adopted in the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50842 through 50843)
for FY 2016 and subsequent years: (1)
Clinical Process/Oncology Care—Plan of
Care for Pain (NQF #0383); and (2)
Clinical Process/Oncology: Medical and
Radiation—Pain Intensity Quantified
(NQF #0384). Process measures NQF
#0383 and NQF #0384, which are not
risk-adjusted, support the intent of the
proposed measure by reinforcing that
providers of outpatient care should

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screen for and manage symptoms such
as pain. The proposed measure
improves upon these two measures in
two key ways: (1) It does not target a
specific symptom, but rather assesses
the overall management of 10 important
symptoms that studies have identified
as frequent reasons for ED visits and
inpatient admissions in this population;
and (2) it assesses the care outcomes
that matter to patients, rather than
measuring processes to detect and treat
these conditions. Also, we are not aware
of any other measures a consensus
organization has endorsed or adopted
that assess the quality of outpatient
cancer care by measuring unplanned
inpatient admissions and ED visits.
The MAP supported this measure on
the condition that it is reviewed and
endorsed by NQF. We refer readers to
the Spreadsheet of MAP 2016 Final
Recommendations available at: http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=
81593. In particular, MAP members
recommended considering the measure
for sociodemographic status (SDS)
adjustment in the ongoing NQF trial
period and reviewing it to ensure that
the detailed specifications meet the
intent of the measure and align with
current cancer care practice.
We understand the important role that
SDS plays in the care of patients.
However, we continue to have concerns
about holding hospitals to different
standards for the outcomes of their
patients of diverse sociodemographic
status because we do not want to mask
potential disparities or minimize
incentives to improve the outcomes of
disadvantaged populations. We
routinely monitor the impact of
sociodemographic status on hospitals’
results on our measures.
The NQF is currently undertaking a 2year trial period in which new measures
and measures undergoing maintenance
review will be assessed to determine if
risk-adjusting for sociodemographic
factors is appropriate. For 2 years, NQF
will conduct a trial of temporarily
allowing inclusion of sociodemographic
factors in the risk-adjustment approach
for some performance measures. At the
conclusion of the trial, NQF will issue
recommendations on future permanent
inclusion of sociodemographic factors.
During the trial, measure developers are
expected to submit information such as
analyses and interpretations as well as
performance scores with and without
sociodemographic factors in the risk
adjustment model. We submitted this
measure to NQF with appropriate
consideration for SDS for endorsement
proceedings as part of the NQF Cancer
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March 2016 and it is currently
undergoing review. However, the
measure we are proposing to adopt at
this time for the PCHQR Program does
not include this adjustment.
Furthermore, the Office of the
Assistant Secretary for Planning and
Evaluation (ASPE) is conducting
research to examine the effect of
socioeconomic, demographic, and other
characteristics on quality measures,
resource use, and other measures in the
Medicare program, as directed by the
IMPACT Act. We will closely examine
the findings of the ASPE reports and
related Secretarial recommendations
and consider how they apply to our
quality programs at such time as they
are available.
In addition, several MAP members
noted the alignment of this measure
concept with other national priorities,
such as improving patient experience,
and other national initiatives to improve
cancer care, as well as the importance
of this measure to raise awareness and
create a feedback loop with providers.
This Admissions and Emergency
Department (ED) Visits for Patients
Receiving Outpatient Chemotherapy
measure is a risk-standardized outcome
measure for patients age 18 years or
older who are receiving PCH-based
outpatient chemotherapy treatment for
all cancer types except leukemia; it
measures inpatient admissions or ED
visits within 30 days of each outpatient
chemotherapy encounter for any of the
following qualifying diagnoses: anemia,
dehydration; diarrhea; emesis; fever;
nausea; neutropenia; pain; pneumonia;
or sepsis, as these are associated with
commonly cited reasons for hospital
visits among cancer patients receiving
chemotherapy.162
The proposed measure uses 1 year of
Medicare FFS Part A and Part B
administrative claims data with respect
to beneficiaries receiving chemotherapy
treatment in a PCH outpatient setting.
The qualifying diagnosis on the
admission or ED visit claim must be (1)
the primary diagnosis or (2) a secondary
diagnosis accompanied by a primary
diagnosis of cancer.
We limited the window for
identifying the outcomes of admissions
and ED visits to 30 days after PCH
outpatient chemotherapy treatment
encounters, as existing literature
suggests the vast majority of adverse
events occur within that time
162 Hassett, M.J., J. O’Malley, J.R. Pakes, J.P.
Newhouse, and C.C. Earle. ‘‘Frequency and Cost of
Chemotherapy-Related Serious Adverse Effects in a
Population Sample of Women with Breast Cancer.’’
Journal of the National Cancer Institute, Vol. 98,
No. 16, 2006, pp. 1108–1117.

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frame 163 164 165 and we also observed
this during testing. In addition, the
technical expert panel (TEP) supported
this time window because: (1) It helps
link patients’ experiences to the
facilities that provided their recent
treatment while accounting for
variations in time between outpatient
treatment encounters; (2) it supports the
idea that the admission is related to the
management of side effects of treatment
and ongoing care, as opposed to
progression of the disease or other
unrelated events; and (3) clinically, 30
days after each outpatient chemotherapy
treatment is a reasonable timeframe to
observe related side effects.
The measure identifies outcomes
separately for the inpatient and ED
measures. A patient can qualify only
once for one of the two outcomes in
each measurement period. If patients
experience both an inpatient admission
and an ED visit after outpatient
chemotherapy during the measurement
period, the measure counts them toward
the inpatient admission outcome
because this outcome represents a more
significant deterioration in patient
quality of life, and is more costly.
Among those with no qualifying
inpatient admissions, the measure
counts qualifying standalone ED visits.
As a result, the rates provide a
comprehensive performance estimate of
quality of care. We calculate the rates
separately because the severity and cost
of an inpatient admission differ from
those of an ED visit, but both adverse
events are significant quality indicators
and represent outcomes of care that are
important to patients.
The measure attributes the outcome to
the PCH where the patient received
chemotherapy treatment during the 30
days before the outcome. If a patient
received outpatient chemotherapy
treatment from more than one PCH in
the 30 days before the outcome, the
measure would attribute the outcome to
all the PCHs that provided treatment.
For example, if a patient received an
163 Aprile, G., F.E. Pisa, A. Follador, L. Foltran,
F. De Pauli, M. Mazzer, S. Lutrino, C.S. Sacco, M.
Mansutti, and G. Fasola. ‘‘Unplanned Presentations
of Cancer Outpatients: A Retrospective Cohort
Study.’’ Supportive Care in Cancer, Vol. 21, No. 2,
2013, pp. 397–404.
164 Foltran, L., G. Aprile, F.E. Pisa, P. Ermacora,
N. Pella, E. Iaiza, E. Poletto, SE. Lutrino, M. Mazzer,
M. Giovannoni, G.G. Cardellino, F. Puglisi, and G.
Fasola. ‘‘Risk of Unplanned Visits for Colorectal
Cancer Outpatients Receiving Chemotherapy: A
Case-Crossover Study.’’ Supportive Care in Cancer,
Vol. 22, No. 9, 2014, pp. 2527–2533.
165 McKenzie, H., L. Hayes, K. White, K. Cox, J.
Fethney, M. Boughton, and J. Dunn.
‘‘Chemotherapy Outpatients’ Unplanned
Presentations to Hospital: A Retrospective Study.’’
Supportive Care in Cancer, Vol. 19, No. 7, 2011, pp.
963–969.

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outpatient chemotherapy treatment at
PCH A on January 1, a second treatment
at PCH B on January 10, and then
experienced a qualifying inpatient
admission on January 15, the measure
would count this outcome for both PCH
A and PCH B because both PCHs
provided outpatient chemotherapy
treatment to the patient within the 30day window. However, if a patient
received an outpatient chemotherapy
treatment from PCH A on January 1, and
a second treatment from PCH B on
March 1, and then experienced a
qualifying inpatient admission on
March 3, the measure would attribute
this outcome only to PCH B. In measure
testing, using Medicare FFS claims data
from July 1, 2012, to June 30, 2013, only
5 percent of patients in the cohort
received outpatient chemotherapy
treatment from more than one facility
during that year.
For additional methodology details,
including the code sets used to identify
the qualifying outcomes, we refer
readers to the CMS Web site at: http://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html under
‘‘Hospital Outpatient Chemotherapy.’’
This measure includes all adult
Medicare FFS patients because this
would enable us to more broadly assess
the quality of care provided by the PCH.
This measure focuses on treatments in
the PCH outpatient setting because of
the increase in hospital-based
chemotherapy, which presents an
opportunity to coordinate care. From
2008 to 2012, the proportion of
Medicare patients receiving hospitalbased outpatient chemotherapy
increased from 18 to 29 percent, and
this trend is likely to continue. As
currently specified, the measure
identifies chemotherapy treatment using
ICD–9–CM procedure and encounter
codes and Current Procedural
Terminology (CPT)/Healthcare Common
Procedure Coding System (HCPCS)
procedure and medication procedure
codes. It excludes procedure codes for
oral chemotherapy because it is
challenging to identify oral
chemotherapy without using pharmacy
claims data and, according to our TEP,
most oral chemotherapies have fewer
adverse reactions that result in
admissions. We have developed a
‘‘coding crosswalk’’ between the ICD–9–
CM codes and the ICD–10 codes that
became effective beginning on October
1, 2015, and we will test this crosswalk
prior to implementation. For detailed
information on the cohort definition,
including the ICD–9–CM, ICD–10, CPT,
and HCPCS codes that identify

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chemotherapy treatment, we refer
readers to the Data Dictionary appendix
to the measure Technical Report at:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html under
‘‘Hospital Outpatient Chemotherapy.’’
The measure excludes three groups of
patients: (1) Patients with a diagnosis of
leukemia at any time during the
measurement period because of the high
toxicity of treatment and recurrence of
disease, and because inpatient
admissions and ED visits may reflect a
relapse, rather than poorly managed
outpatient care; (2) patients who were
not enrolled in Medicare FFS Parts A
and B in the year before the first
outpatient chemotherapy treatment
encounter during the measurement
period (because the risk-adjustment
model uses claims data for the year
before the first chemotherapy treatment
encounter during the period to identify
comorbidities); and (3) patients who do
not have at least one outpatient
chemotherapy treatment encounter
followed by continuous enrollment in
Medicare FFS Parts A and B in the 30
days after the encounter (because the
measure cannot assess the 30-day
outcome in this group since it uses
claims data to determine whether a
patient had an ED visit or a hospital
inpatient admission).
Risk adjustment takes into account
important demographic and clinicallyrelevant patient characteristics that have
strong relationships with the outcome. It
seeks to adjust for differences in patient
demographics, clinical comorbidities,
and treatment exposure, which vary
across patient populations and
influence the outcome but do not relate
to quality. Specifically, the measure
adjusts for: (1) The patient’s age at the
start of the measurement period; (2) sex;
(3) comorbidities that convey
information about the patient in the 12
months before his or her first outpatient
chemotherapy treatment encounter
during the measurement period; (4)
cancer type; and (5) the number of
outpatient chemotherapy treatments the
patient received at the reporting PCH
during the measurement period.
We developed two risk-adjustment
models, one for each dependent variable
described above—qualifying inpatient
admissions and qualifying ED visits.
The separate models are necessary to
enable the use of the most parsimonious
model with variables tailored to those
that are most predictive for each of the
measure’s two mutually exclusive
outcomes. The measure algorithm first
searches for a qualifying inpatient
admission, and for those patients that

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do not have a qualifying inpatient
admission, searches for a qualifying ED
visit. Therefore, the patient-mix and
predictive risk factors for each outcome
is slightly different. The statistical riskadjustment model for inpatient
admissions includes 20 clinically
relevant risk-adjustment variables that
are strongly associated with the risk of
one or more hospital admissions within
30 days following an outpatient
chemotherapy treatment encounter in a
hospital outpatient setting; the
statistical risk-adjustment model for ED
visits includes 15 clinically relevant
risk-adjustment variables that are
strongly associated with risk of one or
more ED visits within 30 days following
an outpatient chemotherapy treatment
encounter in a hospital outpatient
setting (3 comorbidities and 2 cancer
types significant for inpatient
admissions are not significant for ED
visits).
The measure uses hierarchical logistic
modeling, similar to the approach used
in the CMS inpatient hospital 30-day
risk-standardized mortality and
readmission outcome measures, such as
the Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate (RSMR)
Following Acute Myocardial Infarction
(AMI) Hospitalization.166 This approach
appropriately accounts for both
differences in patient-mix and the
clustering of observations within PCHs.
The measure calculates the PCH-specific
risk-adjusted rate as the ratio of the
PCH’s ‘‘predicted’’ number of outcomes
to ‘‘expected’’ number of outcomes
multiplied by the national observed
outcome rate. It estimates the expected
number of outcomes for each PCH using
the PCH’s patient-mix and the average
PCH-specific intercept (that is, the
average intercept among all PCHs in the
sample). The measure estimates the
predicted number of outcomes for each
PCH using the same patient-mix, but an
estimated PCH-specific intercept.
The measure calculates two rates, one
for each mutually exclusive outcome
(qualifying inpatient admissions and
qualifying ED visits). It derives the two
rates (also referred to as the PCH-level
risk-standardized admission rate (RSAR)
and risk-standardized ED visit rate
(RSEDR)), from the ratio of the
numerator to the denominator
multiplied by the national observed
rate. The numerator is the number of
predicted (meaning adjusted actual)
patients with the measured adverse
outcome. The denominator is the
166 Methodology reports for these measures are
available at the following link: https://www.cms.
gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/
Measure-Methodology.html.

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number of patients with the measured
adverse outcome the PCH is expected to
have based on the national performance
with the PCH’s case mix. The national
observed rate is the national unadjusted
number of patients who have an adverse
outcome among all the qualifying
patients who had at least one
chemotherapy treatment encounter in a
PCH. If the ‘‘predicted’’ number of
outcomes is higher (or lower) than the
‘‘expected’’ number of outcomes for a
given hospital, the risk-standardized
rate will be higher (or lower) than the
national observed rate.
For more detailed information on the
calculation methodology, we refer
readers to the methodology report at:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html under
‘‘Hospital Outpatient Chemotherapy.’’

We would publicly report the RSAR
and RSEDR for all participating PCHs
with 25 or more eligible patients per
measurement period to maintain a
reliability of at least 0.4 (as measured by
the interclass correlation coefficient,
ICC). If a PCH does not meet the 25
eligible patient threshold, we would
include a footnote on the Hospital
Compare Web site indicating that the
number of cases is too small to reliably
measure that PCH’s rate. These patients
and PCHs would still be included when
calculating the national rates for both
the RSAR and RSEDR.
To prepare PCHs for public reporting,
we would conduct a confidential
national reporting (dry run) of measure
results prior to public reporting. The
objectives of the dry run are to: (1)
Educate PCHs and other stakeholders
about the measure; (2) allow PCHs to
review their measure results and data

prior to public reporting; (3) answer
questions from PCHs and other
stakeholders; (4) test the production and
reporting process; and (5) identify
potential technical changes to the
measure specifications that might be
needed. We have not yet determined the
measurement period to use for the dry
run calculations, but acknowledge the
importance of including some data
based on ICD–10 codes to evaluate the
success of the ‘‘coding crosswalk.’’
We are inviting public comment on
our proposal to adopt the Admissions
and Emergency Department (ED) Visits
for Patients Receiving Outpatient
Chemotherapy measure for the FY 2019
program year and subsequent years.
In summary, the previously finalized
and newly proposed measures for the
PCHQR Program for the FY 2019
program year and subsequent years are
listed in the table below.

PREVIOUSLY FINALIZED AND PROPOSED PCHQR MEASURES FOR THE FY 2019 PROGRAM YEAR AND SUBSEQUENT
YEARS
Short name

NQF No.

Measure name

Safety and Healthcare-Associated Infection (HAI)
CLABSI .....................................................

0139

CAUTI .......................................................

0138

SSI ............................................................

0753

CDI ............................................................

1717

MRSA ........................................................

1716

HCP ..........................................................

0431

National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream
Infection Outcome Measure.
National Healthcare Safety Network (NHSN) Catheter-Associated Urinary Tract Infections Outcome Measure.
American College of Surgeons—Centers for Disease Control and Prevention
(ACS–CDC) Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure [currently includes SSIs following Colon Surgery and Abdominal
Hysterectomy Surgery].
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset
Clostridium difficile Infection (CDI) Outcome Measure.
National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset
Methicillin-resistant Staphylococcus aureus Bacteremia Outcome Measure.
Influenza Vaccination Coverage Among Healthcare Personnel.

Clinical Process/Cancer Specific Treatment
N/A ............................................................

0223

N/A ............................................................

0559

N/A ............................................................

0220

Adjuvant Chemotherapy is Considered or Administered Within 4 Months (120 days)
of Diagnosis to Patients Under the Age of 80 with AJCC III (lymph node positive)
Colon Cancer.
Combination Chemotherapy is Considered or Administered Within 4 Months (120
days) of Diagnosis for Women Under 70 with AJCC T1cN0M0, or Stage IB—III
Hormone Receptor Negative Breast Cancer. ***
Adjuvant Hormonal Therapy.

Clinical Process/Oncology Care Measures

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N/A
N/A
N/A
N/A

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

0382
0383
0384
0390

N/A ............................................................

0389

Oncology: Radiation Dose Limits to Normal Tissues. *
Oncology: Plan of Care for Pain—Medical Oncology and Radiation Oncology.
Oncology: Medical and Radiation—Pain Intensity Quantified.
Prostate Cancer: Adjuvant Hormonal Therapy for High Risk Prostate Cancer Patients.
Prostate Cancer: Avoidance of Overuse of Bone Scan for Staging Low Risk Prostate Cancer Patients.

Patient Engagement/Experience of Care
HCAHPS ...................................................

0166

HCAHPS.

Clinical Effectiveness Measure
EBRT ........................................................

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PREVIOUSLY FINALIZED AND PROPOSED PCHQR MEASURES FOR THE FY 2019 PROGRAM YEAR AND SUBSEQUENT
YEARS—Continued
Short name

NQF No.

Measure name

Claims Based Outcome Measure
N/A ............................................................

N/A

Admissions and Emergency Department (ED) Visits for Patients Receiving Outpatient Chemotherapy. **

* Proposed for update in FY 2019 program year.
** Newly proposed for FY 2019 program year.
*** In previous final rules, this measure was titled ‘‘Combination Chemotherapy is Considered or Administered Within 4 months (120 days) of
Diagnosis for Women Under 70 with AJCC T1c, or Stage II or III Hormones Receptor Negative Breast Cancer. This name change is consistent
with NQF updates to the measure name and reflects an update in the AJCC staging, does not reflect a change in the measure inclusion criteria,
and is not considered substantive.

5. Possible New Quality Measure Topics
for Future Years

6. Maintenance of Technical
Specifications for Quality Measures

7. Public Display Requirements

We discussed future quality measure
topics and quality measure domain
areas in the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50280), and in the FY
2016 IPPS/LTCH PPS final rule (80
FR4979), we discussed public comment
and specific suggestions for measure
topics addressing the following CMS
Quality Strategy domains: Making care
affordable; communication and
coordination; and working with
communities to promote best practices
of healthy living. We welcome public
comment and specific suggestions for
measure topics that we should consider
for future rulemaking.

We maintain technical specifications
for the PCHQR Program measures, and
we periodically update those
specifications. The specifications may
be found on the QualityNet Web site at:
https://qualitynet.org/dcs/Content
Server?c=Page&pagename=QnetPublic
%2FPage%2FQnetTier2&cid=
1228774479863.
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50281), we adopted a policy
under which we use a subregulatory
process to make nonsubstantive updates
to measures used for the PCHQR
Program. We are not proposing any
changes to this policy in this proposed
rule.

Under section 1866(k)(4) of the Act,
we are required to establish procedures
for making the data submitted under the
PCHQR Program available to the public.
Such procedures must ensure that a
PCH has the opportunity to review the
data that are to be made public with
respect to the PCH prior to such data
being made public. Section 1866(k)(4) of
the Act also provides that the Secretary
must report quality measures of process,
structure, outcome, patients’ perspective
on care, efficiency, and costs of care that
relate to services furnished in such
hospitals on the CMS Web site. The
measures that we have finalized for
public display are shown in the table
below.

a. Background

PREVIOUSLY FINALIZED MEASURES FOR PUBLIC DISPLAY
First year of public display

Measure name
• Adjuvant Chemotherapy is Considered or Administered Within 4 Months (120 days) of Diagnosis to Patients Under
the Age of 80 with AJCC III (lymph node positive) Colon Cancer (NQF #0223).
• Combination Chemotherapy is Considered or Administered Within 4 Months (120 days) of Diagnosis for Women
Under 70 with AJCC T1c, or Stage II or III Hormone Receptor Negative Breast Cancer (NQF #0559).
• Adjuvant Hormonal Therapy (NQF #0220) ........................................................................................................................
• Oncology: Radiation Dose Limits to Normal Tissues (NQF #0382) ..................................................................................
• Oncology: Oncology: Plan of Care for Pain—Medical Oncology and Radiation Oncology (NQF #0383).
• Oncology: Oncology: Medical and Radiation—Pain Intensity Quantified (NQF #0384).
• Prostate Cancer: Adjuvant Hormonal Therapy for High Risk Prostate Cancer Patients (NQF #0390).
• Prostate Cancer: Avoidance of Overuse of Bone Scan for Staging Low Risk Prostate Cancer Patients (NQF #0389).
• HCAHPS (NQF #0166).
• CLABSI (NQF #0139) ........................................................................................................................................................
• CAUTI (NQF #0138).

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b. Proposed Additional Public Display
Requirements
As we strive to publicly display data
as soon as possible on a CMS Web site,
we are proposing the following update
to our public display polices. We
believe it is best to not specify in
rulemaking the exact timeframe during
the year for publication as doing so may
prevent earlier publication. We are
proposing, then, to make these data
available as soon as it is feasible during

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the year, starting with the first year for
which we are publishing data for each
measure. We will continue to propose in
rulemaking the first year for which we
intend to publish data for each measure.
We intend to make the data available on
at least a yearly basis.
As stated above, we are required to
give PCHs an opportunity to review
their data before the data are made
public. Because we are proposing to
make the data for this program available

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2014

2015
2016

No Later Than 2017.

as soon as possible, and the timeframe
for this publication may change year-toyear, we are not proposing to specify in
rulemaking the exact dates for review.
However, we are proposing that the time
period for review would be
approximately 30 days in length. We are
proposing to announce the exact
timeframes on a CMS Web site and/or
on our applicable listservs.

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We welcome public comments on
these updates to our public display and
preview policies.
c. Proposed Public Display of
Additional PCHQR Measure
We are proposing to publicly display
one additional PCHQR measure
beginning with FY 2017 program year
data (which is data collected during CY
2015). This proposal would mean that
we would display the measure data
during CY 2017, and that we would use
a CMS Web site and/or our applicable
listservs to announce the exact
timeframe. This measure is External
Beam Radiotherapy for Bone Metastases
(NQF #1822), which we adopted in the
FY 2015 IPPS/LTCH PPS final rule (79
FR 50278 through 50280). We believe
that it is important to share data
collected under the PCHQR Program
with healthcare consumers through
publication on public Web sites to help
inform healthcare choices. We intend to
make this data publicly available at the
first opportunity.
We welcome public comment on our
proposal to display this measure

beginning with the FY 2017 program
year data and for subsequent years.

e. Proposed Postponement of Public
Display of Two Measures

d. Proposed Public Display of Updated
Measure

In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50281 through 50282), we
finalized public display of the CLABSI
and CAUTI measures beginning no later
than 2017 and subsequent years.
However, at this time, we are proposing
to defer the public reporting of these
two measures’ data. At present, all PCHs
are reporting CLABSI and CAUTI data
to the NHSN under the PCHQR
Program; however, due to the low
volume of data produced and reported
by this small number of facilities, we
need additional time to work with CDC
to identify an appropriate timeframe for
public reporting and collaborate on the
analytic methods that will be used to
summarize the CLABSI and CAUTI data
for public reporting purposes.
We are inviting public comment on
our proposal to defer the public
reporting of the CLABSI and the CAUTI
measures.
Our previously finalized and
proposed public display requirements
are summarized in the table below.

In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49720 through 49722), we
finalized public display of the
Oncology: Radiation Dose Limits to
Normal Tissues measure in 2016 and
subsequent years. If our proposal to
update this measure (described in
section VIII.B.3.b. of the preamble of
this proposed rule) is finalized, we are
proposing to begin displaying on
Hospital Compare data using the
updated measure cohort as soon as
feasible after the updated data is
collected in CY 2017. We intend to
denote the cohort expansion on Hospital
Compare to ensure that consumers are
informed about the expansion.
We welcome public comment on our
proposals regarding public display of
this updated measure.

PREVIOUSLY FINALIZED AND PROPOSED PUBLIC DISPLAY REQUIREMENTS
Measures

Public reporting

Summary of Finalized and Proposed Public Display Requirements
• Adjuvant Chemotherapy is Considered or Administered Within 4 Months (120 days) of Diagnosis to Patients Under
the Age of 80 with AJCC III (lymph node positive) Colon Cancer (NQF #0223).
• Combination Chemotherapy is Considered or Administered Within 4 Months (120 days) of Diagnosis for Women
Under 70 with AJCC T1cN0M0, or Stage IB—III Hormone Receptor Negative Breast Cancer (NQF #0559).
• Adjuvant Hormonal Therapy (NQF #0220) ........................................................................................................................
• Oncology: Radiation Dose Limits to Normal Tissues (NQF #0382).*
• Oncology: Plan of Care for Pain—Medical Oncology and Radiation Oncology (NQF #0383).
• Oncology: Medical and Radiation—Pain Intensity Quantified (NQF #0384) .....................................................................
•
•
•
•
•
•

Prostate Cancer: Adjuvant Hormonal Therapy for High Risk Prostate Cancer Patients (NQF #0390).
Prostate Cancer: Avoidance of Overuse of Bone Scan for Staging Low Risk Prostate Cancer Patients (NQF #0389).
HCAHPS (NQF #0166).
CLABSI (NQF #0139).**
CAUTI (NQF #0138) ** .......................................................................................................................................................
External Beam Radiotherapy for Bone Metastases (NQF #1822) *** ...............................................................................

2014 and subsequent
years.
2015 and subsequent
years.
2016 and subsequent
years.

Deferred.
Beginning at the first
opportunity in 2017
and for subsequent
years.

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* Update proposed for display for the FY 2019 program year and subsequent years in this proposed rule—expanded cohort will be displayed
as soon as feasible.
** Deferral proposed in this proposed rule.
*** Measure newly proposed for public display in this proposed rule.

8. Form, Manner, and Timing of Data
Submission
Section 1866(k)(2) of the Act requires
that, beginning with the FY 2014
PCHQR program year, each PCH must
submit to the Secretary data on quality
measures specified under section
1866(k)(3) of the Act in a form and
manner, and at a time, as specified by
the Secretary.

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Data submission requirements and
deadlines for the PCHQR Program are
generally posted on the QualityNet Web
site at: http://www.qualitynet.org/dcs/
ContentServer?c=Page&pagename=
QnetPublic%2FPage%2FQnet
Tier3&cid=1228772864228.
The newly proposed measure for FY
2019 (Admissions and Emergency
Department (ED) Visits for Patients

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Receiving Outpatient Chemotherapy) is
a claims-based measure; therefore, there
are no additional data submission
requirements for this measure. As this
measure uses 1 year of Medicare
administrative claims data, we are
proposing to calculate this measure on
a yearly basis, beginning with data from
July 1, 2016 through June 30, 2017, and
then to calculate the measure for

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subsequent years using data from July 1
through June 30.
We are not proposing any changes to
previously finalized data submission
requirements in this proposed rule.
9. Exceptions From PCHQR Program
Requirements
In our experience with other quality
reporting and performance programs,
we have noted occasions when
providers have been unable to submit
required quality data due to
extraordinary circumstances that are not
within their control (for example,
natural disasters). We do not wish to
increase their burden unduly during
these times. Therefore, in the FY 2014
IPPS/LTCH PPS final rule (78 FR
50848), we finalized our policy that, for
the FY 2014 program rear and
subsequent years, PCHs may request
and we may grant exceptions (formerly
referred to as waivers) with respect to
the reporting of required quality data
when extraordinary circumstances
beyond the control of the PCH warrant.
When exceptions are granted, we will
notify the respective PCH.
We are not proposing any changes to
this PCHQR exception process in this
proposed rule.
C. Long-Term Care Hospital Quality
Reporting Program (LTCH QRP)

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1. Background and Statutory Authority
We seek 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.
Section 3004(a) of the Affordable Care
Act amended section 1886(m)(5) of the
Act, requiring the Secretary to establish
the Long-Term Care Hospital Quality
Reporting Program (LTCH QRP). The
LTCH QRP applies to all hospitals
certified by Medicare as LTCHs.
Beginning with the FY 2014 payment
determination and subsequent years, the
Secretary is required to reduce any
annual update to the LTCH PPS
standard Federal rate for discharges
occurring during such fiscal year by 2
percentage points for any LTCH that
does not comply with the requirements
established by the Secretary. Section
1886(m)(5) of the Act requires that for
the FY 2014 payment determination and
subsequent years, each LTCH submit
data on quality measures specified by
the Secretary in a form and manner, and
at a time, specified by the Secretary. For
more information on the statutory
history of the LTCH QRP, we refer
readers to the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50286).

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The Improving Medicare Post-Acute
Care Transformation Act of 2014
(IMPACT Act) imposed new data
reporting requirements for certain postacute care (PAC) providers, including
LTCHs. For information on the statutory
background of the IMPACT Act, we
refer readers to the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49723 through
49724).
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49723 through 49728), we
reviewed and finalized the activities
and the timeline and sequencing of such
activities that would occur under the
LTCH QRP. In addition, we established
our approach for identifying crosscutting measures and process for the
adoption of measures, including the
application and purpose of the
Measures Application Partnership
(MAP) and the notice-and-comment
rulemaking process. For information on
these topics, we refer readers to the FY
2016 IPPS/LTCH PPS final rule (80 FR
49723).
2. General Considerations Used for
Selection of Quality, Resource Use, and
Other Measures for the LTCH QRP
For a detailed discussion of the
considerations we use for the selection
of LTCH QRP quality measures, such as
alignment with the CMS Quality
Strategy,167 which incorporates the
three broad aims of the National Quality
Strategy,168 we refer readers to the FY
2015 IPPS/LTCH PPS final rule (79 FR
50286 through 50287) and the FY 2016
IPPS/LTCH PPS final rule (80 FR
49728). Overall, we strive to promote
high quality and efficiency in the
delivery of health care to the
beneficiaries we serve. Performance
improvement leading to the highest
quality health care requires continuous
evaluation to identify and address
performance gaps and reduce the
unintended consequences that may arise
in treating a large, vulnerable, and aging
population. Quality reporting programs,
coupled with public reporting of quality
information, are critical to the
advancement of health care quality
improvement efforts. Valid, reliable,
relevant quality measures are
fundamental to the effectiveness of our
quality reporting programs. Therefore,
selection of quality measures is a
priority for CMS in all of its quality
reporting programs.
In this proposed rule, we are
proposing to adopt for the LTCH QRP
167 http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/
QualityInitiativesGenInfo/CMS-QualityStrategy.html.
168 http://www.ahrq.gov/workingforquality/nqs/
nqs2011annlrpt.htm.

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one measure that we are specifying
under section 1899B(c)(1) of the Act to
meet the Medication Reconciliation
domain, that is, Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP.
Further, we are proposing for the LTCH
QRP to adopt three measures in order to
meet the resource use and other
measure domains identified in section
1899B(d)(1) of the Act. These measures
consist of: (1) Total Estimated Medicare
Spending Per Beneficiary (MSPB):
MSPB–PAC LTCH QRP; (2) Discharge to
Community: Discharge to CommunityPAC LTCH QRP; and (3) Measures to
reflect all-condition risk-adjusted
potentially preventable hospital
readmission rates: Potentially
Preventable 30-Day Post-Discharge
Readmission Measure for LTCH QRP.
In our selection and specification of
measures, we employ a transparent
process in which we seek input from
stakeholders and national experts and
engage in a process that allows for prerulemaking input on each measure, as
required by section 1890A of the Act. To
meet this requirement, we provided the
following opportunities for stakeholder
input: Our measure development
contractor convened technical expert
panels (TEPs) that included stakeholder
experts and patient representatives on
July 29, 2015, for the Drug Regimen
Review Conducted with Follow-Up for
Identified Issues measures; on August
25, 2015, September 25, 2015, and
October 5, 2015, for the Discharge to
Community measures; on August 12 and
13, 2015, and October 14, 2015 for the
Potentially Preventable 30-Day PostDischarge Readmission Measures; and
on October 29 and 30, 2015, for the
Medicare Spending Per Beneficiary
measures. In addition, we released draft
quality measure specifications for
public comment for the Drug Regimen
Review Conducted with Follow-Up for
Identified Issues measures from
September 18, 2015, to October 6, 2015;
for the Discharge to Community
measures from November 9, 2015, to
December 8, 2015; for the Potentially
Preventable 30-Day Post-Discharge
Readmission Measures from November
2, 2015 to December 1, 2015; and for the
Medicare Spending Per Beneficiary
measures from January 13, 2016 to
February 5, 2016. We implemented a
public mailbox, PACQualityInitiative@
cms.hhs.gov, for the submission of
public comments. This PAC mailbox is
accessible on our post-acute care quality
initiatives Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/PostAcute-Care-Quality-Initiatives/IMPACT-

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Act-of-2014-and-Cross-SettingMeasures.html.
In addition, we sought public input
from the MAP Post-Acute Care, LongTerm Care Workgroup during the
annual in-person meeting held
December 14 and 15, 2015. The MAP is
composed of multi-stakeholder groups
convened by the NQF, our current
contractor under section 1890(a) of the
Act, tasked to provide input on the
selection of quality and efficiency
measures described in section
1890(b)(7)(B) of the Act.
The MAP reviewed each IMPACT
Act-related measure proposed in this
proposed rule for use in the LTCH QRP.
For more information on the MAP’s
recommendations, we refer readers to
the MAP 2016 Final Recommendations
to HHS and CMS public report at:
http://www.qualityforum.org/
Publications/2016/02/MAP_2016_
Considerations_for_Implementing_
Measures_in_Federal_Programs_-_PACLTC.aspx.
For measures that do not have NQF
endorsement, or which are not fully
supported by the MAP for use in the
LTCH QRP, we are proposing for the
LTCH QRP for the purposes of satisfying
the measure domains required under the
IMPACT Act measures that closely align
with the national priorities identified in
the National Quality Strategy (http://

www.ahrq.gov/workingforquality/) and
for which the MAP supports the
measure concept. Further, discussion as
to the importance and high-priority
status of these proposed measures in the
LTCH setting is included under each
quality measure proposal in this
proposed rule.
3. Policy for Retention of LTCH QRP
Measures Adopted for Previous
Payment Determinations
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53614 through 53615), for
the purpose of streamlining the
rulemaking process, we adopted a
policy that, when we initially adopt a
measure for the LTCH QRP for a
payment determination and all
subsequent years, it would remain in
effect until the measure was actively
removed, suspended, or replaced. For
further information on how measures
are considered for removal, suspension,
or replacement, we refer readers to the
FY 2013 IPPS/LTCH PPS final rule (77
FR 53614 through 53615).
We are not proposing any changes to
the policy for retaining LTCH QRP
measures adopted for previous payment
determinations.
4. Policy for Adopting Changes to LTCH
QRP Measures
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53615 through 53616), we

adopted a subregulatory process to
incorporate NQF updates to LTCH
quality measure specifications that do
not substantively change the nature of
the measure. Substantive changes will
be proposed and finalized through
rulemaking. For further information on
what constitutes a substantive versus a
nonsubstantive change and the
subregulatory process for
nonsubstantive changes, we refer
readers to the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53615 through 53616).
We are not proposing any changes to the
policy for adopting changes to LTCH
QRP measures.
5. Quality Measures Previously
Finalized for and Currently Used in the
LTCH QRP
A history of the LTCH QRP quality
measures adopted for the FY 2014
payment determinations and subsequent
years is presented in the table below.
The year in which each quality measure
was first adopted and implemented, and
then subsequently readopted or revised,
if applicable, is displayed. The initial
and subsequent annual payment
determination years are also shown in
this table. For more information on a
particular measure, we refer readers to
the IPPS/LTCH PPS final rule and
associated page numbers referenced in
this table.

QUALITY MEASURES PREVIOUSLY FINALIZED FOR AND CURRENTLY USED IN THE LTCH QRP

Measure title

IPPS/LTCH PPS Final rule

National Healthcare Safety Network (NHSN)
Catheter-Associated Urinary Tract Infection
(CAUTI) Outcome Measure (NQF #0138).

Adopted an application of the measure in the
FY 2012 IPPS/LTCH PPS final rule (76 FR
51745 through 51747).
Adopted the NQF-endorsed version and expanded measure (with standardized infection ratio [SIR]) in the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53616 through
53619).
Adopted an application of the measure in the
FY 2012 IPPS/LTCH PPS final rule (76 FR
51747 through 51748).

October 1, 2012 ..........

FY 2014 and subsequent years.

January 1, 2013 ..........

FY 2015 and subsequent years.

October 1, 2012 ..........

FY 2014 and subsequent years.

Adopted the NQF-endorsed and expanded
measure (with SIR) in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53616 through
53619).
Adopted an application of the measure in the
FY 2012 IPPS/LTCH PPS final rule (76 FR
51748 through 51750).
Adopted the NQF-endorsed version in the FY
2014 IPPS/LTCH PPS final rule (78 FR
50861 through 50863).
Adopted in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49731 through 49736) to fulfill
IMPACT Act requirements.

January 1, 2013 ..........

FY 2015 and subsequent years.

October 1, 2012 ..........

FY 2014 and subsequent years.

January 1, 2013 ..........

FY 2015 and subsequent years.

January 1, 2016 ..........

FY 2018 and subsequent years.

National Healthcare Safety Network (NHSN)
Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure (NQF
#0139).

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Annual payment
determination:
initial and
subsequent
APU Years

Data collection start
date

Percent of Residents or Patients with Pressure
Ulcers That Are New or Worsened (Short
Stay) (NQF #0678).

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QUALITY MEASURES PREVIOUSLY FINALIZED FOR AND CURRENTLY USED IN THE LTCH QRP—Continued

Measure title

IPPS/LTCH PPS Final rule

Percent of Residents or Patients Who Were
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680).

Adopted in the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53624 through 53627).

January 1, 2014 ..........

FY 2016 and subsequent years.

Revised data collection timeframe in the FY
2014 IPPS/LTCH PPS final rule (78 FR
50858 through 50861).
Revised data collection timeframe in the FY
2015 IPPS/LTCH PPS final rule (79 FR
50289 through 50290).
Adopted in the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53630 through 53631).
Revised data collection timeframe in the FY
2014 IPPS/LTCH PPS final rule (78 FR
50857 through 50858).
Adopted in FY 2014 IPPS/LTCH PPS final
rule (78 FR 50868 through 50874).

October 1, 2014 ..........

FY 2016 and subsequent years.

October 1, 2014 ..........

FY 2016 and subsequent years.

October 1, 2014 ..........

FY 2016 and subsequent years.
FY 2016 and subsequent years.

Influenza
Vaccination
Coverage
Healthcare Personnel (NQF #0431).

among

All-Cause Unplanned Readmission Measure for
30-Days Post-Discharge from Long-Term
Care Hospitals (NQF #2512).

National Healthcare Safety Network (NHSN)
Facility-wide
Inpatient
Hospital-onset
Methicillin-resistant Staphylococcus aureus
(MRSA) Bacteremia Outcome Measure (NQF
#1716).
National Healthcare Safety Network (NHSN)
Facility-wide Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome
Measure (NQF #1717).
National Healthcare Safety Network (NHSN)
Ventilator-Associated Event (VAE) Outcome
Measure (NQF #N/A).
Application of Percent of Residents Experiencing One or More Falls with Major Injury
(Long Stay) (NQF #0674).

Percent of Long-Term Care Hospital Patients
with an Admission and Discharge Functional
Assessment and a Care Plan That Addresses Function (NQF #2631).
Application of Percent of Long-Term Care Hospital Patients with an Admission and Discharge Functional Assessment and a Care
Plan That Addresses Function (NQF #2631).
Functional Outcome Measure: Change in Mobility among Long-Term Care Hospital Patients Requiring Ventilator Support (NQF
#2632).

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Annual payment
determination:
initial and
subsequent
APU Years

Data collection start
date

6. LTCH QRP Quality, Resource Use and
Other Measures Proposed for the FY
2018 Payment Determination and
Subsequent Years
For the FY 2018 payment
determinations and subsequent years, in
addition to the quality measures we are
retaining under our policy described in
section VIII.C.3. of the preamble of this

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October 1, 2014 ..........
N/A ..............................

FY 2017 and subsequent years.

N/A ..............................

FY 2018 and subsequent years.

January 1, 2015 ..........

FY 2017 and subsequent years.

Adopted in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50865 through 50868).

January 1, 2015 ..........

FY 2017 and subsequent years.

Adopted in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50301 through 50305).

January 1, 2016 ..........

FY 2018 and subsequent years.

Adopted in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50874 through 50877).

January 1, 2016 ..........

FY 2018 and subsequent years.

Revised data collection timeframe in the FY
2015 IPPS/LTCH PPS final rule (79 FR
50290 through 50291).
Adopted an application of the measure in the
FY 2016 IPPS/LTCH PPS final rule (80 FR
49736 through 49739) to fulfill IMPACT Act
requirements.
Adopted in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50291 through 50298).

April 1, 2016 ...............

FY 2018 and subsequent years.

April 1, 2016 ...............

FY 2018 and subsequent years.

April 1, 2016 ...............

FY 2018 and subsequent years.

April 1, 2016 ...............

FY 2018 and subsequent years.

April 1, 2016 ...............

FY 2018 and subsequent years.

Adopted the NQF-endorsed version in the FY
2016 IPPS/LTCH PPS final rule (80 FR
49730 through 49731).
Adopted in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50863 through 50865).

Adopted an application of the measure in the
FY 2016 IPPS/LTCH PPS final rule (80 FR
49739 through 49747) to fulfill IMPACT Act
requirements.
Adopted in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50298 through 50301).

proposed rule, we are proposing three
new measures. These measures were
developed to meet the requirements of
the IMPACT Act. They are:
• MSPB–PAC LTCH QRP;
• Discharge to Community-PAC
LTCH QRP, and

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• Potentially Preventable 30-Day
Post-Discharge Readmission Measure for
LTCH QRP.
The measures are described in more
detail below.
For the risk-adjustment of the
resource use and other measures, we
understand the important role that
sociodemographic status plays in the

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care of patients. However, we continue
to have concerns about holding
providers to different standards for the
outcomes of their patients of diverse
sociodemographic status because we do
not want to mask potential disparities or
minimize incentives to improve the
outcomes of disadvantaged populations.
We routinely monitor the impact of
sociodemographic status on providers’
results on our measures.
The NQF is currently undertaking a 2year trial period in which new measures
and measures undergoing maintenance
review will be assessed to determine if
risk-adjusting for sociodemographic
factors is appropriate. For 2 years, NQF
will conduct a trial of temporarily
allowing inclusion of sociodemographic
factors in the risk-adjustment approach
for some performance measures. At the
conclusion of the trial, NQF will issue
recommendations on future permanent
inclusion of sociodemographic factors.
During the trial, measure developers are
expected to submit information such as
analyses and interpretations as well as
performance scores with and without
sociodemographic factors in the risk
adjustment model.
Furthermore, the Office of the
Assistant Secretary for Planning and
Evaluation (ASPE) is conducting
research to examine the impact of
sociodemographic status on quality
measures, resource use, and other
measures under the Medicare program
as directed by the IMPACT Act. We will
closely examine the findings of the
ASPE reports and related Secretarial
recommendations and consider how
they apply to our quality programs at
such time as they are available.
We are inviting public comment on
how socioeconomic and demographic
factors should be used in risk
adjustment for the resource use
measures.

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a. Proposal To Address the IMPACT Act
Domain of Resource Use and Other
Measures: Total Estimated MSPB–PAC
LTCH QRP
We are proposing an MSPB–PAC
LTCH QRP measure for inclusion in the
LTCH QRP for the FY 2018 payment
determination and subsequent years.
Section 1899B(d)(1)(A) of the Act
requires the Secretary to specify
resource use measures, including total
estimated Medicare spending per
beneficiary, on which PAC providers,
consisting of LTCHs, Inpatient
Rehabilitation Facilities (IRFs), Skilled
Nursing Facilities (SNFs), and Home
Health Agencies (HHAs), are required to
submit necessary data specified by the
Secretary.

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Rising Medicare expenditures for
post-acute care as well as wide variation
in spending for these services
underlines the importance of measuring
resource use for providers rendering
these services. Between 2001 and 2013,
Medicare PAC spending grew at an
annual rate of 6.1 percent and doubled
to $59.4 billion, while payments to
inpatient hospitals grew at an annual
rate of 1.7 percent over this same
period.169 A study commissioned by the
Institute of Medicine found that
variation in PAC spending explains 73
percent of variation in total Medicare
spending across the United States.170
We reviewed the NQF’s consensusendorsed measures and were unable to
identify any NQF-endorsed resource use
measures for PAC settings. Therefore,
we are proposing this MSPB–PAC LTCH
QRP measure under the Secretary’s
authority to specify non-NQF-endorsed
measures under section 1899B(e)(2)(B)
of the Act. Because of the current lack
of resource use measures for PAC
settings, our proposed MSPB–PAC
LTCH QRP measure has the potential to
provide valuable information to LTCHs
on their relative Medicare spending in
delivering services to approximately
122,000 Medicare beneficiaries.171
The proposed MSPB–PAC LTCH QRP
episode-based measure will provide
actionable and transparent information
to support LTCHs’ efforts to promote
care coordination and deliver high
quality care at a lower cost to Medicare.
The MSPB–PAC LTCH QRP measure
holds LTCHs accountable for the
Medicare payments within an ‘‘episode
of care’’ (episode), which includes the
period during which a patient is directly
under the LTCH’s care, as well as a
defined period after the end of the
LTCH treatment, which may be
reflective of and influenced by the
services furnished by the LTCH. MSPB–
PAC LTCH QRP episodes, constructed
according to the methodology described
below, have high levels of Medicare
spending with substantial variation. In
FY 2013 and FY 2014, Medicare FFS
beneficiaries experienced 178,538
MSPB–PAC LTCH QRP episodes
triggered by admission to an LTCH. The
mean payment-standardized, riskadjusted episode spending for these
episodes is $67,181. There is substantial
variation in the Medicare payments for
169 MedPAC, ‘‘A Data Book: Health Care Spending
and the Medicare Program,’’ (2015). 114.
170 Institute of Medicine, ‘‘Variation in Health
Care Spending: Target Decision Making, Not
Geography,’’ (Washington, DC: National Academies
2013). 2.
171 Figures for 2013. MedPAC, ‘‘Medicare
Payment Policy,’’ Report to the Congress (2015).
xvii-xviii.

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these MSPB–PAC LTCH QRP
episodes—ranging from approximately
$27,502 at the 5th percentile to
approximately $115,291 at the 95th
percentile. This variation is partially
driven by variation in payments
occurring following LTCH treatment.
Evaluating Medicare payments during
an episode creates a continuum of
accountability between providers and
has the potential to improve posttreatment care planning and
coordination. While some stakeholders
throughout the measure development
process supported the measures and
believed that measuring Medicare
spending was critical for improving
efficiency, other stakeholders believed
that resource use measures did not
reflect quality of care in that they do not
take into account patient outcomes or
experience beyond those observable in
claims data. However, LTCHs involved
in the provision of high quality PAC
care as well as appropriate discharge
planning and post-discharge care
coordination would be expected to
perform well on this measure since
beneficiaries would likely experience
fewer costly adverse events (for
example, avoidable hospitalizations,
infections, and emergency room usage).
Further, it is important that the cost of
care be explicitly measured so that, in
conjunction with other quality
measures, we can recognize providers
that are involved in the provision of
high quality care at lower cost.
We have undertaken development of
MSPB–PAC measures for each of the
four PAC settings. We intend to propose
IRF-, SNF-, and HHA-specific MSBP–
PAC measures through future noticeand-comment rulemaking. The four
setting-specific MSPB–PAC measures
are closely aligned in terms of episode
construction and measure calculation.
Each of the MSPB–PAC measures assess
Medicare Part A and Part B spending
during an episode, and the numerator
and denominator are defined similarly
for each of the MSPB–PAC measures.
However, developing setting-specific
measures allows us to account for
differences between settings in payment
policy, the types of data available, and
the underlying health characteristics of
beneficiaries. For example, the MSPB–
PAC LTCH QRP measure reflects the
dual payment rate of the LTCH PPS by
comparing episodes triggered by each
payment rate case only with episodes of
the same type, as detailed below.
The MSPB–PAC measures mirror the
general construction of the Hospital IQR
Program MSPB measure that was
finalized in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51618 through
51627). That measure was endorsed by

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the NQF on December 6, 2013, and has
been used in the Hospital VBP Program
(NQF #2158) since FY 2015.172 The
Hospital IQR Program MSPB measure
was originally established under the
authority of section 1886(o)(2)(B)(ii) of
the Act. The hospital MSPB measure
evaluates hospitals’ Medicare spending
relative to the Medicare spending for the
national median hospital during a
hospital MSPB episode. It assesses
Medicare Part A and Part B payments
for services performed by hospitals and
other healthcare providers during a
hospital MSPB episode, which is
comprised of the periods immediately
prior to, during, and following a
patient’s hospital stay.173 174
Similarly, the MSPB–PAC measures
assess all Medicare Part A and Part B
payments for FFS claims with a start
date during the episode window (which,
as discussed below, is the time period
during which Medicare FFS Part A and
Part B services are counted towards the
MSPB–PAC LTCH QRP episode).
However, there are differences between
the MSPB–PAC measures, as proposed,
and the hospital MSPB measure to
reflect differences in payment policies
and the nature of care provided in each
PAC setting. For example, the MSPB–
PAC measures exclude a limited set of
services (for example, for clinically
unrelated services) provided to a
beneficiary during the episode window
while the hospital MSPB measure does
not exclude any services.175
MSPB–PAC episodes may begin
within 30 days of discharge from an
inpatient hospital as part of a patient’s
trajectory from an acute to a PAC
setting. An LTCH stay beginning within
30 days of discharge from an inpatient
hospital will therefore be included once
in the hospital’s MSPB measure, and
once in the LTCH’s MSPB–PAC
measure. Aligning the hospital MSPB
and MSPB–PAC measures in this way
creates continuous accountability and
aligns incentives to improve care
planning and coordination across
inpatient and PAC settings.
We have sought and considered the
input of stakeholders throughout the
measure development process for the
172 QualityNet, ‘‘Measure Methodology Reports:
Medicare Spending Per Beneficiary (MSPB)
Measure,’’ (2015). http://www.qualitynet.org/dcs/
ContentServer?pagename=QnetPublic%2FPage%2
FQnetTier3&cid=1228772053996.
173 QualityNet, ‘‘Measure Methodology Reports:
Medicare Spending Per Beneficiary (MSPB)
Measure,’’ (2015). http://www.qualitynet.org/dcs/
ContentServer?pagename=QnetPublic%
2FPage%2FQnetTier3&cid=1228772053996.
174 FY 2012 IPPS/LTCH PPS final rule (76 FR
51619).
175 FY 2012 IPPS/LTCH PPS final rule (76 FR
51620).

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MSPB–PAC measures. We convened a
TEP consisting of 12 panelists with
combined expertise in all of the PAC
settings on October 29 and 30, 2015, in
Baltimore, Maryland. A follow-up email
survey was sent to TEP members on
November 18, 2015, to which 7
responses were received by December 8,
2015. The MSPB–PAC TEP Summary
Report is available at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/PostAcute-Care-Quality-Initiatives/
Downloads/Technical-Expert-Panel-onMedicare-Spending-Per-Beneficiary.pdf.
The measures were also presented to the
NQF MAP Post-Acute Care/Long-Term
Care (PAC/LTC) Workgroup on
December 15, 2015. As the MSPB–PAC
measures were under development,
there were three voting options for
members: Encourage continued
development, do not encourage further
consideration, and insufficient
information.176 The MAP PAC/LTC
Workgroup voted to ‘‘encourage
continued development’’ for each of the
MSPB–PAC measures.177 The MAP
PAC/LTC Workgroup’s vote of
‘‘encourage continued development’’
was affirmed by the MAP Coordinating
Committee on January 26, 2016.178 The
MAP’s concerns about the MSPB–PAC
measures, as outlined in their final
report, ‘‘MAP 2016 Considerations for
Implementing Measures in Federal
Programs: Post-Acute Care and LongTerm Care,’’ and Spreadsheet of Final
Recommendations were taken into
consideration during the measure
development process and are discussed
as part of our responses to public
comments, described below.179 180
176 National Quality Forum, Measure
Applications Partnership, ‘‘Process and Approach
for MAP Pre-Rulemaking Deliberations, 2015–2016’’
(February 2016) http://www.qualityforum.org/
WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=
81693.
177 National Quality Forum, Measure
Applications Partnership Post-Acute Care/LongTerm Care Workgroup, ‘‘Meeting Transcript—Day 2
of 2’’ (December 15, 2015) 104–106 http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=81470.
178 National Quality Forum, Measure
Applications Partnership, ‘‘Meeting Transcript—
Day 1 of 2’’ (January 26, 2016) 231–232 http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=81637.
179 National Quality Forum, Measure
Applications Partnership, ‘‘MAP 2016
Considerations for Implementing Measures in
Federal Programs: Post-Acute Care and Long-Term
Care’’ Final Report, (February 2016) http://
www.qualityforum.org/Publications/2016/02/MAP_
2016_Considerations_for_Implementing_Measures_
in_Federal_Programs_-_PAC-LTC.aspx.
180 National Quality Forum, Measure
Applications Partnership, ‘‘Spreadsheet of MAP
2016 Final Recommendations’’ (February 1, 2016)
http://www.qualityforum.org/WorkArea/linkit.aspx?
LinkIdentifier=id&ItemID=81593.

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Since the MAP’s review and
recommendation of continued
development, CMS has continued to
refine risk adjustment models and
conduct measure testing for the
IMPACT Act measures in compliance
with the MAP’s recommendations. The
proposed IMPACT Act measures are
both consistent with the information
submitted to the MAP and support the
scientific acceptability of these
measures for use in quality reporting
programs.
In addition, a public comment period,
accompanied by draft measures
specifications, was originally open from
January 13 to 27, 2016 and twice
extended to January 29 and February 5.
A total of 45 comments on the MSPB–
PAC measures were received during this
comment period. The comments
received also covered each of the MAP’s
concerns as outlined in their Final
Recommendations.181 The MSPB–PAC
Public Comment Summary Report is
available at: https://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/Post-AcuteCare-Quality-Initiatives/IMPACT-Act-of2014/IMPACT-Act-Downloads-andVideos.html and contains the public
comments (summarized and verbatim),
along with our responses including
statistical analyses. If finalized, the
proposed MSPB–PAC LTCH QRP
measure, along with the other MSPB–
PAC measures, as applicable, will be
submitted for NQF endorsement.
To calculate the MSPB–PAC LTCH
QRP measure for each LTCH, we first
define the construction of the MSPB–
PAC LTCH QRP episode, including the
length of the episode window as well as
the services included in the episode.
Next, we apply the methodology for the
measure calculation. The specifications
are discussed further below. More
detailed specifications for the proposed
MSPB–PAC measures, including the
MSPB–PAC LTCH QRP measure in this
proposed rule, are available at: https://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/Post-Acute-Care-QualityInitiatives/IMPACT-Act-of-2014/
IMPACT-Act-Downloads-andVideos.html.
(1) Episode Construction
An MSPB–PAC LTCH QRP episode
begins at the episode trigger, which is
defined as the patient’s admission to an
LTCH. This admitting facility is the
attributed provider, for whom the
181 National Quality Forum, Measure
Applications Partnership, ‘‘Spreadsheet of MAP
2016 Final Recommendations’’ (February 1, 2016)
http://www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=81593.

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MSPB–PAC LTCH QRP measure is
calculated. The episode window is the
time period during which Medicare FFS
Part A and Part B services are counted
towards the MSPB–PAC LTCH QRP
episode. Because Medicare FFS claims
are already reported to the Medicare
program for payment purposes, LTCHs
will not be required to report any
additional data to CMS for calculation
of this measure. Thus, there will be no
additional data collection burden from
the implementation of this measure.
Our proposed MSPB–PAC LTCH QRP
episode construction methodology
differentiates between episodes
triggered by standard payment rate cases
and site neutral payment rate cases,
reflecting the LTCH dual-payment
policy detailed in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49601
through 49623). Standard and site
neutral episodes would be compared
only with standard and site neutral
episodes respectively. Differences in
episode construction between standard
and site neutral episodes are noted
below; they otherwise share the same
definition.
The episode window is comprised of
a treatment period and an associated
services period. The treatment period
begins at the trigger (that is, on the day
of admission to the LTCH) and ends on
the day of discharge from that LTCH.
Readmissions to the same facility
occurring within 7 or fewer days do not
trigger a new episode, and instead are
included in the treatment period of the
original episode. When two sequential
stays at the same LTCH occur within 7
or fewer days of one another, the
treatment period ends on the day of
discharge for the latest LTCH stay. The
treatment period includes those services
that are provided directly or reasonably
managed by the LTCH that are directly
related to the beneficiary’s care plan.
The associated services period is the
time during which Medicare Part A and
Part B services (with certain exclusions)
are counted towards the episode. The
associated services period begins at the
episode trigger and ends 30 days after
the end of the treatment period. The
distinction between the treatment
period and the associated services
period is important because clinical
exclusions of services may differ for
each period.
Certain services are excluded from the
MSPB–PAC LTCH QRP episodes
because they are clinically unrelated to
LTCH care, and/or because LTCHs may
have limited influence over certain
Medicare services delivered by other
providers during the episode window.
These limited service-level exclusions
are not counted towards a given LTCH’s

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Medicare spending to ensure that
beneficiaries with certain conditions
and complex care needs receive the
necessary care. Certain services that
have been determined by clinicians to
be outside of the control of an LTCH
include planned hospital admissions,
management of certain preexisting
chronic conditions (for example,
dialysis for end-stage renal disease
(ESRD), and enzyme treatments for
genetic conditions), treatment for
preexisting cancers, organ transplants,
and preventive screenings (for example,
colonoscopy and mammograms).
Exclusion of such services from the
MSPB–PAC LTCH QRP episode ensures
that facilities do not have disincentives
to treat patients with certain conditions
or complex care needs.
An MSPB–PAC episode may begin
during the associated services period of
an MSPB–PAC LTCH QRP episode in
the 30 days post-treatment. One possible
scenario occurs where an LTCH
discharges a beneficiary who is then
admitted to a HHA within 30 days. The
HHA claim would be included once as
an associated service for the attributed
provider of the first MSPB–PAC LTCH
QRP episode and once as a treatment
service for the attributed provider of the
second MSPB–PAC HHA episode. As in
the case of overlap between hospital and
PAC episodes discussed earlier, this
overlap is necessary to ensure
continuous accountability between
providers throughout a beneficiary’s
trajectory of care, as both providers
share incentives to deliver high quality
care at a lower cost to Medicare.
Even within the LTCH setting, one
MSPB–PAC LTCH QRP episode may
begin in the associated services period
of another MSPB–PAC LTCH QRP
episode in the 30 days post-treatment.
The second LTCH claim would be
included once as an associated service
for the attributed LTCH of the first
MSPB–PAC LTCH QRP episode and
once as a treatment service for the
attributed LTCH of the second MSPB–
PAC LTCH QRP episode. Again, this
ensures that LTCHs have the same
incentives throughout both MSPB–PAC
LTCH QRP episodes to deliver quality
care and engage in patient-focused care
planning and coordination. If the
second MSPB–PAC LTCH QRP episode
were excluded from the second LTCH’s
MSPB–PAC LTCH QRP measure, that
LTCH would not share the same
incentives as the first LTCH of the first
MSPB–PAC LTCH QRP episode. The
MSPB–PAC LTCH QRP measure is
designed to benchmark the resource use
of each attributed provider against what
their spending is expected to be as
predicted through risk adjustment. As

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discussed further below, the measure
takes the ratio of observed spending to
expected spending for each episode and
then takes the average of those ratios
across all of the attributed provider’s
episodes. The measure is not a simple
sum of all costs across a provider’s
episodes, thus mitigating concerns
about double counting.
(2) Measure Calculation
Medicare payments for Part A and
Part B claims for services included in
MSPB–PAC LTCH episodes, defined
according to the methodology above, are
used to calculate the MSPB–PAC LTCH
QRP measure. Measure calculation
involves determination of the episode
exclusions, the approach for
standardizing payments for geographic
payment differences, the methodology
for risk adjustment of episode spending
to account for differences in patient case
mix, and the specifications for the
measure numerator and denominator.
The measure calculation is performed
separately for MSPB–PAC LTCH QRP
standard and site neutral episodes to
ensure that they are compared only to
other standard and site neutral episodes,
respectively. The final MSPB–PAC
LTCH QRP measure would combine the
two ratios to construct one LTCH score
as described below.
(a) Exclusion Criteria
In addition to service-level exclusions
that remove some payments from
individual episodes, we exclude certain
episodes in their entirety from the
MSPB–PAC LTCH QRP measure to
ensure that the MSPB–PAC LTCH QRP
measure accurately reflects resource use
and facilitates fair and meaningful
comparisons between LTCHs. The
proposed episode-level exclusions are
as follows:
• Any episode that is triggered by an
LTCH claim outside the 50 States, DC,
Puerto Rico, and U.S. territories.
• Any episode where the claim(s)
constituting the attributed LTCH’s
treatment have a standard allowed
amount of zero or where the standard
allowed amount cannot be calculated.
• Any episode in which a beneficiary
is not enrolled in Medicare FFS for the
entirety of a 90-day lookback period
(that is, a 90-day period prior to the
episode trigger) plus episode window
(including where a beneficiary dies), or
is enrolled in Part C for any part of the
lookback period plus episode window.
• Any episode in which a beneficiary
has a primary payer other than Medicare
for any part of the 90-day lookback
period plus episode window.
• Any episode where the claim(s)
constituting the attributed LTCH’s

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treatment include at least one related
condition code indicating that it is not
a prospective payment system bill.
(b) Standardization and Risk
Adjustment
Section 1899B(d)(2)(C) of the Act
requires that the MSPB–PAC measures
are adjusted for the factors described
under section 1886(o)(2)(B)(ii) of the
Act, which include adjustment for
factors such as age, sex, race, severity of
illness, and other factors that the
Secretary determines appropriate.
Medicare payments included in the
proposed MSPB–PAC LTCH QRP
measure are payment-standardized and
risk-adjusted. Payment standardization
removes sources of payment variation
not directly related to clinical decisions
and facilitates comparisons of resource
use across geographic areas. We are
proposing to use the same payment
standardization methodology as that
used in the NQF-endorsed hospital
MSPB measure. This methodology
removes geographic payment
differences, such as wage index and
geographic practice cost index (GPCI),
incentive payment adjustments, and
other add-on payments that support
broader Medicare program goals
including indirect graduate medical
education (IME) and hospitals serving a
disproportionate share of uninsured
patients (DSH).182
Risk adjustment uses patient claims
history to account for case-mix variation
and other factors that affect resource use
but are beyond the influence of the
attributed LTCH. To assist with risk
adjustment for MSPB–PAC LTCH QRP
episodes, we create mutually exclusive
and exhaustive clinical case-mix
categories using the most recent
institutional claim in the 60 days prior
to the start of the MSPB–PAC LTCH
QRP episode. The beneficiaries in these
clinical case-mix categories have a
greater degree of clinical similarity than
the overall LTCH patient population,
and allow us to more accurately
estimate Medicare spending. Our
proposed MSPB–PAC LTCH QRP
model, adapted for the LTCH setting
from the NQF-endorsed hospital MSPB
measure, uses a regression framework
with a 90-day hierarchical condition
category (HCC) lookback period and
covariates including the clinical case
mix categories, MS–LTC–DRGs, HCC
indicators, age brackets, indicators for
originally disabled, ESRD enrollment,
and long-term care status, and selected
interactions of these covariates where

182 QualityNet, ‘‘CMS Price (Payment)
Standardization—Detailed Methods’’ (Revised May

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sample size and predictive ability make
them appropriate. We sought and
considered public comment regarding
the treatment of hospice services
occurring within the MSPB–PAC LTCH
QRP episode window. After
consideration of the comments received,
we are proposing to include the
Medicare spending for hospice services
but risk adjust for them, so that MSPB–
PAC LTCH QRP episodes with hospice
are compared to a benchmark reflecting
other MSPB–PAC LTCH QRP episodes
with hospice. We believe that this
strikes a balance between the measure’s
intent of evaluating Medicare spending
and ensuring that providers do not have
incentives against the appropriate use of
hospice services in a patient-centered
continuum of care.
We understand the important role that
sociodemographic status, beyond age,
plays in the care of patients. However,
we continue to have concerns about
holding hospitals to different standards
for the outcomes of their patients of
diverse sociodemographic status
because we do not want to mask
potential disparities or minimize
incentives to improve the outcomes of
disadvantaged populations. We
routinely monitor the impact of
sociodemographic status on hospitals’
results on our measures.
The NQF is currently undertaking a 2year trial period in which new measures
and measures undergoing maintenance
review will be assessed to determine if
risk-adjusting for sociodemographic
factors is appropriate. For 2 years, NQF
will conduct a trial of temporarily
allowing inclusion of sociodemographic
factors in the risk-adjustment approach
for some performance measures. At the
conclusion of the trial, NQF will issue
recommendations on future permanent
inclusion of sociodemographic factors.
During the trial, measure developers are
expected to submit information such as
analyses and interpretations as well as
performance scores with and without
sociodemographic factors in the risk
adjustment model.
Furthermore, the Office of the
Assistant Secretary for Planning and
Evaluation (ASPE) is conducting
research to examine the impact of
sociodemographic status on quality
measures, resource use, and other
measures under the Medicare program
as directed by the IMPACT Act. We will
closely examine the findings of the
ASPE reports and related Secretarial
recommendations and consider how

they apply to our quality programs at
such time as they are available.
While we conducted analyses on the
impact of age by sex on the performance
of the MSPB–PAC LTCH QRP riskadjustment model, we are not proposing
to adjust the MSPB–PAC LTCH measure
for socioeconomic and demographic
factors at this time. As this MSPB–PAC
LTCH QRP measure will be submitted
for NQF endorsement, we prefer to
await the results of this trial and study
before deciding whether to risk adjust
for socioeconomic and demographic
factors. We will monitor the results of
the trial, studies, and recommendations.
We are inviting public comment on how
socioeconomic and demographic factors
should be used in risk adjustment for
the MSPB–PAC LTCH QRP measure.

2015) https://qualitynet.org/dcs/

ContentServer?c=Page&pagename=QnetPublic%2
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(c) Measure Numerator and
Denominator
The MPSB–PAC LTCH measure is a
payment-standardized, risk-adjusted
ratio that compares a given LTCH’s
Medicare spending against the Medicare
spending of other LTCHs within a
performance period. Similar to the
hospital MSPB measure, the ratio allows
for ease of comparison over time as it
obviates the need to adjust for inflation
or policy changes.
The MSPB–PAC LTCH QRP measure
is calculated as the ratio of the MSPB–
PAC Amount for each LTCH divided by
the episode-weighted median MSPB–
PAC Amount across all LTCHs. To
calculate the MSPB–PAC Amount for
each LTCH, one calculates the average
of the ratio of the standardized spending
for LTCH standard episodes over the
expected spending (as predicted in risk
adjustment) for LTCH standard
episodes, and the average of the ratio of
the standardized spending for LTCH site
neutral episodes over the expected
spending (as predicted in risk
adjustment) for LTCH site neutral
episodes. This quantity is then
multiplied by the average episode
spending level across all LTCHs
nationally for standard and site neutral
episodes. The denominator for an
LTCH’s MSPB–PAC LTCH QRP measure
is the episode-weighted national median
of the MSPB–PAC Amounts across all
LTCHs. An MSPB–PAC LTCH QRP
measure of less than 1 indicates that a
given LTCH’s Medicare spending is less
than that of the national median LTCH
during a performance period.
Mathematically, this is represented in
equation (A) below:

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where

address the domain of discharge to
community by SNFs, LTCHs, and IRFs
by October 1, 2016, and HHAs by
January 1, 2017. We are proposing to
adopt the measure, Discharge to
Community-PAC LTCH QRP, for the
LTCH QRP for the FY 2018 payment
determination and subsequent years as
a Medicare FFS claims-based measure to
meet this requirement.
This proposed measure assesses
successful discharge to the community
from an LTCH setting, with successful
discharge to the community including
no unplanned rehospitalizations and no
death in the 31 days following discharge
from the LTCH. Specifically, this
proposed measure reports an LTCH’s
risk-standardized rate of Medicare FFS
patients who are discharged to the
community following an LTCH stay,
and do not have an unplanned
readmission to an acute care hospital or
LTCH in the 31 days following
discharge to community, and who
remain alive during the 31 days
following discharge to community. The
term ‘‘community,’’ for this measure, is
defined as home/self-care, with or
without home health services, based on
Patient Discharge Status Codes 01, 06,
81, and 86 on the Medicare FFS
claim.183 184 This measure is
conceptualized uniformly across the
PAC settings, in terms of the definition
of the discharge to community outcome,
the approach to risk adjustment, and the
measure calculation.
Discharge to a community setting is
an important health care outcome for
many patients for whom the overall
goals of post-acute care include
optimizing functional improvement,
returning to a previous level of
independence, and avoiding
institutionalization. Returning to the
community is also an important

(3) Data Sources
The MSPB–PAC LTCH QRP resource
use measure is an administrative claimsbased measure. It uses Medicare Part A
and Part B claims from FFS
beneficiaries and Medicare eligibility
files.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

(4) Cohort
The measure cohort includes
Medicare FFS beneficiaries with an
LTCH treatment period ending during
the data collection period.
(5) Reporting
If this proposed measure is finalized,
we intend to provide initial confidential
feedback to providers, prior to public
reporting of this measure, based on
Medicare FFS claims data from
discharges in CY 2015 and CY 2016. We
intend to publicly report this measure
using claims data from discharges in CY
2016 and CY 2017.
We are proposing a minimum of 20
episodes for reporting and inclusion in
the LTCH QRP. For the reliability
calculation, as described in the measure
specifications identified and for which
a link has been provided above, we used
two years of data (FY 2013 and FY 2014)
to increase the statistical reliability of
this measure. The reliability results
support the 20 episode case minimum,
and 98.83 percent of LTCHs had
moderate or high reliability (above 0.4).
We are inviting public comment on
our proposal to adopt the MSPB–PAC
LTCH QRP measure for the LTCH QRP.
b. Proposal To Address the IMPACT Act
Domain of Resource Use and Other
Measures: Discharge to Community-Post
Acute Care (PAC) Long-Term Care
Hospital Quality Reporting Program
Sections 1899B(d)(1)(B) and
1899B(a)(2)(E)(ii) of the Act require the
Secretary to specify a measure to

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183 Further description of patient discharge status
codes can be found, for example, at the following
Web page: https://med.noridianmedicare.com/web/
jea/topics/claim-submission/patient-status-codes.
184 This definition is not intended to suggest that
board and care homes, assisted living facilities, or
other settings included in the definition of
‘‘community’’ for the purpose of this measure are
the most integrated setting for any particular
individual or group of individuals under the
Americans with Disabilities Act (ADA) and Section
504.

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outcome for many patients who are not
expected to make functional
improvement during their LTCH stay,
and for patients who may be expected
to decline functionally due to their
medical condition. The discharge to
community outcome offers a multidimensional view of preparation for
community life, including the cognitive,
physical, and psychosocial elements
involved in a discharge to the
community.185 186
In addition to being an important
outcome from a patient and family
perspective, patients discharged to
community settings, on average, incur
lower costs over the recovery episode,
compared with those discharged to
institutional settings.187 188 Given the
high costs of care in institutional
settings, encouraging LTCHs to prepare
patients for discharge to community,
when clinically appropriate, may have
cost-saving implications for the
Medicare program.189 Also, providers
have discovered that successful
discharge to community was a major
driver of their ability to achieve savings,
where capitated payments for post-acute
care were in place.190 For patients who
require long-term care due to persistent
disability, discharge to community
could result in lower long-term care
185 El-Solh AA, Saltzman SK, Ramadan FH,
Naughton BJ. Validity of an artificial neural
network in predicting discharge destination from a
postacute geriatric rehabilitation unit. Archives of
physical medicine and rehabilitation.
2000;81(10):1388–1393.
186 Tanwir S, Montgomery K, Chari V, Nesathurai
S. Stroke rehabilitation: availability of a family
member as caregiver and discharge destination.
European journal of physical and rehabilitation
medicine. 2014;50(3):355–362.
187 Dobrez D, Heinemann AW, Deutsch A,
Manheim L, Mallinson T. Impact of Medicare’s
prospective payment system for inpatient
rehabilitation facilities on stroke patient outcomes.
American journal of physical medicine &
rehabilitation/Association of Academic Physiatrists.
2010;89(3):198–204.
188 Gage B, Morley M, Spain P, Ingber M.
Examining Post Acute Care Relationships in an
Integrated Hospital System. Final Report. RTI
International;2009.
189 Ibid.
190 Doran JP, Zabinski SJ. Bundled payment
initiatives for Medicare and non-Medicare total
joint arthroplasty patients at a community hospital:
bundles in the real world. The journal of
arthroplasty. 2015;30(3):353–355.

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EP27AP16.002

• Yij = attributed standardized spending
for episode i and provider j
• Yˆij = expected standardized spending for
episode i and provider j, as predicted from
risk adjustment
• nj = number of episodes for provider j
• n = total number of episodes nationally
• i ∈ {Ij} = all episodes i in the set of
episodes attributed to provider j.

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costs for Medicaid and for patients’ outof-pocket expenditures.191
Analyses conducted for ASPE on PAC
episodes, using a 5 percent sample of
2006 Medicare claims, revealed that
relatively high average, unadjusted
Medicare payments are associated with
discharge to institutional settings from
IRFs, SNFs, LTCHs or HHAs, as
compared with payments associated
with discharge to community
settings.192 Average, unadjusted
Medicare payments associated with
discharge to community settings ranged
from $0 to $4,017 for IRF discharges, $0
to $3,544 for SNF discharges, $0 to
$4,706 for LTCH discharges, and $0 to
$992 for HHA discharges. In contrast,
payments associated with discharge to
non-community settings were
considerably higher, ranging from
$11,847 to $25,364 for IRF discharges,
$9,305 to $29,118 for SNF discharges,
$12,465 to $18,205 for LTCH discharges,
and $7,981 to $35,192 for HHA
discharges.193
Measuring and comparing facilitylevel discharge to community rates is
expected to help differentiate among
facilities with varying performance in
this important domain, and to help
avoid disparities in care across patient
groups. Variation in discharge to
community rates has been reported
within and across post-acute settings;
across a variety of facility-level
characteristics, such as geographic
location (for example, regional location,
urban or rural location), ownership (for
example, for-profit or nonprofit), and
freestanding or hospital-based units;
and across patient-level characteristics,
such as race and
gender.194 195 196 197 198 199 Discharge to
191 Newcomer RJ, Ko M, Kang T, Harrington C,
Hulett D, Bindman AB. Health Care Expenditures
After Initiating Long-term Services and Supports in
the Community Versus in a Nursing Facility.
Medical Care. 2016;54(3):221–228.
192 Gage B, Morley M, Spain P, Ingber M.
Examining Post Acute Care Relationships in an
Integrated Hospital System. Final Report. RTI
International;2009.
193 Ibid.
194 Reistetter TA, Karmarkar AM, Graham JE, et
al. Regional variation in stroke rehabilitation
outcomes. Archives of physical medicine and
rehabilitation. 2014;95(1):29–38.
195 El-Solh AA, Saltzman SK, Ramadan FH,
Naughton BJ. Validity of an artificial neural
network in predicting discharge destination from a
postacute geriatric rehabilitation unit. Archives of
physical medicine and rehabilitation.
2000;81(10):1388–1393.
196 March 2015 Report to the Congress: Medicare
Payment Policy. Medicare Payment Advisory
Commission;2015.
197 Bhandari VK, Kushel M, Price L, Schillinger
D. Racial disparities in outcomes of inpatient stroke
rehabilitation. Archives of physical medicine and
rehabilitation. 2005;86(11):2081–2086.
198 Chang PF, Ostir GV, Kuo YF, Granger CV,
Ottenbacher KJ. Ethnic differences in discharge

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community rates in the IRF setting have
been reported to range from about 60 to
80 percent.200 201 202 203 204 205 Longerterm studies show that rates of
discharge to community from IRFs have
decreased over time as IRF length of
stay has decreased.206 207 Greater
variation in discharge to community
rates is seen in the SNF setting, with
rates ranging from 31 to 65
percent.208 209 210 211 A multi-center
destination among older patients with traumatic
brain injury. Archives of physical medicine and
rehabilitation. 2008;89(2):231–236.
199 Berges IM, Kuo YF, Ostir GV, Granger CV,
Graham JE, Ottenbacher KJ. Gender and ethnic
differences in rehabilitation outcomes after hipreplacement surgery. American journal of physical
medicine & rehabilitation/Association of Academic
Physiatrists. 2008;87(7):567–572.
200 Galloway RV, Granger CV, Karmarkar AM, et
al. The Uniform Data System for Medical
Rehabilitation: report of patients with debility
discharged from inpatient rehabilitation programs
in 2000–2010. American journal of physical
medicine & rehabilitation/Association of Academic
Physiatrists. 2013;92(1):14–27.
201 Morley MA, Coots LA, Forgues AL, Gage BJ.
Inpatient rehabilitation utilization for Medicare
beneficiaries with multiple sclerosis. Archives of
physical medicine and rehabilitation.
2012;93(8):1377–1383.
202 Reistetter TA, Graham JE, Deutsch A, Granger
CV, Markello S, Ottenbacher KJ. Utility of
functional status for classifying community versus
institutional discharges after inpatient
rehabilitation for stroke. Archives of physical
medicine and rehabilitation. 2010;91(3):345–350.
203 Gagnon D, Nadeau S, Tam V. Clinical and
administrative outcomes during publicly-funded
inpatient stroke rehabilitation based on a case-mix
group classification model. Journal of rehabilitation
medicine. 2005;37(1):45–52.
204 DaVanzo J, El-Gamil A, Li J, Shimer M,
Manolov N, Dobson A. Assessment of patient
outcomes of rehabilitative care provided in
inpatient rehabilitation facilities (IRFs) and after
discharge. Vienna, VA: Dobson DaVanzo &
Associates, LLC;2014.
205 Kushner DS, Peters KM, Johnson-Greene D.
Evaluating Siebens Domain Management Model for
Inpatient Rehabilitation to Increase Functional
Independence and Discharge Rate to Home in
Geriatric Patients. Archives of physical medicine
and rehabilitation. 2015;96(7):1310–1318.
206 Galloway RV, Granger CV, Karmarkar AM, et
al. The Uniform Data System for Medical
Rehabilitation: report of patients with debility
discharged from inpatient rehabilitation programs
in 2000–2010. American journal of physical
medicine & rehabilitation/Association of Academic
Physiatrists. 2013;92(1):14–27.
207 Mallinson T, Deutsch A, Bateman J, et al.
Comparison of discharge functional status after
rehabilitation in skilled nursing, home health, and
medical rehabilitation settings for patients after hip
fracture repair. Archives of physical medicine and
rehabilitation. 2014;95(2):209–217.
208 El-Solh AA, Saltzman SK, Ramadan FH,
Naughton BJ. Validity of an artificial neural
network in predicting discharge destination from a
postacute geriatric rehabilitation unit. Archives of
physical medicine and rehabilitation.
2000;81(10):1388–1393.
209 Hall RK, Toles M, Massing M, et al. Utilization
of acute care among patients with ESRD discharged
home from skilled nursing facilities. Clinical
journal of the American Society of Nephrology:
CJASN. 2015;10(3):428–434.
210 Stearns SC, Dalton K, Holmes GM, Seagrave
SM. Using propensity stratification to compare

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study of 23 LTCHs demonstrated that
28.8 percent of 1,061 patients who were
ventilator-dependent on admission were
discharged to home.212 A single-center
study revealed that 31 percent of LTCH
hemodialysis patients were discharged
to home.213 In the LTCH Medicare FFS
population, using CY 2012–2013
national data, we found that
approximately 25 percent of patients
were discharged to the community. One
study noted that 64 percent of
beneficiaries who were discharged from
the home health episode did not use any
other acute or post-acute services paid
by Medicare in the 30 days after
discharge.214 However, significant
numbers of patients were admitted to
hospitals (29 percent) and lesser
numbers to SNFs (7.6 percent), IRFs (1.5
percent), home health (7.2 percent) or
hospice (3.3 percent).215
Discharge to community is an
actionable health care outcome, as
targeted interventions have been shown
to successfully increase discharge to
community rates in a variety of postacute settings.216 217 218 219 Many of these
interventions involve discharge
planning or specific rehabilitation
strategies, such as addressing discharge
barriers and improving medical and
patient outcomes in hospital-based versus
freestanding skilled-nursing facilities. Medical care
research and review: MCRR. 2006;63(5):599–622.
211 Wodchis WP, Teare GF, Naglie G, et al. Skilled
nursing facility rehabilitation and discharge to
home after stroke. Archives of physical medicine
and rehabilitation. 2005;86(3):442–448.
212 Scheinhorn DJ, Hassenpflug MS, Votto JJ, et al.
Post-ICU mechanical ventilation at 23 long-term
care hospitals: a multicenter outcomes study. Chest.
2007;131(1):85–93.
213 Thakar CV, Quate-Operacz M, Leonard AC,
Eckman MH. Outcomes of hemodialysis patients in
a long-term care hospital setting: a single-center
study. American journal of kidney diseases: the
official journal of the National Kidney Foundation.
2010;55(2):300–306.
214 Wolff JL, Meadow A, Weiss CO, Boyd CM, Leff
B. Medicare home health patients’ transitions
through acute and post-acute care settings. Medical
care. 2008;46(11):1188–1193.
215 Ibid.
216 Kushner DS, Peters KM, Johnson-Greene D.
Evaluating Siebens Domain Management Model for
Inpatient Rehabilitation to Increase Functional
Independence and Discharge Rate to Home in
Geriatric Patients. Archives of physical medicine
and rehabilitation. 2015;96(7):1310–1318.
217 Wodchis WP, Teare GF, Naglie G, et al. Skilled
nursing facility rehabilitation and discharge to
home after stroke. Archives of physical medicine
and rehabilitation. 2005;86(3):442–448.
218 Berkowitz RE, Jones RN, Rieder R, et al.
Improving disposition outcomes for patients in a
geriatric skilled nursing facility. Journal of the
American Geriatrics Society. 2011;59(6):1130–1136.
219 Kushner DS, Peters KM, Johnson-Greene D.
Evaluating use of the Siebens Domain Management
Model during inpatient rehabilitation to increase
functional independence and discharge rate to
home in stroke patients. PM & R: the journal of
injury, function, and rehabilitation. 2015;7(4):354–
364.

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functional status.220 221 222 223 The
effectiveness of these interventions
suggests that improvement in discharge
to community rates among post-acute
care patients is possible through
modifying provider-led processes and
interventions.
A TEP convened by our measure
development contractor was strongly
supportive of the importance of
measuring discharge to community
outcomes, and implementing the
proposed measure, Discharge to
Community-PAC LTCH QRP in the
LTCH QRP. The panel provided input
on the technical specifications of this
proposed measure, including the
feasibility of implementing the measure,
as well as the overall measure reliability
and validity. A summary of the TEP
proceedings is available on the PAC
Quality Initiatives Downloads and
Videos Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/PostAcute-Care-Quality-Initiatives/IMPACTAct-of-2014/IMPACT-Act-Downloadsand-Videos.html.
We also solicited stakeholder
feedback on the development of this
measure through a public comment
period held from November 9, 2015,
through December 8, 2015. Several
stakeholders and organizations,
including the MedPAC, among others,
supported this measure for
implementation. The public comment
summary report for the proposed
measure is available on the CMS Web
site at: https://www.cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/Post-Acute-Care-QualityInitiatives/IMPACT-Act-of-2014/
IMPACT-Act-Downloads-andVideos.html.
The NQF-convened MAP met on
December 14 and 15, 2015, and
provided input on the use of this
proposed Discharge to Community-PAC
LTCH QRP measure in the LTCH QRP.
220 Kushner DS, Peters KM, Johnson-Greene D.
Evaluating Siebens Domain Management Model for
Inpatient Rehabilitation to Increase Functional
Independence and Discharge Rate to Home in
Geriatric Patients. Archives of physical medicine
and rehabilitation. 2015;96(7):1310–1318.
221 Wodchis WP, Teare GF, Naglie G, et al. Skilled
nursing facility rehabilitation and discharge to
home after stroke. Archives of physical medicine
and rehabilitation. 2005;86(3):442–448.
222 Berkowitz RE, Jones RN, Rieder R, et al.
Improving disposition outcomes for patients in a
geriatric skilled nursing facility. Journal of the
American Geriatrics Society. 2011;59(6):1130–1136.
223 Kushner DS, Peters KM, Johnson-Greene D.
Evaluating use of the Siebens Domain Management
Model during inpatient rehabilitation to increase
functional independence and discharge rate to
home in stroke patients. PM & R: the journal of
injury, function, and rehabilitation. 2015;7(4):354–
364.

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The MAP encouraged continued
development of the proposed measure
to meet the mandate of the IMPACT Act.
The MAP supported the alignment of
this proposed measure across PAC
settings, using standardized claims data.
More information about the MAP’s
recommendations for this measure is
available at: http://
www.qualityforum.org/Publications/
2016/02/MAP_2016_Considerations_
for_Implementing_Measures_in_
Federal_Programs_-_PAC-LTC.aspx.
Since the MAP’s review and
recommendation of continued
development, we have continued to
refine risk-adjustment models and
conduct measure testing for this
measure, as recommended by the MAP.
This proposed measure is consistent
with the information submitted to the
MAP and is scientifically acceptable for
current specification in the LTCH QRP.
As discussed with the MAP, we fully
anticipate that additional analyses will
continue as we submit this measure to
the ongoing measure maintenance
process.
We reviewed the NQF’s consensusendorsed measures and were unable to
identify any NQF-endorsed resource use
or other measures for post-acute care
focused on discharge to community. In
addition, we are unaware of any other
post-acute care measures for discharge
to community that have been endorsed
or adopted by other consensus
organizations. Therefore, we are
proposing the measure, Discharge to
Community-PAC LTCH QRP, under the
Secretary’s authority to specify nonNQF-endorsed measures under section
1899B(e)(2)(B) of the Act.
We are proposing to use data from the
Medicare FFS claims and Medicare
eligibility files to calculate this
proposed measure. We are proposing to
use data from the ‘‘Patient Discharge
Status Code’’ on Medicare FFS claims to
determine whether a patient was
discharged to a community setting for
calculation of this proposed measure. In
all PAC settings, we tested the accuracy
of determining discharge to a
community setting using the ‘‘Patient
Discharge Status Code’’ on the PAC
claim by examining whether discharge
to community coding based on PAC
claim data agreed with discharge to
community coding based on PAC
assessment data. We found excellent
agreement between the two data sources
in all PAC settings, ranging from 94.6
percent to 98.8 percent. Specifically, in
the LTCH setting, using 2013 data, we
found 95.6 percent agreement in coding
of community and non-community
discharges when comparing discharge
status codes on claims and the

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Discharge Location (item A2100) codes
on the LTCH Continuity Assessment
Record and Evaluation (CARE) Data Set
Version 1.01. We further examined the
accuracy of the ‘‘Patient Discharge
Status Code’’ on the PAC claim by
assessing how frequently discharges to
an acute care hospital were confirmed
by follow-up acute care claims. We
discovered that 88 percent to 91 percent
of IRF, LTCH, and SNF claims with
acute care discharge status codes were
followed by an acute care claim on the
day of, or day after, PAC discharge. We
believe these data support the use of the
claims ‘‘Patient Discharge Status Code’’
for determining discharge to a
community setting for this measure. In
addition, this measure can feasibly be
implemented in the LTCH QRP because
all data used for measure calculation are
derived from Medicare FFS claims and
eligibility files, which are already
available to CMS.
Based on the evidence discussed
above, we are proposing to adopt the
measure, Discharge to Community-PAC
LTCH QRP, for the LTCH QRP for FY
2018 payment determination and
subsequent years. This proposed
measure is calculated using 2 years of
data. We are proposing a minimum of
25 eligible stays in a given LTCH for
public reporting of the proposed
measure for that LTCH. Since Medicare
FFS claims data are already reported to
the Medicare program for payment
purposes, and Medicare eligibility files
are also available, LTCHs will not be
required to report any additional data to
CMS for calculation of this measure.
The proposed measure denominator is
the risk-adjusted expected number of
discharges to community. The proposed
measure numerator is the risk-adjusted
estimate of the number of patients who
are discharged to the community, do not
have an unplanned readmission to an
acute care hospital or LTCH in the 31day post-discharge observation window,
and who remain alive during the postdischarge observation window. The
measure is risk-adjusted for variables
such as age and sex, principal diagnosis,
comorbidities, ventilator status, ESRD
status, and dialysis, among other
variables. For technical information
about this proposed measure, including
information about the measure
calculation, risk adjustment, and
denominator exclusions, we refer
readers to the document titled, Proposed
Measure Specifications for Measures
Proposed in the FY 2017 LTCH QRP
NPRM, available at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/LTCH-

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Quality-Reporting/LTCH-QualityReporting-Measures-Information.html.
If this proposed measure is finalized,
we intend to provide initial confidential
feedback to LTCHs, prior to public
reporting of this measure, based on
Medicare FFS claims data from
discharges in CY 2015 and 2016. We
intend to publicly report this measure
using claims data from discharges in CY
2016 and 2017. We plan to submit this
proposed measure to the NQF for
consideration for endorsement.
We are inviting public comment on
our proposal to adopt the measure,
Discharge to Community-PAC LTCH
QRP, for the LTCH QRP.
c. Proposal To Address the IMPACT Act
Domain of Resource Use and Other
Measures: Potentially Preventable 30Day Post-Discharge Readmission
Measure for Long-Term Care Hospital
Quality Reporting Program
Sections 1899B(a)(2)(E)(ii) and
1899B(d)(1)(C) of the Act require the
Secretary to specify measures to address
the domain of all-condition riskadjusted potentially preventable
hospital readmission rates by SNFs,
LTCHs, and IRFs by October 1, 2016,
and HHAs by January 1, 2017. We are
proposing the measure Potentially
Preventable 30-Day Post-Discharge
Readmission Measure for LTCH QRP as
a Medicare FFS claims-based measure to
meet this requirement for the FY 2018
payment determination and subsequent
years.
The proposed measure assesses the
facility-level risk-standardized rate of
unplanned, potentially preventable
hospital readmissions for Medicare FFS
beneficiaries in the 30 days post-LTCH
discharge. The LTCH admission must
have occurred within up to 30 days of
discharge from a prior proximal hospital
stay which is defined as an inpatient
admission to an acute care hospital
(including IPPS, CAH, or a psychiatric
hospital). Hospital readmissions include
readmissions to a short-stay acute care
hospital or an LTCH, with a diagnosis
considered to be unplanned and
potentially preventable. This proposed
measure is claims-based, requiring no
additional data collection or submission
burden for LTCHs. Because the measure
denominator is based on LTCH
admissions, each Medicare beneficiary
may be included in the measure
multiple times within the measurement
period. Readmissions counted in this
measure are identified by examining
Medicare FFS claims data for
readmissions to either acute care
hospitals (IPPS or CAH) or LTCHs that
occur during a 30-day window
beginning two days after LTCH

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discharge. This measure is
conceptualized uniformly across the
PAC settings, in terms of the measure
definition, the approach to risk
adjustment, and the measure
calculation. Our approach for defining
potentially preventable hospital
readmissions is described in more detail
below.
Hospital readmissions among the
Medicare population, including
beneficiaries that utilize PAC, are
common, costly, and often
preventable.224 225 MedPAC and a study
by Jencks et al. estimated that 17 to 20
percent of Medicare beneficiaries
discharged from the hospital were
readmitted within 30 days. MedPAC
found that more than 75 percent of 30day and 15-day readmissions and 84
percent of 7-day readmissions were
considered ‘‘potentially
preventable.’’ 226 In addition, MedPAC
calculated that annual Medicare
spending on potentially preventable
readmissions would be $12 billion for
30-day, $8 billion for 15-day, and $5
billion for 7-day readmissions.227 For
hospital readmissions from one postacute care setting, SNFs, MedPAC
deemed 76 percent of readmissions as
‘‘potentially avoidable’’—associated
with $12 billion in Medicare
expenditures.228 Mor et al. analyzed
2006 Medicare claims and SNF
assessment data (Minimum Data Set),
and reported a 23.5 percent readmission
rate from SNFs, associated with $4.3B in
expenditures.229 Fewer studies have
investigated potentially preventable
readmission rates from the remaining
post-acute care settings.
We have addressed the high rates of
hospital readmissions in the acute care
setting as well as in PAC. For example,
we developed the following measure:
All-Cause Unplanned Readmission
Measure for 30 Days Post-Discharge
from LTCHs (NQF #2512), as well as
similar measures for other PAC
224 Friedman, B., and Basu, J.: The rate and cost
of hospital readmissions for preventable conditions.
Med. Care Res. Rev. 61(2):225–240, 2004.
doi:10.1177/1077558704263799.
225 Jencks, S.F., Williams, M.V., and Coleman,
E.A.: Rehospitalizations among patients in the
Medicare Fee-for-Service Program. N. Engl. J. Med.
360(14):1418–1428, 2009. doi:10.1016/
j.jvs.2009.05.045
226 MedPAC: Payment policy for inpatient
readmissions, in Report to the Congress: Promoting
Greater Efficiency in Medicare. Washington, DC, pp.
103–120, 2007. Available from http://
www.medpac.gov/documents/reports/Jun07_
EntireReport.pdf.
227 Ibid.
228 Ibid.
229 Mor, V., Intrator, O., Feng, Z., et al.: The
revolving door of rehospitalization from skilled
nursing facilities. Health Aff. 29(1):57–64, 2010.
doi:10.1377/hlthaff.2009.0629.

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providers (NQF #2502 for IRFs and NQF
#2510 for SNFs).230 These measures are
endorsed by the NQF, and the NQFendorsed LTCH measure (NQF #2512)
was adopted into the LTCH QRP in the
FY 2016 IPPS/LTCH PPS final rule (80
FR 49730 through 49731). Note that
these NQF-endorsed measures assess
all-cause unplanned readmissions.
Several general methods and
algorithms have been developed to
assess potentially avoidable or
preventable hospitalizations and
readmissions for the Medicare
population. These include the Agency
for Healthcare Research and Quality’s
(AHRQ’s) Prevention Quality Indicators,
approaches developed by MedPAC, and
proprietary approaches, such as the
3MTM algorithm for Potentially
Preventable Readmissions.231 232 233
Recent work led by Kramer et al. for
MedPAC identified 13 conditions for
which readmissions were deemed as
potentially preventable among SNF and
IRF populations.234 235 Although much
of the existing literature addresses
hospital readmissions more broadly and
potentially avoidable hospitalizations
for specific settings like long-term care,
these findings are relevant to the
development of potentially preventable
readmission measures for PAC.236 237 238
230 National Quality Forum: All-Cause
Admissions and Readmissions Measures. pp. 1–
319, April 2015. Available from http://
www.qualityforum.org/Publications/2015/04/AllCause_Admissions_and_Readmissions_Measures_-_
Final_Report.aspx.
231 Goldfield, N.I., McCullough, E.C., Hughes, J.S.,
et al.: Identifying potentially preventable
readmissions. Health Care Finan. Rev. 30(1):75–91,
2008. Available from http://www.ncbi.nlm.nih.gov/
pmc/articles/PMC4195042/.
232 National Quality Forum: Prevention Quality
Indicators Overview. 2008.
233 MedPAC: Online Appendix C: Medicare
Ambulatory Care Indicators for the Elderly. pp. 1–
12, prepared for Chapter 4, 2011. Available from:
http://www.medpac.gov/documents/reports/Mar11_
Ch04_APPENDIX.pdf?sfvrsn=0.
234 Kramer, A., Lin, M., Fish, R., et al.:
Development of Inpatient Rehabilitation Facility
Quality Measures: Potentially Avoidable
Readmissions, Community Discharge, and
Functional Improvement. pp. 1–42, 2015. Available
from http://www.medpac.gov/documents/
contractor-reports/development-of-inpatientrehabilitation-facility-quality-measures-potentiallyavoidable-readmissions-community-discharge-andfunctional-improvement.pdf?sfvrsn=0.
235 Kramer, A., Lin, M., Fish, R., et al.:
Development of Potentially Avoidable Readmission
and Functional Outcome SNF Quality Measures.
pp. 1–75, 2014. Available from http://
www.medpac.gov/documents/contractor-reports/
mar14_snfqualitymeasures_contractor.pdf?
sfvrsn=0.
236 Allaudeen, N., Vidyarthi, A., Maselli, J., et al.:
Redefining readmission risk factors for general
medicine patients. J. Hosp. Med. 6(2):54–60, 2011.
doi:10.1002/jhm.805.
237 Gao, J., Moran, E., Li, Y.-F., et al.: Predicting
potentially avoidable hospitalizations. Med. Care

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Potentially Preventable Readmission
Measure Definition: We conducted a
comprehensive environmental scan,
analyzed claims data, and obtained
input from a TEP to develop a definition
and list of conditions for which hospital
readmissions are potentially
preventable. The Ambulatory Care
Sensitive Conditions and Prevention
Quality Indicators, developed by AHRQ,
served as the starting point in this work.
For patients in the 30-day post-PAC
discharge period, a potentially
preventable readmission (PPR) refers to
a readmission for which the probability
of occurrence could be minimized with
adequately planned, explained, and
implemented post-discharge
instructions, including the
establishment of appropriate follow-up
ambulatory care. Our list of PPR
conditions is categorized by 3 clinical
rationale groupings:
• Inadequate management of chronic
conditions;
• Inadequate management of
infections; and
• Inadequate management of other
unplanned events.
Additional details regarding the
definition for potentially preventable
readmissions are available in the
document titled, Proposed Measure
Specifications for Measures Proposed in
the FY 2017 LTCH QRP NPRM,
available at: https://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/LTCH-Quality-ReportingMeasures-Information.html.
This proposed measure focuses on
readmissions that are potentially
preventable and also unplanned.
Similar to the All-Cause Unplanned
Readmission Measure for 30 Days PostDischarge from LTCHs (NQF #2512),
this proposed measure uses the current
version of the CMS Planned
Readmission Algorithm as the main
component for identifying planned
readmissions. A complete description of
the CMS Planned Readmission
Algorithm, which includes lists of
planned diagnoses and procedures, can
be found on the CMS Web site at:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Measure-Methodology.html. In addition
to the CMS Planned Readmission
52(2):164–171, 2014. doi:10.1097/MLR.000000
0000000041.
238 Walsh, E.G., Wiener, J.M., Haber, S., et al.:
Potentially avoidable hospitalizations of dually
eligible Medicare and Medicaid beneficiaries from
nursing facility and home-and community-based
services waiver programs. J. Am. Geriatr. Soc.
60(5):821–829, 2012. doi:10.1111/j.1532–
5415.2012.03920.x.

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Algorithm, this proposed measure
incorporates procedures that are
considered planned in post-acute care
settings, as identified in consultation
with TEPs. Full details on the planned
readmissions criteria used, including
the CMS Planned Readmission
Algorithm and additional procedures
considered planned for post-acute care,
can be found in the document titled,
Proposed Measure Specifications for
Measures Proposed in the FY 2017
LTCH QRP NPRM, available at: https://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
LTCH-Quality-Reporting-MeasuresInformation.html.
The proposed measure, Potentially
Preventable 30-Day Post-Discharge
Readmission Measure for LTCH QRP,
assesses potentially preventable
readmission rates while accounting for
patient demographics, principal
diagnosis in the prior hospital stay,
comorbidities, and other patient factors.
While estimating the predictive power
of patient characteristics, the model also
estimates a facility-specific effect,
common to patients treated in each
facility. This proposed measure is
calculated for each LTCH based on the
ratio of the predicted number of riskadjusted, unplanned, potentially
preventable hospital readmissions that
occur within 30 days after an LTCH
discharge, including the estimated
facility effect, to the estimated predicted
number of risk-adjusted, unplanned
inpatient hospital readmissions for the
same patients treated at the average
LTCH. A ratio above 1.0 indicates a
higher than expected readmission rate
(worse) while a ratio below 1.0 indicates
a lower than expected readmission rate
(better). This ratio is referred to as the
standardized risk ratio (SRR). The SRR
is then multiplied by the overall
national raw rate of potentially
preventable readmissions for all LTCH
stays. The resulting rate is the riskstandardized readmission rate (RSRR) of
potentially preventable readmissions.
An eligible LTCH stay is followed
until: (1) The 30-day post-discharge
period ends; or (2) the patient is
readmitted to an acute care hospital
(IPPS or CAH) or LTCH. If the
readmission is unplanned and
potentially preventable, it is counted as
a readmission in the measure
calculation. If the readmission is
planned, the readmission is not counted
in the measure rate.
This measure is risk adjusted. The
risk adjustment modeling estimates the
effects of patient characteristics,
comorbidities, and select health care
variables on the probability of

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readmission. More specifically, the riskadjustment model for LTCHs account
for demographic characteristics (age,
sex, original reason for Medicare
entitlement), principal diagnosis during
the prior proximal hospital stay, body
system specific surgical indicators,
prolonged mechanical ventilation
indicator, comorbidities, length of stay
during the patient’s prior proximal
hospital stay, length of stay in the
intensive care and coronary care unit
(ICU and CCU), and number of acute
care hospitalizations in the preceding
365 days.
The proposed measure is calculated
using 2 consecutive calendar years of
FFS claims data, to ensure the statistical
reliability of this measure for facilities.
In addition, we are proposing a
minimum of 25 eligible stays for public
reporting of the proposed measure.
A TEP convened by our measure
contractor provided recommendations
on the technical specifications of this
proposed measure, including the
development of an approach to define
potentially preventable hospital
readmission for PAC. Details from the
TEP meetings, including TEP members’
ratings of conditions proposed as being
potentially preventable, are available in
the TEP summary report available on
the CMS Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/PostAcute-Care-Quality-Initiatives/IMPACTAct-of-2014/IMPACT-Act-Downloadsand-Videos.html. We also solicited
stakeholder feedback on the
development of this measure through a
public comment period held from
November 2 through December 1, 2015.
Comments on the measure varied, with
some commenters supportive of the
proposed measure, while others either
were not in favor of the measure, or
suggested potential modifications to the
measure specifications, such as
including standardized function data. A
summary of the public comments is also
available on the CMS Web site at:
https://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/Post-Acute-Care-QualityInitiatives/IMPACT-Act-of-2014/
IMPACT-Act-Downloads-andVideos.html.
The MAP encouraged continued
development of the proposed measure.
Specifically, the MAP stressed the need
to promote shared accountability and
ensure effective care transitions. More
information about the MAP’s
recommendations for this measure is
available at: http://www.qualityforum.
org/Publications/2016/02/MAP_2016_
Considerations_for_Implementing_
Measures_in_Federal_Programs_-_PAC–

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
LTC.aspx. At the time, the riskadjustment model was still under
development. Following completion of
that development work, we were able to
test for measure validity and reliability
as identified in the measure
specifications document provided
above. Testing results are within range
for similar outcome measures finalized
in public reporting and value-based
purchasing programs, including the AllCause Unplanned Readmission Measure
for 30 Days Post-Discharge from LTCHs
(NQF #2512) adopted into the LTCH
QRP.
We reviewed the NQF’s consensus
endorsed measures and were unable to
identify any NQF-endorsed measures
focused on potentially preventable
hospital readmissions. We are unaware
of any other measures for this IMPACT
Act domain that have been endorsed or
adopted by other consensus
organizations. Therefore, we are
proposing the Potentially Preventable
30-Day Post-Discharge Readmission
Measure for LTCH QRP, under the
Secretary’s authority to specify nonNQF-endorsed measures under section
1899B(e)(2)(B) of the Act, for the LTCH
QRP for the FY 2018 payment
determination and subsequent years,
given the evidence previously discussed
above.
We plan to submit the proposed
measure to the NQF for consideration of
endorsement. If this proposed measure
is finalized, we intend to provide initial
confidential feedback to LTCHs, prior to
public reporting of this proposed
measure, based on 2 calendar years of
data from discharges in CY 2015 and
2016. We intend to publicly report this
proposed measure using data from CY
2016 and 2017.
We are inviting public comment on
our proposal to adopt the measure,
Potentially Preventable 30-Day PostDischarge Readmission Measure for
LTCH QRP.
7. LTCH QRP Quality Measure Proposed
for the FY 2020 Payment Determination
and Subsequent Years

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

a. Background
In addition to the measures we are
retaining as described in section
VIII.C.5. of the preamble of this
proposed rule under our policy
described in section VIII.C.3. of the
preamble of this proposed rule and the
new quality measures proposed in
section VIII.C.6. of the preamble of this
proposed rule for the FY 2018 payment
determinations and subsequent years,
we are also proposing one new quality
measure to meet the requirements of the
IMPACT Act for the FY 2020 payment

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determination and subsequent years.
The proposed measure, Drug Regimen
Review Conducted with Follow-Up for
Identified Issues-Post-Acute Care (PAC)
LTCH QRP, addresses the IMPACT Act
quality domain of Medication
Reconciliation.
b. Quality Measure Addressing the
IMPACT Act Domain of Medication
Reconciliation: Drug Regimen Review
Conducted With Follow-up for
Identified Issues-Post Acute Care LTCH
QRP
Sections 1899B(a)(2)(E)(i)(III) and
1899B(c)(1)(C) of the Act require the
Secretary to specify a quality measure to
address the domain of medication
reconciliation by October 1, 2018 for
IRFs, LTCHs, and SNFs, and by January
1, 2017 for HHAs. We are proposing to
adopt the quality measure, Drug
Regimen Review Conducted with
Follow-Up for Identified Issues-PAC
LTCH QRP, for the LTCH QRP as a
patient-assessment based, cross-setting
quality measure to meet the IMPACT
Act requirements with data collection
beginning April 1, 2018 for the FY 2020
payment determinations and subsequent
years.
This proposed measure assesses
whether PAC providers were responsive
to potential or actual clinically
significant medication issue(s) when
such issues were identified.
Specifically, the proposed quality
measure reports the percentage of
patient stays in which a drug regimen
review was conducted at the time of
admission and timely follow-up with a
physician occurred each time potential
clinically significant medication issues
were identified throughout that stay.
For this proposed quality measure,
drug regimen review is defined as the
review of all medications or drugs the
patient is taking to identify any
potentially clinically significant
medication issues. This proposed
quality measure utilizes both the
processes of medication reconciliation
and a drug regimen review, in the event
an actual or potential medication issue
occurred. The proposed measure
informs whether the PAC facility
identified and addressed each clinically
significant medication issue and if the
facility responded or addressed the
medication issue in a timely manner. Of
note, drug regimen review in PAC
settings is generally considered to
include medication reconciliation and
review of the patient’s drug regimen to
identify potential clinically significant

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medication issues.239 This measure is
applied uniformly across the PAC
settings.
Medication reconciliation is a process
of reviewing an individual’s complete
and current medication list. Medication
reconciliation is a recognized process
for reducing the occurrence of
medication discrepancies that may lead
to Adverse Drug Events (ADEs).240
Medication discrepancies occur when
there is conflicting information
documented in the medical records. The
World Health Organization regards
medication reconciliation as a standard
operating protocol necessary to reduce
the potential for ADEs that cause harm
to patients. Medication reconciliation is
an important patient safety process that
addresses medication accuracy during
transitions in patient care and in
identifying preventable ADEs.241 The
Joint Commission added medication
reconciliation to its list of National
Patient Safety Goals (2005), suggesting
that medication reconciliation is an
integral component of medication
safety.242 The Society of Hospital
Medicine published a statement in
agreement of the Joint Commission’s
emphasis and value of medication
reconciliation as a patient safety goal.243
There is universal agreement that
medication reconciliation directly
addresses patient safety issues that can
result from medication
miscommunication and unavailable or
incorrect information.244 245 246
The performance of timely medication
reconciliation is valuable to the process
of drug regimen review. Preventing and
responding to ADEs is of critical
importance as ADEs account for
significant increases in health services
239 Institute of Medicine. Preventing Medication
Errors. Washington DC: National Academies Press;
2006.
240 Ibid
241 Leotsakos A., et al. Standardization in patient
safety: the WHO High 5s project. Int J Qual Health
Care. 2014:26(2):109–116.
242 The Joint Commission. 2016 Long Term Care:
National Patient Safety Goals Medicare/Medicaid
Certification-based Option. (NPSG.03.06.01).
243 Greenwald, J. L., Halasyamani, L., Greene, J.,
LaCivita, C., et al. (2010). Making inpatient
medication reconciliation patient centered,
clinically relevant and implementable: a consensus
statement on key principles and necessary first
steps. Journal of Hospital Medicine, 5(8), 477–485.
244 Leotsakos A., et al. Standardization in patient
safety: the WHO High 5s project. Int J Qual Health
Care. 2014:26(2):109–116.
245 The Joint Commission. 2016 Long Term Care:
National Patient Safety Goals Medicare/Medicaid
Certification-based Option. (NPSG.03.06.01).
246 IHI. Medication Reconciliation to Prevent
Adverse Drug Events [Internet]. Cambridge, MA:
Institute for Healthcare Improvement; [cited 2016
Jan 11]. Available from: http://www.ihi.org/topics/
adesmedicationreconciliation/Pages/default.aspx.

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utilization and costs, 247 248 249 including
subsequent emergency room visits and
re-hospitalizations.250 Annual health
care costs in the United States are
estimated at $3.5 billion, resulting in
7,000 deaths annually.251 252
Medication errors include the
duplication of medications, delivery of
an incorrect drug, inappropriate drug
omissions, or errors in the dosage, route,
frequency, and duration of medications.
Medication errors are one of the most
common types of medical error and can
occur at any point in the process of
ordering and delivering a medication.
Medication errors have the potential to
result in an ADE.253 254 255 256 257 258
Inappropriately prescribed medications
are also considered a major healthcare
concern in the United States for the
elderly population, with costs of
roughly $7.2 billion annually.259
There is strong evidence that
medication discrepancies occur during
transfers from acute care facilities to
post-acute care facilities. Discrepancies

occur when there is conflicting
information documented in the medical
records. Almost one-third of medication
discrepancies have the potential to
cause patient harm.260 An estimated 50
percent of patients experienced a
clinically important medication error
after hospital discharge in an analysis of
two tertiary care academic hospitals.261
Medication reconciliation has been
identified as an area for improvement
during transfer from the acute care
facility to the receiving post-acute care
facility. PAC facilities report gaps in
medication information between the
acute care hospital and the receiving
post-acute care setting when performing
medication reconciliation.262 263
Hospital discharge has been identified
as a particularly high risk time point,
with evidence that medication
reconciliation identifies high levels of
discrepancy.264 265 266 267 268 269 Also,
there is evidence that medication
reconciliation discrepancies occur
throughout the patient stay.270 271 For

247 Institute of Medicine. Preventing Medication
Errors. Washington DC: National Academies Press;
2006.
248 Jha AK, Kuperman GJ, Rittenberg E, et al.
Identifying hospital admissions due to adverse drug
events using a computer-based monitor.
Pharmacoepidemiol Drug Saf. 2001;10(2):113–119.
249 Hohl CM, Nosyk B, Kuramoto L, et al.
Outcomes of emergency department patients
presenting with adverse drug events. Ann Emerg
Med. 2011;58:270–279.
250 Kohn LT, Corrigan JM, Donaldson MS. To Err
Is Human: Building a Safer Health System
Washington, DC: National Academies Press; 1999.
251 Greenwald, J. L., Halasyamani, L., Greene, J.,
LaCivita, C., et al. (2010). Making inpatient
medication reconciliation patient centered,
clinically relevant and implementable: a consensus
statement on key principles and necessary first
steps. Journal of Hospital Medicine, 5(8), 477–485.
252 Phillips, David P.; Christenfeld, Nicholas; and
Glynn, Laura M. Increase in US Medication-Error
Deaths between 1983 and 1993. The Lancet.
351:643–644, 1998.
253 Institute of Medicine. To err is human:
building a safer health system. Washington, DC:
National Academies Press; 2000.
254 Lesar TS, Briceland L, Stein DS. Factors
related to errors in medication prescribing. JAMA.
1997:277(4): 312–317.
255 Bond CA, Raehl CL, & Franke T. Clinical
pharmacy services, hospital pharmacy staffing, and
medication errors in United States hospitals.
Pharmacotherapy. 2002:22(2): 134–147.
256 Bates DW, Cullen DJ, Laird N, Petersen LA,
Small SD, et al. Incidence of adverse drug events
and potential adverse drug events. Implications for
prevention. JAMA. 1995:274(1): 29–34.
257 Barker KN, Flynn EA, Pepper GA, Bates DW,
& Mikeal RL. Medication errors observed in 36
health care facilities. JAMA. 2002: 162(16):1897–
1903.
258 Bates DW, Boyle DL, Vander Vliet MB,
Schneider J, & Leape L. Relationship between
medication errors and adverse drug events. J Gen
Intern Med. 1995:10(4): 199–205.
259 Fu, Alex Z., et al. ‘‘Potentially inappropriate
medication use and healthcare expenditures in the
US community-dwelling elderly.’’ Medical care
45.5 (2007): 472–476.

260 Wong, Jacqueline D., et al. ‘‘Medication
reconciliation at hospital discharge: evaluating
discrepancies.’’ Annals of Pharmacotherapy 42.10
(2008): 1373–1379.
261 Kripalani S, Roumie CL, Dalal AK, et al. Effect
of a pharmacist intervention on clinically important
medication errors after hospital discharge: A
randomized controlled trial. Ann Intern Med.
2012:157(1):1–10.
262 Gandara, Esteban, et al. ‘‘Communication and
information deficits in patients discharged to
rehabilitation facilities: an evaluation of five acute
care hospitals.’’ Journal of Hospital Medicine 4.8
(2009): E28–E33.
263 Gandara, Esteban, et al. ‘‘Deficits in discharge
documentation in patients transferred to
rehabilitation facilities on anticoagulation: results
of a system wide evaluation.’’ Joint Commission
Journal on Quality and Patient Safety 34.8 (2008):
460–463.
264 Coleman EA, Smith JD, Raha D, Min SJ. Post
hospital medication discrepancies: prevalence and
contributing factors. Arch Intern Med. 2005
165(16):1842–1847.
265 Wong JD, Bajcar JM, Wong GG, et al.
Medication reconciliation at hospital discharge:
evaluating discrepancies. Ann Pharmacother. 2008
42(10):1373–1379.
266 Hawes EM, Maxwell WD, White SF, Mangun
J, Lin FC. Impact of an outpatient pharmacist
intervention on medication discrepancies and
health care resource utilization in post
hospitalization care transitions. Journal of Primary
Care & Community Health. 2014; 5(1):14–18.
267 Foust JB, Naylor MD, Bixby MB, Ratcliffe SJ.
Medication problems occurring at hospital
discharge among older adults with heart failure.
Research in Gerontological Nursing. 2012, 5(1): 25–
33.
268 Pherson EC, Shermock KM, Efird LE, et al.
Development and implementation of a post
discharge home-based medication management
service. Am J Health Syst Pharm. 2014; 71(18):
1576–1583.
269 Pronovosta P, Weasta B, Scwarza M, et al.
Medication reconciliation: a practical tool to reduce
the risk of medication errors. J Crit Care. 2003;
18(4): 201–205.
270 Bates DW, Cullen DJ, Laird N, Petersen LA,
Small SD, et al. Incidence of adverse drug events

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older patients, who may have multiple
comorbid conditions and thus multiple
medications, transitions between acute
and post-acute care settings can be
further complicated,272 and medication
reconciliation and patient knowledge
(medication literacy) can be inadequate
post-discharge.273 The proposed quality
measure, Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP,
provides an important component of
care coordination for PAC settings and
would affect a large proportion of the
Medicare population who transfer from
hospitals into PAC services each year.
For example, in 2013, 1.7 million
Medicare FFS beneficiaries had SNF
stays, 338,000 beneficiaries had IRF
stays, and 122,000 beneficiaries had
LTCH stays.274
A TEP convened by our measure
development contractor provided input
on the technical specifications of this
proposed quality measure, Drug
Regimen Review Conducted with
Follow-Up for Identified Issues-PAC
LTCH QRP, including components of
reliability, validity and the feasibility of
implementing the measure across PAC
settings. The TEP supported the
measure’s implementation across PAC
settings and was supportive of our plans
to standardize this measure for crosssetting development. A summary of the
TEP proceedings is available on the PAC
Quality Initiatives Downloads and
Videos Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/PostAcute-Care-Quality-Initiatives/IMPACTAct-of-2014/IMPACT-Act-Downloadsand-Videos.html.
We solicited stakeholder feedback on
the development of this measure by
means of a public comment period held
from September 18 through October 6,
2015. Through public comments
submitted by several stakeholders and
organizations, we received support for
implementation of this proposed
measure. The public comment summary
and potential adverse drug events. Implications for
prevention. JAMA. 1995:274(1): 29–34.
271 Himmel, W., M. Tabache, and M. M. Kochen.
‘‘What happens to long-term medication when
general practice patients are referred to
hospital?.’’European journal of clinical
pharmacology 50.4 (1996): 253–257.
272 Chhabra, P. T., et al. (2012). ‘‘Medication
reconciliation during the transition to and from
long-term care settings: a systematic review.’’ Res
Social Adm Pharm 8(1): 60–75.
273 Kripalani S, Roumie CL, Dalal AK, et al. Effect
of a pharmacist intervention on clinically important
medication errors after hospital discharge: A
randomized controlled trial. Ann Intern Med.
2012:157(1):1–10.
274 March 2015 Report to the Congress: Medicare
Payment Policy. Medicare Payment Advisory
Commission; 2015.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
report for the proposed measure is
available on the CMS Web site at:
https://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/Post-Acute-Care-QualityInitiatives/IMPACT-Act-of-2014/
IMPACT-Act-Downloads-andVideos.html.
The NQF-convened MAP met on
December 14 and 15, 2015 and provided
input on the use of this proposed
measure, Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP. The
MAP encouraged continued
development of the proposed quality
measure to meet the mandate added by
the IMPACT Act. The MAP agreed with
the measure gaps identified by CMS
including medication reconciliation,
and stressed that medication
reconciliation be present as an ongoing
process. More information about the
MAP’s recommendations for this
measure is available at: http://
www.qualityforum.org/Publications/
2016/02/MAP_2016_Considerations_
for_Implementing_Measures_in_
Federal_Programs_-_PAC–LTC.aspx.
Since the MAP’s review and
recommendation of continued
development, we have continued to
refine this proposed measure in
compliance with the MAP’s
recommendations. The proposed
measure is both consistent with the
information submitted to the MAP and
support its scientific acceptability for
use in quality reporting programs.
Therefore, we are proposing this
measure for implementation in the
LTCH QRP as required by the IMPACT
Act.
We reviewed the NQF’s endorsed
measures and identified one NQFendorsed cross-setting and quality
measure related to medication
reconciliation, which applies to the
SNF, LTCH, IRF, and HHA settings of
care: Care for Older Adults (COA), (NQF
#0553). The quality measure, Care for
Older Adults (COA), (NQF #0553)
assesses the percentage of adults 66
years and older who had a medication
review. The Care for Older Adults
(COA), (NQF #0553) measure requires at
least one medication review conducted
by a prescribing practitioner or clinical
pharmacist during the measurement
year and the presence of a medication
list in the medical record. This is in
contrast to the proposed quality
measure, Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP,
which reports the percentage of patient
stays in which a drug regimen review
was conducted at the time of admission
and that timely follow-up with a

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physician occurred each time one or
more potential clinically significant
medication issues were identified
throughout that stay.
After careful review of both quality
measures, we have decided to propose
the quality measure, Drug Regimen
Review Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP for the
following reasons:
• The IMPACT Act requires the
implementation of quality measures,
using patient assessment data that are
standardized and interoperable across
PAC settings. The proposed quality
measure, Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP,
employs three standardized patientassessment data elements for each of the
four PAC settings so that data are
standardized, interoperable, and
comparable; whereas, the Care for Older
Adults (COA), (NQF #0553) quality
measure does not contain data elements
that are standardized across all four
PAC settings.
• The proposed quality measure,
Drug Regimen Review Conducted with
Follow-Up for Identified Issues-PAC
LTCH QRP, requires the identification
of potential clinically significant
medication issues at the beginning,
during, and at the end of the patient’s
stay to capture data on each patient’s
complete PAC stay; whereas, the Care
for Older Adults (COA), (NQF #0553)
quality measure only requires annual
documentation in the form of a
medication list in the medical record of
the target population.
• The proposed quality measure,
Drug Regimen Review Conducted with
Follow-Up for Identified Issues-PAC
LTCH QRP, includes identification of
the potential clinically significant
medication issues and communication
with the physician (or physician
designee) as well as resolution of the
issue(s) within a rapid timeframe (by
midnight of the next calendar day);
whereas, the Care for Older Adults
(COA), (NQF #0553) quality measure
does not include any follow-up or
timeframe in which the follow-up
would need to occur.
• The proposed quality measure,
Drug Regimen Review Conducted with
Follow-Up for Identified Issues-PAC
LTCH QRP, does not have age
exclusions; whereas, the Care for Older
Adults (COA), (NQF #0553) quality
measure limits the measure’s population
to patients aged 66 and older.
• The proposed quality measure,
Drug Regimen Review Conducted with
Follow-Up for Identified Issues-PAC
LTCH QRP, would be reported to LTCHs
quarterly to facilitate internal quality

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monitoring and quality improvement in
areas such as patient safety, care
coordination, and patient satisfaction;
whereas the Care for Older Adults
(COA), (NQF #0553) quality measure
would not enable quarterly quality
updates, and thus data comparisons
within and across PAC providers would
be difficult due to the limited data and
scope of the data collected.
Therefore, based on the evidence
discussed above, we are proposing to
adopt the quality measure entitled, Drug
Regimen Review Conducted with
Follow-Up for Identified Issues-PAC
LTCH QRP, for the LTCH QRP for FY
2020 payment determination and
subsequent years. We plan to submit the
quality measure to the NQF for
consideration for endorsement.
The calculation of the proposed
quality measure would be based on the
data collection of three standardized
items to be included in the LTCH CARE
Data Set. The collection of data by
means of the standardized items would
be obtained at admission and discharge.
For more information about the data
submission required for this proposed
measure, we refer readers to section
VIII.C.9. of the preamble of this
proposed rule.
The standardized items used to
calculate this proposed quality measure
do not duplicate existing items
currently used for data collection within
the LTCH CARE Data Set. The proposed
measure denominator is the number of
patient stays with a discharge or expired
assessment during the reporting period.
The proposed measure numerator is the
number of stays in the denominator
where the medical record contains
documentation of a drug regimen review
conducted at: (1) Admission; and (2)
discharge with a lookback through the
entire patient stay with all potential
clinically significant medication issues
identified during the course of care and
followed up with a physician or
physician designee by midnight of the
next calendar day. This measure is not
risk adjusted. For technical information
about this proposed measure, including
information about the measure
calculation and discussion pertaining to
the standardized items used to calculate
this measure, we refer readers to the
document titled, Proposed Measure
Specifications for Measures Proposed in
the FY 2017 LTCH QRP NPRM available
at: http://www.cms.gov/Medicare/
Quality-Initiative-Patient-AssessmentInstruments/LTCH-Quality-ReportingProgram-Measures-Information-.html.
Data for the proposed quality
measure, Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP,

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would be collected using the Long-Term
Care Hospital LTCH CARE Data Set with
submission through the Quality
Improvement Evaluation System (QIES)
Assessment Submission and Processing
(ASAP) system.
We are inviting public comment on
our proposal to adopt the quality
measure, Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP for the
LTCH QRP.
8. LTCH QRP Quality Measures and
Measure Concepts Under Consideration
for Future Years
We are inviting comment on the
importance, relevance, appropriateness,
and applicability of each of the quality
measures listed in the table below for

future years in the LTCH QRP. We are
developing a measure related to the
IMPACT Act domain, ‘‘Accurately
communicating the existence of and
providing for the transfer of health
information and care preferences of an
individual to the individual, family
caregiver of the individual, and
providers of services furnishing items
and services to the individual, when the
individual transitions.’’ We are
considering the possibility of adding
quality measures that rely on the
patient’s perspective; that is, measures
that include patient-reported experience
of care and health status data. We
recently posted a ‘‘Request for
Information to Aid in the Design and
Development of a Survey Regarding
Patient and Family Member Experiences

with Care Received in Long-Term Care
Hospitals’’ (80 FR 72722 through
72725).
Also, we are considering a measure
focused on pain that relies on the
collection of patient-reported pain data,
and another that documents whether a
patient has an Advance Care Plan.
Finally, we are considering measures
related to patient safety: Venous
Thromboembolism Prophylaxis,
Ventilator Weaning (Liberation) Rate,
Compliance with Spontaneous
Breathing Trial (SBT) (including
Tracheostomy Collar Trial (TCT) or
Continuous Positive Airway Pressure
(CPAP) Breathing Trial) by Day 2 of the
LTCH Stay, and Patients Who Received
an Antipsychotic Medication.

LTCH QRP QUALITY MEASURES UNDER CONSIDERATION FOR FUTURE YEARS
IMPACT Act Domain: Accurately communicating the existence of and providing for the transfer of health information and care preferences of an
individual to the individual, family caregiver of the individual, and providers of services furnishing items and services to the individual, when
the individual transitions
IMPACT Act Measure
Transfer of health information and care preferences when an individual transitions
NQS Priority: Patient- and Caregiver-Centered Care
Measures
• Patient Experience of Care
• Percent of Patients with Moderate to Severe Pain
• Advance Care Plan
NQS Priority: Patient Safety
Measures
• Ventilator Weaning (Liberation) Rate
• Compliance with Spontaneous Breathing Trial (SBT) (including Tracheostomy Collar Trial (TCT) or Continuous Positive Airway Pressure
(CPAP) Breathing Trial) by Day 2 of the LTCH Stay
• Patients Who Received an Antipsychotic Medication
• Venous Thromboembolism Prophylaxis

9. Proposed Form, Manner, and Timing
of Quality Data Submission for the FY
2018 Payment Determination and
Subsequent Years

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

a. Background
Section 1886(m)(5)(C) of the Act
requires that, for the FY 2014 payment
determination and subsequent years,
each LTCH submit to the Secretary data
on quality measures specified by the
Secretary. In addition, section
1886(m)(5)(F) of the Act requires that,
for the fiscal year beginning on the
specified application date, as defined in
section 1899B(a)(2)(E) of the Act, and
each subsequent year, each LTCH
submit to the Secretary data on
measures specified by the Secretary
under section 1899B of the Act. The
data required under sections

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1886(m)(5)(C) and (F) of the Act must be
submitted in a form and manner, and at
a time, specified by the Secretary. As
required by section 1886(m)(5)(A)(i) of
the Act, for any LTCH that does not
submit data in accordance with sections
1886(m)(5)(C) and (F) of the Act for a
given fiscal year, the annual payment
for discharges occurring during the
fiscal year must be reduced by 2
percentage points.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49749 through 49752), we:
• Adopted timing for new LTCHs to
begin reporting quality data under the
LTCH QRP for the FY 2017 payment
determination and subsequent years;
and
• Adopted new deadlines that allow
4.5 months (approximately 135 days)
after the end of each calendar year

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quarter for quality data submission,
beginning with quarter 4 of 2015
(October 2015 through December 2015).
The new deadlines apply to all LTCH
QRP quality measures (except Influenza
Vaccination Coverage Among
Healthcare Personnel (NQF #0431)) for
the FY 2017 and FY 2018 payment
determinations and subsequent years.
b. Timeline for Data Submission Under
the LTCH QRP for the FY 2018 Payment
Determination and Subsequent Years
The table below presents the data
collection period, data submission (for
the LTCH CARE Data Set-assessment
based and CDC measures) and data
correction timelines for quality
measures affecting the FY 2018 and
subsequent years payment
determination.

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

SUMMARY DETAILS ON THE LTCH CARE DATA SET AND CDC NHSN DATA COLLECTION PERIOD AND DATA SUBMISSION
TIMELINE FOR PREVIOUSLY ADOPTED QUALITY MEASURES AFFECTING THE FY 2018 PAYMENT DETERMINATION AND
SUBSEQUENT YEARS *
Quality measure

Submission
method

Data collection/submission
quarterly reporting period(s)

Quarterly review and correction
period and data submission
deadlines for payment
determination

NQF #0678: Percent of Residents
or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) (76 FR
51748 through 51750).
NQF #0138: NHSN Catheter-Associated Urinary Tract Infection
(CAUTI) Outcome Measure (76
FR 51745 through 51747).
NQF #0139: NHSN Central-Line
Associated Bloodstream Infection (CLABSI) Outcome Measure (76 FR 51747 through
51748).
NQF #1716: NHSN Facility-wide
Inpatient
Hospital-onset
Methicillin-resistant
Staphylococcus
aureus
(MRSA)
Bacteremia Outcome Measure
(78 FR 50863 through 50865).
NQF #1717: NHSN Facility-wide
Inpatient Hospital-onset Clostridium difficile Infection (CDI)
Outcome Measure (78 FR
50865 through 50868).
NHSN
Ventilator-Associated
Event (VAE) Outcome Measure
(79 FR 50301 through 50305).

LTCH CARE
Data Set/QIES
ASAP.

1/1/16–3/31/16, 4/1/16–6/30/16,
7/1/16–9/30/16, 10/01/16–12/
31/16; Quarterly for each subsequent calendar year.

8/15/16 (Q1), 11/15/16 (Q2), 2/
15/17 (Q3), 5/15/17 (Q4); Approximately 135 days after the
end of each quarter.

FY 2018.

CDC NHSN .......

1/1/16–3/31/16, 4/1/16–6/30/16,
7/1/16–9/30/16, 10/01/16–12/
31/16; Quarterly for each subsequent calendar year.
1/1/16–3/31/16, 4/1/16–6/30/16,
7/1/16–9/30/16, 10/01/16–12/
31/16; Quarterly for each subsequent calendar year.

8/15/16 (Q1), 11/15/16 (Q2), 2/
15/17 (Q3), 5/15/17 (Q4); Approximately 135 days after the
end of each quarter.
8/15/16 (Q1), 11/15/16 (Q2), 2/
15/17 (Q3), 5/15/17 (Q4); Approximately 135 days after the
end of each quarter.

FY 2018.

CDC NHSN .......

1/1/16–3/31/16, 4/1/16–6/30/16,
7/1/16–9/30/16, 10/01/16–12/
31/16; Quarterly for each subsequent calendar year.

8/15/16 (Q1), 11/15/16 (Q2), 2/
15/17 (Q3), 5/15/17 (Q4); Approximately 135 days after the
end of each quarter.

FY 2018.

CDC NHSN .......

1/1/16–3/31/16, 4/1/16–6/30/16,
7/1/16–9/30/16, 10/01/16–12/
31/16; Quarterly for each subsequent calendar year.

8/15/16 (Q1), 11/15/16 (Q2), 2/
15/17 (Q3), 5/15/17 (Q4); Approximately 135 days after the
end of each quarter.

FY 2018.

CDC NHSN .......

LTCH CARE
Data Set/QIES
ASAP.

8/15/16 (Q1), 11/15/16 (Q2), 2/
15/17 (Q3), 5/15/17 (Q4); Approximately 135 days after the
end of each quarter.
5/15/16, 8/15/16 ** .......................

FY 2018.

NQF #0680: Percent of Residents
or Patients Who Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine
(Short Stay) (77 FR 53624
through 53627).
NQF #0431: Influenza Vaccination
Coverage Among Healthcare
Personnel (77 FR 53630
through 53631).
NQF #2512: All-Cause Unplanned
Readmission Measure for 30Days
Post-Discharge
from
Long-Term Care Hospitals (78
FR 50868 through 50874).
NQF #0674: Application of Percent of Residents Experiencing
One or More Falls with Major
Injury (Long Stay) (80 FR
49736 through 49739).
NQF #2631: Percent of LongTerm Care Hospital Patients
with an Admission and Discharge Functional Assessment
and a Care Plan That Addresses Function (79 FR 50298
through 50301).
NQF #2631: Application of Percent of Long-Term Care Hospital Patients with an Admission
and Discharge Functional Assessment and a Care Plan That
Addresses Function (80 FR
49739 through 49747).

1/1/16–3/31/16, 4/1/16–6/30/16,
7/1/16–9/30/16, 10/01/16–12/
31/16; Quarterly for each subsequent calendar year.
10/1/15–12/31/15,
1/1/16–3/31/
16 **.

CDC NHSN .......

10/1/16–3/31/17, 10/1–3/31
subsequent years.

5/15/17, 5/15
years.

Medicare FFS
Claims Data.

N/A ...............................................

LTCH CARE
Data Set/QIES
ASAP.

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18:46 Apr 26, 2016

CDC NHSN .......

LTCH CARE
Data Set/QIES
ASAP.

LTCH CARE
Data Set/QIES
ASAP.

Jkt 238001

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FY 2018.

FY 2018.

N/A ...............................................

FY 2018.

4/1/16–6/30/16, 7/1/16–9/30/16, 11/15/16 (Q2), 2/15/17 (Q3), 5/
10/1/16–12/31/16; Quarterly for
15/17 (Q4); Quarterly approxieach subsequent calendar year.
mately 135 days after the end
of each quarter for subsequent
years.
4/1/16–6/30/16, 7/1/16–9/30/16, 11/15/16 (Q2), 2/15/17 (Q3), 5/
10/1/16–12/31/16; Quarterly for
15/17 (Q4); Quarterly approxieach subsequent calendar year.
mately 135 days after the end
of each quarter for subsequent
years.

FY 2018.

4/1/16–6/30/16, 7/1/16–9/30/16, 11/15/16 (Q2), 2/15/17 (Q3), 5/
10/1/16–12/31/16; Quarterly for
15/17 (Q4); Quarterly approxieach subsequent calendar year.
mately 135 days after the end
of each quarter for subsequent
years.

FY 2018.

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for

FY 2018.

subsequent

Frm 00285

for

First APU
determination
affected

27APP2

FY 2018.

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SUMMARY DETAILS ON THE LTCH CARE DATA SET AND CDC NHSN DATA COLLECTION PERIOD AND DATA SUBMISSION
TIMELINE FOR PREVIOUSLY ADOPTED QUALITY MEASURES AFFECTING THE FY 2018 PAYMENT DETERMINATION AND
SUBSEQUENT YEARS *—Continued
Quality measure

Submission
method

Data collection/submission
quarterly reporting period(s)

NQF #2632: Functional Outcome
Measure: Change in Mobility
Among Long-Term Care Hospital Patients Requiring Ventilator Support (79 FR 50298
through 50301).

LTCH CARE
Data Set/QIES
ASAP.

Quarterly review and correction
period and data submission
deadlines for payment
determination

4/1/16–6/30/16, 7/1/16–9/30/16, 11/15/16 (Q2), 2/15/17 (Q3), 5/
10/1/16–12/31/16; Quarterly for
15/17 (Q4); Quarterly approxieach subsequent calendar year.
mately 135 days after the end
of each quarter for subsequent
years.

First APU
determination
affected
FY 2018.

* We refer readers to the table below for an illustration of the CY quarterly data collection/submission quarterly reporting periods and correction
and submission deadlines for all APU years.
** For this measure, Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine, we refer
readers to the proposals on data submission for this measure we are making in section VIII.C.9.d. of the preamble of this proposed rule. These
proposals for the FY 2019 payment determination and for FY 2020 payment determination and subsequent years are illustrated in the tables in
that section.

Further, in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49749 through
49752), we established that the LTCH
CARE Data Set-based and CDC NHSN
measures finalized for adoption into the
LTCH QRP would follow a calendar
year schedule with quarterly reporting

periods, followed by quarterly review
and correction periods and submission
deadlines. This pattern is illustrated in
the table below and is in place for all
APU years unless otherwise specified.
We also wish to illustrate that for the
measures finalized for use in the LTCH

QRP that use the LTCH CARE Data Set
or CDC NHSN data sources, payment
determination would subsequently use
the data collection and deadlines shown
below unless otherwise specified.

ANNUAL CY LTCH CARE DATA SET AND CDC NHSN DATA COLLECTION/SUBMISSION REPORTING PERIODS AND DATA
SUBMISSION/CORRECTION DEADLINES FOR PAYMENT DETERMINATIONS
Proposed CY data
collection quarter
Quarter
Quarter
Quarter
Quarter

1
2
3
4

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

Data collection/submission quarterly
reporting period
January 1–March 31 * ** .......................
April 1–June 30 .....................................
July 1–September 30 ............................
October 1–December 31 * ** .................

Quarterly review and correction periods and data submission deadlines for payment determination
April 1–August 15 * ...............................
July 1–November 15 .............................
October 1–February 15 ........................
January 1–May 15 * ..............................

Deadline:
Deadline:
Deadline:
Deadline:

August 15.* **
November 15.
February 15.
May 15.* **

* The annual data submission time frame for the measure, Influenza Vaccination Coverage among Healthcare Personnel, is October 1 through
March 31 of the subsequent year with a reporting deadline of May 15 in that subsequent year.
** For the measure, Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine, we refer
readers to the proposals on data submission for this measure we are making in section VIII.C.9.d. of the preamble of this proposed rule. These
proposals for the FY 2019 payment determination and for FY 2020 payment determination and subsequent years are illustrated in the tables in
that section.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

c. Proposed Timeline and Data
Submission Mechanisms for the FY
2018 Payment Determination and
Subsequent Years for Proposed New
LTCH QRP Resource Use and Other
Measures—Claims-Based Measures
The MSPB–PAC LTCH QRP measure;
Discharge to Community-PAC LTCH
QRP measure and Potentially
Preventable 30-Day Post-Discharge
Readmission Measure for LTCH QRP,
which we have proposed in this
proposed rule, are Medicare FFS claimsbased measures. Because claims-based
measures can be calculated based on
data that are already reported to the
Medicare program for payment
purposes, no additional information
collection would be required from
LTCHs. As discussed in section VIII.C.6.
of the preamble of this proposed rule,
these measures would use 2 years of

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claims-based data beginning with CY
2015 and CY 2016 claims to inform
confidential feedback reports for LTCHs,
and CYs 2016 and 2017 claims data for
public reporting.
We are inviting public comments on
this proposal.
d. Proposal To Revise the Previously
Adopted Data Collection Period and
Submission Deadlines for Percent of
Residents or Patients Who Were
Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short Stay)
(NQF #0680) for the FY 2019 Payment
Determination and Subsequent Years
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53624 through 53627), we
adopted the Percent of Residents or
Patients Who Were Assessed and
Appropriately Given the Seasonal
Influenza Vaccine (Short Stay) (NQF
#0680) measure for the FY 2016

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payment determination and subsequent
years. In the FY 2014 IPPS/LTCH PPS
final rule (78 FR 50858 through 50861),
we finalized the data submission
timelines and submission deadlines for
the measures for FY 2016 and FY 2017
payment determinations. We refer
readers to the FY 2013 and FY 2014
IPPS/LTCH PPS final rules for a more
detailed discussion of the measure,
timelines and deadlines.
In these previous rules, we finalized
that LTCHs were required to perform
data collection in alignment with the
influenza vaccination season (IVS); that
is, obtaining the vaccination status of
patients who are in an LTCH for one or
more days between the dates of October
1 of a given year through March 31 of
the subsequent year, or what the CDC
terms the Influenza Vaccination Season
(IVS), but for only those patients whose

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
corresponding admissions and
discharges occurred during the IVS.
Through analysis of the quality data
submitted for this measure, we
discovered that only requiring LTCH
providers to submit patient Influenza
vaccination data during the IVS
(October 1 of a given year through
March 31 of the subsequent year)
inadvertently limits the data collection
to only a subset of patients whose stays
at an LTCH qualify for inclusion in the
measure calculation. This measure is
structured in such a way that all
patients in an LTCH for one or more
days during the IVS are included in the
measure. For those patients, an LTCH
should have the opportunity to
demonstrate the Influenza vaccination
status of these patients on either their
LTCH CARE Data Set (LCDS) admission
assessment or on their discharge
assessment (planned, unplanned, or
expired). By limiting data collection to
only those assessments obtained during
the IVS, per our previously finalized
policy, CMS inadvertently excluded the
collection of Influenza vaccination
status data on those patients who were
in an LTCH for at least one day during
the IVS, but for whom the associated
LCDS admission and/or discharge
assessments occurred outside of the IVS
(prior to October 1 or after March 31).
For these reasons, we are proposing
that beginning with the FY 2019
payment determination and subsequent
years, which includes the CY 2016/2017
IVS, data collection and submission for
the measure Percent of Residents or
Patients Who Were Assessed and
Appropriately Given the Seasonal
Influenza Vaccine (Short Stay) (NQF
#0680) will be required year-round, thus
including all patients in the LTCH one
or more days during the IVS (October 1
of any given CY through March 31 of the
subsequent CY), regardless of the
associated LCDS admission and
discharge dates. This includes, for
example, a patient that is admitted
September 15 of a given year, and
discharged April 1 of the subsequent
year (thus, in the LTCH during the IVS).
This proposal would enable the
important data collection necessary to
indicate that a patient who had an
admission or a discharge outside of the
IVS, but was in the facility during the
vaccination season, ensuring that the
data collected and submitted to CMS is
representative of the status of all
patients within the IVS, rather than only

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a subset of those who had both
admissions and discharges within the
IVS.
Further, our proposal effectively
changes the data collection and
submission timeline for this measure to
include 4 calendar quarters, that is
based on the influenza season (July 1 of
any given year through June 30 of the
subsequent year), rather than on the
calendar year. For the purposes of APU
determination and for public reporting,
data calculation and analysis uses data
from an influenza vaccination season
which takes place within the influenza
season itself. While the influenza
vaccination season is October 1 of a
given year (or when the vaccine
becomes available) through March 31 of
the subsequent year, this timeframe
rests within a greater time period of the
influenza season, which spans 12
months—that is, July 1 of a given year
through June 30 of the subsequent year,
as defined by the CDC. Thus, for this
measure, we utilize data from a
timeframe of 12 months that mirrors the
influenza season which is July 1 of a
given year through June 30 of the
subsequent year. In addition, for the
APU determination, we review data
submitted beginning on July 1 of the
calendar year 2 years prior to the
calendar year of the APU effective date
and ending June 30 of the subsequent
calendar year, one year prior to the
calendar year of the APU effective date.
For example, and as provided in the
below for the FY 2020 (October 1, 2019)
APU determination, we review data
submission beginning July 1, 2017
through June 30, 2018 for the 2017/2018
influenza vaccination season (October 1,
2017 [or when the vaccine becomes
available] through March 31, 2018), so
as to capture all data that an LTCH will
have submitted with regard to the 2017/
2018 influenza vaccination season itself
which resides within the associated
influenza season. We will use
assessment data from the influenza
season so as to ensure full capture of
vaccination status in the IVS that
resides within the influenza season
period, as well for public reporting.
Further, because we enable the
opportunity to review and correct data
for all assessment based LCDS measures
within the LTCH QRP, we continue to
follow quarterly calendar data
collection/submission quarterly
reporting period(s) and their subsequent
quarterly review and correction periods

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25231

with data submission deadlines for
public reporting and payment
determinations. However, rather than
using a standard CY timeframe, these
quarterly data collection/submission
periods and their subsequent quarterly
review and correction periods and
submission deadlines begin with CY
quarter 3, July 1, of a given year and end
CY quarter 2, June 30, of the following
year.
The proposed revisions to the data
collection period for the measure
Percent of Residents or Patients Who
Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine (Short
Stay) (NQF #0680), will ultimately have
the effect of helping LTCHs capture
Influenza vaccination data on any LTCH
patients that were in their hospital for
one or more days during the IVS, by
ensuring that such patient’s admission
and discharge assessments, regardless of
the date of those assessments, capture
potential influenza vaccination data,
and allow the appropriate inclusion of
patients and thus the accurate
calculation of data for this measure.
Lastly, this clarification will also
remove any ambiguity and ensure that
LTCHs are receiving credit for recording
the vaccination status of all patients that
were in their hospital for at least one
day during any given IVS, regardless of
the date(s) of their admission and/or
discharge.
We would like to note that in order
to implement the newly proposed
revision to the data collection
timeframes and submission deadlines
for this measure, the FY 2019 payment
determination will only be based on
three CY quarters, as this policy will not
go into effect until October 1, 2016,
which is the start of the 2016/2017 IVS.
Because of this, we are not requiring
LTCHs to respond to the Influenza
vaccination items on the LCDS
admission or discharge assessments that
take place during Q3 2016 (7/1/16–9/30/
16), as this quarter will occur prior to
the effective date of this policy, if
finalized. This is illustrated in the table
for the FY 2019 payment determination,
below. All subsequent payment
determinations will be based on four CY
quarters, as discussed above, beginning
with Q3 of CY 2017 for the FY 2020
payment determination. This is
illustrated in table for the FY 2020
payment determination and subsequent
years, below.

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FY 2019 PAYMENT DETERMINATION: * SUMMARY DETAILS ON DATA COLLECTION PERIOD AND DATA SUBMISSION TIMELINE
FOR PREVIOUSLY ADOPTED QUALITY MEASURE, NQF #0680 PERCENT OF RESIDENTS OR PATIENTS WHO WERE ASSESSED AND APPROPRIATELY GIVEN THE SEASONAL INFLUENZA VACCINE
Data collection/submission
quarterly reporting period(s)

Submission method

Quarterly review and correction
periods data submission deadlines for payment determination *

APU determination affected

Finalized Measure: NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine
(77 FR 53624 through 53627)
LTCH CARE Data Set/QIES ASAP
System.

CY 16 ............................................
10/1/16–12/31/16
CY 17 Q1 ......................................
1/1/17–3/31/17
CY 17 Q2 ......................................
4/1/17–6/30/17

1/1/2017–5/15/17 deadline ...........

FY 2019.

4/1/2017–8/15/17 deadline.
7/1/17–11/15/17 deadline.

* This table refers to the FY 2019 payment determination only. We refer readers to the table below for all subsequent FY payment determinations for this measure.

FY 2020 PAYMENT DETERMINATION AND SUBSEQUENT YEARS: SUMMARY DETAILS ON DATA COLLECTION PERIOD AND
DATA SUBMISSION TIMELINE FOR PREVIOUSLY ADOPTED QUALITY MEASURE, NQF #0680 PERCENT OF RESIDENTS
OR PATIENTS WHO WERE ASSESSED AND APPROPRIATELY GIVEN THE SEASONAL INFLUENZA VACCINE
Data collection/submission
quarterly reporting period(s)

Submission method

Quarterly review and correction
periods data submission deadlines for payment determination *

APU determination affected

Finalized Measure: NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine
(77 FR 53624 through 53627)
LTCH CARE Data Set/QIES ASAP
System.

CY 17 Q3 ......................................
7/1/17–9/30/17
Q3 (7/1–9/30)
CY 17 Q4 ......................................
10/1/17–12/31/17
Q4 (10/1–12/31)
CY 18 Q1 ......................................
1/1/18–3/31/18
Q1 (1/1–3/31)
CY 18 Q2 ......................................
4/1/18–6/30/18
Q2 (4/1–6/30)

We are inviting comment on our
proposal to revise the data collection
and submission timeframe for the
measure Percent of Residents or Patients
Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine
(Short Stay) (NQF #0680), beginning
with the FY 2019 payment
determination and subsequent years.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

e. Proposed Timeline and Data
Submission Mechanisms for the
Proposed LTCH QRP Quality Measure
for the FY 2020 Payment Determination
and Subsequent Years
As discussed in section VIII.C.7. of
the preamble of this proposed rule, we
are proposing that the data for the
proposed quality measure, Drug
Regimen Review Conducted with

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10/1/17–2/15/18 deadline .............
10/1–2/15

Subsequent Years
1/1/2018–5/15/18 deadline
1/1–5/15
4/1/2018–8/15/18 deadline
4/1–8/15
7/1/18–11/15/18 deadline
7/1–11/15

Follow-Up for Identified Issues-PAC
LTCH QRP, affecting the FY 2020
payment determination and subsequent
years be collected by completing data
elements that would be added to the
LTCH CARE Data Set with submission
through the QIES ASAP system. Data
collection would begin on April 1, 2018.
More information on LTCH reporting
using the QIES ASAP system is located
at: https://www.cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
LTCH-Technical-Information.html.
For the FY 2020 payment
determination, we are proposing to
collect CY 2018 Q2 through Q4 data,
that is, beginning with admissions on
April 1, 2018 through discharges on
December 31, 2018, to remain consistent

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FY 2020

Sfmt 4702

with the usual April release schedule
for the LTCH CARE Data Set, to give
LTCHs sufficient time to update their
systems so that they can comply with
the new data reporting requirements,
and to give CMS sufficient time to
determine compliance for the FY 2020
payment determination. The proposed
use of 3 quarters of data for the initial
year of assessment data reporting in the
LTCH QRP is consistent with the
approach we used previously for the
SNF, IRF, and Hospice QRPs.
The table below presents the
proposed data collection period and
data submission timelines for the new
proposed LTCH QRP quality measure
for the FY 2020 payment determination.
We are inviting public comments on
this proposal.

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DETAILS ON THE PROPOSED DATA COLLECTION PERIOD AND DATA SUBMISSION TIMELINE FOR RESOURCE USE AND
OTHER MEASURES AFFECTING THE FY 2020 PAYMENT DETERMINATION
Quality measure

Submission
method

Drug Regimen Review Conducted
with Follow-Up for Identified
Issues-PAC LTCH QRP.

LTCH CARE
Data Set/QIES
ASAP.

Following the close of the reporting
quarters for the FY 2020 payment
determination, LTCHs would have the
already established additional 4.5
months to correct their quality data and
that the final deadline for correcting

Data collection/submission
quarterly reporting period

Quarterly review and correction
periods and data submission
deadlines for payment
determination

4/1/18–6/30/18 (Q2), 7/1/18–9/30/ 11/15/18 (Q2), 2/15/19 (Q3), 5/
18 (Q3), 10/1/18–12/31/18 (Q4).
15/19 (Q4).

data for the FY 2020 payment
determination would be May 15, 2019
for these measures. We are also
proposing that for the FY 2021 payment
determination and subsequent years, we
would collect data using the calendar

APU
determination
affected
FY 2020.

year reporting cycle as described in
section VIII.C.9.c. of the preamble of
this proposed rule, and illustrated in the
table below. We are inviting public
comments on this proposal.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

PROPOSED DATA COLLECTION PERIOD AND DATA CORRECTION DEADLINES AFFECTING THE FY 2021 PAYMENT
DETERMINATION AND SUBSEQUENT YEARS
Quality measure

Submission
method

Drug regimen review conducted with follow-up for
identified issues PAC LTCH
QRP.

LTCH CARE
Data Set/
QIES ASAP.

10. LTCH QRP Data Completion
Thresholds for the FY 2016 Payment
Determination and Subsequent Years
In the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50311 through 50314), we
finalized LTCH QRP thresholds for
completeness of LTCH data
submissions. To ensure that LTCHs are
meeting an acceptable standard for
completeness of submitted data, we
finalized the policy that, beginning with
the FY 2016 payment determination and
for each subsequent year, LTCHs must
meet or exceed two separate data
completeness thresholds: One threshold
set at 80 percent for completion of
quality measures data collected using
the LTCH CARE Data Set submitted
through the QIES and a second
threshold set at 100 percent for quality
measures data collected and submitted
using the CDC’s NHSN.
In addition, we stated that we would
apply the same thresholds to all
measures adopted as the LTCH QRP
expands and LTCHs begin reporting
data on previously finalized measure
sets. That is, as we finalize new
measures through the regulatory
process, LTCHs will be held
accountable for meeting the previously
finalized data completion threshold
requirements for each measure until
such time that updated threshold
requirements are proposed and finalized
through a subsequent regulatory cycle.

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Proposed CY data collection
quarter
Quarter
Quarter
Quarter
Quarter

1
2
3
4

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

Proposed data collection/
submission quarterly
reporting period
January 1–March 31 ..............
April 1–June 30 ......................
July 1–September 30 .............
October 1–December 31 .......

Further, we finalized the requirement
that an LTCH must meet or exceed both
thresholds to avoid receiving a 2
percentage point reduction to their
annual payment update for a given
fiscal year, beginning with FY 2016 and
for all subsequent payment updates. For
a detailed discussion of the finalized
LTCH QRP data completion
requirements, we refer readers to the FY
2015 IPPS/LTCH PPS final rule (79 FR
50311 through 50314). We are not
proposing any changes to these policies.
11. LTCH QRP Data Validation Process
for the FY 2016 Payment Determination
and Subsequent Years
Validation is intended to provide
added assurance of the accuracy of the
data that will be reported to the public
as required by sections 1886(m)(5)(E)
and 1899B(g) of the Act. In the FY 2015
IPPS/LTCH PPS proposed rule (79 FR
28275 through 28276), we proposed, for
the FY 2016 payment determination and
subsequent years, a process to validate
the data submitted for quality purposes.
However, in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50314 through
50316), we did not finalize the proposal;
instead we decided to further explore
suggestions from commenters before
finalizing the LTCH data validation
process that we proposed. In the FY
2016 IPPS/LTCH PPS final rule (80 FR
49752 through 49753), we did not

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Proposed quarterly review
and correction periods and
data submission deadlines for
payment determination
April 1–August 15.
July 1–November 15.
October 1–February 15.
January 1–May 15.

propose any new policies related to data
accuracy validation. In this proposed
rule, we are not proposing a data
validation policy because we are
developing a policy that could be
applied to several PAC quality reporting
programs. We intend to propose a data
validation policy through future
rulemaking.
12. Proposed Change to Previously
Codified LTCH QRP Submission
Exception and Extension Policies
We refer readers to § 412.560(c) for
requirements pertaining to submission
exception and extension for the FY 2017
payment determination and subsequent
years. At this time, we are proposing to
revise § 412.560(c) to change the timing
for submission of these exception and
extension requests from 30 days to 90
days from the date of the qualifying
event which is preventing an LTCH
from submitting their quality data for
the LTCH QRP. We are proposing the
increased time allotted for the
submission of the requests from 30 to 90
days to be consistent with other quality
reporting programs; for example, the
Hospital Inpatient Quality Reporting
(IQR) Program is also proposing to
extend the deadline to 90 days in
section VIII.C.15.a. of the preamble of
this proposed rule. We believe that this
increased time will assist providers
experiencing an event in having the

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time needed to submit such a request.
With the exception of this one change,
we are not proposing any additional
changes to the exception and extension
policies for the LTCH QRP at this time.
We are inviting public comments on
the proposal to revise § 412.560(c) to
change the timing for submission of
these exception and extension requests
from 30 days to 90 days from the date
of the qualifying event which is
preventing an LTCH from submitting
their quality data for the LTCH QRP.
13. Previously Finalized LTCH QRP
Reconsideration and Appeals
Procedures
We refer readers to § 412.560(d) for a
summary of our finalized
reconsideration and appeals procedures
for the LTCH QRP for FY 2017 payment
determination and subsequent years. We
are not proposing any changes to this
policy. However, we wish to clarify that
in order to notify LTCHs found to be
non-compliant with the reporting
requirements set forth for a given
payment determination, we may include
the QIES mechanism in addition to U.S.
mail, and we may elect to utilize the
MACs to administer such notifications.
14. Proposals and Policies Regarding
Public Display of Measure Data for the
LTCH QRP and Procedures for the
Opportunity To Review and Correct
Data and Information

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

a. Public Display of Measures
Section 1886(m)(5)(E) of the Act
requires the Secretary to establish
procedures for making the LTCH QRP
data available to the public. In the FY
2016 IPPS/LTCH PPS final rule (80 FR
49753 through 49755), we finalized our
proposals to display performance data
for the LTCH QRP quality measures by
fall 2016 on a CMS Web site, such as the
Hospital Compare, after a 30-day
preview period, and to give providers an
opportunity to review and correct data
submitted to the QIES ASAP system or
to the CDC NHSN. The procedures for
the opportunity to review and correct
data are provided in the following
section. In addition, we finalized the
proposal to publish a list of LTCHs that
successfully meet the reporting
requirements for the applicable payment
determination on the LTCH QRP Web
site at: https://www.cms.gov/medicare/
quality-initiatives-patient-assessmentinstruments/ltch-quality-reporting/. In
the FY 2016 IPPS/LTCH PPS final rule,
we also finalized that we would update
the list after the reconsideration
requests are processed on an annual
basis.

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Also, in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49753 through 49755),
we finalized that the display of
information for fall 2016 contains
performance data on four quality
measures:
• Percent of Residents or Patients
with Pressure Ulcers That Are New or
Worsened (Short Stay) (NQF #0678);
• NHSN CAUTI Outcome Measure
(NQF #0138);
• NHSN CLABSI Outcome Measure
(NQF #0139); and
• All-Cause Unplanned Readmission
Measure for 30-Days Post-Discharge
from LTCHs (NQF #2512).
The measures Percent of Residents or
Patients with Pressure Ulcers That Are
New or Worsened (Short Stay) (NQF
#0678), NHSN CAUTI Outcome
Measure (NQF #0138), and NHSN
CLABSI Outcome Measure (NQF #0139)
are based on data collected beginning
with the first quarter of 2015 or
discharges beginning on January 1,
2015. With the exception of the AllCause Unplanned Readmission Measure
for 30-Days Post-Discharge from LTCHs
(NQF #2512), rates are displayed based
on 4 rolling quarters of data and would
initially use discharges from January 1,
2015 through December 31, 2015 (CY
2015) for Percent of Residents or
Patients with Pressure Ulcers That Are
New or Worsened (Short Stay) (NQF
#0678) and data collected from January
1, 2015 through December 31, 2015 for
NHSN CAUTI Outcome Measure (NQF
#0138) and NHSN CLABSI Outcome
Measure (NQF #0139). For the
readmissions measure, data will be
publicly reported beginning with data
collected for discharges beginning
January 1, 2013, and rates would be
displayed based on 2 consecutive years
of data. For LTCHs with fewer than 25
eligible cases, we are proposing to
assign the LTCH to a separate category:
‘‘The number of cases is too small
(fewer than 25) to reliably tell how well
the LTCH is performing.’’ If an LTCH
has fewer than 25 eligible cases, the
LTCH’s readmission rates and interval
estimates would not be publicly
reported for the measure.
Calculations for all four measures are
discussed in detail in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49753
through 49755).
Pending the availability of data, we
are proposing to publicly report data in
CY 2017 on 4 additional measures
beginning with data collected on these
measures for the first quarter of 2015, or
discharges beginning on January 1,
2015: (1) Facility-wide Inpatient
Hospital-onset Methicillin-resistant
Staphylococcus aureus (MRSA)
Bacteremia Outcome Measure (NQF

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#1716); (2) Facility-wide Inpatient
Hospital-onset Clostridium difficile
Infection (CDI) Outcome Measure (NQF
#1717); and beginning with the 2015–16
influenza vaccination season these two
measures; (3) Influenza Vaccination
Coverage Among Healthcare Personnel
(NQF #0431); and (4) Percent of
Residents or Patients Who Were
Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short Stay)
(NQF #0680).
Standardized infection ratios (SIRs)
for the Facility-wide Inpatient Hospitalonset Methicillin-resistant
Staphylococcus aureus (MRSA)
Bacteremia Outcome Measure (NQF
#1716) and Facility-wide Inpatient
Hospital-onset Clostridium difficile
Infection (CDI) Outcome Measure (NQF
#1717) would be displayed based on 4
rolling quarters of data and would
initially use MRSA Bacteremia and CDI
events that occurred from January 1,
2015 through December 31, 2015 (CY
2015), for calculations. We are
proposing that the display of these
ratios would be updated quarterly.
Rates for the Influenza Vaccination
Coverage Among Healthcare Personnel
(NQF #0431) would be displayed for
personnel working in the reporting
facility October 1, 2015 through March
31, 2016. Rates for the Percent of
Residents or Patients Who Were
Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short Stay)
(NQF #0680) would be displayed for
patients in the LTCH during the
influenza vaccination season, from
October 1, 2015, through March 31,
2016. We are proposing that the display
of these rates would be updated
annually for subsequent influenza
vaccination seasons.
Calculations for the MRSA Bacteremia
and CDI Healthcare Associated Infection
(HAI) measures adjust for differences in
the characteristics of hospitals and
patients using a Standardized Infection
Ratio (SIR). The SIR is a summary
measure that takes into account
differences in the types of patients that
a hospital treats. For a more detailed
discussion about SIR, we refer readers to
the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49753). The MRSA Bacteremia
and CDI SIRs may take into account the
laboratory methods, bed size of the
hospital, and other facility-level factors.
It compares the actual number of HAIs
in a facility or State to a national
benchmark based on previous years of
reported data and adjusts the data based
on several factors. A confidence interval
with a lower and upper limit is
displayed around each SIR to indicate
that there is a high degree of confidence
that the true value of the SIR lies within

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that interval. A SIR with a lower limit
that is greater than 1.0 means that there
were more HAIs in a facility or State
than were predicted, and the facility is
classified as ‘‘Worse than the U.S.
National Benchmark.’’ If the SIR has an
upper limit that is less than 1, the
facility had fewer HAIs than were
predicted and is classified as ‘‘Better
than the U.S. National Benchmark.’’ If
the confidence interval includes the
value of 1, there is no statistical
difference between the actual number of
HAIs and the number predicted, and the
facility is classified as ‘‘No Different
than U.S. National Benchmark.’’ If the
number of predicted infections is less
than 1.0, the SIR and confidence
interval are not calculated by CDC.
Calculations for the Influenza
Vaccination Coverage Among
Healthcare Personnel (NQF #0431) are
based on reported numbers of personnel
who received an influenza vaccine at
the reporting facility or who provided
written documentation of influenza
vaccination outside the reporting
facility. The sum of these two numbers
is divided by the total number of
personnel working at the facility for at
least 1 day from October 1 through
March 31 of the following year, and the
result is multiplied by 100 to produce
a compliance percentage (vaccination
coverage). No risk adjustment is
applicable to these calculations. More
information on these calculations and
measure specifications is available at:
http://www.cdc.gov/nhsn/pdfs/hpsmanual/vaccination/4-hcp-vaccinationmodule.pdf. We are proposing that this
data would be displayed on an annual
basis and would include data submitted
by LTCHs for a specific, annual
influenza vaccination season. A single
compliance (vaccination coverage)
percentage for all eligible healthcare
personnel would be displayed for each
facility.
We are inviting public comment on
our proposal to begin publicly reporting
in CY 2017 pending the availability of
data on Facility-wide Inpatient
Hospital-onset Methicillin-resistant
Staphylococcus aureus (MRSA)
Bacteremia Outcome Measure (NQF
#1716); Facility-wide Inpatient
Hospital-onset Clostridium difficile
Infection (CDI) Outcome Measure (NQF
#1717); and Influenza Vaccination
Coverage Among Healthcare Personnel
(NQF #0431).
For the Percent of Residents or
Patients Who Were Assessed and
Appropriately Given the Seasonal
Influenza Vaccine (Short Stay) (NQF
#0680) we are proposing to display rates
annually based on the influenza season
to avoid reporting for more than one

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influenza vaccination within a CY. For
example, in 2017 we would display
rates for the patient vaccination measure
based on discharges starting on July 1,
2015, to June 30, 2016. We are
proposing this approach because it
includes the entire influenza
vaccination season (October 1, 2015, to
March 31, 2016).
Calculations for Percent of Residents
or Patients Who Were Assessed and
Appropriately Given the Seasonal
Influenza Vaccine (Short Stay) (NQF
#0680) would be based on patients
meeting any one of the following
criteria: Patients who received the
influenza vaccine during the influenza
season; patients who were offered and
declined the influenza vaccine; and
patients who were ineligible for the
influenza vaccine due to
contraindication(s). The facility’s
summary observed score would be
calculated by combining the observed
counts of all the criteria. This is
consistent with the publicly reported
patient influenza vaccination measure
for Nursing Home Compare. In addition,
for the patient influenza measure, we
would exclude LTCHs with fewer than
20 stays in the measure denominator.
For additional information on the
specifications for this measure, we refer
readers to the LTCH Quality Reporting
Measures Information Web page at:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
LTCH-Quality-Reporting-MeasuresInformation.html.
We are inviting public comments on
our proposal to begin publicly reporting
the Percent of Residents or Patients Who
Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine (Short
Stay) (NQF #0680) measure on
discharges from July 1 of the previous
calendar year to June 30 of the current
calendar year. We are inviting
comments on the public display of the
measure Percent of Residents or Patients
Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine
(NQF #0680) in 2017 pending the
availability of data.
In addition, we are requesting public
comments on whether to include in the
future, public display comparison rates
based on CMS regions or U.S. census
regions for Percent of Residents or
Patients with Pressure Ulcers That Are
New or Worsened (Short Stay) (NQF
#0678); All-Cause Unplanned
Readmission Measure for 30-Days PostDischarge from LTCHs (NQF #2512);
and Percent of Residents or Patients
Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine

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(Short Stay) (NQF #0680) for CY 2017
public display.
b. Procedures for the Opportunity To
Review and Correct Data and
Information
Section 1899B(g) of the Act requires
the Secretary to establish procedures for
public reporting of LTCHs’ performance,
including the performance of individual
LTCHs, on quality measures specified
under section 1899B(c)(1) of the Act and
resource use and other measures
specified under section 1899B(d)(1) of
the Act (collectively, IMPACT Act
measures) beginning not later than 2
years after the applicable specified
application date under section
1899B(a)(2)(E) of the Act. Under section
1899B(g)(2) of the Act, the procedures
must ensure, including through a
process consistent with the process
applied under section
1886(b)(3)(B)(viii)(VII) of the Act, which
refers to public display and review
requirements in the Hospital IQR
Program, that each LTCH has the
opportunity to review and submit
corrections to its data and information
that are to be made public prior to the
information being made public.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49754), and as illustrated in
the second table in section VIII.C.9.e. of
the preamble of this proposed rule, we
finalized that once the provider has an
opportunity to review and correct
quarterly data related to measures
submitted via the QIES ASAP system or
CDC NHSN, we would consider the
provider to have been given the
opportunity to review and correct this
data. We wish to clarify that although
the correction of data (including claims)
can occur after the submission deadline,
if such corrections are made after a
particular quarter’s submission and
correction deadline, such corrections
will not be captured in the file that
contains data for calculation of
measures for public reporting purposes.
To have publicly displayed performance
data that is based on accurate
underlying data, it will be necessary for
LTCHs to review and correct this data
before the quarterly submission and
correction deadline.
In this proposed rule, we are restating
and proposing additional details
surrounding procedures that would
allow individual LTCHs to review and
correct their data and information on
measures that are to be made public
before those measure data are made
public.
For assessment-based measures, we
are proposing a process by which we
would provide each LTCH with a
confidential feedback report that would

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allow the LTCH to review its
performance on such measures and,
during a review and correction period,
to review and correct the data the LTCH
submitted to CMS via the CMS QIES
ASAP system for each such measure. In
addition, during the review and
correction period, the LTCH would be
able to request correction of any errors
in the assessment-based measure rate
calculations.
We are proposing that these
confidential feedback reports would be
available to each LTCH using the
CASPER system. We refer to these
reports as the LTCH Quality Measure
(QM) Reports. We are proposing to
provide monthly updates to the data
contained in these reports as data
become available. We are proposing to
provide the reports so that providers
would be able to view their data and
information at both the facility and
patient level for its quality measures.
The CASPER facility level QM Reports
may contain information such as the
numerator, denominator, facility rate,
and national rate. The CASPER patientlevel QM Reports may contain
individual patient information which
would provide information related to
which patients were included in the
quality measures to identify any
potential errors for those measures in
which we receive patient-level data.
Currently, we do not receive patientlevel data on the CDC measure data
received via the NHSN system. In
addition, we would make other reports
available in the CASPER system, such as
LTCH CARE Data Set assessment data
submission reports and provider
validation reports, which would
disclose the LTCH’s data submission
status providing details on all items
submitted for a selected assessment and
the status of records submitted.
We refer providers to the CDC NHSN
system Web site for information on
obtaining reports specific to NHSN
submitted data at: http://www.cdc.gov/
nhsn/ltach/index.html. Additional
information regarding the content and
availability of these confidential
feedback reports would be provided on
an ongoing basis on our Web site at:
https://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html.
As previously finalized in the FY
2016 IPPS/LTCH PPS final rule (80 FR
49750 through 49752) and illustrated in
the second table in section VIII.C.9.c. of
the preamble of this proposed rule,
LTCHs would have approximately 4.5
months after the reporting quarter to
correct any errors of their assessmentbased data (that appear on the CASPER-

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generated QM reports) and NHSN data
used to calculate the measures. During
the time of data submission for a given
quarterly reporting period and up until
the quarterly submission deadline,
LTCHs could review and perform
corrections to errors in the assessment
data used to calculate the measures and
could request correction of measure
calculations. However, as already
established, once the quarterly
submission deadline occurs, the data is
‘‘frozen’’ and calculated for public
reporting and providers can no longer
submit any corrections. We would
encourage LTCHs to submit timely
assessment data during a given quarterly
reporting period and review their data
and information early during the review
and correction period so that they can
identify errors and resubmit data before
the data submission deadline.
As noted above, the assessment data
would be populated into the
confidential feedback reports and we
intend to update the reports monthly
with all data that have been submitted
and are available. We believe that the
data collection/submission quarterly
reporting periods plus 4.5 months to
review and correct the data is sufficient
time for LTCHs to submit, review and,
where necessary, correct their data and
information. These timeframes and
deadlines for review and correction of
such measures and data satisfy the
statutory requirement that LTCHs be
provided the opportunity to review and
correct their data and information and
are consistent with the informal process
hospitals follow in the Hospital IQR
Program.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49753 through 49755) we
finalized the data submission/correction
and review period. Also, we afford
LTCHs a 30-day preview period prior to
public display during which LTCHs
may preview the performance
information on their measures that will
be made public. We would like to
clarify that we will provide the preview
report using the CASPER system, with
which LTCHs are familiar. The CASPER
preview reports inform providers of
their performance on each measure
which will be publicly reported. Please
note that the CASPER preview reports
for the reporting quarter will be
available after the 4.5 month correction
period and the applicable data
submission/correction deadline have
passed and are refreshed on a quarterly
basis for those measures publicly
reported quarterly, and annually for
those measure publicly reported
annually. We are proposing to give
LTCHs 30 days to review the preview

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report beginning from the date on which
they can access the report.
As already finalized, corrections to
the underlying data would not be
permitted during this time; however,
LTCHs may ask for a correction to their
measure calculations during the 30-day
preview period. We are proposing that
if CMS determines that the measure, as
it is displayed in the preview report,
contains a calculation error, we could
suppress the data on the public
reporting Web site, recalculate the
measure and publish it at the time of the
next scheduled public display date.
This process would be consistent with
informal processes used in the Hospital
IQR Program. If finalized, we intend to
utilize a subregulatory mechanism, such
as our LTCH QRP Web site, to provide
more information about the preview
reports, such as when they will be made
available and explain the process for
how and when providers may ask for a
correction to their measure calculations.
We are inviting public comment on
these proposals to provide preview
reports using the CASPER system,
giving LTCHs 30 days review the
preview report and ask for a correction,
and to use a subregulatory mechanism
to explain the process for how and
when providers may ask for a
correction.
In addition to assessment-based
measures and CDC measure data
received via the NHSN system, we have
also proposed claims-based measures
for the LTCH QRP. The claims-based
measures include those proposed to
meet the requirements of the IMPACT
Act as well as the All-Cause Unplanned
Readmission Measure for 30 Days PostDischarge from LTCHs (NQF #2512)
which was finalized for public display
in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49753 through 49755). As
noted in above, section 1899B(g)(2) of
the Act requires prepublication provider
review and correction procedures that
are consistent with those followed in
the Hospital IQR Program. Under the
Hospital IQR Program’s informal
procedures, for claims-based measures,
we provide hospitals 30 days to preview
their claims-based measures and data in
a preview report containing aggregate
hospital-level data. We are proposing to
adopt a similar process for the LTCH
QRP.
Prior to the public display of our
claims-based measures, in alignment
with the Hospital IQR, HAC Reduction
and Hospital VBP Programs, we are
proposing to make available through the
CASPER system, a confidential preview
report that will contain information
pertaining to claims-based measure rate
calculations, for example, facility and

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national rates. The data and information
would be for feedback purposes only
and could not be corrected. This
information would be accompanied by
additional confidential information
based on the most recent administrative
data available at the time we extract the
claims data for purposes of calculating
the measures. Because the claims-based
measures are recalculated on an annual
basis, these confidential CASPER QM
reports for claims-based measures will
be refreshed annually. As previously
finalized in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49753 through
49755), LTCHs will have 30 days from
the date the preview report is made
available in which to review this
information.
The 30-day preview period is the only
time when LTCHs would be able to see
claims-based measures before they are
publicly displayed. LTCHs would not be
able to make corrections to underlying
claims data during this preview period,
nor would they be able to add new
claims to the data extract. However,
LTCHs may request that we correct our
measure calculation if the LTCH
believes it is incorrect during the 30-day
preview period. We are proposing that
if we agree that the measure, as it is
displayed in the preview report,
contains a calculation error, we could
suppress the data on the public
reporting Web site, recalculate the
measure, and publish it at the time of
the next scheduled public display date.
This process would be consistent with
informal policies followed in the
Hospital IQR Program. If finalized, we
intend to utilize a subregulatory
mechanism, such as our LTCH QRP
Web site, to explain the process for how
and when providers may contest their
measure calculations.
The proposed claims-based
measures—The MSPB–PAC LTCH QRP;
Discharge to Community—PAC LTCH
QRP and Potentially Preventable 30-Day
Post-Discharge Readmission Measure for
LTCH QRP—use Medicare
administrative data from
hospitalizations for Medicare FFS
beneficiaries. Public reporting of data
would be based on 2 consecutive
calendar years (CY) of data, which is
consistent with the specifications of the
proposed measures. We are proposing to
create data extracts using claims data for
the proposed claims based measures—
The MSPB–PAC LTCH measure;
Discharge to Community—PAC LTCH
QRP and Potentially Preventable 30-Day
Post-Discharge Readmission Measure for
LTCH QRP—at least 90 days after the
last discharge date in the applicable
period, which we will use for the
calculations. For example, if the last

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discharge date in the applicable period
for a measure is December 31, 2017 for
data collection January 1, 2016 through
December 31, 2017, we would create the
data extract on approximately March 31,
2018 at the earliest, and use that data to
calculate the claims-based measures for
that applicable period. Since LTCHs
would not be able to submit corrections
to the underlying claims snapshot nor
add claims (for those measures that use
LTCH claims) to this data set at the
conclusion of the at least 90-day period
following the last date of discharge used
in the applicable period, at that time we
would consider LTCH claims data to be
complete for purposes of calculating the
claims-based measures.
We are proposing that beginning with
data that will be publicly displayed in
2018, claims-based measures will be
calculated using claims data at least 90
days after the last discharge date in the
applicable period, at which time we
would create a data extract or snapshot
of the available claims data to use for
the measures calculation. This
timeframe allows us to balance the need
to provide timely program information
to LTCHs with the need to calculate the
claims-based measures using as
complete a data set as possible. As
noted, under this proposed procedure,
during the 30-day preview period,
LTCHs would not be able to submit
corrections to the underlying claims
data or to add new claims to the data
extract. This is for two reasons: first, for
certain measures, the claims data used
to calculate the measures may not be
derived from the LTCH’s claims, but are
from the claims of another provider. For
example, the proposed measure
Potentially Preventable 30-Day PostDischarge Readmission Measure for
LTCH QRP uses claims data submitted
by the hospital to which the patient was
readmitted, which may not be the
LTCH. For the claims that are not those
of the LTCH, the LTCH could not make
corrections to them. Second, even where
the claims used to calculate the
measures are those of the LTCH, it
would not be not possible to correct the
data after it is extracted for the measures
calculation. This is because it is
necessary to take a static ‘‘snapshot’’ of
the claims in order to perform the
necessary measure calculations.
We seek to have as complete a data set
as possible. We recognize that the
proposed at least 90 day ‘‘run-out’’
period when we would take the data
extract to calculate the claims-based
measures, is less than the Medicare
program’s current timely claims filing
policy under which providers have up
to 1 year from the date of discharge to
submit claims. We considered a number

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of factors in determining that the
proposed at least 90 day run-out period
is appropriate to calculate the claimsbased measures. After the data extract is
created, it takes several months to
incorporate other data needed for the
calculations (particularly in the case of
risk-adjusted or episode-based
measures). We then need to generate
and check the calculations. Because
several months lead time is necessary
after acquiring the data to generate the
claims-based calculations, if we were to
delay our data extraction point to 12
months after the last date of the last
discharge in the applicable period, we
would not be able to deliver the
calculations to LTCHs sooner than 18 to
24 months after the last discharge. We
believe this would create an
unacceptably long delay both for LTCHs
and for us to deliver timely calculations
to LTCHs for quality improvement.
We are inviting public comment on
these proposals.
15. Proposed Mechanism for Providing
Feedback Reports to LTCHs
Section 1899B(f) of the Act requires
the Secretary to provide confidential
feedback reports to PAC providers on
their performance to the measures
specified under sections 1899B(c)(1)
and (d)(1) of the Act, beginning 1 year
after the specified application date that
applies to such measures and PAC
providers. As discussed earlier, the
reports we are proposing to provide for
use by LTCHs to review their data and
information would be confidential
feedback reports that would enable
LTCHs to review their performance on
the measures required under the LTCH
QRP. We are proposing that these
confidential feedback reports would be
available to each LTCH using the
CASPER system. Data contained within
these CASPER reports would be
updated as previously described, on a
monthly basis as the data become
available except for our claims-based
measures which are only updated on an
annual basis.
We intend to provide detailed
procedures to LTCHs on how to obtain
their confidential feedback CASPER
reports on the LTCH QRP Web site at:
https://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html.
We are proposing to use the CMS
QIES ASAP system to provide quality
measure reports in a manner consistent
with how providers obtain various
reports to date. The QIES ASAP system
is a confidential and secure system with
access granted to providers, or their
designees.

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We seek public comment on this
proposal to satisfy the requirement to
provide confidential feedback reports to
LTCHs.
D. Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program
1. Background
a. Statutory Authority

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Section 1886(s)(4) of the Act, as added
and amended by sections 3401(f) and
10322(a) of the Affordable Care Act,
requires the Secretary to implement a
quality reporting program for inpatient
psychiatric hospitals and psychiatric
units.
Section 1886(s)(4)(A)(i) of the Act
requires that, for FY 2014 275 and each
subsequent fiscal year, the Secretary
must reduce any annual update to a
standard federal rate for discharges
occurring during the fiscal year by 2.0
percentage points for any inpatient
psychiatric hospital or psychiatric unit
that does not comply with quality data
submission requirements with respect to
an applicable fiscal year.
As provided in section
1886(s)(4)(A)(ii) of the Act, the
application of the reduction for failure
to report under section 1886(s)(4)(A)(i)
of the Act may result in an annual
update of less than 0.0 percent for a
fiscal year, and may result in payment
rates under section 1886(s)(1) of the Act
being less than the payment rates for the
preceding year. In addition, section
1886(s)(4)(B) of the Act requires that the
application of the reduction to a
standard Federal rate update be
noncumulative across fiscal years. Thus,
any reduction applied under section
1886(s)(4)(A) of the Act will apply only
with respect to the fiscal year rate
involved and the Secretary may not take
into account the reduction in computing
the payment amount under the system
275 The statute uses the term ‘‘rate year’’ (RY).
However, beginning with the annual update of the
inpatient psychiatric facility prospective payment
system (IPF PPS) that took effect on July 1, 2011
(RY 2012), we aligned the IPF PPS update with the
annual update of the ICD–9–CM codes, effective on
October 1 of each year. This change allowed for
annual payment updates and the ICD–9–CM coding
update to occur on the same schedule and appear
in the same Federal Register document, promoting
administrative efficiency. To reflect the change to
the annual payment rate update cycle, we revised
the regulations at 42 CFR 412.402 to specify that,
beginning October 1, 2012, the RY update period
would be the 12-month period from October 1
through September 30, which we refer to as a
‘‘fiscal year’’ (FY) (76 FR 26435). Therefore, with
respect to the IPFQR Program, the terms ‘‘rate year,’’
as used in the statute, and ‘‘fiscal year’’ as used in
the regulation, both refer to the period from October
1 through September 30. For more information
regarding this terminology change, we refer readers
to section III. of the RY 2012 IPF PPS final rule (76
FR 26434 through 26435).

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described in section 1886(s)(1) of the
Act for subsequent years.
Section 1886(s)(4)(C) of the Act
requires that, for FY 2014 (October 1,
2013 through September 30, 2014) and
each subsequent year, each psychiatric
hospital and psychiatric unit must
submit to the Secretary data on quality
measures as specified by the Secretary.
The data must be submitted in a form
and manner and at a time specified by
the Secretary. Under section
1886(s)(4)(D)(i) of the Act, unless the
exception of subclause (ii) applies,
measures selected for the quality
reporting program must have been
endorsed by the entity with a contract
under section 1890(a) of the Act. The
National Quality Forum (NQF) currently
holds this contract.
Section 1886(s)(4)(D)(ii) of the Act
provides an exception to the
requirement for NQF endorsement of
measures: in the case of a specified area
or medical topic determined appropriate
by the Secretary for which a feasible and
practical measure has not been endorsed
by the entity with a contract under
section 1890(a) of the Act, the Secretary
may specify a measure that is not so
endorsed as long as due consideration is
given to measures that have been
endorsed or adopted by a consensus
organization identified by the Secretary.
Section 1886(s)(4)(E) of the Act
requires the Secretary to establish
procedures for making public the data
submitted by inpatient psychiatric
hospitals and psychiatric units under
the IPFQR Program. These procedures
must ensure that a facility has the
opportunity to review its data prior to
the data being made public. The
Secretary must report quality measures
that relate to services furnished by the
psychiatric hospitals and units on the
CMS Web site.
b. Covered Entities
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53645), we established that
the IPFQR Program’s quality reporting
requirements cover those psychiatric
hospitals and psychiatric units paid
under Medicare’s IPF PPS (42 CFR
412.404(b)). Generally, psychiatric
hospitals and psychiatric units within
acute care and critical access hospitals
that treat Medicare patients are paid
under the IPF PPS. Consistent with
prior rules, we continue to use the term
‘‘inpatient psychiatric facility’’ (IPF) to
refer to both inpatient psychiatric
hospitals and psychiatric units. This
usage follows the terminology in our IPF
PPS regulations at 42 CFR 412.402. For
more information on covered entities,
we refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53645).

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c. Considerations in Selecting Quality
Measures
Our objective in selecting quality
measures is to balance the need for
information on the full spectrum of care
delivery and the need to minimize the
burden of data collection and reporting.
We have focused on measures that
evaluate critical processes of care that
have significant impact on patient
outcomes and support CMS and HHS
priorities for improved quality and
efficiency of care provided by IPFs. We
refer readers to section VIII.F.4.a. of the
FY 2013 IPPS/LTCH PPS final rule (77
FR 53645 through 53646) for a detailed
discussion of the considerations taken
into account in selecting quality
measures.
Before being proposed for inclusion in
the IPFQR Program, measures are placed
on a list of measures under
consideration, which is published
annually by December 1 on behalf of
CMS by the NQF. In compliance with
section 1890A(a)(2) of the Act, measures
that we are proposing for the IPFQR
Program in this proposed rule were
included in a publicly available
document: ‘‘List of Measures under
Consideration for December 1, 2015’’
(http://www.qualityforum.org/
WorkArea/linkit.aspx?LinkIdentifier=id
&ItemID=81172). The Measure
Applications Partnership (MAP), a
multi-stakeholder group convened by
the NQF, reviews the measures under
consideration for the IPFQR Program,
among other Federal programs, and
provides input on those measures to the
Secretary. The MAP’s 2016
recommendations for quality measures
under consideration are captured in the
following document: ‘‘Process and
Approach for MAP Pre-Rulemaking
Deliberations 2015–2016—Final Report,
February 2016’’ (http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&
ItemID=81599). We considered the
input and recommendations provided
by the MAP in selecting all measures for
the IPFQR Program, including those
discussed below.
2. Retention of IPFQR Program
Measures Adopted in Previous Payment
Determinations
The current IPFQR Program includes
16 mandatory measures. In the FY 2013
IPPS/LTCH PPS final rule (77 FR 53646
through 53652), we adopted 6 measures
for the FY 2014 payment determination
and subsequent years. In the FY 2014
IPPS/LTCH PPS final rule (78 FR 50889
through 50895), we added 2 measures
for the FY 2016 payment determination
and subsequent years. In the FY 2015

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IPF PPS final rule (79 FR 45963 through
45974), we adopted another 2 measures
for the FY 2016 payment determination
and subsequent years, and finalized 4
quality measures for the FY 2017
payment determination and subsequent
years. In the FY 2016 IPF PPS final rule
(80 FR 46694 through 46714), we
removed 1 measure beginning with the
FY 2017 payment determination; we
also adopted 5 measures and removed 2
measures beginning with the FY 2018
payment determination. We are
retaining 15 of these previously adopted
measures and proposing to update one
measure, as discussed below.
3. Proposed Update to Previously
Finalized Measure: Screening for
Metabolic Disorders
In the FY 2016 IPF PPS final rule (80
FR 46709 through 46713), we finalized
our proposal to include the Screening
for Metabolic Disorders measure in the
IPFQR Program for the FY 2018
payment determination and subsequent
years. In that final rule, we described
the denominator as IPF patients
discharged with one or more routinely
scheduled antipsychotic medications
during the measurement period. We also
listed the following denominator
exclusions: (1) Patients for whom a
screening could not be completed
within the stay due to the patient’s
enduring unstable medical or
psychological condition; and (2)
patients with a length of stay equal to
or greater than 365 days, or less than 3
days.
In the FY 2016 IPF PPS final rule (80
FR 46717 through 46718), we finalized
the CMS global sample methodology for
10 IPFQR Program measures eligible for
sampling, including the Screening for
Metabolic Disorders measure. Seven of
these 10 measures have denominator
exclusions for patients with short length
of stay within an IPF. Of these 7
measures, the Screening for Metabolic
Disorders measure is the only one with
an exclusion for less than 3 days; the
other 6 all have denominator exclusions
for length of stay less than or equal to
3 days. Therefore, we are proposing to
update the length of stay exclusion for
the Screening for Metabolic Disorders
measure to exclude patients with a
length of stay equal to or greater than
365 days, or less than or equal to 3 days.
We anticipate that this update would
reduce burden on IPFs, if it is finalized,
because it would support the intent of
the global sample to allow IPFs to use
the same sample for as many measures
as possible, by aligning the denominator
exclusions.
We welcome public comments on this
proposed denominator exclusion.

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4. Proposed New Quality Measures for
the FY 2019 Payment Determination
and Subsequent Years
We are proposing two new measures
for the FY 2019 payment determination
and subsequent years:
• SUB–3 Alcohol & Other Drug Use
Disorder Treatment Provided or Offered
at Discharge and the subset measure
SUB–3a Alcohol & Other Drug Use
Disorder Treatment at Discharge (NQF
#1664) (SUB3 and SUB–3a); and
• Thirty-day all-cause unplanned
readmission following psychiatric
hospitalization in an IPF.
The sections below outline our
rationale for proposing these measures.

coronary heart disease, diabetes,
infections, and respiratory disease.281 282
Furthermore, individuals with
undetected, untreated or undertreated
co-occurring disorders are more likely to
experience homelessness, incarceration,
additional medical illness, suicide, and
early death.283
Due to the prevalence of substance
abuse among individuals with mental
illness, and the negative effects
therefrom, we believe it is imperative to
assess IPFs’ efforts to offer treatment
options for patients who screen positive
for drug and alcohol use. As described
under the Measure Description section
of the NQF Web page regarding this
measure, the SUB–3 measure includes
a. SUB–3 Alcohol & Other Drug Use
hospitalized patients age 18 years and
Disorder Treatment Provided or Offered older ‘‘who are identified with an
at Discharge and the Subset Measure
alcohol or drug use disorder who
SUB–3a Alcohol & Other Drug Use
receive or refuse at discharge a
Disorder Treatment at Discharge (NQF
prescription for FDA-approved
#1664) (SUB–3 and SUB3a)
medications for alcohol or drug use
disorder, OR who receive or refuse a
Individuals with mental illness
referral for addictions treatment.’’ 284
experience substance use disorders
The SUB–3a subset measure includes
(SUDs) at a much higher rate than the
general population.276 Nearly 18 percent hospitalized patients age 18 years and
older ‘‘who receive a prescription for
of the 43.6 million adults aged 18 years
FDA-approved medications for alcohol
and older who had a mental illness in
2013 met the criteria for a SUD. Of those or drug use disorder OR a referral for
addictions treatment.’’ 285 The
who met the criteria for a SUD, 26.7
percent used illicit drugs.277 Illicit drug numerator of the SUB–3 measure
includes ‘‘patients who received or
use is particularly high among adults
with serious mental illnesses.278 Misuse refused at discharge a prescription for
medication for treatment of alcohol or
and abuse of prescription drugs among
drug use disorder OR received or
individuals with mental illnesses, in
refused a referral for addictions
particular opioids, are also of growing
treatment.’’ 286 The numerator of the
concern.
SUB–3a subset measure includes
Individuals with co-occurring mental
disorders and SUDs, the combination of ‘‘patients who received a prescription at
discharge for medication for treatment
one or more mental disorders and one
of alcohol or drug use disorder OR a
or more SUDs, experience far more
referral for addictions treatment.’’ 287
physical illnesses and episodes of care
The denominators of both the SUB–3
than individuals with a single
measure and SUB–3a subset measure
diagnosis.279 These co-occurring
include ‘‘hospitalized inpatients 18
disorders tend to go undetected and
years of age and older identified with an
untreated, especially among the elderly
alcohol or drug use disorder’’ subject to
population, which experiences more
a list of exclusions.288 Further
adverse effects than the young adult
information on this measure, including
population.280 Treatment of only one
the denominator exclusions, can be
disorder for individuals who have two
or more mental and SUDs often leads to found in the measure detail sheet on the
NQF’s Web site (http://
poor functioning and poor treatment
www.qualityforum.org/QPS/1664) or in
compliance that inhibits full recovery,
the section of the Specifications Manual
increases the risk of relapse, and can
lead to other high-risk illnesses, such as
276 National

Institute on Drug Abuse (NIDA).
‘‘Comorbidity: Addiction and Other Mental
Illnesses.’’
277 SAMHSA. Results from the 2014 National
Survey on Drug Use and Health: Mental Health
Findings.
278 Ibid.
279 SAMHSA. ‘‘Mental and Substance Use
Disorders.’’
280 Robert Drake. ‘‘Dual Diagnosis and Integrated
Treatment of Mental Illness and Substance Abuse
Disorder.’’

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281 SAMHSA. ‘‘Mental and Substance Use
Disorders.’’
282 Mental Health Foundation. ‘‘Physical Health
and Mental Health.’’
283 SAMHSA. ‘‘Mental and Substance Use
Disorders.’’
284 NQF SUB–3 and SUB–3a Measure
Specifications. Available at: http://
www.qualityforum.org/QPS/1664.
285 Ibid.
286 Ibid.
287 Ibid.
288 Ibid.

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for National Hospital Inpatient Quality
Measures on Substance Use Measures
at: http://www.qualitynet.org/dcs/
BlobServer?blobkey=id&
blobnocache=true&
blobwhere=1228890516540
&blobheader=multipart%2Foctetstream&blobheadername1=ContentDisposition&blobheadervalue1=
attachment%3Bfilename%3D2.6.2_
SUB_v5_1.pdf&blobcol=urldata&
blobtable=MungoBlobs.
We previously adopted the SUB–1
measure (Alcohol Use Screening (NQF
#1661)) (78 FR 50890 through 50892)
and the SUB–2 (Alcohol Use Brief
Intervention Provided or Offered) and
the subset measure SUB–2a (Alcohol
Use Brief Intervention (NQF #1663)
(SUB–2 and SUB–2a)) measure (80 FR
46699 through 46701). While the SUB–
1 measure assesses ‘‘hospitalized
patients 18 years of age and older who
are screened during the hospital stay
using a validated screening
questionnaire for unhealthy alcohol
use,’’ 289 the SUB–2 and SUB–2a
measure assesses ‘‘hospitalized patients
who screened positive for unhealthy
alcohol use who received or refused a
brief intervention during the hospital
stay’’ 290 and ‘‘hospitalized patients 18
years and older who received the brief
intervention during the hospital
stay,’’ 291 respectively. The SUB–1
measure and the SUB–2 and SUB–2a
measure combined provide a greater
understanding of the rate at which
patients are screened for potential
alcohol abuse and the rate at which
those who screen positive accept the
offered interventions.
Despite the value created by the
inclusion of the SUB–1 measure and the
SUB–2 and SUB–2a measure in the
IPFQR Program measure set, neither
fully captures hospitalized patients 18
years of age and older with other SUDs
because these measures focus on alcohol
use only. In the past, commenters have
urged CMS to include illicit and opioid
drug screening in our measure set (80
FR 46701) stating that co-occurring
substance use disorders are prevalent in
many patients with psychiatric
diagnoses and the SUB–3 and SUB–3a
measure will ensure that patients
continue to receive treatment after
discharge.292 While the SUB–3 and
SUB–3a measure does not guarantee
that patients would continue to receive
treatment for substance use disorders
after discharge, the addition of the SUB–
289 NQF

SUB–1 Measure Specifications.
SUB–2 and SUB–2a Measure
Specifications.
291 Ibid.
292 80 FR 46701.

3 and SUB–3a measure to the existing
measure set would encourage IPFs to
offer and provide FDA-approved
medication OR a referral for addictions
treatment to patients with co-occurring
drug or alcohol use disorders at
discharge. This measure would also
provide information regarding the rate
at which these treatment options are
accepted by patients. The SUB–3 and
SUB–3a measure also provides a fuller
picture of the entire episode of care. In
addition, aggregated data from the SUB–
1 measure, SUB–2 and SUB–2a
measure, and the SUB–3 and SUB–3a
measure from each IPF would help
provide patients with adequate
consumer information to guide their
decision-making process in selecting a
treatment facility, specifically for
patients that are diagnosed with a
substance use disorder.
Furthermore, we believe that this
measure set promotes the National
Quality Strategy priority of Effective
Prevention and Treatment for leading
causes of mortality, starting with
cardiovascular disease. It is notable that
the high prevalence of SUDs among
adults age 65 years and older
contributes to serious medical
conditions, including cardiovascular
disease and liver disease. The proposed
measure also supports HHS’ Opioid
Abuse Reduction Initiative to reduce
prescription opioid and heroin related
overdose, death, and dependence.293 We
also note that the addition of SUB–3 and
SUB–3a in the measure set could
encourage interventions and promote
prevention of conditions that are
associated with alcohol and drug use
disorders.
For these reasons, we included the
SUB–3 and SUB–3a measure in our
‘‘List of Measures under Consideration
for December 1, 2015’’ (http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&
ItemID=81172). The MAP provided
input on the measure and supported its
inclusion in the IPFQR Program in its
report ‘‘Process and Approach for MAP
Pre-Rulemaking Deliberations 2015–
2016—Final Report, February 2016’’
available at: http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=
81599. Moreover, this measure is NQFendorsed for the IPF setting, in
conformity with the statutory criteria for
measure selection under section
1886(s)(4)(D)(i) of the Act.
Therefore, we are proposing to adopt
the SUB–3 and SUB–3a measure for the

290 NQF

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293 ASPE. ‘‘Opioid Abuse in the U.S. and HHS
Actions to Address Opioid-Drug Related Overdoses
and Deaths.’’

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FY 2019 payment determination and
subsequent years. We welcome public
comment on this proposal.
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53657 through 53658) and
FY 2014 IPPS/LTCH PPS final rule (78
FR 50901 through 50902), we finalized
policies for population, sampling, and
minimum case thresholds. In the FY
2016 IPF PPS final rule, we made one
change to these requirements (80 FR
46717 through 46719) in finalizing a
policy in which IPFs may take one,
global sample for all measures for which
sampling is permitted. This policy was
adopted to decrease burden on IPFs and
streamline policies and procedures. We
are proposing to allow sampling for the
SUB–3 and SUB–3a measure. Therefore,
we are proposing to include the SUB3
and SUB–3a measure in the list of
measures covered by the global sample.
We welcome public comment on this
proposal.
b. Thirty-Day All-Cause Unplanned
Readmission Following Psychiatric
Hospitalization in an IPF
The MAP, composed of national
stakeholders, identified readmissions as
a key gap area in the IPFQR Program in
a January 2015 report.294 A goal of the
CMS Quality Strategy is to ‘‘promote
effective communication and
coordination of care’’ across different
care settings and providers. In addition,
readmission following discharge from
IPFs is undesirable for patients because
readmissions represent a deterioration
in patients’ mental and/or physical
health status. Furthermore, an analysis
of Medicare claims data for calendar
years 2012 and 2013 showed that among
the 716,174 IPF admissions for
Medicare beneficiaries, more than 20
percent resulted in readmission to an
IPF or a short-stay acute care hospital
within 30 days of discharge.295 Riskstandardized readmission rates ranged
from 11 percent to 35 percent,
indicating wide variation across IPFs
and clear opportunity for improvement.
Finally, MedPAC estimates of Medicare
payments to IPFs in 2012 indicated that
the average payment per discharge was
294 Process and Approach for MAP PreRulemaking Deliberations. Measure Applications
Partnership. 2015. Available at: http://
www.qualityforum.org/Setting_Priorities/
Partnership/MAP_Final_Reports.aspx.
295 Inpatient Psychiatric Facility All-Cause
Unplanned Readmission Measure: Draft Technical
Report, November 23, 2015. Available at: https://
www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/MMS/
CallforPublicComment.html#17. (On this page, the
file is listed as ‘‘Inpatient Psychiatric Facility (IPF)
Outcome and Process Measure Development and
Maintenance’’ under downloads.)

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nearly $10,000.296 Therefore, reducing
readmissions would substantially
reduce costs. For these reasons, we
developed a facility-level outcome
measure of all-cause, unplanned
readmissions following discharge from a
qualifying IPF admission. This measure
would provide an important indicator of
the quality of care patients receive in
the IPF setting.
Although not all readmissions are
preventable, there is evidence that
improvements in the quality of care for
patients in the IPF setting can reduce
readmission rates which, in turn, would
reduce costs to Medicare and the burden
to patients and their caregivers. For
example, a study of 30-day behavioral
health readmissions using a multistate
Medicaid database found that
connecting patients to services they will
need post-discharge can help prevent
readmissions. A 1-percent increase in
the percentage of patients receiving
follow-up care within 7 days of
discharge was associated with a 5
percent reduction in the probability of
being readmitted.297 Other studies have
also found that transitional
interventions such as pre- and postdischarge patient education, structured
needs assessments, medication
reconciliation/education, transition
managers, and inpatient/outpatient
provider communication have been
effective in reducing early psychiatric
readmissions. A systematic review of
such interventions observed reductions
of 13.6 percent to 37.0 percent of
readmissions.298
The proposed readmission measure
would complement the portfolio of
facility-level, risk-standardized
readmission measures in the acute care
setting that CMS quality reporting and
pay-for-performance programs currently
use. These programs include, among
others, the Hospital IQR Program, which
requires facilities to report on conditionspecific risk-standardized readmission
measures (including Acute Myocardial
Infarction (AMI), Heart Failure (HF),
Pneumonia, and elective Hip/Knee
replacements, among others).299 In
296 Inpatient Psychiatric Facility Services
Payment System. MedPAC. 2014. Available at:
http://www.medpac.gov/documents/paymentbasics/inpatient-psychiatric-facility-servicespayment-system-14.pdf.
297 Mark TL, Mark T, Tomic KS, et al. Hospital
readmission among medicaid patients with an
index hospitalization for mental and/or substance
use disorder. J Behav Health Serv Res. 2013;
40(2):207–221.
298 Vigod SN, Kurdyak PA, Dennis CL, et al.
Transitional interventions to reduce early
psychiatric readmissions in adults: Systematic
review. Br J Psychiatry. 2013; 202(3):187–194.
299 https://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/
HospitalQualityInits/OutcomeMeasures.html.

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addition, the Hospital IQR Program
requires reporting on a Hospital-Wide
All-Cause Unplanned Readmissions
measure (READM–30–HWR) as
finalized in the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53521 through
53528). The Hospital Readmissions
Reduction Program, a pay-forperformance program for subsection (d)
hospitals or hospitals paid under
section 1814(b)(3) of the Act, also uses
risk-standardized condition-specific
readmission measures (including AMI,
HF, and Pneumonia, among others).300
The proposed IPF readmission
measure, 30-day all-cause unplanned
readmission following psychiatric
hospitalization in an IPF, estimates a
facility-level, risk-standardized
readmission rate for unplanned, allcause readmissions within 30 days of
discharge from an IPF. Detailed
information about the development of
this measure as well as final measure
specifications can be downloaded from
the CMS Web site at: https://www.cms.
gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/MMS/
CallforPublicComment.html#17 (on this
page, the file is listed as ‘‘Inpatient
Psychiatric Facility (IPF) Outcome and
Process Measure Development and
Maintenance’’ under downloads.). The
denominator for this measure includes
Medicare FFS beneficiaries aged 18
years and older who are admitted to and
discharged alive from an IPF with a
principal diagnosis of a psychiatric
disorder. Admissions to IPFs for
nonpsychiatric disorders, which
account for only 1.1 percent of
admissions, were not included in the
measure cohort because IPFs are
expected to admit patients who need
inpatient care for psychiatric causes.301
Therefore, nonpsychiatric admissions
could represent either admissions that
were initiated for presumed or
preliminary psychiatric diagnoses but
later were changed to nonpsychiatric
primary diagnoses during the admission
or admissions with unreliable data.
Eligible index admissions require
enrollment in Medicare Parts A and B
for 12 months prior to the index
admission, the month of admission, and
at least 30 days post-discharge.
Admissions to IPFs are excluded from
the denominator if any of the following
apply:
• Subsequent admission on day of
discharge (Day 0) or within 2 days postdischarge (Day 1-Day 2) due to transfers
300 76

FR 51660 through 51676.
Payment System for Inpatient
Hospital Services. In: Services DoHaH, Ed. 42, Vol.
412, U.S. Government Publishing Office 2011:535–
537.
301 Prospective

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25241

to another inpatient facility on Day 0 or
1 or billing procedures for interrupted
stays, which do not allow for
identification of readmissions to the
same IPF within 3 days;
• Patient discharged against medical
advice (AMA) because the provider
would not have an opportunity to
provide optimal care; and
• Unreliable patient data (for
example, has a death date but also
admission afterwards).
The numerator for the IPF
readmission measure is defined as any
admission to an IPF or acute care
hospital that occurs on or between days
3 and 30 post-discharge, except those
considered planned by the CMS
Planned Readmission Algorithm,
Version 3.0.302 The all-cause,
unplanned, 30-day readmission rate is
harmonized with other readmission
measures that are endorsed by NQF and
in use by CMS programs. For the
timeframe for measurement, literature
supports the connection between 30-day
readmissions and the quality of care
provided during the index
admission.303 304 305 306 307 This
timeframe also supports interventions
that have been developed on a wide
range of patient populations that focus
on reducing 30-day readmission
rates.308 309 310 311 312 Finally, a
302 Horwitz LI, Grady JN, Zhang W, et al. 2015
Measure Updates and Specifications Report:
Hospital-Wide All-Cause Unplanned Readmission
Measure—Version 4.0. Centers for Medicare &
Medicaid Services; 2015. Available in the Hospital
Wide All Cause Readmission Updates folder at:
https://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/HospitalQuality
Inits/Measure-Methodology.html.
303 Hyland M. National Mental Health
Benchmarking Project. In: Wendy Hoey, Whitecross
MFaF, eds. Reducing 28 Day Readmission.
Australian Mental Health Outcomes and
Classification Network 2008:38.
304 Boaz TL, Becker MA, Andel R, Van Dorn RA,
Choi J, Sikirica M. Risk factors for early readmission
to acute care for persons with schizophrenia taking
antipsychotic medications. Psychiatric services
(Washington, DC). 2013; 64(12):1225–1229.
305 Zilber N, Hornik-Lurie T, Lerner Y. Predictors
of early psychiatric rehospitalization: A national
case register study. Isr J Psychiatry Relat Sci. 2011;
48(1):49–53.
306 Lutterman T, Ganju V, Schacht L, Shaw R,
Monihan K, et.al. Sixteen State Study on Mental
Health Performance Measures. 2003.
307 Carr VJ, Lewin TJ, Sly KA, et al. Adverse
incidents in acute psychiatric inpatient units: rates,
correlates and pressures. Aust N Z J Psychiatry.
2008; 42(4):267–282.
308 Naylor M, Brooten D, Jones R, Lavizzo-Mourey
R, Mezey M, Pauly M. Comprehensive discharge
planning for the hospitalized elderly. A randomized
clinical trial. Annals of internal medicine. 1994;
120(12):999–1006.
309 Naylor MD, Brooten D, Campbell R, et al.
Comprehensive discharge planning and home
follow-up of hospitalized elders: A randomized
clinical trial. JAMA. 1999; 281(7):613–620.
310 van Walraven C, Seth R, Austin PC, Laupacis
A. Effect of discharge summary availability during

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workgroup of relevant clinical experts
agreed that the 30-day time period
captures complications that may be
attributable to the IPF.
An all-cause readmission rate was
selected because it promotes a holistic
approach to the treatment of patients
with psychiatric disorders, who often
have comorbid medical conditions.
From the patient and caregiver
perspective, these readmissions indicate
a deterioration in the patient’s
condition. In addition, the relationship
between principal discharge diagnosis
of the index admission and the
principal discharge diagnosis of the
readmission may be complex and
difficult to determine based only on
principal diagnosis codes. For example,
a patient discharged with bipolar
disorder may be readmitted because of
a suicide attempt or self-harm due to
poorly controlled symptoms of bipolar
disorder. A measure that looks only for
readmissions with principal discharge
diagnoses of bipolar disorder would
miss these readmissions.
The IPF readmission measure uses
Medicare FFS claims and enrollment
data over a 24-month measurement
period to calculate the measure results.
Twenty-four months was determined to
provide an adequate number of cases
and reliable results. Because this
measure is not limited to a single
diagnosis, a 24-month measurement
period gives sufficient sample size. The
IPF measure had 4.2 percent of IPFs
with fewer than 25 cases in the 24month measurement period from
January 2012 to December 2013. For
comparison, the HWR measure had 3.8
percent of hospitals with fewer than 25
cases in the 12-month measurement
period from July 2013 to June 2014.
We recognize that the risk of
readmission is influenced by patient
factors, so the measure is risk-adjusted
to account for differences in the patients
served across IPFs. Hierarchical logistic
regression is used to estimate a risk
standardized readmission rate for each
facility. Factors considered in the riskadjustment model include patient
demographics, principal discharge
diagnoses of the index admission,
comorbidities in claims during the 12
months prior to the index admission or
during the index admission with the
post-discharge visits on hospital readmission. J Gen
Intern Med. 2002; 17(3):186–192.
311 Zhang J, Harvey C, Andrew C. Factors
associated with length of stay and the risk of
readmission in an acute psychiatric inpatient
facility: a retrospective study. Aust N Z J
Psychiatry. 2011; 45(7):578–585.
312 Silva NC, Bassani DG, Palazzo LS. A casecontrol study of factors associated with multiple
psychiatric readmissions. Psychiatric services
(Washington, DC). 2009; 60(6):786–791.

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exception of complications of care, and
several risk variables specific to the IPF
patient population. Risk factors were
selected for inclusion in the final risk
model if they were positively selected at
least 70 percent of the time in a
stepwise backward elimination process.
The final risk model includes age,
gender, 13 principal discharge diagnosis
Agency for Healthcare Research and
Quality (AHRQ) Clinical Classification
Software (CCS) categories, 38
comorbidity CMS Hierarchical
Condition Categories (CC), history of
discharge against medical advice,
history of suicide or self-harm, history
of aggression, and the hospital as a
random effect. For more information
about factors used in calculating the
risk-standardized readmission rate, we
refer readers to the CMS Web site at:
https://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/MMS/
CallforPublicComment.html#17. (On
this page, the file is listed as ‘‘Inpatient
Psychiatric Facility (IPF) Outcome and
Process Measure Development and
Maintenance’’ under downloads.)
We understand the importance of the
role that sociodemographic status plays
in the care of patients. However, we
continue to have concerns about
holding hospitals to different standards
for the outcomes of their patients of
diverse sociodemographic status
because we do not want to mask
potential disparities or minimize
incentives to improve the outcomes of
disadvantaged populations. We
routinely monitor the impact of
sociodemographic status on hospitals’
results on our measures.
The NQF is currently undertaking a 2year trial period in which new measures
and measures undergoing maintenance
review will be assessed to determine if
risk-adjusting for sociodemographic
factors is appropriate. For 2 years, NQF
will conduct a trial of temporarily
allowing inclusion of sociodemographic
factors in the risk-adjustment approach
for some performance measures. At the
conclusion of the trial, NQF will issue
recommendations on future permanent
inclusion of sociodemographic factors.
During the trial, measure developers are
expected to submit information such as
analyses and interpretations as well as
performance scores with and without
sociodemographic factors in the risk
adjustment model. Measure developers
must submit information such as
analyses and interpretations as well as
performance scores with and without
sociodemographic factors in the risk
adjustment model. When this measure
was submitted to NQF on January 29,
2016, this information was included.

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Furthermore, the Office of the
Assistant Secretary for Planning and
Evaluation (ASPE) is conducting
research to examine the effect of
sociodemographic status on quality
measures, resource use, and other
measures under the Medicare program,
as directed by the IMPACT Act. We will
closely examine the findings of the
ASPE reports and related Secretarial
recommendations and consider how
they apply to our quality programs at
such time as they are available.
As part of the measure development
process for this measure, we solicited
public comments on the measure via the
CMS Public Comment Web page. As
part of our comment solicitation, we
provided the Measure Information Form
(MIF), Data Dictionary, and the Measure
Technical Report to the public to inform
their review of the measure. We
accepted public comments from
November 25, 2015 through December
11, 2015. The significant majority of
stakeholders who provided comments
on the measure design supported this
measure because of the importance of
measuring readmissions in this
population. Commenters who provided
input on the methodology agreed that it
appears to be scientifically acceptable,
and those who provided input on the
feasibility agreed with our belief that the
measure is feasible as designed. After
review and evaluation of all the public
comments received, we did not identify
any areas in which the measure needed
to be modified. For specific information
regarding the comments we received,
we refer readers to the CMS Web site at:
https://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/MMS/
CallforPublicComment.html#17. (On
this page, the file is listed as ‘‘Inpatient
Psychiatric Facility (IPF) Outcome and
Process Measure Development and
Maintenance’’ under downloads.)
While section 1886(s)(4)(D)(ii) of the
Act authorizes the Secretary to specify
a measure that is not endorsed by NQF,
the proposed IPF readmission measure
was submitted to NQF for endorsement
on January 29, 2016, and we anticipate
the measure will receive endorsement
prior to the release of the final rule.
However, the exception to the
requirement to specify an endorsed
measure states that in the case of a
specified area or medical topic
determined appropriate by the Secretary
for which a feasible and practical
measure has not been endorsed by the
entity with a contract under section
1890(a) of the Act, the Secretary may
specify a measure that is not so
endorsed as long as due consideration is
given to measures that have been

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
endorsed or adopted by a consensus
organization. We have reviewed NQFendorsed and other consensus-endorsed
measures related to all-cause unplanned
readmissions and believe that none are
appropriate to the inpatient psychiatric
setting. Therefore, no equivalent
readmission measure that is endorsed

by a consensus organization is available
for use in the IPFQR Program.
For the reasons stated above, we are
proposing the IPF readmission measure
described in this section for the FY 2019
payment determination and subsequent
years. We welcome public comment on
this proposal.

25243

5. Summary of Proposed Measures for
the FY 2019 Payment Determination
and Subsequent Years
The measures that we are proposing
to adopt for the IPFQR Program for the
FY 2019 payment determination and
subsequent years are set forth in the
table below.

PROPOSED NEW IPFQR PROGRAM MEASURES FOR THE FY 2019 PAYMENT DETERMINATION AND SUBSEQUENT YEARS
National quality strategy
priority

NQF No.

Measure ID

Measure

Effective Treatment and
Prevention.

1664 ...................................

SUB–3 and SUB–3a .........

Communication/Care Coordination.

N/A (Under review for endorsement).

N/A .....................................

SUB–3 Alcohol & Other Drug Use Disorder Treatment
Provided or Offered at Discharge and SUB–3a Alcohol & Other Drug Use Disorder Treatment at Discharge.
Thirty-Day All-Cause Unplanned Readmission Following Psychiatric Hospitalization in an IPF.

If these measures are adopted, the
number of measures for the FY 2019
IPFQR Program and subsequent years

will total 18, as set forth in the table
below.

PROPOSED AND FINALIZED MEASURES FOR FY 2019 PAYMENT DETERMINATION AND SUBSEQUENT YEARS
NQF No.

Measure ID

Measure

0640 ........................
0641 ........................
0560 ........................

HBIPS–2 ................................................
HBIPS–3 ................................................
HBIPS–5 ................................................

0576 ........................
1661 ........................
1663 ........................

FUH .......................................................
SUB–1 ...................................................
SUB–2 and SUB–2a ..............................

1651 ........................
1654 ........................

TOB–1 ...................................................
TOB–2 and TOB–2a ..............................

1656 ........................

TOB–3 and TOB–3a ..............................

1659 ........................
0647 ........................

IMM–2 ....................................................
N/A .........................................................

0648 ........................

N/A .........................................................

N/A ..........................
N/A ..........................
N/A ..........................
N/A ..........................
1664 ........................

N/A .........................................................
N/A .........................................................
N/A .........................................................
N/A .........................................................
SUB–3 and SUB–3a ..............................

N/A (Under review
for endorsement).

N/A .........................................................

Hours of physical restraint use.
Hours of seclusion use.
Patients discharged on multiple antipsychotic medications with appropriate justification.
Follow-Up After Hospitalization for Mental Illness.
Alcohol Use Screening.
Alcohol Use Brief Intervention Provided or Offered and the subset measure Alcohol Use Brief Intervention.*
Tobacco Use Screening.
Tobacco Use Treatment Provided or Offered and the subset measure Tobacco
Use Treatment.
Tobacco Use Treatment Provided or Offered at Discharge and the subset
measure Tobacco Use Treatment at Discharge.
Influenza Immunization.
Transition Record with Specified Elements Received by Discharged Patients
(Discharges from an Inpatient Facility to Home/Self Care or Any Other Site of
Care).
Timely Transmission of Transition Record (Discharges from an Inpatient Facility
to Home/Self Care or Any Other Site of Care).
Screening for Metabolic Disorders.
Influenza Vaccination Coverage Among Healthcare Personnel.
Assessment of Patient Experience of Care.
Use of an Electronic Health Record.
Alcohol & Other Drug Use Disorder Treatment Provided or Offered at Discharge and the subset measure Alcohol & Other Drug Use Disorder Treatment at Discharge.*
Thirty-Day All-Cause Unplanned Readmission Following Psychiatric Hospitalization in an IPF.*

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* New measures proposed for the FY 2019 payment determination and future years.

6. Possible IPFQR Program Measures
and Topics for Future Consideration
As we have indicated in prior
rulemaking (79 FR 45974 through
45975), we seek to develop a
comprehensive set of quality measures
to be available for widespread use for
informed decision-making and quality
improvement in the IPF setting.
Therefore, through future rulemaking,

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we intend to propose new measures for
adoption that will help further our goals
of achieving better health care and
improved health for Medicare
beneficiaries who obtain inpatient
psychiatric services through the
widespread dissemination and use of
quality information.
We welcome public comments on
possible new measures.

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7. Public Display and Review
Requirements
We are proposing to change to how
we specify the timeframes for public
display of data and the associated
preview period for IPFs to review the
data that will be made public.
Under section 1886(s)(4)(E) of the Act,
we are required to establish procedures
for making the data submitted under the

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IPFQR Program available to the public.
Such procedures must ensure that an
IPF has the opportunity to review its
data that are to be made public prior to
such data being made public. Section
1866(s)(4)(E) of the Act also provides
that the Secretary must report quality
measures of process, structure, outcome,
patients’ perspective on care, efficiency,
and costs of care that relate to services
furnished in such hospitals on the CMS
Web site.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50897 through 50898), we
stated that we would publicly display
the data submitted by IPFs for the
IPFQR Program on a CMS Web site in
April of each calendar year following
the start of the respective payment
determination year. For example, we
publicly displayed the data for the FY
2015 payment determination in April
2015. We strive to publicly display data
as soon as possible on a CMS Web site,
as this provides consumers with
healthcare information and furthers our
goal of transparency. Therefore, we
believe it is best to not specify in
rulemaking the exact timeframe for
publication, as doing so may prevent
earlier publication. We are proposing,
then, to make these data available as
soon as it is feasible. We intend to make
the data available on Hospital Compare
on at least a yearly basis.
We also are required to give each IPF
an opportunity to review its data before
the data are made public. This purpose
of this preview period is to ensure that
each IPF is informed of the IPF level
data that the public will be able to see
for its facility, and to submit measure
rate errors resulting from MS
calculations of IPF submitted patient
level claims and Web-based measure
numerator and denominator data. It is
not for the purpose of correcting an
IPF’s possible submission errors. As
finalized in the 2015 IPF PPS final rule
(79 FR 45976), IPFs have the entire data
submission period to review and correct
claims data element and Web-based
measure numerator and denominator
count data they have submitted to CMS.
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50897 through 50898), we
stated that the preview period would be
30 days and would begin approximately
12 weeks prior to the public display of
the data.
Because we are proposing to make the
data for the IPFQR Program available as
soon as possible, and the timeframe for
publication may change from year-toyear, we are proposing to no longer
specify the dates for review in
rulemaking, nor to specify in
rulemaking that the preview period will
begin approximately 12 weeks prior to

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publicly displaying the data. Instead, we
are proposing to announce the exact
timeframes through subregulatory
guidance, including on a CMS Web site
and/or on our applicable listservs. We
also are proposing to continue our
policy that the time period for review
will be approximately 30 days in length.
As noted earlier, we wish to publicly
display data as early as possible. For the
FY 2017 payment determination, it may
be technically feasible for us to display
the data as early as December 2016. We
previously finalized that the preview
period would be 30 days and would be
approximately 12 weeks prior to the
public display date. However, in this
case, 12 weeks prior to December 1,
2016 is in mid-September, which is 2
weeks before the usual effective date of
the IPPS/LTCH PPS final rule.
Therefore, for FY 2017 only, if it is
technically feasible to display the data
as early as December 2016, we are
proposing a 2-week preview period that
would start on October 1, 2016.
However, as a courtesy, and to give IPFs
30 days for review if they so choose, we
are proposing to provide IPFs with their
data in mid-September. We believe that
this proposal complies with prior
policies while still allowing us to
display data as soon as possible for the
FY 2017 payment determination.
We are inviting public comment on
these proposals.
8. Form, Manner, and Timing of Quality
Data Submission
a. Procedural and Submission
Requirements
We are not proposing any changes to
the procedural and submission
requirements for the FY 2019 payment
determination and subsequent years,
and we refer readers to the FY 2014
IPPS/LTCH PPS final rule (78 FR 50898
through 50899) for more information on
these previously finalized requirements.
b. Proposed Change to the Reporting
Periods and Submission Timeframes
In the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50901), we finalized
requirements for reporting periods and
submission timeframes for the IPFQR
Program measures. In the FY 2016 IPF
PPS final rule, we made one change to
these requirements (80 FR 46715 and
46716). We refer readers to these rules
for further information.
c. Population and Sampling
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53657 through 53658) and
FY 2014 IPPS/LTCH PPS final rule (78
FR 50901 through 50902), we finalized
policies for population, sampling, and
minimum case thresholds. In the FY

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2016 IPF PPS final rule, we made one
change to these requirements (80 FR
46717 through 46719). We refer readers
to these rules for further information.
d. Data Accuracy and Completeness
Acknowledgement (DACA)
Requirements
We are not proposing any changes to
the DACA requirements and we refer
readers to the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53658) for more
information on these requirements.
9. Reconsideration and Appeals
Procedures
In the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53658 through 53660), we
adopted a reconsideration and appeals
process, later codified at 42 CFR
412.434, by which an IPF can request a
reconsideration of its payment update
reduction if an IPF believes that its
annual payment update has been
incorrectly reduced for failure to meet
all IPFQR Program requirements and, if
dissatisfied with a decision made by
CMS on its reconsideration request, may
file an appeal with the Provider
Reimbursement Review Board. We are
not proposing any changes to the
Reconsideration and Appeals Procedure
and refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53658
through 53660) and the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50953) for
further details on the reconsideration
process.
10. Exceptions to Quality Reporting
Requirements
We are not proposing any changes to
the exceptions to quality reporting
requirements. For more information, we
refer readers to the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53659 through
53660), where we initially finalized the
policy as ‘‘Waivers from Quality
Reporting,’’ and the FY 2015 IPF PPS
final rule (79 FR 45978), where we
renamed the policy as ‘‘Exceptions to
Quality Reporting Requirements.’’
E. Clinical Quality Measurement for
Eligible Hospitals and Critical Access
Hospitals (CAHs) Participating in the
EHR Incentive Programs in 2017
1. Background
The HITECH Act (Title IV of Division
B of the ARRA, together with Title XIII
of Division A of the ARRA) authorizes
incentive payments under Medicare and
Medicaid for the adoption and
meaningful use of certified electronic
health record (EHR) technology
(CEHRT). Eligible hospitals and CAHs
may qualify for these incentive
payments under Medicare (as
authorized under sections 1886(n) and

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
1814(l) of the Act, respectively) if they
successfully demonstrate meaningful
use of CEHRT, which includes reporting
on clinical quality measures (CQMs)
using CEHRT.
Sections 1886(b)(3)(B) and 1814(l) of
the Act also establish downward
payment adjustments under Medicare,
beginning with FY 2015, for eligible
hospitals and CAHs that are not
meaningful users of CEHRT for certain
associated reporting periods. Section
1903(a)(3)(F)(i) of the Act establishes
100 percent Federal financial
participation (FFP) to States for
providing incentive payments to eligible
Medicaid providers (described in
section 1903(t)(2) of the Act) to adopt,
implement, upgrade and meaningfully
use CEHRT.
Under sections 1886(n)(3)(A) and
1814(l)(3)(A) of the Act and the
definition of ‘‘meaningful EHR user’’
under 42 CFR 495.4, eligible hospitals
and CAHs must report on CQMs
selected by CMS using CEHRT, as part
of being a meaningful EHR user under
the Medicare EHR Incentive Program.
The set of CQMs from which eligible
hospitals and CAHs will report under
the EHR Incentive Program beginning in
FY 2014 is listed in Table 10 of the EHR
Incentive Program Stage 2 final rule (77
FR 54083).
In order to further align CMS quality
reporting programs for eligible hospitals
and CAHs and avoid redundant or
duplicative reporting among hospital
programs, the Medicare and Medicaid
Programs; Electronic Health Record
Incentive Program—Stage 3 and
Modifications to Meaningful Use in
2015 Through 2017 (hereinafter referred
to as the 2015 EHR Incentive Programs
Final Rule) 313 (80 FR 62890) indicated
our intent to address CQM reporting
requirements for the Medicare and
Medicaid EHR Incentive Programs for
eligible hospitals and CAHs for 2016,
2017, and future years in the IPPS
rulemaking. We believe that receiving
and reviewing public comments for
various CMS quality programs at one
time while simultaneously finalizing the
requirements for these programs would
provide us with an opportunity to better
align these programs for eligible
hospitals and CAHs, allow more
flexibility within the Medicare and
Medicaid EHR Incentive Programs, and
add overall value and consistency. To
further achieve this goal, the 2015
Edition final rule (80 FR 62652)
published by ONC indicated that it
313 Medicare and Medicaid Programs: Electronic
Health Record Incentive Program—Stage 3 and
Modifications to Meaningful Use in 2015 Through
2017; final rule (80 FR 62761 through 62955) (‘‘2015
EHR Incentive Programs Final Rule’’).

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would address certification policy
regarding the reporting of CQMs for
eligible hospitals and CAHs in or in
conjunction with the annual IPPS
rulemaking to better align with the
reporting goals of other CMS programs.
2. CQM Reporting for the Medicare and
Medicaid EHR Incentive Programs in
2017
a. Background
In the EHR Incentive Program Stage 2
final rule, we outlined the CQMs
available for use in the EHR Incentive
Programs beginning in 2014 for eligible
hospitals and CAHs in Table 10 at 77 FR
54083 through 54087. For the FY 2017
IPPS/LTCH PPS proposed rule, we are
proposing to maintain the existing
requirements established in earlier
rulemaking for the reporting of CQMs
under the EHR Incentive Programs in
2017, unless otherwise indicated in this
proposed rule. These requirements
include reporting on 16 CQMs covering
at least 3 NQS domains for eligible
hospitals and CAHs (77 FR 54079). For
this section of the preamble of this
proposed rule, the following proposed
policies regarding the EHR Incentive
Programs apply to both the Medicare
and Medicaid EHR Incentive Programs
with the exception of the submission
period proposed policy.
As we expect to expand the current
measures to align with the National
Quality Strategy and the CMS Quality
Strategy 314 and incorporate updated
standards and terminology in current
CQMs, including updating the
electronic specifications for these
CQMs, and creating de novo CQMs, we
plan to expand the set of CQMs
available for reporting under the EHR
Incentive Programs in future years. We
will continue to engage stakeholders to
provide input on future proposals for
CQMs as well as request comment on
future electronic specifications for new
and updated CQMs.
In addition, we are transitioning from
the quality data model (QDM)
expression language to the clinical
quality language (CQL) specification,
which defines a representation for the
expression of clinical knowledge that
can be used within both the clinical
decision support (CDS) and CQM
domains. The QDM logic is based on
capabilities of the health level 7 (HL7)
reference information model (RIM),
which does not have significant ability
to express mathematical logic such as
addition, subtraction, division, and
314 Available at: http://www.cms.gov/Medicare/
Quality-Initiatives-Patient-Assessment-Instruments/
QualityInitiativesGenInfo/CMS-QualityStrategy.html.

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multiplication. The QDM requires
multiple, often repetitious lines of logic
to compare relationships among
different activities, usually by indicating
the time of one activity with the time of
the other activity. Also, EHR software
cannot easily interpret QDM logic to
perform calculations without significant
human interaction and interpretation. In
general, the CQL is a mathematical
expression language that can be parsed
by software to calculate results. The
CQL includes basic math and allows
description of relationship among
activities in a simple, direct manner,
which significantly reduces the lines of
logic. With a modest effort, it represents
a change that is straightforward to learn
and interpret compared to the existing
QDM logic statements.
The CQL specification defines two
components: CQL—author-friendly
domain specific language; and
expression logical model—computable
extensible markup language (XML). The
CQL leverages best practices and lessons
learned from the quality data model,
health e-decisions, and electronic CQM
and clinical decision support (CDS)
communities. The CQL is designed to
work with any data model, more
expressive and robust than the QDM
logic, and is a HL7 draft standard for
trial use (DSTU). The CQL includes:
Datatypes; data retrieval and queries;
timing phrases and operators; variable
and function declaration; input
parameters with default values;
conditional logic, Boolean logic, and
value comparison; simple arithmetic
and aggregate functions; operations on
valuesets, lists, intervals, sets and dates/
times; and shared libraries. We
anticipate the incorporation of the CQL
into the CQM electronic specifications
as we support the development and
testing of this standard. We anticipate
starting this work effort in 2016 with the
expectation that extensive development
and testing will continue, at minimum,
through the fall of 2017. We will not
implement CQL until the development
and testing phases show success for
utilization with the CQMs. We are
engaging the participation of hospitals
and other providers, health IT
developer, measure developer, and
other stakeholder communities as we
undertake this effort at all stages of
development and testing.
b. CQM Reporting Period for the
Medicare and Medicaid EHR Incentive
Programs in CY 2017
In the 2015 EHR Incentive Programs
Final Rule (80 FR 62892 through 62893),
beginning in CY 2017 and for
subsequent years, we established a CQM
reporting period of one full calendar

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year (consisting of four quarterly data
reporting periods) for CQM reporting for
eligible hospitals and CAHs
participating in the Medicare and
Medicaid EHR Incentive Programs, with
a limited exception for providers
demonstrating meaningful use for the
first time under the Medicaid EHR
Incentive Program, for whom the CQM
reporting period is any continuous 90day period within the calendar year. We
believe that one full calendar year of
data will result in more complete and
accurate data. Providers will be able to
submit one full calendar year of data for
both the EHR Incentive Program and the
Hospital IQR Program, thereby reducing
the reporting burden. We continue to
assess electronically submitted data for
accuracy and reliability. If data are
determined to be flawed, such data will
be identified by CMS in order to
preserve the integrity of data used for
differentiating performance.
We also established a reporting period
for CQMs of any continuous 90-day
period within CY 2017 for eligible
hospitals and CAHs that are
demonstrating meaningful use for the
first time in either the Medicare or
Medicaid EHR Incentive Programs (80
FR 62892 through 62893). In summary,
the following CQM reporting periods
apply for eligible hospitals and CAHs
participating in the Medicare and
Medicaid EHR Incentive Programs in CY
2017. We are proposing the following
submission periods for the Medicare
EHR Incentive Program, as well as
requirements for eligible hospitals and
CAHs reporting CQMs electronically.
• Eligible hospitals and CAHs
Reporting CQMs by Attestation:
++ For eligible hospitals and CAHs
demonstrating meaningful use for the
first time in 2017, the reporting period
is any continuous 90-day period within
CY 2017. The submission period for
attestation is the 2 months following the
close of the calendar year, ending
February 28, 2018.
++ For eligible hospitals and CAHs
that demonstrated meaningful use in
any year prior to 2017, the reporting
period is the full CY 2017 (consisting of
four quarterly data reporting periods).
The submission period for attestation is
the 2 months following the close of the
calendar year, ending February 28,
2018.
• Eligible hospitals and CAHs
Reporting CQMs Electronically: For
eligible hospitals and CAHs
demonstrating meaningful use for the
first time in 2017 or that have
demonstrated meaningful use in any
year prior to 2017, the reporting period
is the full CY 2017 (consisting of four
quarterly data reporting periods). The

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submission period for reporting CQMs
electronically is the 2 months following
the close of the calendar year, ending
February 28, 2018.
In regard to the Medicaid EHR
Incentive Program, we provide States
with the flexibility to determine the
submission periods for reporting CQMs.
For the reporting period in CY 2017,
we are not proposing new CQMs.
However, section 1886(n)(3)(B)(iii) of
the Act requires that, in selecting
measures for eligible hospitals and
CAHs for the Medicare EHR Incentive
Program, and establishing the form and
manner for reporting measures, the
Secretary shall seek to avoid redundant
or duplicative reporting with reporting
otherwise required, including reporting
under section 1886(b)(3)(B)(viii) of the
Act, the Hospital IQR Program. In the
interest of avoiding redundant or
duplicative reporting with the Hospital
IQR Program, we are proposing to
remove 13 CQMs from the set of CQMs
available for eligible hospitals and
CAHs to report for the EHR Incentive
Programs, beginning with the reporting
periods in CY 2017. We are proposing
to remove such measures for both the
Medicare and Medicaid EHR Incentive
Programs.
We believe that a coordinated
reduction in the overall number of
CQMs reported electronically in both
the Hospital IQR and the Medicare and
Medicaid EHR Incentive Programs
would reduce burdens and challenges
associated with electronic reporting for
hospitals and improve the quality of
reported data by enabling hospitals to
focus on a smaller, more specific subset
of electronic CQMs. For the list of
measures we are proposing to remove
from the Hospital IQR Program and the
Medicare and Medicaid EHR Incentive
Programs, as well as the rationale in
support of our proposals to remove
these measures, we refer readers to
section XVIII.A.3.b.(3) of the preamble
of this proposed rule. All of the
remaining measures listed in Table 10 of
the EHR Incentive Program Stage 2 final
rule (77 FR 54083 through 54087) would
be available for eligible hospitals and
CAHs to report for the Medicare and
Medicaid EHR Incentive Programs.
From that available set of measures, we
are proposing the following reporting
criteria for eligible hospitals and CAHs
beginning with the reporting periods in
CY 2017:
• For attestation: If only participating
in the EHR Incentive Program, report on
all 16 available CQMs.
• For electronic reporting—
++ If only participating in the EHR
Incentive Program, report on 15 of the
16 available CQMs (the Outpatient

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Quality Reporting (OQR) Program CQM
(Emergency Department (ED)–3, NQF
0496) among the 16 available CQMs is
not required to be reported on for
electronic reporting, in which 15 of the
16 available CQMs can be selected to
meet this reporting requirement); or
++ If participating in the EHR
Incentive Program and the Hospital IQR
Program, report on all 15 available
CQMs (the electronic reporting of the
Outpatient Quality Reporting (OQR)
Program CQM (ED–3, NQF 0496) is not
applicable when reporting on CQMs for
both programs, which results in the
reporting of 15 available CQMs).
We also considered an alternative
proposal to require eligible hospitals
and CAHs to select and report
electronically on 8 CQMs for the
reporting periods in CY 2017 and all
available CQMs beginning with the
reporting periods in CY 2018. Section
VIII.A.8.a. of the preamble of this
proposed rule further outlines this
considered alternative proposal. Our
intent is to align, to the extent possible,
the EHR Incentive Program reporting
requirements with the Hospital IQR
Program reporting requirements
established in the final rule. We believe
that the alignment of these programs
will serve to reduce hospital reporting
burden and encourage the adoption and
meaningful use of CEHRT by eligible
hospitals and CAHs. We are inviting
public comment on these proposals.
c. CQM Reporting Form and Method for
the Medicare EHR Incentive Program in
2017
As finalized in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49759
through 40760), we removed the QRDA–
III as an option for reporting under the
Medicare EHR Incentive Program for
eligible hospitals and CAHs. For the
reporting periods in 2016 and future
years, we are requiring QRDA–I for
CQM electronic submissions for the
Medicare EHR Incentive Program. As
noted in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 40760), States would
continue to have the option, subject to
our prior approval, to allow or require
QRDA–III for CQM reporting.
In the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49578 through 49579), we
established the following options for
CQM submission for eligible hospitals
and CAHs in the Medicare EHR
Incentive Program for the reporting
periods in 2017:
• Eligible hospital and CAH options
for Medicare EHR Incentive Program
participation (single program
participation)—

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++ Option 1: Attest to CQMs through
the EHR Registration & Attestation
System; or
++ Option 2: Electronically report
CQMs through QualityNet Portal.
• Eligible hospital and CAH options
for electronic reporting for multiple
programs (for example, EHR Incentive
Program plus Hospital IQR Program
participation)—electronically report
through QualityNet Portal.
As stated in the 2015 EHR Incentive
Programs Final Rule (80 FR 62894), in
2017, eligible hospitals and CAHs have
two options to report CQM data, either
through attestation or use of established
methods for electronic reporting where
feasible. However, starting in 2018,
eligible hospitals, and CAHs
participating in the Medicare EHR
Incentive Program must electronically
report CQMs using CEHRT where
feasible; and attestation to CQMs will no
longer be an option except in certain
circumstances where electronic
reporting is not feasible. Therefore, we
encourage eligible hospitals and CAHs
to begin electronically reporting CQMs
as soon as feasible.
For the Medicaid EHR Incentive
Program, States will continue to be
responsible for determining whether
and how electronic reporting of CQMs
would occur, or if they wish to allow
reporting through attestation. Any
changes that States make to their CQM
reporting methods must be submitted
through the State Medicaid Health IT
Plan (SMHP) process for CMS review
and approval prior to being
implemented.
We are proposing to continue our
policy that electronic submission of
CQMs will require the use of the most
recent version of the CQM electronic
specification for each CQM to which the
EHR is certified. In the event that an
eligible hospital or CAH has certified
EHR technology that is certified to the
2014 Edition and not certified to all 16
CQMs that would be available for
reporting in 2017 under our proposals,
we are proposing to require that an
eligible hospital or CAH would need to
have its EHR technology certified to all
such CQMs in order to meet the
reporting requirements for 2017. For
electronic reporting in 2017, this means
eligible hospitals and CAHs would be
required to use the Spring 2017 version
of the CQM electronic specifications
available on the eCQI Resource Center
Web page (https://ecqi.healthit.gov/).
We are seeking public comment on this
proposal.
As noted in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49759), an EHR
certified for CQMs under the 2014
Edition certification criteria does not

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need to be recertified each time it is
updated to a more recent version of the
CQMs. We are proposing to accept the
use of CEHRT certified to ONC’s 2014
or 2015 Edition for CQM reporting in
2017. Certification to the 2015 Edition is
expected to be available in 2016. (For
further information on CQM reporting,
we refer readers to the EHR Incentive
Program Web site where guides and tip
sheets are available for each reporting
option (http://www.cms.gov/
ehrincentiveprograms).) As noted in the
FY 2016 IPPS/LTCH PPS final rule (80
FR 49759), we encourage health IT
developers to test any updates,
including any updates to the CQMs and
CMS reporting requirements based on
the CMS Implementation Guide for
Quality Reporting Document
Architecture (QRDA) Category I and
Category III (CMS Implementation
Guide for QRDA) for Eligible
Professional Programs and Hospital
Quality Reporting (HQR), on an annual
basis.
The form and method of electronic
submission are further explained in
subregulatory guidance and the
certification process. For example, the
following documents are updated
annually to reflect the most recent CQM
electronic specifications: The CMS
Implementation Guide for QRDA;
program specific performance
calculation guidance; and CQM
electronic specifications and guidance
documents. These documents are
located on the eCQI Resource Center
Web page: (https://ecqi.healthit.gov/).
We are inviting public comments on
these proposals.
IX. 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 2016
‘‘Report to the Congress: Medicare
Payment Policy’’ and have given the
recommendations in the report
consideration in conjunction with the
proposed policies set forth in this
proposed rule. MedPAC
recommendations for the IPPS for FY
2017 are addressed in Appendix B to
this proposed rule.
For further information relating
specifically to the MedPAC reports or to
obtain a copy of the reports, contact
MedPAC at (202) 653–7226, or visit
MedPAC’s Web site at: http://
www.medpac.gov.

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X. Other Required Information
A. Requests for Data From the Public
In order to respond promptly to
public requests for data related to the
prospective payment system, we have
established a process under which
commenters can gain access to raw data
on an expedited basis. Generally, the
data are now available on compact disc
(CD) format. However, many of the files
are available on the Internet at: http://
www.cms.hhs.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatient
PPS/index.html. Data files and the cost
for each file, if applicable, are listed
later in this section. Anyone wishing to
purchase data tapes, cartridges, or
diskettes should submit a written
request along with a company check or
money order (payable to CMS–PUF) to
cover the cost to the following address:
Centers for Medicare & Medicaid
Services, Public Use Files, Accounting
Division, P.O. Box 7520, Baltimore, MD
21207–0520, (410) 786–3691. Files on
the Internet may be downloaded
without charge.
1. CMS Wage Data Public Use File
This file contains the hospital hours
and salaries from Worksheet S–3, Parts
II and III from FY 2013 Medicare cost
reports used to create the proposed FY
2017 prospective payment system wage
index. Multiple versions of this file are
created each year. For a complete
schedule on the release of different
versions of this file, we refer readers to
the wage index schedule in section
III.M. of the preamble of this proposed
rule.
Processing year
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007

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

Wage
data year
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004

PPS
fiscal year
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008

Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files.html.
Periods Available: FY 2007 through
FY 2017 IPPS Update.
2. CMS Occupational Mix Data Public
Use File
This file contains the CY 2013
occupational mix survey data to be used
to compute the occupational mix
adjustment wage indexes. Multiple

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versions of this file are created each
year. For a complete schedule on the
release of different versions of this file,
we refer readers to the wage index
schedule in section II.M. of the
preamble of this proposed rule.
Media: Internet at: https://www.cms.
gov/Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Wage-IndexFiles.html.
Period Available: FY 2017 IPPS
Update.
3. Provider Occupational Mix
Adjustment Factors for Each
Occupational Category Public Use File
This file contains each hospital’s
occupational mix adjustment factors by
occupational category. Two versions of
these files are created each year to
support the rulemaking.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-forAService-Payment/AcuteInpatientPPS/
Wage-Index-Files.html.
Period Available: FY 2017 IPPS
Update.
4. Other Wage Index Files
CMS releases other wage index
analysis files after each proposed and
final rule.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files.html.
Periods Available: FY 2005 through
FY 2017 IPPS Update.
5. FY 2017 IPPS SSA/FIPS CBSA State
and County Crosswalk
This file contains a crosswalk of State
and county codes used by the Social
Security Administration (SSA) and the
Federal Information Processing
Standards (FIPS), county name, and a
list of Core-Based Statistical Areas
(CBSAs).
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/AcuteInpatient-Files-for-Download.html.
Period Available: FY 2017 IPPS
Update.

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6. HCRIS Cost Report Data
The data included in this file contain
cost reports with fiscal years ending on
or after September 30, 1996. These data
files contain the highest level of cost
report status.
Media: Internet at: http://www.cms.
hhs.gov/CostReports/02_
HospitalCostReport.asp.
(We note that data are no longer
offered on a CD. All of the data collected
are now available free for download
from the cited Web site.)

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7. Provider-Specific File
This file is a component of the
PRICER program used in the MAC’s
system to compute DRG/MS–DRG
payments for individual bills. The file
contains records for all prospective
payment system eligible hospitals,
including hospitals in waiver States,
and data elements used in the
prospective payment system
recalibration processes and related
activities. Beginning with December
1988, the individual records were
enlarged to include pass-through per
diems and other elements.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/ProspMedicareFeeSvcPmtGen/
Index.html.
Period Available: Quarterly Update.
8. CMS Medicare Case-Mix Index File
This file contains the Medicare casemix index by provider number as
published in each year’s update of the
Medicare hospital inpatient prospective
payment system. The case-mix index is
a measure of the costliness of cases
treated by a hospital relative to the cost
of the national average of all Medicare
hospital cases, using DRG/MS–DRG
weights as a measure of relative
costliness of cases. Two versions of this
file are created each year to support the
rulemaking.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/AcuteInpatient-Files-for-Download.html.
Periods Available: FY 1985 through
FY 2017.
9. MS–DRG Relative Weights (Also
Table 5—MS–DRGs)
This file contains a listing of MS–
DRGs, MS–DRG narrative descriptions,
relative weights, and geometric and
arithmetic mean lengths of stay for each
fiscal year. Two versions of this file are
created each year to support the
rulemaking.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/AcuteInpatient-Files-for-Download.html.
Periods Available: FY 2005 through
FY 2017 IPPS Update.
10. IPPS Payment Impact File
This file contains data used to
estimate payments under Medicare’s
hospital impatient prospective payment
systems for operating and capital-related
costs. The data are taken from various
sources, including the Provider-Specific
File, HCRIS Cost Report Data, MedPAR
Limited Data Sets, and prior impact
files. The data set is abstracted from an
internal file used for the impact analysis

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of the changes to the prospective
payment systems published in the
Federal Register. Two versions of this
file are created each year to support the
rulemaking.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/HistoricalImpact-Files-for-FY-1994-throughPresent.html.
Periods Available: FY 1994 through
FY 2017 IPPS Update.
11. AOR/BOR Tables
This file contains data used to
develop the MS–DRG relative weights. It
contains mean, maximum, minimum,
standard deviation, and coefficient of
variation statistics by MS–DRG for
length of stay and standardized charges.
The BOR tables are ‘‘Before Outliers
Removed’’ and the AOR is ‘‘After
Outliers Removed.’’ (Outliers refer to
statistical outliers, not payment
outliers.)
Two versions of this file are created
each year to support the rulemaking.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/AcuteInpatient-Files-for-Download.html.
Periods Available: FY 2005 through
FY 2017 IPPS Update.
12. Prospective Payment System (PPS)
Standardizing File
This file contains information that
standardizes the charges used to
calculate relative weights to determine
payments under the hospital inpatient
operating and capital prospective
payment systems. Variables include
wage index, cost-of-living adjustment
(COLA), case-mix index, indirect
medical education (IME) adjustment,
disproportionate share, and the CoreBased Statistical Area (CBSA). The file
supports the rulemaking.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/AcuteInpatient-Files-for-Download.html.
Period Available: FY 2017 IPPS
Update.
13. Hospital Readmissions Reduction
Program Supplemental File
This file contains information on the
calculation of the Hospital
Readmissions Reduction Program
(HRRP) payment adjustment. Variables
include the proxy excess readmission
ratios for acute myocardial infarction
(AMI), pneumonia (PN) and heart
failure (HF), coronary obstruction
pulmonary disease (COPD), total hip
arthroplasty (THA)/total knee
arthroplasty (TKA), and coronary artery
bypass grafting (CABG) and the proxy

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readmissions payment adjustment for
each provider included in the program.
In addition, the file contains
information on the number of cases for
each of the applicable conditions
excluded in the calculation of the
readmission payment adjustment
factors. It also contains MS–DRG
relative weight information to estimate
the payment adjustment factors. The file
supports the rulemaking.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/AcuteInpatient-Files-for-Download.html.
Period Available: FY 2017 IPPS
Update.
14. Medicare Disproportionate Share
Hospital (DSH) Supplemental File
This file contains information on the
calculation of the uncompensated care
payments for FY 2017. Variables
include a hospital’s SSI days and
Medicaid days used to determine a
hospital’s share of uncompensated care
payments, total uncompensated care
payments and estimated per claim
uncompensated care payment amounts.
The file supports the rulemaking.
Media: Internet at: https://www.cms.
gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/AcuteInpatient-Files-for-Download.html.
Period Available: FY 2017 IPPS
Update.
B. Collection of Information
Requirements

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1. Statutory Requirement for Solicitation
of Comments
Under the Paperwork Reduction Act
of 1995, we are required to provide 60day notice in the Federal Register and
solicit public comment before a
collection of information requirement is
submitted to the Office of Management
and Budget (OMB) for review and
approval. In order to fairly evaluate
whether an information collection
should be approved by OMB, section
3506(c)(2)(A) of the Paperwork
Reduction Act of 1995 requires that we
solicit comment on the following issues:
• The need for the information
collection and its usefulness in carrying
out the proper functions of our agency.
• The accuracy of our estimate of the
information collection burden.
• The quality, utility, and clarity of
the information to be collected.
• Recommendations to minimize the
information collection burden on the
affected public, including automated
collection techniques.
In this proposed rule, we are
soliciting public comment on each of
these issues for the following sections of

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this document that contain information
collection requirements (ICRs).

approved under OMB control number
0938–0907.

2. ICRs for Add-On Payments for New
Services and Technologies

4. Hospital Applications for Geographic
Reclassifications by the MGCRB
Section III.J.2. of the preamble of this
proposed rule discusses proposed
changes to the wage index based on
hospital reclassifications. As stated in
that section, under section 1886(d)(10)
of the Act, the MGCRB has the authority
to accept short-term IPPS hospital
applications requesting geographic
reclassification for wage index 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. The
burden associated with this requirement
is subject to the PRA. It is currently
approved under OMB control number
0938–0573.

Section II.H.1. of the preamble of this
proposed rule discusses add-on
payments for new services and
technologies. Specifically, this section
states that applicants for add-on
payments for new medical services or
technologies for FY 2018 must submit a
formal request. A formal request
includes a full description of the
clinical applications of the medical
service or technology and the results of
any clinical evaluations demonstrating
that the new medical service or
technology represents a substantial
clinical improvement. In addition, the
request must contain a significant
sample of the data to demonstrate that
the medical service or technology meets
the high-cost threshold.
We believe the burden associated
with this requirement is exempt from
the PRA under 5 CFR 1320.3(c), which
defines the agency collection of
information subject to the requirements
of the PRA as information collection
imposed on 10 or more persons within
any 12-month period. This information
collection does not impact 10 or more
entities in a 12-month period. For FYs
2008, 2009, 2010, 2011, 2012, 2013,
2014, 2015, 2016, and 2017, we received
1, 4, 5, 3, 3, 5, 5, 7, 9, and 9
applications, respectively.
3. ICRs for the Occupational Mix
Adjustment to the Proposed FY 2017
Wage Index (Hospital Wage Index
Occupational Mix Survey)
Section III.E. of the preamble of this
proposed rule discusses the
occupational mix adjustment to the
proposed FY 2017 wage index While the
preamble does not contain any new
ICRs, we note that there is an OMB
approved information collection request
associated with the hospital wage index.
Section 304(c) of Public Law 106–554
amended section 1886(d)(3)(E) of the
Act to require us 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; it is currently

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5. ICRs for the Notice of Observation
Treatment by Hospitals and CAHs
In section IV.L. of the preamble of this
proposed rule, we discuss our proposed
implementation of the NOTICE Act
(Pub. L. 114–42), which amended
section 1866(a)(1) of the Act to require
hospitals and CAHs to provide written
and oral notification to Medicare
beneficiaries receiving observation
services as outpatients for more than 24
hours. We have developed a
standardized format for the notice (the
MOON), which would be disseminated
during the normal course of related
business activities. The proposed
standardized notice discussed in this
proposed rule is simultaneously being
subject to public review and comment
through the Office of Management and
Budget (OMB) Paperwork Reduction Act
process before implementation.
We estimate that it will take hospitals
and CAHs 5 minutes (0.0833 hour) to
complete and deliver each notice. In
2014, there were approximately 977,000
claims for Medicare outpatient
observation services lasting greater than
24 hours furnished by 6,142 hospitals
and CAHs.315 The annual hour burden
is estimated to be 81,384 (977,000
responses × 0.0833 hour). To derive
average cost, we used data from the U.S.
Bureau of Labor Statistics’ May 2014
National Occupational Employment and
Wage Estimates for all salary estimates
(http://www.bls.gov/oes/current/oes_
nat.htm). In this regard, we used the
mean hourly wage of $33.55 and the
315 Source: CMS Office of Enterprise and Data
Analytics.

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cost of fringe benefits, $33.55
(calculated at 100 percent of salary), to
determine an adjusted hourly wage of
$67.10. This is necessarily a rough
adjustment, both because fringe benefits
and overhead costs vary significantly
from employer to employer and because
methods of estimating these costs vary
widely from study to study.
Nonetheless, there is no practical
alternative and we believe that doubling
the hourly wage to estimate total cost is
a reasonable accurate estimation
method. The cost per response is
approximately $5.59 based on an hourly
salary rate of $67.10 (U.S. Bureau of
Labor Statistics’ May 2013 National
Occupational Employment and Wage
Estimates for nursing) and the 5-minute
response estimate. By multiplying the
annual responses by $5.59, the annual
cost burden estimate is $5,461,430
(977,000 responses × $5.59) or
approximately $889.19 per hospital or
CAH ($5,461,430/6,142).
6. ICRs for the Hospital Inpatient
Quality Reporting (IQR) Program
The Hospital 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.
All of the information collection
requirements previously approved
under OMB control number 0938–0918
have been combined with the
information collection request currently
approved under OMB control number
0938–1022. We no longer use OMB
control number 0938–0918.
We added additional quality measures
to the Hospital IQR Program and
submitted the information collection
request to OMB for approval. This
expansion of the Hospital IQR Program
measures was part of our
implementation of section 5001(a) of the
Deficit Reduction Act of 2005 (DRA).
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

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requirements is currently approved
under OMB control number 0938–1022.
In section VIII.A.3.b. of the preamble
of this proposed rule, we are proposing
to remove 13 eCQM versions of
measures, 2 ‘‘topped out’’ chartabstracted measures, and 2 structural
measures, beginning with the FY 2019
payment determination. However, we
note that the total number of measures
proposed for removal is 15 because the
STK–4 and VTE–5 measures are being
proposed for removal twice—once in
the chart-abstracted form and again in
electronic form.
The 13 eCQM versions of measures
we are proposing to remove are: (1)
AMI–2: Aspirin Prescribed at Discharge
for AMI (NQF #0142); (2) AMI–7a:
Fibrinolytic Therapy Received Within
30 minutes of Hospital Arrival; (3) AMI–
10: Statin Prescribed at Discharge; (4)
HTN: Healthy Term Newborn (NQF
#0716); (5) PN–6: Initial Antibiotic
Selection for Community-Acquired
Pneumonia (CAP) in Immunocompetent
Patients (NQF #0147); (6) SCIP-Inf-1a:
Prophylactic Antibiotic Received within
1 Hour Prior to Surgical Incision (NQF
#0527); (7) SCIP-Inf-2a: Prophylactic
Antibiotic Selection for Surgical
Patients (NQF #0528); (8) SCIP Inf-9:
Urinary Catheter Removed on
Postoperative Day 1 (POD1) or
Postoperative Day 2 (POD2) with Day of
Surgery Being Day Zero; (9) STK–4:
Thrombolytic Therapy (NQF #0437);
(10) VTE–3: Venous Thromboembolism
Patients with Anticoagulation Overlap
Therapy (NQF #0373); (11) VTE–4:
Venous Thromboembolism Patients
Receiving Unfractionated Heparin
(UFH) with Dosages/Platelet Count
Monitoring by Protocol (or Nomogram);
(12) VTE–5: Venous Thromboembolism
Discharge Instructions; and (13) VTE–6:
Incidence of Potentially Preventable
Venous Thromboembolism.
The two chart-abstracted measures we
are proposing to remove are: (1) STK–
4: Thrombolytic Therapy (NQF #0437);
and (2) VTE–5: Venous
Thromboembolism Discharge
Instructions. The two structural
measures we are proposing to remove
are: (1) Participation in a Systematic
Clinical Database Registry for Nursing
Sensitive Care; and (2) Participation in
a Systematic Clinical Database Registry
for General Surgery.
We believe that removing 13 eCQMs
will reduce burden for hospitals, as they
would have a smaller number of eCQMs
to select from. As finalized in the FY
2016 IPPS/LTCH PPS final rule (80 FR
49698), hospitals are required to select
4 out of 28 available eCQMs on which
to report data beginning with the FY
2018 payment determination. Since the

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measures proposed for removal are
among the list of measures available,
reducing the number of eCQMs from
which hospitals choose would decrease
the burden associated with selecting
and reporting data for 4 eCQMs because
hospitals would have only 15 eCQMs
from which to select instead of 28
eCQMs. However, if our proposal to
require hospitals to submit data on all
of the available eCQMs included in the
Hospital IQR Program measure set is
finalized as proposed, this modest
reduction in burden would be offset by
the increased burden associated with
submitting data on 15 eCQMs instead of
4 eCQMs. We discuss the burden
associated with our proposal to require
the submission of all available eCQMs
included in the Hospital IQR Program
measure set below.
We believe that there would be a
reduction in burden for hospitals as a
result of the removal of the two chartabstracted measures listed above (STK–
4 and VTE–5). Due to the burden
associated with the collection of chartabstracted data (based on updated
measure record abstraction time
estimates from the third quarter in 2014
through the second quarter in 2015
provided by CDAC, the number of
reporting periods in a calendar year, and
the number of IPPS hospitals reporting),
we estimate that the removal of STK–4
would result in a burden reduction of
approximately 303,534 hours and
approximately $9.9 million across all
3,300 IPPS hospitals participating in the
Hospital IQR Program for the FY 2019
payment determination. In addition, we
estimate that the removal of VTE–5
would result in a burden reduction of
approximately 653,565 hours and
approximately $21.4 million across all
3,300 IPPS hospitals participating in the
Hospital IQR Program for the FY 2019
payment determination. More
specifically, for both the STK and VTE
measure sets, we calculated the burden
hours by taking the difference in the
burden estimates from this FY 2017
IPPS/LTCH PPS proposed rule and the
burden estimates from the FY 2016
IPPS/LTCH PPS final rule. With regard
to STK–4, because it is the only STK
measure left in the Hospital IQR
Program, and we are proposing in this
FY 2017 IPPS/LTCH PPS proposed rule
to remove it, we calculated the total
burden hours as follows: 0 hours (time
required to report in CY 2017)¥303,534
hours (time required to report in CY
2016) = ¥303,534 hours for the STK
measure set. With regard to the VTE
measure set, we used an updated
estimate from CDAC that the time per
record (that is, to report all of the VTE

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
measures in the Hospital IQR Program)
is 28 minutes, and in the FY 2016 IPPS/
LTCH PPS final rule, we estimated a
burden reduction of 10 minutes for
removing 3 VTE measures (or
approximately 3 minutes per measure).
As such, we deducted 3 minutes from
the 28 minute estimate to account for
the proposed removal of VTE–5, for a
total of 25 minutes to report on the
remaining VTE measure in the Hospital
IQR Program. We then calculated the
estimated total burden hours per
hospital for reporting the remaining
VTE measure as follows: 25 minutes per
record/60 minutes per hour × 4
reporting quarters per year × 198.05
records per hospital per quarter = 330
burden hours per hospital. Because
there are 3,300 IPPS hospitals, we then
multiplied 330 hours per hospital ×
3,300 hospitals to get a total annual
burden estimate of 1,089,275 hours to
report the remaining measure in the
VTE measure set. To demonstrate the
reduction in the total burden hours for
VTE from this FY 2017 IPPS/LTCH PPS
proposed rule and the FY 2016 IPPS/
LTCH PPS final rule, we calculated as
follows: 1,089,275 (FY 2017 total annual
estimate)¥1,742,840 (FY 2016 total
annual estimate) = ¥653,565 hours for
the VTE measure set.
We believe that there will be a
negligible burden reduction due to the
removal of two structural measures.
Consistent with previous years (80 FR
49762), we estimate a burden of 15
minutes per hospital to report all four
previously finalized structural measures
and to complete other forms (such as the
Extraordinary Circumstances Extension/
Exemption Request Form). Therefore,
our burden estimate of 15 minutes per
hospital remains unchanged because we
believe the reduction in burden
associated with removing these two
structural measures will be sufficiently
minimal that it will not substantially
impact this estimate.
In addition, in section VIII.A.6. of the
preamble of this proposed rule, we are
proposing refinements to two previously
adopted measures: (1) Expanding the
cohort for the Hospital-Level, Riskstandardized Payment Associated with a
30-Day Episode-of-Care for Pneumonia
(NQF #2579); and (2) adopting the
modified Patient Safety and Adverse
Events Composite (NQF #0531). Because
these claims-based measures can be
calculated based on data that are already
reported to the Medicare program for
payment purposes, we believe no
additional burden on hospitals will
result from the proposed refinements to
these two claims-based measures.
Also, in section VIII.A.7. of the
preamble of this proposed rule, we are

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proposing to add four claims-based
measures to the Hospital IQR Program
measure set beginning with the FY 2019
payment determination: (1) Aortic
Aneurysm Procedure Clinical EpisodeBased Payment Measure; (2)
Cholecystectomy and Common Duct
Exploration Clinical Episode-Based
Payment Measure; (3) Spinal Fusion
Clinical Episode-Based Payment
Measure; and (4) Excess Days in Acute
Care after Hospitalization for
Pneumonia. Because these claims-based
measures can be calculated based on
data that are already reported to the
Medicare program for payment
purposes, we believe no additional
burden on hospitals will result from the
addition of these four proposed claimsbased measures.
For the FY 2019 payment
determination and subsequent years, in
section VIII.A.8. of the preamble of this
proposed rule, we also are proposing to
require hospitals to submit data for all
eCQMs included in the Hospital IQR
Program measure set in a manner that
will permit eligible hospitals to align
Hospital IQR Program requirements
with some requirements under the
Medicare and Medicaid EHR Incentive
Programs. Specifically, hospitals would
be required to submit a full calendar
year of data on all eCQMs in the
Hospital IQR Program measure set, on
an annual basis, beginning with CY
2017 reporting. We believe that the total
burden associated with the eCQM
reporting proposal would be similar to
that previously outlined in the Medicare
EHR Incentive Program Stage 2 final
rule (77 FR 54126 through 54133). In
that final rule, the burden estimate for
a hospital to report all 16 eCQMs is 2
hours and 40 minutes (160 total minutes
or 10 minutes per measure) per
submission for a 3-month period (77 FR
54127). We believe that this estimate is
accurate and appropriate to apply to the
Hospital IQR Program because we are
proposing to align the eCQM reporting
requirements between both programs.
As such, using the estimate of 10
minutes per measure, we anticipate that
if our proposals to: (1) Require reporting
on all of the available eCQMs (15
eCQMs for the CY 2017 reporting
period/FY 2019 payment
determination); and (2) submit one year
of eCQM data (covering Q1, Q2, Q3, and
Q4), both are finalized as proposed, it
would take a hospital 150 minutes per
quarter to report one medical record
containing information on all the
required eCQMs. In total, for the FY
2019 payment determination, we expect
our proposal to require hospitals to
report data on 15 eCQMs for 4 quarters

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(as compared to our previously finalized
requirement to report data on 4 eCQMs
for 1 quarter) would represent a burden
increase of 30,800 hours across all 3,300
IPPS hospitals participating in the
Hospital IQR Program. This figure was
derived by calculating the difference
between the FY 2017 burden estimate of
33,000 hours (150 minutes per record/
60 minutes per hour × 4 reporting
quarters per year × 1 record per hospital
per quarter × 3,300 hospitals) and the
FY 2016 burden estimate of 2,200 hours
(20 minutes per record/60minutes per
hour × 1 reporting quarter per year × 1
record per hospital per quarter × 3,300
hospitals) (80 FR 49763), for an
incremental increase of 30,800 hours.
Furthermore, we estimate that
reporting these eCQMs can be
accomplished by staff with a mean
hourly wage of $16.42 per hour.316
However, obtaining data on other
overhead costs is challenging. Overhead
costs vary greatly across industries and
firm sizes. In addition, the precise cost
elements assigned as ‘‘indirect’’ or
‘‘overhead’’ costs, as opposed to direct
costs or employee wages, are subject to
some interpretation at the firm level.
Therefore, we have chosen to calculate
the cost of overhead at 100 percent of
the mean hourly wage. This is
necessarily a rough adjustment, both
because fringe benefits and overhead
costs vary significantly from employer
to employer and because methods of
estimating these costs vary widely from
study to study. Nonetheless, there is no
practical alternative, and we believe that
doubling the hourly wage to estimate
total cost is a reasonably accurate
estimation method. This is a change
from how we have accounted for the
cost of overhead in our previous rules
regarding the Hospital IQR Program. In
calculating labor cost, we estimate an
hourly labor cost of $32.84 ($16.42 base
salary + $16.42 fringe) and a cost
increase of $1,011,472.00 (30,800
additional burden hours × $32.84 per
hour) across approximately 3,300
hospitals participating in the Hospital
IQR Program to report a full calendar
year of data for 15 eCQMs, on an annual
basis.
We are not proposing any changes to
our validation requirements related to
chart-abstracted measures, but are
providing some background information
as basis for our eCQM validation
proposals. As noted in the FY 2016
IPPS/LTCH IPPS final rule (80 FR 49762
and 49763), for validation of chartabstracted data for the FY 2018 payment
316 Occupational Outlook Handbook. Available at:
http://www.bls.gov/ooh/healthcare/medicalrecords-and-health-information-technicians.html.

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determination and subsequent years, we
require hospitals to provide 72 charts
per hospital per year (with an average
page length of 1,500), including 40
charts for HAI validation and 32 charts
for clinical process of care validation,
for a total of 108,000 pages per hospital
per year. We reimburse hospitals at 12
cents per photocopied page (79 FR
50346) for a total per hospital cost of
$12,960. For hospitals providing charts
digitally via a re-writable disc, such as
encrypted CD–ROMs, DVDs, or flash
drives, we will reimburse hospitals at a
rate of 40 cents per digital media (80 FR
49837), and additionally hospitals will
be reimbursed $3.00 per record (78 FR
50956). For hospitals providing charts
via secure file transfer, we will
reimburse hospitals at a rate of $3.00 per
record (78 FR 50835).
In section VIII.A.11. of the preamble
of this proposed rule, beginning in
spring 2018 for the FY 2020 payment
determination, we are proposing to
modify the existing validation process
for the Hospital IQR Program data to
include a random sample of up to 200
hospitals for validation of eCQMs in the
Hospital IQR Program. In previous years
(79 FR 50347), we estimated a total
burden of 16 hours (960 minutes) for the
submission of 12 records, which would
equal 1 hour and 20 minutes per record
(960 minutes/12 records). Applying the
time per individual submission of 1
hour and 20 minutes (or 80 minutes) for
the 32 records we are proposing
hospitals submit beginning with the FY
2020 payment determination, we
estimate a total burden of approximately
43 hours (1 hour and 20 minutes × 32
records) for each hospital selected for
participation in eCQM validation. We
estimate that approximately 43 hours of
work for up to 200 hospitals would
increase the eCQM validation burden
hours from 0 hours (as this is the first
instance where eCQM validation is
being proposed as a requirement) to
8,533 labor hours.
As previously stated, with respect to
eCQMs, the labor performed can be
accomplished by staff, with a mean
hourly wage of $16.42.317 Further, in
calculating labor costs, we have chosen
to calculate the cost of overhead at 100
percent of the mean hourly wage. As
such, we estimate a fully burdened labor
rate of $32.84 ($16.42 base salary +
$16.42 fringe) per hour. Therefore, using
these assumptions, we estimate an
hourly labor cost of $32.84 and a cost
increase of $280,224 (8,533 additional
burden hours × $32.84 per hour) across
317 Occupational Outlook Handbook. Available at:
http://www.bls.gov/ooh/healthcare/medicalrecords-and-health-information-technicians.html.

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the (up to) 200 hospitals selected for
eCQM validation, on an annual basis.
Consistent with the chart-abstraction
validation process, we will reimburse
hospitals providing records via secure
file transfer, at a rate of $3.00 per record.
Lastly, in section VIII.A.15. of the
preamble of this proposed rule, we are
proposing to update our Extraordinary
Circumstances Extensions or
Exemptions (ECE) policy by: (1)
Extending the general ECE request
deadline for non-eCQM circumstances
from 30 to 90 calendar days following
an extraordinary circumstance; and (2)
establishing a separate submission
deadline for ECE requests with respect
to eCQM reporting circumstances of
April 1 following the end of the
reporting calendar year. Consistent with
previous years, we estimate a burden of
15 minutes per hospital to report all
forms (including the ECE request form)
and structural measures. We believe that
the proposed updates to the ECE
deadlines will have no effect on burden
for hospitals, because we are not making
any changes that will increase the
amount of time necessary to complete
the form. In addition, the burden
associated with the completion of this
form is included in the 15 minutes
allocated for all forms and structural
measures.
In summary, under OMB number
0938–1022, we estimate a total burden
decrease of approximately 917,766
hours, for a total cost decrease of
approximately $30 million across
approximately 3,300 hospitals
participating in the Hospital IQR
Program as a result of the policies
proposed in this proposed rule.
The estimate excludes the burden
associated with the NHSN and HCAHPS
measures, both of which are submitted
under separate information collection
requests and are approved under OMB
control numbers 0920–0666 and 0938–
0981, respectively. The burden
estimates in this proposed rule are the
estimates for which we are requesting
OMB approval.
7. ICRs for PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program
As discussed in sections VIII.B. of the
preamble of this proposed rule, section
1866(k)(1) of the Act requires, for
purposes of FY 2014 and each
subsequent fiscal year, that a hospital
described in section 1886(d)(1)(B)(v) of
the Act (a PPS-exempt cancer hospital,
or a PCH) submit data in accordance
with section 1866(k)(2) of the Act with
respect to such fiscal year.
We refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 28124), the
FY 2014 IPPS/LTCH PPS final rule (78

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FR 50957 through 50959), the FY 2015
IPPS/LTCH PPS final rule (79 FR 50347
through 50348), and the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49764) for
a detailed discussion of the burden for
the program requirements that we have
previously adopted. Below we discuss
only any changes in burden that would
result from the proposals in this
proposed rule.
In section VIII.B.3.b. of the preamble
of this proposed rule, we are proposing
that PCHs submit data on Oncology:
Radiation Dose Limits to Normal
Tissues (NQF #0382) measure for an
expanded cohort of patients. In the FY
2015 IPPS/LTCH PPS final rule (79 FR
50285) we finalized a sampling
methodology for Clinical Process/
Oncology Care Measures, which
includes the Oncology: Radiation Dose
Limits to Normal Tissues measure.
Because our previous burden estimates
were based on the maximum sample for
this measure, the expansion of the
patient cohort would not raise the
burden for this measure beyond that
which we described in the FY 2015
IPPS/LTCH PPS final rule (79 FR 50347
through 50348).
In section VIII.B.4.b. of the preamble
of this proposed rule, we are proposing
to adopt the Admissions and Emergency
Department (ED) Visits for Patients
Receiving Outpatient Chemotherapy
measure beginning with the FY 2019
program year. This is a claims-based
measure, and therefore, does not require
PCHs to submit any new data. Thus, this
measure would not pose any new
burden on PCHs.
In summary, as a result of our
proposals, we do not anticipate any
changes to previously finalized burden
estimates.
8. ICRs for the Hospital Value-Based
Purchasing (VBP) Program
In section IV.H. of the preamble of
this proposed rule, we discuss proposed
requirements for the Hospital VBP
Program. Specifically, in this proposed
rule, with respect to quality measures,
we are proposing to: Include selected
ward non-Intensive Care Unit (ICU)
locations in certain NHSN measures
beginning with the FY 2019 program
year; adopt the Hospital-Level, RiskStandardized Payment Associated with
a 30-Day Episode-of-Care for Acute
Myocardial Infarction (AMI) and the
Hospital-Level, Risk-Standardized
Payment Associated with a 30-Day
Episode-of-Care for Heart Failure (HF)
measures for the FY 2021 program year;
update the Hospital 30-Day, All-Cause,
Risk-Standardized Mortality Rate
(RSMR) Following Pneumonia (PN)
Hospitalization (Updated Cohort)

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measure for the FY 2021 program year;
and adopt the Hospital 30-Day, AllCause, Risk-Standardized Mortality Rate
(RSMR) Following Coronary Artery
Bypass Graft (CABG) Surgery measure
for the FY 2022 program year.
As required under section
1886(o)(2)(A) of the Act, the additional

and updated measures are required for
the Hospital IQR Program. Therefore,
their inclusion in the Hospital VBP
Program does not result in any
additional burden because the Hospital
VBP Program uses data that are required
for the Hospital IQR Program.

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9. ICRs for the Long-Term Care Hospital
Quality Reporting Program (LTCH QRP)
As discussed in section VIII.C.5 of the
preamble of this proposed rule, we are
retaining the following 13 previously
finalized quality measures for use in the
LTCH QRP:

LTCH QRP QUALITY MEASURES PREVIOUSLY ADOPTED FOR THE FY 2014 PAYMENT DETERMINATIONS AND SUBSEQUENT
YEARS
Measure title

IPPS/LTCH PPS final rule

Annual payment determination:
Initial and subsequent APU years

National Healthcare Safety Network (NHSN)
Catheter-Associated Urinary Tract Infection
(CAUTI) Outcome Measure (NQF #0138).

Adopted an application of the measure in the
FY 2012 IPPS/LTCH PPS final rule (76 FR
51745 through 51747);
Adopted the NQF-endorsed version and expanded measure (with standardized infection ratio [SIR]) in the FY 2013 IPPS/LTCH
PPS final rule (77 FR 53616 through 53619)
Adopted an application of the measure in the
FY 2012 IPPS/LTCH PPS final rule (76 FR
51747 through 51748);
Adopted the NQF-endorsed and expanded
measure (with SIR) in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53616 through
53619).
Adopted an application of the measure in the
FY 2012 IPPS/LTCH PPS final rule (76 FR
51748 through 51750);
Adopted the NQF-endorsed version in the FY
2014 IPPS/LTCH PPS final rule (78 FR
50861 through 50863);
Adopted in the FY 2016 IPPS/LTCH PPS final
rule (80 FR 49731 through 49736) to fulfill
IMPACT Act requirements.
Adopted in the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53624 through 53627);
Revised data collection timeframe in the FY
2014 IPPS/LTCH PPS final rule (78 FR
50858 through 50861);
Revised data collection timeframe in the FY
2015 IPPS/LTCH PPS final rule (79 FR
50289 through 50290).
Adopted in the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53630 through 53631);
Revised data collection timeframe in the FY
2014 IPPS/LTCH PPS final rule (78 FR
50857 through 50858).
Adopted in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50863 through 50865).

FY 2014 payment determination and subsequent years.

Adopted in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50865 through 50868).

FY 2017 payment determination and subsequent years.

Adopted in FY 2014 IPPS/LTCH PPS final
rule (78 FR 50868 through 50874);
Adopted the NQF-endorsed version in the FY
2016 IPPS/LTCH PPS final rule (80 FR
49730 through 49731).
Adopted in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50301 through 50305).

FY 2017 payment determination and subsequent years.

National Healthcare Safety Network (NHSN)
Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure (NQF
#0139).

Percent of Residents or Patients with Pressure
Ulcers That Are New or Worsened (Short
Stay) (NQF #0678).

Percent of Residents or Patients Who Were
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF
#0680).

Influenza
Vaccination
Coverage
Healthcare Personnel (NQF #0431).

among

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National Healthcare Safety Network (NHSN)
Facility-wide
Inpatient
Hospital-onset
Methicillin-Resistant Staphylococcus aureus
(MRSA) Bacteremia Outcome Measure
(NQF #1716).
National Healthcare Safety Network (NHSN)
Facility-wide Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome
Measure (NQF #1717).
All-Cause Unplanned Readmission Measure
for 30 Days Post-Discharge from Long-Term
Care Hospitals (NQF #2512).

National Healthcare Safety Network (NHSN)
Ventilator-Associated Event (VAE) Outcome
Measure.

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FY 2014 payment determination and subsequent years.

FY 2014 payment determination and subsequent years.

FY 2016 payment determination and subsequent years.

FY 2016 payment determination and subsequent years.

FY 2017 payment determination and subsequent years.

FY 2018 payment determination and subsequent years.

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LTCH QRP QUALITY MEASURES PREVIOUSLY ADOPTED FOR THE FY 2014 PAYMENT DETERMINATIONS AND SUBSEQUENT
YEARS—Continued
Measure title

IPPS/LTCH PPS final rule

Annual payment determination:
Initial and subsequent APU years

Application of Percent of Residents Experiencing One or More Falls with Major Injury
(Long Stay) (NQF #0674).

Adopted in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50874 through 50877);
Revised data collection timeframe in the FY
2015 IPPS/LTCH PPS final rule (79 FR
50290 through 50291);
Adopted an application of the measure in the
FY 2016 IPPS/LTCH PPS final rule (80 FR
49736 through 49739) to fulfill IMPACT Act
requirements.
Adopted in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50291 through 50298).

FY 2018 payment determination and subsequent years.

Adopted in the FY 2015 IPPS/LTCH PPS final
rule (79 FR 50298 through 50301).

FY 2018 payment determination and subsequent years.

Adopted an application of the measure in the
FY 2016 IPPS/LTCH PPS final rule (80 FR
49739 through 49747) to fulfill IMPACT Act
requirements.

FY 2018 payment determination and subsequent years.

Percent of Long-Term Care Hospital Patients
with an Admission and Discharge Functional
Assessment and a Care Plan That Addresses Function (NQF #2631).
Functional Outcome Measure: Change in Mobility among Long-Term Care Hospital Patients Requiring Ventilator Support (NQF
#2632).
Application of Percent of Long-Term Care Hospital Patients with an Admission and Discharge Functional Assessment and a Care
Plan That Addresses Function (NQF #2631).

As discussed in section VIII.C.6 and
VIII.C.7 of the preamble of this proposed

FY 2018 payment determination and subsequent years.

rule, we are proposing the following
four measures for use in the LTCH QRP:

LTCH QRP QUALITY MEASURES PROPOSED FOR THE FY 2018 PAYMENT DETERMINATION AND SUBSEQUENT YEARS
Annual payment determination:
Initial and subsequent APU years

Measure title
Potentially Preventable 30-Day Post-Discharge Readmission Measure for the LTCH
QRP *.
Discharge to Community-PAC LTCH QRP * ...................................................................
MSPB–PAC LTCH QRP * ................................................................................................
Drug Regimen Review Conducted with Follow-Up for Identified Issues- PAC LTCH
QRP **.

FY 2018 payment determination and subsequent years.
FY 2018 payment determination and subsequent years.
FY 2018 payment determination and subsequent years.
FY 2020 payment determination and subsequent years.

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* Proposed in this FY 2017 IPPS/LTCH PPS proposed rule for the FY 2018 payment determination and subsequent years.
** Proposed in this FY 2017 IPPS/LTCH PPS proposed rule for the FY 2020 payment determination and subsequent years.

Currently, LTCHs use two separate
data collection mechanisms to report
quality data to CMS. Six of the 13
measures being retained in this FY 2017
IPPS/LTCH PPS proposed rule are
currently collected via the CDC’s NHSN.
The NHSN is a secure, Internet-based
HAI tracking system maintained and
managed by the CDC. The NHSN
enables health care facilities to collect
and use data about HAIs, adherence to
clinical practices known to prevent
HAIs, and other adverse events within
their organizations. NHSN data
collection occurs via a Web-based tool
hosted by the CDC and is provided free
of charge to facilities. In this proposed
rule, we are not proposing any new
quality measures that would be
collected via the CDC’s NHSN.
Therefore, at this time, there would be
no additional burden related to this
submission method. Any burden related
to NHSN-based quality measures we

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have retained in this proposed rule has
been previously discussed in the FY
2015 IPPS/LTCH PPS final rule (79 FR
50443 through 50445) and FY 2016
IPPS/LTCH PPS final rule (80 FR 49766)
and has been previously approved
under OMB control number 0920–0666,
with an expiration date of November,
31, 2016.
In addition to the previously finalized
All-Cause Unplanned Readmission
Measure for 30 Days Post-Discharge
From LTCHs (NQF #2512), we are
proposing three additional Medicare
FFS claims-based measures in this
proposed rule: Potentially Preventable
30 Day Post-Discharge Readmission
Measure for LTCH QRP; Discharge to
Community—PAC LTCH QRP; and
MSBP–PAC LTCH QRP. Because these
proposed claims-based measures would
be calculated based on data that are
already reported to the Medicare
program for payment purposes, we

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believe no additional information
collection would be required from the
LTCHs. We are not proposing new
assessment-based quality measures in
the LTCH QRP in this proposed rule for
the FY 2018 payment determination and
subsequent years.
The remaining assessment-based
quality measure data are reported to
CMS by LTCHs using the LTCH CARE
Data Set. In section VIII.C.9.d. of the
preamble of this of this proposed rule,
we are proposing to expand the data
collection timeframe for the measure
NQF #0680 Percent of Residents or
Patients Who Were Assessed and
Appropriately Given the Seasonal
Influenza Vaccine (77 FR 53624 through
53627), beginning with the FY 2019
payment determination. The data
collection time frame and associated
data submission deadlines are currently
aligned with the Influenza Vaccination
Season (IVS) (October 1 of a given year

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
through March 31 of the subsequent
year), and only require data collection
during the 2 calendar year quarters that
align with the IVS. We are proposing to
expand the data collection timeframe
from just 2 quarters (covering the IVS)
to a full four quarters or 12 months. We
refer readers to section VIII.C.9.d. of the
preamble of this this proposed rule for
further details on the proposed
expansion of data collection for this
measures (NQF #0680), including data
collection timeframes and associated
submission deadlines. We originally
finalized this measure for use in the FY
2013 IPPS/LTCH PPS final rule (77 FR
53624 through 53627). Although we
finalized data collection for this
measure to coincide with the IVS, we
originally proposed year-round data
collection. The associated PRA package,
which was approved under OMB
control number 0938–1163, included
burden calculations that aligned with
our original proposal for year-round
data collection. All subsequent PRA
packages, and the PRA package that is
currently under review, included
burden calculations reflecting yearround (12 month) data collection for
this measure. Because of this, the
proposed change in the data collection
timeframe for this measure, and any
associated burden related to increased
data collection, has already been
accounted for in the total burden figures
included in this section of the preamble
of this proposed rule.
For the FY 2020 payment
determination and subsequent years, we
are proposing the use of one new
assessment based quality measure in the
LTCH QRP: Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP. This
is a cross-setting measure that satisfies
the required addition of a quality
measure under the domain of
medication reconciliation, as mandated
by section 1899B of the Act, as added
by the IMPACT Act. In addition to the
proposed Drug Regimen Review
Conducted with Follow-Up for
Identified Issues-PAC LTCH QRP
quality measure, the remaining six
measures, outlined below, will continue
to be collected utilizing the LTCH CARE
Data Set.
The LTCH CARE Data Set Version
2.01 has been approved under OMB
control number 0938–1163. The LTCH
CARE Data Set Version 2.01 contains
data elements related to patient
demographic data, various voluntary
questions, as well as data elements
related to the following quality
measures:

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• Percent of Residents or Patients
with Pressure Ulcers That Are New or
Worsened (Short Stay) (NQF #0678);
• Percent of Residents or Patients
Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine
(Short Stay) (NQF #0680).
We have submitted a revision to the
PRA package that addressed the changes
from LTCH CARE Data Set Version 2.01
to Version 3.00. The LTCH CARE Data
Set Version 3.00, which is to be
implemented April 1, 2016, contains
those data elements included in Version
2.01, as well as additional data elements
in order to allow for the collection of
data associated with the following
quality measures:
• Application of Percent of Residents
Experiencing One or More Falls with
Major Injury (Long Stay) (NQF #0674)
(previously finalized in the FY 2016
IPPS/LTCH PPS final rule);
• Percent of Long-Term Care Hospital
Patients with an Admission and
Discharge Functional Assessment and a
Care Plan That Addresses Function
(NQF #2631) (previously finalized in the
FY 2015 IPPS/LTCH PPS final rule);
• Functional Outcome Measure:
Change in Mobility Among Long-Term
Care Hospital Patients Requiring
Ventilator Support (NQF #2632)
(previously finalized in the FY 2015
IPPS/LTCH PPS final rule); and
• Application of Percent of LongTerm Care Hospital Patients with an
Admission and Discharge Functional
Assessment and a Care Plan That
Addresses Function (NQF #2631)
(previously finalized in the FY 2016
IPPS/LTCH PPS final rule).
The LTCH CARE Data Set Version
4.00, effective April 1, 2018, will
contain those data elements included in
Version 3.00, as well as additional data
elements in order to allow for the
collection of data associated with the
proposed quality measure: Drug
Regimen Review Conducted with
Follow-Up for Identified Issues-PAC
LTCH QRP, proposed in this proposed
rule.
Each time we add new data elements
to the LTCH CARE Data Set related to
newly proposed or finalized LTCH QRP
quality measures, we are required by the
PRA to submit the expanded data
collection instrument to OMB for review
and approval. Section 1899B(m) of the
Act, as added by IMPACT Act, provides
that the PRA requirements do not apply
to section 1899B of the Act and the
sections referenced in section
1899B(a)(2)(B) of the Act that require
modifications in order to achieve the
standardization of patient assessment
data. We believe that the LTCH CARE
Data Set Version 3.00 falls under the

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25255

PRA provisions in 1899B(m) of the Act.
We believe that all additional data
elements added to the LTCH CARE Data
Set Version 3.00 are for the purpose of
standardizing patient assessment data,
as required under section 1899B(a)(2)(B)
of the Act. As noted above, the LTCH
CARE Data Set Version 3.00 would be
updated to Version 4.0, effective April
1, 2018, to include data elements for the
Drug Regimen Review Conducted with
Follow-Up for Identified Issues- PAC
LTCH QRP proposed quality measure, if
the measure is finalized. For the reasons
discussed above, we believe that the
LTCH CARE Data Set Version 4.00 also
falls under the PRA provisions in
section 1899B(m) of the Act.
A comprehensive list of all data
elements included in the LTCH CARE
Data Set Version 3.00 is available in the
LTCH QRP Manual which is accessible
on the LTCH QRP Web site at: https://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html. For a discussion of burden
related to LTCH CARE Data Set Version
3.00, we refer readers to section I.M. of
Appendix A of this proposed rule.
10. ICRs for the Inpatient Psychiatric
Facility Quality Reporting (IPFQR)
Program
Section 1886(s)(4) of the Act, as added
and amended by sections 3401(f) and
10322(a) of the Affordable Care Act,
requires the Secretary to implement a
quality reporting program for inpatient
psychiatric hospitals and psychiatric
units. We refer to this program as the
Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program.
In section VIII.D. of the preamble of
this proposed rule, we are proposing the
following measure-related changes: To
update a previously finalized measure
(Screening for Metabolic Disorders); and
to adopt two new measures beginning
with the FY 2019 payment
determination (SUB–3 Alcohol & Other
Drug Use Disorder Treatment Provided
or Offered at Discharge and subset
measure SUB–3a Alcohol & Other Drug
Use Disorder Treatment at Discharge
(NQF #1664), and Thirty-day all-cause
unplanned readmission following
psychiatric hospitalization in an IPF).
We also are proposing to no longer
specify in rulemaking when measure
data will be publicly available, when
the preview period will occur or that the
preview period will begin
approximately 12 weeks before the
public display date, but rather to
announce the timeframes using
subregulatory guidance.
We refer readers to the FY 2015 IPF
PPS final rule (79 FR 45978 through

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45980) and the FY 2016 IPF PPS final
rule (80 FR 46720 through 46721) for a
detailed discussion of the burden for the
IPFQR Program requirements that we
have previously adopted. Below we
discuss only the changes in burden
resulting from the proposals in this
proposed rule. Although we are
proposing provisions that impact
policies beginning in both the FY 2017
and FY 2019 payment determinations,
IPFs must take steps to comply with all
of these policies beginning in FY 2017.
For example, data collection for the
measures begins in FY 2017, and the
changes to the public display dates take
effect beginning in FY 2017. For
purposes of calculating burden, we will
attribute the costs to the year in which
these costs begin; for the purposes of all
of the proposals in this proposed rule,
that year is FY 2017.
We believe that approximately
1,684 318 IPFs will participate in the
IPFQR Program for requirements
occurring in FY 2017 and subsequent
years. Based on program data, we

believe that each IPF will submit
measure data on approximately 848 319
cases per year. In prior rulemaking, we
estimated that the time required to
chart-abstract data for chart-abstracted
measures is 12 minutes per case per
measure.320 Based on the experience of
other quality reporting programs, such
as the Hospital IQR Program, we are
updating this estimate to 15 minutes per
case per measure. We are only
proposing one chart-abstracted measure
this year: SUB–3 and subset SUB–3a.
The other measure that we are
proposing, Thirty-day all-cause
unplanned readmission following
Psychiatric hospitalization in an IPF, is
claims-based and, therefore, does not
require IPFs to report any additional
data.
We estimate that reporting data for the
IPFQR Program measures can be
accomplished by staff with a mean
hourly wage of $16.42.321 However,
obtaining data on other overhead costs
is challenging. Overhead costs vary
greatly across industries and firm sizes.

In addition, the precise cost elements
assigned as ‘‘indirect’’ or ‘‘overhead’’
costs, as opposed to direct costs or
employee wages, are subject to some
interpretation at the firm level.
Therefore, we have chosen to calculate
the cost of overhead at 100 percent of
the mean hourly wage. This is
necessarily a rough adjustment, both
because fringe benefits and overhead
costs vary significantly from employer
to employer and because methods of
estimating these costs vary widely from
study to study. Nonetheless, there is no
practical alternative, and we believe that
doubling the hourly wage to estimate
total cost is a reasonably accurate
estimation method. In calculating the
labor cost, we estimate an hourly labor
cost of $32.84 ($16.42 base salary +
$16.42 fringe). The following table
presents the mean hourly wage, the cost
of fringe benefits (calculated at 100
percent of salary), and the adjusted
hourly wage.

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OCCUPATIONAL EMPLOYMENT AND WAGE ESTIMATES
Occupation title

Occupation
code

Mean hourly
wage
($/hr)

Fringe benefit
(at 36.25% in $/hr)

Adjusted
hourly wage
($/hr)

Medical Records and Health Information Technician ........................

29–2071

16.42

16.42

32.84

We do not believe that our proposal
to update a previously finalized
measure will affect our previous burden
estimate for that measure. As noted
above, one of our proposed measures is
claims-based and would not result in
increased burden. Therefore, increased
burden would occur primarily as a
result of our proposed new chartabstracted measure. We estimate that
this proposal would result in an
increase in burden of 212 hours per IPF
(1 measure × (848 cases/measure × 0.25
hours/case)) or 357,008 hours across all
IPFs (212 hours/IPF × 1,684 IPFs). The
increase in costs would be
approximately $6,962 per IPF (212
hours × $32.84/hour) or $11,724,143
across all IPFs (357,008 hours × 32.84/
hour).
Consistent with our estimates in the
FY 2015 IPF PPS final rule (79 FR

45979), we believe the estimated burden
for training personnel on the revised
data collection and submission
requirements would be 2 hours per IPF
or 3,368 hours (2 hours/IPF × 1,684
IPFs) across all IPFs. Therefore, we
estimate the cost for this training would
be $65.68 ($32.84/hour × 2 hours) for
each IPF or $110,605 ($32.84/hour ×
3,368 hours) for all IPFs.
Finally, IPFs must submit to CMS
aggregate population counts for
Medicare and non-Medicare discharges
by age group and diagnostic group, and
sample size counts for measures for
which sampling is performed. Because
the population for the SUB–3 and SUB–
3a measure is nearly identical to the
population for both the SUB–1 measure
and the SUB–2 and SUB–2a measure,
we believe that the addition of 1 chartabstracted measure would lead to a

318 In the FY 2016 IPF PPS final rule, we
estimated 1,617 IPFs and are adjusting that estimate
by +67 to account for more recent data.

319 In the FY 2016 IPF PPS final rule, we
estimated 431 cases per year and are adjusting that
estimate by +417 to account for more recent data.

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negligible change in burden associated
with nonmeasure data collection.
In section VIII.D.7. of the preamble of
this proposed rule, we are proposing to
no longer specify in rulemaking, but
rather in subregulatory guidance, when
measure data will be publicly available,
when the preview period will occur, or
that the preview period will begin
approximately 12 weeks before the
public display date. We do not believe
this proposal will result in any change
in burden because it does not require
IPFs to report any more or less data.
Rather, if finalized, the timeline for
public display of that data is simply
shifting.
In the table below, we set out a
summary of annual burden estimates.

320 80

FR 46720.

321 http://www.bls.gov/ooh/healthcare/medical-

records-and-health-information-technicians.html.

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ANNUAL RECORDKEEPING AND REPORTING REQUIREMENTS UNDER OMB CONTROL NUMBER 0938–1171 (CMS–10432)
Proposed action [preamble section]
Add NQF #1664 [VIII.D.4.a.] ....................
Add Readmissions Measure [VIII.D.4.b.]
Training ....................................................
Shift Public Display Timeline [VIII.D.7.] ...

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11. ICRs for the Electronic Health
Record (EHR) Incentive Program and
Meaningful Use
In section VIII.E. of the preamble of
this proposed rule, we discuss our
proposals to align the Medicare and
Medicaid EHR Incentive Programs
reporting and submission timelines for
electronically submitted clinical quality
measures for eligible hospitals and
CAHs with the Hospital IQR Program’s
reporting and submission timelines for
the FY 2019 payment determination.
Because these proposals for data
collection in this proposed rule will
align with the reporting requirements in
place for the Hospital IQR Program, and
eligible hospitals and CAHs still have
the option to submit their clinical
quality measures via attestation for the
Medicare and Medicaid EHR Incentive
Programs for CY 2017 reporting, we do
not believe there is any additional
burden for this collection of
information. However, starting with CY
2018 reporting, eligible hospitals and
CAHs participating in the Medicare EHR
Incentive Programs must electronically
report CQMs using CEHRT where
feasible; and attestation to CQMs will no
longer be an option except in certain
circumstances where electronic
reporting is not feasible (80 FR 62894).
We are requesting public comments
on these information collection and
recordkeeping requirements.
If you comment on these information
collection and recordkeeping
requirements, please do either of the
following:
1. Submit your comments
electronically as specified in the
ADDRESSES section of this proposed rule;
or
2. Submit your comments to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget,
Attention: CMS Desk Officer, CMS–
1655–P
Fax: (202) 395–6974; or
Email: OIRA_submission@
omb.eop.gov.

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Responses
per
respondent

Respondents

Burden per
response
(hours) *

Labor cost
($/hr)

Total cost
($)

1,684
1,684
1,684
1,684

848
0
1
0

0.25
0
2
0

357,008
0
3,368
0

32.84
32.84
32.84
32.84

11,724,143
0
110,605
0

1,684

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

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

360,376

32.84

11,834,748

C. Response to Public Comments
Because of the large number of public
comments we normally receive on
Federal Register documents, we are not
able to acknowledge or respond to them
individually. We will consider all
public comments we receive by the date
and time specified in the DATES section
of this preamble, and, when we proceed
with a subsequent document, we will
respond to the public comments in the
preamble of that document.
List of Subjects
42 CFR Part 405
Administrative practice and
procedure, Health facilities, Health
professions, Kidney diseases, Medicare,
Reporting and recordkeeping, Rural
areas, X-rays.
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 489
Health facilities, Medicare, Reporting
and recordkeeping requirements.
For the reasons stated in the preamble
of this proposed rule, the Centers for
Medicare & Medicaid Services is
proposing to amend 42 CFR Chapter IV
as set forth below:
PART 405—FEDERAL HEALTH
INSURANCE FOR THE AGED AND
DISABLED
1. The authority citation for part 405
continues to read as follows:

■

Authority: Secs. 205(a), 1102, 1862(a),
1869, 1871, 1874, 1881, and 1886(k) of the
Social Security Act (42 U.S.C. 405(a), 1302,
1395x, 1395y(a), 1395ff, 1395hh, 1395kk,
1395rr, and 1395ww(k)), and sec. 353 of the
Public Health Service Act (42 U.S.C. 263a).

2. Section 405.926 is amended by
adding paragraph (u) to read as follows:

■

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(hours)

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§ 405.926 Actions that are not initial
determinations.

*

*
*
*
*
(u) Issuance of notice to an individual
entitled to Medicare benefits under Title
XVIII of the Act when such individual
received observation services as an
outpatient for more than 24 hours, as
specified under § 489.20(y) of this
chapter.
PART 412—PROSPECTIVE PAYMENT
SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
3. The authority citation for part 412
is revised to read as follows:

■

Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395hh), sec. 124 of Pub. L. 106–113 (113
Stat. 1501A–332), sec. 1206 of Pub. L. 113–
67, and sec. 112 of Pub. L. 113–93.

4. Section 412.64 is amended by
adding paragraph (d)(1)(vii) and revising
paragraphs (h)(4) introductory text and
(h)(4)(vi) introductory text to read as
follows:

■

§ 412.64 Federal rates for inpatient
operating costs for Federal fiscal year 2005
and subsequent fiscal years.

*

*
*
*
*
(d) * * *
(1) * * *
(vii) For fiscal year 2017, the
percentage increase in the market basket
index (as defined in § 413.40(a)(3) of
this chapter) for prospective payment
hospitals, subject to the provisions of
paragraphs (d)(2) and (3) of this section,
less a multifactor productivity
adjustment (as determined by CMS) and
less 0.75 percentage point.
*
*
*
*
*
(h) * * *
(4) For discharges on or after October
1, 2004 and before October 1, 2017,
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:
*
*
*
*
*
(vi) For discharges on or after October
1, 2012 and before October 1, 2017, the

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minimum wage index value for the State
is the higher of the value determined
under paragraph (h)(4)(iv) of this section
or the value computed using the
following alternative methodology:
*
*
*
*
*
■ 5. Section 412.103 is amended by
adding paragraph (b)(6) to read as
follows:
§ 412.103 Special treatment: Hospitals
located in urban areas and that apply for
reclassification as rural.

*

*
*
*
*
(b) * * *
(6) Lock-in date for the wage index
calculation and budget neutrality. In
order for a hospital to be treated as rural
in the wage index and budget neutrality
calculations under §§ 412.64(e)(1)(ii),
(e)(2) and (4), and (h) for the payment
rates for the next Federal fiscal year, the
hospital’s filing date must be no later
than 70 days prior to the second
Monday in June of the current Federal
fiscal year and the application must be
approved by the CMS Regional Office in
accordance with the requirements of
this section.
*
*
*
*
*
■ 6. Section 412.106 is amended by
revising paragraph (g)(1)(iii)(C) to read
as follows:
§ 412.106 Special treatment: Hospitals that
serve a disproportionate share of lowincome patients.

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*

*
*
*
*
(g) * * *
(1) * * *
(iii) * * *
(C)(1) For fiscal years 2014 and 2015,
CMS will base its estimates of the
amount of hospital uncompensated care
on the most recent available data on
utilization for Medicaid and Medicare
SSI patients, as determined by CMS in
accordance with paragraphs (b)(2)(i) and
(b)(4) of this section.
(2) For fiscal year 2016, CMS will base
its estimates of the amount of hospital
uncompensated care on utilization data
for Medicaid and Medicare SSI patients,
as determined by CMS in accordance
with paragraphs (b)(2)(i) and (b)(4) of
this section, using data on Medicaid
utilization from 2012 or 2011 cost
reports from the most recent HCRIS
database extract, the 2012 cost report
data submitted to CMS by IHS hospitals,
and the most recent available data on
Medicare SSI utilization.
(3) For fiscal year 2017, CMS will base
its estimates of the amount of hospital
uncompensated care on utilization data
for Medicaid and Medicare SSI patients,
as determined by CMS in accordance
with paragraphs (b)(2)(i) and (b)(4) of
this section, using data on Medicaid

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utilization from 2011, 2012, and 2013
cost reports from the most recent HCRIS
database extract, the 2011 and 2012 cost
report data submitted to CMS by IHS
hospitals, and the most recent available
3 years of data on Medicare SSI
utilization (or, for Puerto Rico hospitals,
a proxy for Medicare SSI utilization
data).
(4) For fiscal year 2018, CMS will base
its estimates of the amount of hospital
uncompensated care determined in part
from utilization data for Medicaid and
Medicare SSI patients, as determined by
CMS in accordance with paragraphs
(b)(2)(i) and (b)(4) of this section, using
data on Medicaid utilization from 2012
and 2013 cost reports from the most
recent HCRIS database extract, the 2012
cost report data submitted to CMS by
IHS hospitals, and the most recent
available 2 years of data on Medicare
SSI utilization (or, for Puerto Rico
hospitals, a proxy for Medicare SSI
utilization data), and determined in part
on uncompensated care costs, defined
as charity care costs plus non-Medicare
bad debt costs, from 2014 cost reports
also from the most recent HCRIS
database extract.
(5) For fiscal year 2019, CMS will base
its estimates of the amount of hospital
uncompensated care determined in part
from utilization data for Medicaid and
Medicare SSI patients, as determined by
CMS in accordance with paragraphs
(b)(2)(i) and (b)(4) of this section, using
data on Medicaid utilization from 2013
cost reports from the most recent HCRIS
database extract and the most recent
available year of data on Medicare SSI
utilization (or, for Puerto Rico hospitals,
a proxy for Medicare utilization data),
and determined in part on
uncompensated care costs, defined as
charity care costs plus non-Medicare
bad debt costs, from 2014 and 2015 cost
reports also from the most recent HCRIS
database extract.
(6) For fiscal year 2020, CMS will base
its estimates of the amount of hospital
uncompensated care on uncompensated
care costs, defined as charity care costs
plus non-Medicare bad debt costs, from
2014, 2015, and 2016 cost reports from
the most recent HCRIS database extract.
(7) For fiscal years 2021 and
subsequent years, CMS will base its
estimates of the amount of hospital
uncompensated care on uncompensated
care costs, defined as charity care costs
plus non-Medicare bad debt costs, using
three cost reporting periods from the
most recently available HCRIS database
extract. For each fiscal year, the cost
reporting periods will be advanced
forward by one year (for example, for FY

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2021, FYs 2016, 2017, and 2018 cost
reports will be used).
*
*
*
*
*
■ 7. Section 412.140 is amended by
revising paragraph (d)(2) to read as
follows:
§ 412.140 Participation, data submission,
and validation requirements under the
Hospital Inpatient Quality Reporting (IQR)
Program.

*

*
*
*
*
(d) * * *
(2) A hospital meets the chartabstracted validation requirement with
respect to a fiscal year if it achieves a
75-percent score, as determined by
CMS.
*
*
*
*
*
■ 8. Section 412.160 is amended by
revising the definitions of
‘‘Achievement threshold (or
achievement performance standard)’’,
‘‘Benchmark’’, and ‘‘Cited for
deficiencies that pose immediate
jeopardy’’ to read as follows:
§ 412.160 Definitions for the Hospital
Value-Based Purchasing (VBP) Program.

*

*
*
*
*
Achievement threshold (or
achievement performance standard)
means the median (50th percentile) of
hospital performance on a measure
during a baseline period with respect to
a fiscal year, for Hospital VBP Program
measures other than the measures in the
Efficiency and Cost Reduction domain,
and the median (50th percentile) of
hospital performance on a measure
during the performance period with
respect to a fiscal year, for the measures
in the Efficiency and Cost Reduction
domain.
*
*
*
*
*
Benchmark means the arithmetic
mean of the top decile of hospital
performance on a measure during the
baseline period with respect to a fiscal
year, for Hospital VBP Program
measures other than the measures in the
Efficiency and Cost Reduction domain,
and the arithmetic mean of the top
decile of hospital performance on a
measure during the performance period
with respect to a fiscal year, for the
measures in the Efficiency and Cost
Reduction domain.
Cited for deficiencies that pose
immediate jeopardy means that, during
the applicable performance period, the
Secretary cited the hospital for
immediate jeopardy on at least three
surveys using the Form CMS–2567,
Statement of Deficiencies and Plan of
Correction. CMS assigns an immediate
jeopardy citation to a performance
period as follows:

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(1) If the Form CMS–2567 only
contains one or more EMTALA-related
immediate jeopardy citations, CMS uses
the date that the Form CMS–2567 is
issued to the hospital;
(2) If the Form CMS–2567 only
contains one or more Medicare
conditions of participation immediate
jeopardy citations, CMS uses the survey
end date generated in ASPEN; and
(3) If the Form CMS–2567 contains
both one or more EMTALA-related
immediate jeopardy citations and one or
more Medicare conditions of
participation immediate jeopardy
citations, CMS uses the survey end date
generated in ASPEN.
*
*
*
*
*
■ 9. Section 412.170 is amended by
revising the definition of ‘‘Applicable
period’’ to read as follows:
§ 412.170 Definitions for the HospitalAcquired Condition Reduction Program.

*

*
*
*
*
Applicable period is, unless otherwise
specified by the Secretary, with respect
to a fiscal year, the 2-year period
(specified by the Secretary) from which
data are collected in order to calculate
the total hospital-acquired condition
score under the Hospital-Acquired
Condition Reduction Program.
*
*
*
*
*
■ 10. Section 412.204 is amended by
revising paragraph (d) introductory text
and adding paragraph (e) to read as
follows:
§ 412.204 Payment to hospitals located in
Puerto Rico.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

*

*
*
*
*
(d) FY 2005 through December 31,
2015. For discharges occurring on or
after October 1, 2004 and before January
1, 2016, payments for inpatient
operating costs to hospitals located in
Puerto Rico that are paid under the
prospective payment system are equal to
the sum of—
*
*
*
*
*
(e) January 1, 2016 and thereafter. For
discharges occurring on or after January
1, 2016, payments for inpatient
operating costs to hospitals located in
Puerto Rico that are paid under the
prospective payment system are equal to
100 percent of a national prospective
payment rate for inpatient operating
costs, as determined under § 412.212.
■ 11. Section 412.256 is amended by
revising paragraph (a)(1) to read as
follows:
§ 412.256

Application requirements.

(a) * * *
(1) An application must be submitted
to the MGCRB according to the method
prescribed by the MGCRB, with an

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electronic copy of the application sent
to CMS.
*
*
*
*
*
■ 12. Section 412.374 is amended by
revising paragraph (b) introductory text
and adding paragraph (e) to read as
follows:
§ 412.374 Payments to hospitals located in
Puerto Rico.

*

*
*
*
*
(b) FY 2005 through FY 2016. For
discharges occurring on or after October
1, 2004 and on or before September 30,
2016, payments for capital-related costs
to hospitals located in Puerto Rico that
are paid under the prospective payment
system are equal to the sum of the
following:
*
*
*
*
*
(e) FY 2016 and FYs thereafter. For
discharges occurring on or after October
1, 2016, payments for capital-related
costs to hospitals located in Puerto Rico
that are paid under the prospective
payment system are based on 100
percent of the Federal rate, as
determined under § 412.308.
■ 13. Section 412.503 is amended by
adding in alphabetical order definitions
of ‘‘MSA’’, ‘‘MSA-dominant area’’, and
‘‘MSA-dominant hospital’’ and revising
the definitions of ‘‘Outlier payment’’
and ‘‘Subsection (d) hospital’’ to read as
follows:
§ 412.503

Definitions.

*

*
*
*
*
MSA means a Metropolitan Statistical
Area, as defined by the Executive Office
of Management and Budget.
MSA-dominant area means an MSA
in which an MSA-dominant hospital is
located.
MSA-dominant hospital means a
hospital that has discharged more than
25 percent of the total hospital Medicare
discharges in the MSA (subject to the
provisions of § 412.538(d)(2)(ii)) in
which such subsection (d) hospital is
located.
*
*
*
*
*
Outlier payment means an additional
payment beyond the long-term care
hospital standard Federal payment rate
or the site neutral payment rate
(including, when applicable, the
blended payment rate), as applicable,
for cases with unusually high costs.
*
*
*
*
*
Subsection (d) hospital means, for
purposes of § 412.522, a hospital
defined in section 1886(d)(1)(B) of the
Social Security Act and includes any
hospital that is located in Puerto Rico
and that would be a subsection (d)
hospital as defined in section

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25259

1886(d)(1)(B) of the Social Security Act
if it were located in one of the 50 States.
*
*
*
*
*
■ 14. Section 412.507 is amended by
revising paragraph (a) and adding
paragraph (b)(3) to read as follows:
§ 412.507 Limitation on charges to
beneficiaries.

(a) Prohibited charges. Except as
provided in paragraph (b) of this
section, a long-term care hospital may
not charge a beneficiary for any covered
services for which payment is made by
Medicare, even if the hospital’s costs of
furnishing services to that beneficiary
are greater than the amount the hospital
is paid under the prospective payment
system.
(1) If Medicare has paid at the full
LTCH prospective payment system
standard Federal payment rate, that
payment applies to the hospital’s costs
for services furnished until the high-cost
outlier threshold is met.
(2) If Medicare pays less than the full
LTCH prospective payment system
standard Federal payment rate and
payment was not made at the site
neutral payment rate (including, when
applicable, the blended payment rate),
that payment only applies to the
hospital’s costs for those costs or days
used to calculate the Medicare payment.
(3) For cost reporting periods
beginning on or after October 1, 2016,
for Medicare payments to a long-term
care hospital described in
§ 412.23(e)(2)(ii), that payment only
applies to the hospital’s costs for those
costs or days used to calculate the
Medicare payment.
(4) If Medicare has paid at the full site
neutral payment rate, that payment
applies to the hospital’s costs for
services furnished until the high-cost
outlier is met.
(b) * * *
(3) For cost reporting periods
beginning on or after October 1, 2016, a
long-term care hospital described in
§ 412.23(e)(2)(ii) may only charge the
Medicare beneficiary for the applicable
deductible and coinsurance amounts
under §§ 409.82, 409.83, and 409.87 of
this chapter, for items and services as
specified under § 489.20(a) of this
chapter, and for services provided
during the stay for which benefit days
were not available and that were not the
basis for adjusted LTCH prospective
payment system payment amount under
§ 412.526.
■ 15. Section 412.522 is amended by
adding paragraph (c)(2)(v) to read as
follows:

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§ 412.522 Application of site neutral
payment rate.

*

*
*
*
*
(c) * * *
(2) * * *
(v) The limitation on long-term care
hospital admissions from referring
hospitals specified in § 412.538.
*
*
*
*
*
■ 16. Section 412.523 is amended by
adding paragraph (c)(3)(xiii) to read as
follows:
§ 412.523 Methodology for calculating the
Federal prospective payment rates.

*

*
*
*
*
(c) * * *
(3) * * *
(xiii) For long-term care hospital
prospective payment system fiscal year
beginning October 1, 2016, and ending
September 30, 2017. The LTCH PPS
standard Federal payment rate for the
long-term care hospital prospective
payment system beginning October 1,
2016, and ending September 30, 2017, is
the standard Federal payment rate for
the previous long-term care hospital
prospective payment system fiscal year
updated by 1.45 percent and further
adjusted, as appropriate, as described in
paragraph (d) of this section.
*
*
*
*
*
■ 17. Section 412.525 is amended by
adding paragraph (d)(6) to read as
follows:
§ 412.525 Adjustments to the Federal
prospective payment.

*

*
*
*
*
(d) * * *
(6) The limitation on long-term care
hospital admissions from referring
hospitals specified in § 412.538.
■ 18. The section heading of § 412.534
is revised to read as follows:
§ 412.534 Special payment provisions for
long-term care hospitals-within-hospitals
and satellites of long-term care hospitals,
effective for discharges occurring on or
before September 30, 2016.

*

*
*
*
*
19. The section heading of § 412.536
is revised to read as follows:

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■

§ 412.536 Special payment provisions for
long-term care hospitals and satellites of
long-term care hospitals that discharge
Medicare patients admitted from a hospital
not located in the same building or on the
same campus as the long-term care
hospital or satellite of the long-term care
hospital, effective for discharges occurring
on or before September 30, 2016.

*
■

*
*
*
*
20. Add § 412.538 to read as follows:

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§ 412.538 Limitation on long-term care
hospital admissions from referring
hospitals.

(a) Scope. (1) The provisions of this
section apply to all long-term care
hospitals excluded from the hospital
inpatient prospective payment system
under § 412.23(e), effective for
discharges occurring on or after October
1, 2016, except as specified in
paragraphs (a)(2) and (3) of this section.
(2) The provisions of this section do
not apply to a long-term care hospital
described in § 412.23(e)(2)(ii).
(3) The provisions of this section do
not apply to a long-term care hospital
described in § 412.23(e)(2)(i) that meets
the criteria in § 412.22(f).
(b) Discharges at or below the
applicable percent threshold. For any
cost reporting period which includes
discharges occurring on or after October
1, 2016, in which a long-term care
hospital has a population of Medicare
discharges occurring on or after October
1, 2016 of whom no more than the
applicable percent threshold were
admitted to the long-term care hospital
from a single referring hospital as
identified by the CCN, payments are
made under the rules at §§ 412.500
through 412.541 with no adjustment
under this section.
(c) Discharges in excess of the
applicable percent threshold. For any
cost reporting period which includes
discharges occurring on or after October
1, 2016, in which a long-term care
hospital has a population of Medicare
discharges occurring on or after October
1, 2016 of whom more than the
applicable percentage threshold (as
defined in paragraph (e) of this section)
were admitted to the long-term care
hospital from a single referring hospital
as identified by the CNN, payments for
the Medicare discharges who are
admitted from that referring hospital
and who cause the long-term care
hospital to exceed the applicable
percentage threshold (as defined in
paragraph (e) of this section) are to be
paid at the lesser of the amount
otherwise payable under this subpart or
the amount equivalent to the hospital
inpatient prospective payment system
amount as defined in paragraph (f) of
this section. Payments for discharges
not in excess of the applicable
percentage threshold (as defined in
paragraph (e) of this section) are made
under the rules at §§ 412.500 through
412.541 with no adjustment under this
section.
(d) Determination of exceeding the
applicable percentage threshold.—(1)
General. The determination of whether
a long-term care hospital has exceeded
its applicable percentage threshold (as

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defined in paragraph (e) of this section)
in regard to admissions from a single
referring hospital as identified by the
CNN is made by comparing the
hospital’s percentage of Medicare
discharges occurring on or after October
1, 2016 admitted to the long-term care
hospital (as calculated under paragraph
(d)(2) of this section) to the long-term
care hospital’s applicable percentage
threshold in paragraph (e) of this
section.
(2) Percentage of Medicare discharges.
For each individual referring hospital,
the percentage of Medicare discharges
admitted to the long-term care hospital
is calculated by dividing the amount in
paragraph (d)(2)(i) of this section by the
amount in paragraph (d)(2)(ii) of this
paragraph.
(i) The number of the long-term care
hospital’s Medicare discharges in the
cost reporting period that were admitted
from a single referring hospital as
identified by the CNN on whose behalf
an outlier payment was not made to that
hospital and for whom payment was not
made by a Medicare Advantage plan.
(ii) The long-term care hospital’s total
number of Medicare discharges in the
long-term care hospital’s cost reporting
period for whom payment was not made
by a Medicare Advantage plan.
(e) Applicable percentage threshold—
(1) General. For the purposes of this
section, except as provided for in
paragraphs (f)(2) and (3) of this section,
‘‘applicable percentage threshold’’
means 25 percent.
(2) Special treatment of exclusively
rural long-term care hospitals. In the
case of a long-term care hospital that is
located in a rural area as defined in
§ 412.503, the applicable percentage
threshold means 50 percent. If an LTCH
has multiple locations, all locations of
the LTCH must be in a rural area (as
defined in § 412.503) in order to be
treated as rural under this section.
(3) Special treatment for long-term
care hospitals located in an MSA with
an MSA-dominant hospital. In the case
of a long-term care hospital that admits
Medicare patients from a referring MSAdominant hospital (as defined in
paragraph (h)(3)(ii) of this section), the
applicable percentage threshold means
the percentage of total subsection (d)
hospital Medicare discharges in the
MSA in which the long-term care
hospital is located for the cost reporting
period for which the adjustment under
this section is made, but in no case is
less than 25 percent or more than 50
percent. The determination of the
applicable percentage threshold in this
paragraph is subject to the provisions of
paragraph (d)(2) of this section. If an
LTCH has multiple locations payable

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under this subpart, all locations of the
LTCH must be in an MSA with an MSAdominant hospital in order to be treated
as such under this section.
(f) Determining the amount equivalent
to the hospital inpatient prospective
payment system amount. (1) As
specified in paragraphs (b) and (c) of
this section, CMS calculates an amount
payable under subpart O that is
equivalent to an amount that would be
paid for the services provided if such
services had been provided in an
inpatient prospective payment system
hospital (that is, the amount that would
be determined under the rules at
§ 412.1(a)). This amount is based on the
sum of the applicable hospital inpatient
prospective payment system operating
standardized amount and capital
Federal rate in effect (as set forth in
section § 412.529(d)(4)) at the time of
the long-term care hospital discharge.
(2) In addition to the payment amount
under paragraph (f)(1) of this section, an
additional payment for high-cost outlier
cases is based on the applicable fixedloss amount established for the hospital
inpatient prospective payment system
in effect at the time of the long-term care
hospital discharge.
■ 21. Section 412.560 is amended by
revising paragraph (c)(1) to read as
follows:
§ 412.560 Participation, data submission,
and other requirements under the LongTerm Care Hospital Quality Reporting
(LTCHQR) Program.

*

*
*
*
*
(c) * * *
(1) A long-term care hospital that
wishes to request an exception or
extension with respect to quality data
reporting requirements must submit its
request to CMS within 90 days of the
date that the extraordinary
circumstances occurred.
*
*
*
*
*

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

PART 413—PRINCIPLES OF
REASONABLE COST
REIMBURSEMENT; PAYMENT FOR
END–STAGE RENAL DISEASE
SERVICES; OPTIONAL
PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED
NURSING FACILITIES
22. The authority for part 413 is
revised to read as follows:

■

Authority: Secs. 1102, 1812(d), 1814(b),
1815, 1833(a), (i), and (n), 1861(v), 1871,
1881, 1883 and 1886 of the Social Security
Act (42 U.S.C. 1302, 1395d(d), 1395f(b),
1395g, 1395l(a), (i), and (n), 1395x(v),
1395hh, 1395rr, 1395tt, and 1395ww); and
sec. 124 of Pub. L. 106–113 (113 Stat. 1501A–
332), sec. 3201 of Pub. L. 112–96 (126 Stat.
156), sec. 632 of Pub. L. 112–240 (126 Stat.

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2354), sec. 217 of Pub. L. 113–93 (129 Stat.
1040), and sec. 204 of Pub L. 113–295 (128
Stat. 4010).

23. Section 413.17 is amended by
revising paragraph (d)(1) introductory
text to read as follows:

■

§ 413.17

Cost to related organizations.

*

*
*
*
*
(d) * * *
(1) An exception is provided to this
general principle if the provider
demonstrates by convincing evidence to
the satisfaction of the contractor, that—
*
*
*
*
*
■ 24. Section 413.24 is amended by
revising paragraphs (f)(4)(i), (ii), and (iv)
to read as follows:
§ 413.24
finding.

Adequate cost data and cost

*

*
*
*
*
(f) * * *
(4) * * *
(i) As used in this paragraph,
‘‘provider’’ means a hospital, skilled
nursing facility, home health agency,
hospice, organ procurement
organization, histocompatibility
laboratory, rural health clinic, Federally
qualified health center, community
mental health center, or end-stage renal
disease facility.
(ii) Effective for cost reporting periods
beginning on or after October 1, 1989 for
hospitals, cost reporting periods ending
on or after February 1, 1997 for skilled
nursing facilities and home health
agencies, cost reporting periods ending
on or after December 31, 2004 for
hospices, and end-stage renal disease
facilities, and cost reporting periods
ending on or after March 31, 2005 for
organ procurement organizations,
histocompatibility laboratories, rural
health clinics, Federally qualified health
centers, and community mental health
centers, a provider is required to submit
cost reports in a standardized electronic
format. The provider’s electronic
program must be capable of producing
the CMS standardized output file in a
form that can be read by the contractor’s
automated system. This electronic file,
which must contain the input data
required to complete the cost report and
to pass specified edits, must be
forwarded to the contractor for
processing through its system.
*
*
*
*
*
(iv) Effective for cost reporting
periods ending on or after September
30, 1994 for hospitals, cost reporting
periods ending on or after February 1,
1997 for skilled nursing facilities and
home health agencies, cost reporting
periods ending on or after December 31,
2004 for hospices and end-stage renal
disease facilities, and cost reporting

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periods ending on or after March 31,
2005 for organ procurement
organizations, histocompatibility
laboratories, rural health clinics,
Federally qualified health centers, and
community mental health centers, a
provider must submit a hard copy of a
settlement summary, a statement of
certain worksheet totals found within
the electronic file, and a statement
signed by its administrator or chief
financial officer certifying the accuracy
of the electronic file or the manually
prepared cost report. During a transition
period (first two cost-reporting periods
on or after December 31, 2004 for
hospices and end-stage renal disease
facilities, and the first two costreporting periods on or after March 31,
2005 for organ procurement
organizations, histocompatibility
laboratories, rural health clinics,
Federally qualified health centers,
community mental health centers),
providers must submit a hard copy of
the completed cost report forms in
addition to the electronic file. The
following statement must immediately
precede the dated signature of the
provider’s administrator or chief
financial officer:
I hereby certify that I have read the
above certification statement and that I
have examined the accompanying
electronically filed or manually
submitted cost report and the Balance
Sheet and Statement of Revenue and
Expenses prepared by ______(Provider
Name(s) and Number(s)) for the cost
reporting period beginning ___and
ending ___and that to the best of my
knowledge and belief, this report and
statement are true, correct, complete
and prepared from the books and
records of the provider in accordance
with applicable instructions, except as
noted. I further certify that I am familiar
with the laws and regulations regarding
the provision of health care services,
and that the services identified in this
cost report were provided in compliance
with such laws and regulations.
*
*
*
*
*
■ 25. Section 413.79 is amended by
revising paragraphs (k)(1)(i) and (ii),
(k)(2)(i) and (ii), (k)(3) and (4), and
(k)(7)(ii) and (iii) to read as follows:
§ 413.79 Direct GME payments:
Determination of the weighted number of
FTE residents.

*

*
*
*
*
(k) * * *
(1) * * *
(i) For rural track programs started
prior to October 1, 2012, for the first 3
years of the rural track’s existence, the
rural track FTE limitation for each urban
hospital will be the actual number of

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FTE residents, subject to the rolling
average at paragraph (d)(7) of this
section, training in the rural track at the
urban hospital. For rural track programs
started on or after October 1, 2012, prior
to the start of the urban hospital’s cost
reporting period that coincides with or
follows the start of the sixth program
year of the rural track’s existence, the
rural track FTE limitation for each urban
hospital will be the actual number of
FTE residents, subject to the rolling
average at paragraph (d)(7) of this
section, training in the rural track at the
urban hospital.
(ii) For rural track programs started
prior to October 1, 2012, beginning with
the fourth year of the rural track’s
existence, the rural track FTE limitation
is equal to the product of the highest
number of residents, in any program
year, who during the third year of the
rural track’s existence are training in the
rural track at the urban hospital or the
rural hospital(s) and are designated at
the beginning of their training to be
rotated to the rural hospital(s) for at
least two-thirds of the duration of the
program for cost reporting periods
beginning on or after April 1, 2000, and
before October 1, 2002, or for more than
one-half of the duration of the program
effective for cost reporting periods
beginning on or after October 1, 2003,
and the number of years those residents
are training at the urban hospital. For
rural track programs started on or after
October 1, 2012, beginning with the
start of the urban hospital’s cost
reporting period that coincides with or
follows the start of the sixth program
year of the rural track’s existence, the
rural track FTE limitation is equal to the
product of the highest number of
residents, in any program year, who
during the fifth year of the rural track’s
existence are training in the rural track
at the urban hospital or the rural
hospital(s) and are designated at the
beginning of their training to be rotated
to the rural hospital(s) for more than
one-half of the duration of the program,
and the number of years those residents
are training at the urban hospital.
(2) * * *
(i) For rural track programs started
prior to October 1, 2012, for the first 3
years of the rural track’s existence, the
rural track FTE limitation for each urban
hospital will be the actual number of
FTE residents, subject to the rolling
average specified in paragraph (d)(7) of
this section, training in the rural track
at the urban hospital and the rural
nonhospital site(s). For rural track
programs started on or after October 1,
2012, prior to the start of the urban
hospital’s cost reporting period that
coincides with or follows the start of the

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sixth program year of the rural track’s
existence, the rural track FTE limitation
for each urban hospital will be the
actual number of FTE residents, subject
to the rolling average specified in
paragraph (d)(7) of this section, training
in the rural track at the urban hospital
and the rural nonhospital site(s).
(ii)(A) For rural track programs started
prior to October 1, 2012, beginning with
the fourth year of the rural track’s
existence, the rural track FTE limitation
is equal to the product of—
(1) The highest number of residents in
any program year who, during the third
year of the rural track’s existence, are
training in the rural track at—
(i) The urban hospital and are
designated at the beginning of their
training to be rotated to a rural
nonhospital site(s) for at least two-thirds
of the duration of the program for cost
reporting periods beginning on or after
April 1, 2000 and before October 1,
2003, or for more than one-half of the
duration of the program for cost
reporting periods beginning on or after
October 1, 2003; and
(ii) The rural nonhospital site(s); and
(2) The number of years in which the
residents are expected to complete each
program based on the minimum
accredited length for the type of
program.
(B) For rural track programs started on
or after to October 1, 2012, beginning
with the start of the urban hospital’s
cost reporting period that coincides
with or follows the start of the sixth
program year of the rural track’s
existence, the rural track FTE limitation
is equal to the product of—
(1) The highest number of residents in
any program year who, during the fifth
year of the rural track’s existence, are
training in the rural track at—
(i) The urban hospital and are
designated at the beginning of their
training to be rotated to a rural
nonhospital site(s) for more than onehalf of the duration of the program; and
(ii) The rural nonhospital site(s); and
(2) The number of years in which the
residents are expected to complete each
program based on the minimum
accredited length for the type of
program.
(3) For rural track programs started
prior to October 1, 2012, if an urban
hospital rotates residents in the rural
track program to a rural hospital(s) for
less than two-thirds of the duration of
the program for cost reporting periods
beginning on or after April 1, 2000, and
before October 1, 2003, or for one-half
or less than one-half of the duration of
the program for cost reporting periods
beginning on or after October 1, 2003,
the rural hospital may not include those

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residents in its FTE count (if the rural
track is not a new program under
paragraph (e)(3) of this section, or if the
rural hospital’s FTE count exceeds that
hospital’s FTE cap), nor may the urban
hospital include those residents when
calculating its rural track FTE
limitation. For rural track programs
started on or after October 1, 2012, if an
urban hospital rotates residents in the
rural track program to a rural hospital(s)
for one-half or less than one-half of the
duration of the program, the rural
hospital may not include those residents
in its FTE count (if the rural track is not
a new program under paragraph (e)(3) of
this section, or if the rural hospital’s
FTE count exceeds that hospital’s FTE
cap), nor may the urban hospital
include those residents when
calculating its rural track FTE
limitation.
(4)(i) For rural track programs started
prior to October 1, 2012, if an urban
hospital rotates residents in the rural
track program to a rural nonhospital
site(s) for less than two-thirds of the
duration of the program for cost
reporting periods beginning on or after
April 1, 2000 and before October 1,
2003, or for one-half or less than onehalf of the duration of the program for
cost reporting periods beginning on or
after October 1, 2003, the urban hospital
may include those residents in its FTE
count, subject to the requirements under
§ 413.78(d). The urban hospital may
include in its FTE count those residents
in the rural track, not to exceed its rural
track limitation, determined as follows:
(A) For the first 3 years of the rural
track’s existence, the rural track FTE
limitation for the urban hospital will be
the actual number of FTE residents,
subject to the rolling average specified
in paragraph (d)(7) of this section,
training in the rural track at the rural
nonhospital site(s).
(B) Beginning with the fourth year of
the rural track’s existence, the rural
track FTE limitation is equal to the
product of—
(1) The highest number of residents in
any program year who, during the third
year of the rural track’s existence, are
training in the rural track at the rural
nonhospital site(s) or are designated at
the beginning of their training to be
rotated to the rural nonhospital site(s)
for a period that is less than two-thirds
of the duration of the program for cost
reporting periods beginning on or after
April 1, 2002, and before October 1,
2003, or for one-half or less than onehalf of the duration of the program for
cost reporting periods beginning on or
after October 1, 2003; and

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(2) The length of time in which the
residents are training at the rural
nonhospital site(s) only.
(ii) For rural track programs started on
or after October 1, 2012, if an urban
hospital rotates residents in the rural
track program to a rural nonhospital
site(s) for one-half or less than one-half
of the duration of the program, the
urban hospital may include those
residents in its FTE count, subject to the
requirements under § 413.78(d). The
urban hospital may include in its FTE
count those residents in the rural track,
not to exceed its rural track limitation,
determined as follows:
(A) Prior to the start of the urban
hospital’s cost reporting period that
coincides with or follows the start of the
sixth program year of the rural track’s
existence, the rural track FTE limitation
for the urban hospital will be the actual
number of FTE residents, subject to the
rolling average specified in paragraph
(d)(7) of this section, training in the
rural track at the rural nonhospital
site(s).
(B) Beginning with the start of the
urban hospital’s cost reporting period
that coincides with or follows the start
of the sixth program year of the rural
track’s existence, the rural track FTE
limitation is equal to the product of—
(1) The highest number of residents in
any program year who, during the fifth
year of the rural track’s existence, are
training in the rural track at the rural
nonhospital site(s) or are designated at
the beginning of their training to be
rotated to the rural nonhospital site(s)
for a period that is for one-half or less
than one-half of the duration of the
program; and
(2) The length of time in which the
residents are training at the rural
nonhospital site(s) only.
*
*
*
*
*
(7) * * *
(ii)(A) For rural track programs started
prior to October 1, 2012, effective
October 1, 2014, if an urban hospital
started a rural track training program
under the provisions of this paragraph
(k) with a hospital located in a rural area
and, during the 3-year period that is
used to calculate the urban hospital’s
rural track FTE limit, that rural area
subsequently becomes an urban area
due to the most recent OMB standards
for delineating statistical areas adopted
by CMS and the most recent Census
Bureau data, the urban hospital may
continue to adjust its FTE resident limit
in accordance with this paragraph (k)
and subject to paragraph (k)(7)(iii) of
this section for the rural track programs
started prior to the adoption of such
new OMB standards for delineating
statistical areas.

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(B) For rural track programs started on
or after October 1, 2012, effective
October 1, 2014, if an urban hospital
started a rural track training program
under the provisions of this paragraph
(k) with a hospital located in a rural area
and, during the 5-year period that is
used to calculate the urban hospital’s
rural track FTE limit, that rural area
subsequently becomes an urban area
due to the most recent OMB standards
for delineating statistical areas adopted
by CMS and the most recent Census
Bureau data, the urban hospital may
continue to adjust its FTE resident limit
in accordance with this paragraph (k)
and subject to paragraph (k)(7)(iii) of
this section for the rural track programs
started prior to the adoption of such
new OMB standards for delineating
statistical areas.
(iii)(A) For rural track programs
started prior to October 1, 2012,
effective October 1, 2014, if an urban
hospital started a rural track training
program under the provisions of this
paragraph (k) with a hospital located in
a rural area and that rural area
subsequently becomes an urban area
due to the most recent OMB standards
for delineating statistical areas adopted
by CMS and the most recent Census
Bureau data, regardless of whether the
redesignation of the rural hospital
occurs during the 3-year period that is
used to calculate the urban hospital’s
rural track FTE limit, or after the 3-year
period used to calculate the urban
hospital’s rural track FTE limit, the
urban hospital may continue to adjust
its FTE resident limit in accordance
with this paragraph (k) based on the
rural track programs started prior to the
change in the hospital’s geographic
designation. In order for the urban
hospital to receive or use the adjustment
to its FTE resident cap for training FTE
residents in the rural track residency
program that was started prior to the
most recent OMB standards for
delineating statistical areas adopted by
CMS, one of the following two
conditions must be met by the end of a
period that begins when the most recent
OMB standards for delineating
statistical areas are adopted by CMS and
continues through the end of the second
residency training year following the
date the most recent OMB delineations
are adopted by CMS: the hospital that
has been redesignated from rural to
urban must reclassify as rural under
§ 412.103 of this chapter, for purposes of
IME only; or the urban hospital must
find a new site that is geographically
rural consistent with the most recent
geographical location delineations
adopted by CMS. In order to receive an

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adjustment to its FTE resident cap for an
additional new rural track residency
program, the urban hospital must
participate in a rural track program with
sites that are geographically rural based
on the most recent geographical location
delineations adopted by CMS.
(B) For rural track programs started on
or after October 1, 2012, effective
October 1, 2014, if an urban hospital
started a rural track training program
under the provisions of this paragraph
(k) with a hospital located in a rural area
and that rural area subsequently
becomes an urban area due to the most
recent OMB standards for delineating
statistical areas adopted by CMS and the
most recent Census Bureau data,
regardless of whether the redesignation
of the rural hospital occurs during the
5-year period that is used to calculate
the urban hospital’s rural track FTE
limit, or after the 5-year period used to
calculate the urban hospital’s rural track
FTE limit, the urban hospital may
continue to adjust its FTE resident limit
in accordance with this paragraph (k)
based on the rural track programs
started prior to the change in the
hospital’s geographic designation. In
order for the urban hospital to receive
or use the adjustment to its FTE resident
cap for training FTE residents in the
rural track residency program that was
started prior to the most recent OMB
standards for delineating statistical
areas adopted by CMS, one of the
following two conditions must be met
by the end of a period that begins when
the most recent OMB standards for
delineating statistical areas are adopted
by CMS and continues through the end
of the second residency training year
following the date the most recent OMB
delineations are adopted by CMS: The
hospital that has been redesignated from
rural to urban must reclassify as rural
under § 412.103 of this chapter, for
purposes of IME only; or the urban
hospital must find a new site that is
geographically rural consistent with the
most recent geographical location
delineations adopted by CMS. In order
to receive an adjustment to its FTE
resident cap for an additional new rural
track residency program, the urban
hospital must participate in a rural track
program with sites that are
geographically rural based on the most
recent geographical location
delineations adopted by CMS.
*
*
*
*
*
§ 413.200

[Amended]

26. In § 413.200, paragraph (c)(1)(i),
remove the phrase ‘‘three months’’ and
add in its place the phrase ‘‘5 months’’.

■

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PART 489—PROVIDER AGREEMENTS
AND SUPPLIER APPROVAL
27. The authority citation for part 489
is revised to read as follows:

■

Authority: Secs. 1102 1819, 1820(E), 1861,
1864(M), 1866, 1869, and 1871 of the Social
Security Act (42 U.S.C. 1302, 1395i–3, 1395x,
1395aa(m), 1395cc, 1395ff, and 1395(hh)).

28. Section 489.20 is amended by
adding paragraph (y) to read as follows:

■

§ 489.20

Basic commitments.

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*

*
*
*
*
(y) In the case of a hospital or critical
access hospital, to provide notice, as
specified in paragraphs (y)(1) and (2) of
this section, to each individual entitled
to Medicare benefits under Title XVIII of
the Act when such individual receives
observation services as an outpatient for
more than 24 hours. Notice must be
provided to the individual not later than
36 hours after observation services are
initiated or sooner if the individual is
transferred, discharged, or admitted.
(1) Written notice. Hospitals and
critical access hospitals must use a
standardized written notice, as specified
by the Secretary, which includes the
following information:
(i) An explanation of the status of the
individual as an outpatient receiving
observation services and not as an
inpatient of the hospital or critical
access hospital and the reason for status
as an outpatient receiving observation
services; and
(ii) An explanation of the implications
of such status as an outpatient on
services furnished by the hospital or
critical access hospital (including
services furnished on an inpatient
basis), such as Medicare cost-sharing
requirements, and subsequent eligibility
for Medicare coverage for skilled
nursing facility services.
(2) Oral notice. The hospital must give
an oral explanation of the written
notification described in paragraph
(y)(1) of this section.
(3) Signature requirements. The
written notice specified in paragraph
(y)(1) of this section must either—
(i) Be signed by the individual who
receives observation services as an
outpatient or a person acting on the
individual’s behalf to acknowledge
receipt of such notification; or
(ii) If the individual who receives
observation services as an outpatient or
the person acting on behalf of the
individual refuses to provide the
signature described in paragraph (y)(1)
of this section, is signed by the staff
member of the hospital or critical access
hospital who presented the written
notification and includes the name and
title of the staff member, a certification

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that the notification was presented, and
the date and time the notification was
presented.
Dated: April 1, 2016.
Andrew M. Slavitt,
Administrator, Centers for Medicare &
Medicaid Services.
Dated: April 14, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human
Services.
Note: The following Addendum and
Appendixes will not appear in the Code of
Federal Regulations.

Addendum—Proposed Schedule of
Standardized Amounts, Update
Factors, Rate-of-Increase Percentages
Effective With Cost Reporting Periods
Beginning on or After October 1, 2016,
and Payment Rates for LTCHs Effective
for Discharges Occurring on or After
October 1, 2016
I. Summary and Background
In this Addendum, we are setting forth a
description of the methods and data we used
to determine the proposed prospective
payment rates for Medicare hospital inpatient
operating costs and Medicare hospital
inpatient capital-related costs for FY 2017 for
acute care hospitals. We also are setting forth
the rate-of-increase percentage for updating
the target amounts for certain hospitals
excluded from the IPPS for FY 2017. 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 proposed figures for the standardized
amounts, offsets, and budget neutrality
factors. Therefore, in this proposed rule, we
are setting forth the rate-of-increase
percentage for updating the target amounts
for certain hospitals excluded from the IPPS
that will be effective for cost reporting
periods beginning on or after October 1,
2016.
In addition, we are setting forth a
description of the methods and data we used
to determine the proposed standard Federal
payment rate that would be applicable to
Medicare LTCHs for FY 2017.
In general, except for SCHs and MDHs, for
FY 2017, 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.
SCHs are paid based on whichever of the
following rates yields the greatest aggregate
payment: the Federal national rate
(including, as discussed in section IV.F. of
the preamble of this proposed rule,
uncompensated care payments under section
1886(r)(2) of the Act); the updated hospitalspecific 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

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hospital-specific rate based on FY 2006 costs
per discharge.
We note that section 205 of the Medicare
Access and CHIP Reauthorization Act of 2015
(MACRA) (Pub. L. 114–10, enacted on April
16, 2015) extended the MDH program
(which, under previous law, was to be in
effect for discharges on or before March 31,
2015 only) for discharges occurring on or
after April 1, 2015, through FY 2017 (that is,
for discharges occurring on or before
September 30, 2017).
Under section 1886(d)(5)(G) of the Act,
MDHs historically were 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. 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 hospitalspecific 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.
As discussed in section IV.A. of the
preamble of this proposed rule, prior to
January 1, 2016, Puerto Rico hospitals were
paid based on 75 percent of the national
standardized amount and 25 percent of the
Puerto Rico-specific standardized amount. As
a result, CMS calculated the Puerto Ricospecific standardized amount. Section 601 of
the Consolidated Appropriations Act, 2016
(Pub. L. 114–113) amended section
1886(d)(9)(E) of the Act to specify that the
payment calculation with respect to
operating costs of inpatient hospital services
of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after
January 1, 2016, shall use 100 percent of the
national standardized amount. Because
Puerto Rico hospitals are no longer paid with
a Puerto Rico-specific standardized amount
under the amendments to section
1886(d)(9)(E) of the Act, there is no longer a
need for us to calculate a Puerto Rico-specific
standardized amount. For operating costs for
inpatient hospital discharges occurring in FY
2017 and subsequent fiscal years, consistent
with the provisions of section 1886(d)(9)(E)
of the Act as amended by section 601 of
Public Law 114–113, subsection (d) Puerto
Rico hospitals will continue to be paid based
on 100 percent of the national standardized
amount. Because Puerto Rico hospitals are
now paid 100 percent of the national
standardized amount and are subject to the
same national standardized amount as
subsection (d) hospitals that receive the full
update, our discussion below does not

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include references to the Puerto Rico
standardized amount or the Puerto Ricospecific wage index.
As discussed in section II. of this
Addendum, we are proposing to make
changes in the determination of the
prospective payment rates for Medicare
inpatient operating costs for acute care
hospitals for FY 2017. In section III. of this
Addendum, we discuss our proposed policy
changes for determining the prospective
payment rates for Medicare inpatient capitalrelated costs for FY 2017. In section IV. of
this Addendum, we are setting forth the rateof-increase percentage for determining the
rate-of-increase limits for certain hospitals
excluded from the IPPS for FY 2017. In
section V. of this Addendum, we discuss
proposed policy changes for determining the
standard Federal rate for LTCHs paid under
the LTCH PPS for FY 2017. The tables to
which we refer in the preamble of this
proposed rule are listed in section VI. of this
Addendum and are available via the Internet
on the CMS Web site.

II. Proposed Changes to Prospective Payment
Rates for Hospital Inpatient Operating Costs
for Acute Care Hospitals for FY 2017
The basic methodology for determining
prospective payment rates for hospital
inpatient operating costs for acute care
hospitals for FY 2005 and subsequent fiscal
years is set forth under § 412.64. The basic
methodology for determining the prospective
payment rates for hospital inpatient
operating costs for hospitals located in Puerto
Rico for FY 2005 and subsequent fiscal years
is set forth under §§ 412.211 and 412.212.
Below we discuss the factors we are
proposing to use for determining the
proposed prospective payment rates for FY
2017.
In summary, the proposed standardized
amounts set forth in Tables 1A, 1B, and 1C
that are listed and published in section VI.
of this Addendum (and available via the
Internet on the CMS Web site) reflect—
• Equalization of the standardized
amounts for urban and other areas at the
Hospital
submitted
quality
data and is a
meaningful
EHR user

FY 2017

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Proposed Market Basket Rate-of-Increase .....................................................
Proposed Adjustment for Failure to Submit Quality Data under Section
1886(b)(3)(B)(viii) of the Act ........................................................................
Proposed Adjustment for Failure to be a Meaningful EHR User under Section 1886(b)(3)(B)(ix) of the Act ...................................................................
Proposed MFP Adjustment under Section 1886(b)(3)(B)(xi) of the Act ..........
Statutory Adjustment under Section 1886(b)(3)(B)(xii) of the Act ...................
Proposed Applicable Percentage Increase Applied to Standardized Amount

We note that section 1886(b)(3)(B)(viii) of
the Act, which specifies the adjustment to
the applicable percentage increase for
‘‘subsection (d)’’ hospitals that do not submit
quality data under the rules established by
the Secretary, is not applicable to hospitals
located in Puerto Rico.
In addition, section 602 of Public Law 114–
113 amended section 1886(n)(6)(B) of the Act
to specify that Puerto Rico hospitals are
eligible for incentive payments for the
meaningful use of certified EHR technology,
effective beginning FY 2016, and also to
apply the adjustments to the applicable
percentage increase under section
1886(b)(3)(B)(ix) of the Act to Puerto Rico
hospitals that are not meaningful EHR users,
effective FY 2022. Accordingly, because the
provisions of section 1886(b)(3)(B)(ix) of the
Act are not applicable to hospitals located in
Puerto Rico until FY 2022, the adjustments
under this provision are not applicable for
FY 2017.
• 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

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Hospital
submitted
quality
data and is
NOT a
meaningful
EHR user

Hospital did
NOT submit
quality data
and is a
meaningful
EHR user

Hospital did
NOT submit
quality data
and is NOT a
meaningful
EHR user

2.8

2.8

2.8

2.8

0.0

0.0

¥0.7

¥0.7

0.0
¥0.6
¥0.75
1.55

¥2.1
¥0.5
¥0.75
¥0.55

0.0
¥0.5
¥0.75
0.85

¥2.1
¥0.5
¥0.75
¥1.25

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 under section
1886(d)(8)(D) of the Act, by removing the FY
2016 budget neutrality factor and applying a
revised factor.
• As discussed below and in section III.G.
of the preamble of this proposed rule, an
adjustment to offset the cost of the 3-year
hold harmless transitional wage index
provisions provided by CMS as a result of the
implementation of the new OMB labor
market area delineations (beginning with FY
2015).
• An adjustment to remove the FY 2016
outlier offset and apply an offset for FY 2017,
as provided for under section 1886(d)(3)(B) of
the Act.
• As discussed below and in section II.D.
of the preamble of this proposed rule, a
recoupment to meet the requirements of
section 631 of ATRA to adjust the
standardized amount to offset the estimated
amount of the increase in aggregate payments
as a result of not completing the prospective
adjustment authorized under section
7(b)(1)(A) of Public Law 110–90 until FY
2013.
• As discussed below and in section IV.O.
of the preamble of this proposed rule, we are

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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 to give the hospital
the highest payment, as provided for under
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv)
of the Act. For FY 2017, depending on
whether a hospital submits quality data
under the rules established in accordance
with section 1886(b)(3)(B)(viii) of the Act
(hereafter referred to as a hospital that
submits quality data) and is a meaningful
EHR user under section 1886(b)(3)(B)(ix) of
the Act (hereafter referred to as a hospital
that is a meaningful EHR user), there are four
possible applicable percentage increases that
can be applied to the national standardized
amount. We refer readers to section IV.B. of
the preamble of this proposed rule for a
complete discussion on the proposed FY
2017 inpatient hospital update. Below is a
table with these four options:

proposing a (1/0.998) adjustment to the
standardized amount using our authority
under sections 1886(d)(5)(I)(i) and 1886(g) of
the Act to permanently prospectively remove
the 0.2 percent reduction to the rate put in
place in FY 2014 to offset the estimated
increase in IPPS expenditures associated
with the projected increase in inpatient
encounters that was expected to result from
the new inpatient admission guidelines
under the 2-midnight policy.
• As discussed below and in section IV.O.
of the preamble of this proposed rule, we are
proposing a temporary one-time prospective
increase to the FY 2017 rates of 0.6 percent
or a factor of 1.006 using our authority under
sections 1886(d)(5)(I)(i) and 1886(g) of the
Act to address the effects of the 0.2 percent
reduction to the rate for the 2-midnight
policy in effect for FY 2014, FY 2015, and FY
2016.
For FY 2017, consistent with current law,
we are applying the rural floor budget
neutrality adjustment to hospital wage
indexes. Also, consistent with section 3141
of the Affordable Care Act, instead of
applying a State-level rural floor budget
neutrality adjustment to the wage index, we
are applying a uniform, national budget
neutrality adjustment to the FY 2017 wage
index for the rural floor. We note that, in
section III.H.2.b. of the preamble to this
proposed rule, we are proposing to extend

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the imputed floor policy (both the original
methodology and alternative methodology)
for FY 2017. Therefore, for FY 2017, in this
proposed rule, we are proposing to continue
to include the imputed floor (calculated
under the original and alternative
methodologies) in calculating the uniform,
national rural floor budget neutrality
adjustment, which would be reflected in the
FY 2017 wage index.
In prior fiscal years, CMS made an
adjustment to ensure the effects of the rural
community hospital demonstration program
required under section 410A of Public Law
108–173, as amended by sections 3123 and
10313 of Public Law 111–148, which
extended the demonstration program for an
additional 5 years (FYs 2011 through 2016),
were budget neutral as required under
section 410A(c)(2) of Public Law 108–173. As
discussed in section IV.K.3. of the preamble
to this proposed rule, given the small number
of participating hospitals and the limited
time of participation during FY 2017, we are
proposing to forego the process of estimating
the costs attributable to the demonstration for
FY 2017 and to instead analyze the set of
finalized cost reports for reporting periods
beginning in FY 2016 when they become
available. In addition, we discuss how we
would reconcile the budget neutrality offset
amounts identified in the IPPS final rules for
FYs 2011 through 2016 with the actual costs
of the demonstration for those years,
considering the fact that the demonstration
will end December 31, 2016. We stated that
we believe it would be appropriate to
conduct this analysis for FYs 2011 through
2016 at one time, when all of the finalized
cost reports for cost reporting periods
beginning in FYs 2011 through 2016 are
available. Such an aggregate analysis
encompassing the cost experience through
the end of the period of performance of the
demonstration represents an administratively
streamlined method, allowing for the
determination of any appropriate final
adjustment to the IPPS rates and obviating
the need for multiple fiscal-year-specific
calculations and regulatory actions. Given
the general lag of 3 years in finalizing cost
reports, we expect any such analysis to be
conducted in FY 2020. Therefore, for FY
2017 we are not proposing to make any
adjustment to the standardized amounts for
the rural community hospital demonstration
program. We refer the reader to section IV.K.
of the preamble of this proposed rule for a
complete discussion on the rural community
hospital demonstration program.
A. Calculation of the Proposed 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.
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

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hospitals in the initial development of
standardized amounts for the IPPS.
Sections 1886(d)(2)(B) and 1886(d)(2)(C) of
the Act requires 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.
For FY 2017, we are proposing to continue
to use the national labor-related and
nonlabor-related shares (which are based on
the FY 2010-based hospital market basket)
that was used in FY 2016. Specifically, under
section 1886(d)(3)(E) of the Act, the Secretary
estimates, from time to time, the proportion
of payments that are labor-related and adjusts
the proportion (as estimated by the Secretary
from time to time) of hospitals’ costs which
are attributable to wages and wage-related
costs of the DRG prospective payment rates.
We refer to the proportion of hospitals’ costs
that are attributable to wages and wagerelated costs as the ‘‘labor-related share.’’ For
FY 2017, as discussed in section III. of the
preamble of this proposed rule, we are
proposing to continue to use a labor-related
share of 69.6 percent for the national
standardized amounts for all IPPS hospitals
(including hospitals in Puerto Rico) that have
a wage index value that is greater than
1.0000. Consistent with section 1886(d)(3)(E)
of the Act, we are proposing to apply the
wage index to a labor-related share of 62
percent of the national standardized amount
for all IPPS hospitals (including hospitals in
Puerto Rico) whose wage index values are
less than or equal to 1.0000
The proposed standardized amounts for
operating costs appear in Tables 1A, 1B, and
1C that are listed and published in section
VI. of the Addendum to this proposed rule
and are available via the Internet on the CMS
Web site.
2. Computing the National 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. Accordingly, we are proposing to
calculate the FY 2017 national average
standardized amount irrespective of whether
a hospital is located in an urban or rural
location.
3. Updating the National 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. We
note that, in compliance with section 404 of
the MMA, in this proposed rule, we are
proposing to use the revised and rebased FY
2010-based IPPS operating and capital
market baskets for FY 2017 (which replaced
the FY 2006-based IPPS operating and capital
market baskets in FY 2014). As discussed in
section IV.B. of the preamble of this proposed

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rule, in accordance with section 1886(b)(3)(B)
of the Act, as amended by section 3401(a) of
the Affordable Care Act, we are proposing to
reduce the FY 2017 applicable percentage
increase (which is based on IHS Global
Insight, Inc.’s (IGI’s) first quarter 2016
forecast of the FY 2010-based IPPS market
basket) by the MFP adjustment (the 10-year
moving average of MFP for the period ending
FY 2017) of 0.5 percentage point, which is
calculated based on IGI’s first quarter 2016
forecast.
In addition, in accordance with section
1886(b)(3)(B)(i) of the Act, as amended by
sections 3401(a) and 10319(a) of the
Affordable Care Act, we are proposing to
further update the standardized amount for
FY 2017 by the estimated market basket
percentage increase less 0.75 percentage
point for hospitals in all areas. Sections
1886(b)(3)(B)(xi) and (xii) of the Act, as
added and amended by sections 3401(a) and
10319(a) of the Affordable Care Act, further
state that these adjustments may result in the
applicable percentage increase being less
than zero. The percentage increase in the
market basket reflects the average change in
the price of goods and services comprising
routine, ancillary, and special care unit
hospital inpatient services.
Based on IGI’s 2016 first quarter forecast of
the hospital market basket increase (as
discussed in Appendix B of this proposed
rule), the most recent forecast of the hospital
market basket increase for FY 2017 is 2.8
percent. As discussed earlier, for FY 2017,
depending on whether a hospital submits
quality data under the rules established in
accordance with section 1886(b)(3)(B)(viii) of
the Act and is a meaningful EHR user under
section 1886(b)(3)(B)(ix) of the Act, there are
four possible applicable percentage increases
that could be applied to the standardized
amount. We refer readers to section IV.B. of
the preamble of this proposed rule for a
complete discussion on the proposed FY
2017 inpatient hospital update to the
standardized amount. We also refer readers
to the table above for the four possible
applicable percentage increases that would
be applied to update the national
standardized amount. The proposed
standardized amounts shown in Tables 1A
through 1C that are published in section VI.
of this Addendum and that are available via
the Internet on the CMS Web site reflect
these differential amounts.
Although the update factors for FY 2017
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 2017 for
both IPPS hospitals and hospitals and
hospital units excluded from the IPPS.
Section 1886(e)(5)(A) of the Act requires that
we publish our proposed recommendations
in the Federal Register for public comment.
Our recommendation on the update factors is
set forth in Appendix B of this proposed rule.
4. Methodology for Calculation of the
Average Standardized Amount
The methodology we used to calculate the
proposed FY 2017 standardized amount is as
follows:
• To ensure we are only including
hospitals paid under the IPPS in the

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calculation of the standardized amount, we
apply the following inclusion and exclusion
criteria: include hospitals whose last four
digits fall between 0001 and 0879 (section
2779A1 of Chapter 2 of the State Operations
Manual on the CMS Web site at: https://www.
cms.gov/Regulations-and-Guidance/
Guidance/Manuals/Downloads/
som107c02.pdf); exclude critical access
hospitals at the time of this proposed rule;
exclude hospitals in Maryland (because these
hospitals are paid under an all payer model
under section 1115A of the Act); and remove
PPS-excluded cancer hospitals that have a
‘‘V’’ in the fifth position of their provider
number or a ‘‘E’’ or ‘‘F’’ in the sixth position.
• As in the past, we are proposing to adjust
the FY 2017 standardized amount to remove
the effects of the FY 2016 geographic
reclassifications and outlier payments before
applying the FY 2017 updates. We then
apply budget neutrality offsets for outliers
and geographic reclassifications to the
standardized amount based on proposed FY
2017 payment policies.
• We do not remove the prior year’s budget
neutrality adjustments for reclassification
and recalibration of the DRG relative weights
and for updated wage data because, in
accordance with sections 1886(d)(4)(C)(iii)
and 1886(d)(3)(E) of the Act, estimated
aggregate payments after updates in the DRG
relative weights and wage index should equal
estimated aggregate payments prior to the
changes. If we removed the prior year’s
adjustment, we would not satisfy these
conditions.
Budget neutrality is determined by
comparing aggregate IPPS payments before
and after making changes that are required to
be budget neutral (for example, changes to
MS–DRG classifications, recalibration of the
MS–DRG relative weights, updates to the
wage index, and different geographic
reclassifications). We include outlier
payments in the simulations because they
may be affected by changes in these
parameters.
• Consistent with our methodology
established in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50422 through 50433),
because IME Medicare Advantage payments
are made to IPPS hospitals under section
1886(d) of the Act, we believe these
payments must be part of these budget
neutrality calculations. However, we note
that it is not necessary to include Medicare
Advantage IME payments in the outlier
threshold calculation or the outlier offset to
the standardized amount because the statute
requires that outlier payments be not less
than 5 percent nor more than 6 percent of
total ‘‘operating DRG payments,’’ which does
not include IME and DSH payments. We refer
readers to the FY 2011 IPPS/LTCH PPS final
rule for a complete discussion on our
methodology of identifying and adding the
total Medicare Advantage IME payment
amount to the budget neutrality adjustments.
• Consistent with the methodology in the
FY 2012 IPPS/LTCH PPS final rule, in order
to ensure that we capture only fee-for-service
claims, we are only including claims with a
‘‘Claim Type’’ of 60 (which is a field on the
MedPAR file that indicates a claim is an FFS
claim).

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• In order to further ensure that we capture
only FFS claims, we are proposing to exclude
claims with a ‘‘GHOPAID’’ indicator of 1
(which is a field on the MedPAR file that
indicates a claim is not an FFS claim and is
paid by a Group Health Organization).
• Consistent with our methodology
established in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50422 through 50423), we
examine the MedPAR file and remove
pharmacy charges for anti-hemophilic blood
factor (which are paid separately under the
IPPS) with an indicator of ‘‘3’’ for blood
clotting with a revenue code of ‘‘0636’’ from
the covered charge field for the budget
neutrality adjustments. We also remove 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.
• The Bundled Payments for Care
Improvement (BPCI) initiative, developed
under the authority of section 3021 of the
Affordable Care Act (codified at section
1115A of the Act), is comprised of four
broadly defined models of care, which link
payments for multiple services beneficiaries
receive during an episode of care. Under the
BPCI initiative, organizations enter into
payment arrangements that include financial
and performance accountability for episodes
of care. On January 31, 2013, CMS
announced the first set of health care
organizations selected to participate in the
BPCI initiative. Additional organizations
were selected in 2014. For additional
information on the BPCI initiative, we refer
readers to the CMS Center for Medicare and
Medicaid Innovation’s Web site at: http://
innovation.cms.gov/initiatives/BundledPayments/index.html.
In the FY 2013 IPPS/LTCH PPS final rule
(77 FR 53341 through 53343), for FY 2013
and subsequent fiscal years, we finalized a
methodology to treat hospitals that
participate in the BPCI initiative the same as
prior fiscal years for the IPPS payment
modeling and ratesetting process (which
includes recalibration of the MS–DRG
relative weights, ratesetting, calculation of
the budget neutrality factors, and the impact
analysis) without regard to a hospital’s
participation within these bundled payment
models (that is, as if they are not
participating in those models under the BPCI
initiative). For FY 2017, we are proposing to
continue to include all applicable data from
subsection (d) hospitals participating in BPCI
Models 1, 2, and 4 in our IPPS payment
modeling and ratesetting calculations.
• Consistent with our methodology
established in the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53687 through 53688), we
believe that it is appropriate to include
adjustments for the Hospital Readmissions
Reduction Program and the Hospital VBP
Program (established under the Affordable
Care Act) within our budget neutrality
calculations.
Both the hospital readmissions payment
adjustment (reduction) and the hospital VBP
payment adjustment (redistribution) are
applied on a claim-by-claim basis by
adjusting, as applicable, the base-operating
DRG payment amount for individual
subsection (d) hospitals, which affects the

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overall sum of aggregate payments on each
side of the comparison within the budget
neutrality calculations.
In order to properly determine aggregate
payments on each side of the comparison, as
we have done for the last 3 fiscal years, for
FY 2017 and subsequent years, we are
proposing to continue to apply the hospital
readmissions payment adjustment and the
hospital VBP payment adjustment on each
side of the comparison, consistent with the
methodology that we adopted in the FY 2013
IPPS/LTCH PPS final rule (77 FR 53687
through 53688). That is, we are proposing to
apply the proposed readmissions payment
adjustment factor and the proposed hospital
VBP payment adjustment factor on both sides
of our comparison of aggregate payments
when determining all budget neutrality
factors described in section II.A.4. of this
Addendum.
For the purpose of calculating the
proposed FY 2017 readmissions payment
adjustment factors, we are proposing to use
excess readmission ratios and aggregate
payments for excess readmissions based on
admissions from the prior fiscal year’s
applicable period because hospitals have had
the opportunity to review and correct these
data before the data were made public under
the policy we adopted regarding the
reporting of hospital-specific readmission
rates, consistent with section 1886(q)(6) of
the Act. For FY 2017, in this proposed rule,
we are proposing to calculate the
readmissions payment adjustment factors
using excess readmission ratios and aggregate
payments for excess readmissions based on
admissions from the finalized applicable
period for FY 2017 as hospitals have had the
opportunity to review and correct these data
under our policy regarding the reporting of
hospital-specific readmission rates consistent
with section 1886(q)(6) of the Act. We
discuss our proposed policy regarding the
reporting of hospital-specific readmission
rates for FY 2017 in section IV.G.3.f of the
preamble of this proposed rule. (For
additional information on our general policy
for the reporting of hospital-specific
readmission rates, consistent with section
1886(q)(6) of the Act, we refer readers to the
FY 2013 IPPS/LTCH PPS final rule (77 FR
53399 through 53400).)
In addition, for FY 2017, in this proposed
rule, for the purpose of modeling aggregate
payments when determining all budget
neutrality factors, we are proposing to use
proxy hospital VBP payment adjustment
factors for FY 2017 that are based on data
from a historical period because hospitals
have not yet had an opportunity to review
and submit corrections for their data from the
FY 2017 performance period. (For additional
information on our policy regarding the
review and correction of hospital-specific
measure rates under the Hospital VBP
Program, consistent with section
1886(o)(10)(A)(ii) of the Act, we refer readers
to the FY 2013 IPPS/LTCH PPS final rule (77
FR 53578 through 53581), the CY 2012
OPPS/ASC final rule with comment period
(76 FR 74544 through 74547), and the
Hospital Inpatient VBP final rule (76 FR
26534 through 26536).)
• The Affordable Care Act also established
section 1886(r) of the Act, which modifies

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the methodology for computing the Medicare
DSH payment adjustment beginning in FY
2014. Beginning in FY 2014, IPPS hospitals
receiving Medicare DSH payment
adjustments will receive an empirically
justified Medicare DSH payment equal to 25
percent of the amount that would previously
have been received under the statutory
formula set forth under section 1886(d)(5)(F)
of the Act governing the Medicare DSH
payment adjustment. In accordance with
section 1886(r)(2) of the Act, the remaining
amount, equal to an estimate of 75 percent
of what otherwise would have been paid as
Medicare DSH payments, reduced to reflect
changes in the percentage of individuals
under age 65 who are uninsured and an
additional statutory adjustment, will be
available to make additional payments to
Medicare DSH hospitals based on their share
of the total amount of uncompensated care
reported by Medicare DSH hospitals for a
given time period. In order to properly
determine aggregate payments on each side
of the comparison for budget neutrality, prior
to FY 2014, we included estimated Medicare
DSH payments on both sides of our
comparison of aggregate payments when
determining all budget neutrality factors
described in section II.A.4. of this
Addendum.
To do this for FY 2017 (as we did for the
last 3 fiscal years), we are proposing to
include estimated empirically justified
Medicare DSH payments that will be paid in
accordance with section 1886(r)(1) of the Act
and estimates of the additional
uncompensated care payments made to
hospitals receiving Medicare DSH payment
adjustments as described by section
1886(r)(2) of the Act. That is, we are
proposing to consider estimated empirically
justified Medicare DSH payments at 25
percent of what would otherwise have been
paid, and also the estimated additional
uncompensated care payments for hospitals
receiving Medicare DSH payment
adjustments on both sides of our comparison
of aggregate payments when determining all
budget neutrality factors described in section
II.A.4. of this Addendum.
• When calculating total payments for
budget neutrality, to determine total
payments for SCHs, we model total hospitalspecific rate payments and total Federal rate
payments and then include whichever one of
the total payments is greater. As discussed in
section IV.F. of the preamble to this proposed
rule and below, we are proposing to continue
the FY 2014 finalized methodology under
which we would take into consideration
uncompensated care payments in the
comparison of payments under the Federal
rate and the hospital-specific rate for SCHs.
Therefore, we are proposing to include
estimated uncompensated care payments in
this comparison.
Similarly, for MDHs, as discussed in
section IV. of the preamble to this proposed
rule, when computing payments under the
Federal national rate plus 75 percent of the
difference between the payments under the
Federal national rate and the payments under
the updated hospital-specific rate, we are
continuing to take into consideration
uncompensated care payments in the

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computation of payments under the Federal
rate and the hospital-specific rate for MDHs.
• We are proposing to include an
adjustment to the standardized amount for
those hospitals that are not meaningful EHR
users in our modeling of aggregate payments
for budget neutrality for FY 2017. Similar to
FY 2016, we are including this adjustment
based on data on the prior year’s
performance. Payments for hospitals would
be estimated based on the proposed
applicable standardized amount in Tables 1A
and 1B for discharges occurring in FY 2017.
a. Proposed Recalibration of MS–DRG
Relative Weights
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.G. of the preamble of this proposed
rule, we normalized the recalibrated MS–
DRG relative weights by an adjustment factor
so that the average case relative weight after
recalibration is equal to the average case
relative weight prior to recalibration.
However, equating the average case relative
weight after recalibration to the average case
relative weight before recalibration does not
necessarily achieve budget neutrality with
respect to aggregate payments to hospitals
because payments to hospitals are affected by
factors other than average case relative
weight. Therefore, as we have done in past
years, we are proposing to make a budget
neutrality adjustment to ensure that the
requirement of section 1886(d)(4)(C)(iii) of
the Act is met.
For FY 2017, to comply with the
requirement that MS–DRG reclassification
and recalibration of the relative weights be
budget neutral for the standardized amount
and the hospital-specific rates, we used FY
2015 discharge data to simulate payments
and compared the following:
• Aggregate payments using the FY 2016
labor-related share percentages, the FY 2016
relative weights, and the FY 2016 prereclassified wage data, and applied the
proposed FY 2017 hospital readmissions
payment adjustments and estimated FY 2017
hospital VBP payment adjustments; and
• Aggregate payments using the FY 2016
labor-related share percentages, the proposed
FY 2017 relative weights, and the FY 2016
pre-reclassified wage data, and applied the
same proposed FY 2017 hospital
readmissions payment adjustments and
estimated FY 2017 hospital VBP payment
adjustments applied above.
Based on this comparison, we computed a
proposed budget neutrality adjustment factor
equal to 0.999006 and applied this factor to
the standardized amount. As discussed in
section IV. of this Addendum, we also are
proposing to apply the MS–DRG
reclassification and recalibration budget
neutrality factor of 0.999006 to the hospitalspecific rates that are effective for cost
reporting periods beginning on or after
October 1, 2016.
b. Updated Wage Index—Budget Neutrality
Adjustment
Section 1886(d)(3)(E)(i) of the Act requires
us to update the hospital wage index on an

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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 1.0000,
and section 1886(d)(3)(E)(i) of the Act
provides that the Secretary shall calculate the
budget neutrality adjustment for the
adjustments or updates made under that
provision as if section 1886(d)(3)(E)(ii) of the
Act had not been enacted. In other words,
this section of the statute requires that we
implement the updates to the wage index in
a budget neutral manner, but that our budget
neutrality adjustment should not take into
account the requirement that we set the
labor-related share for hospitals with wage
indexes less than or equal to 1.0000 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 1.0000 are paid
using a labor-related share of 62 percent.
Consistent with current policy, for FY 2017,
we are proposing to adjust 100 percent of the
wage index factor for occupational mix. We
describe the occupational mix adjustment in
section III.E. of the preamble of this proposed
rule.
To compute a proposed budget neutrality
adjustment factor for wage index and laborrelated share percentage changes, we used FY
2015 discharge data to simulate payments
and compared the following:
• Aggregate payments using the proposed
FY 2017 relative weights and the FY 2016
pre-reclassified wage indexes, applied the FY
2016 labor-related share of 69.6 percent to all
hospitals (regardless of whether the
hospital’s wage index was above or below
1.0000), and applied the proposed FY 2017
hospital readmissions payment adjustment
and the estimated FY 2017 hospital VBP
payment adjustment; and
• Aggregate payments using the proposed
FY 2017 relative weights and the proposed
FY 2017 pre-reclassified wage indexes,
applied the proposed labor-related share for
FY 2017 of 69.6 percent to all hospitals
(regardless of whether the hospital’s wage
index was above or below 1.0000), and
applied the same proposed FY 2017 hospital
readmissions payment adjustments and
estimated FY 2017 hospital VBP payment
adjustments applied above.
In addition, we applied the proposed MS–
DRG reclassification and recalibration budget
neutrality adjustment factor (derived in the
first step) to the payment rates that were used
to simulate payments for this comparison of
aggregate payments from FY 2016 to FY
2017. By applying this methodology, we
determined a proposed budget neutrality
adjustment factor of 0.999785 for proposed
changes to the wage index.
We note that, in prior fiscal years, we used
a three-step process and combined the

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recalibration and wage index budget
neutrality factors into one factor by
multiplying the recalibration adjustment
factor by the wage index adjustment factor.
Because these two adjustments are required
under two different sections of the Act
(sections 1886(d)(4)(C)(iii) and
1886(d)(3)(E)(i) of the Act) and the law
requires that the wage index budget
neutrality adjustment not take into account
the requirement that we set the labor-related
share for hospitals with wage indexes less
than or equal to 1.0000 at the more
advantageous level of 62 percent for FY 2017,
we are proposing to separate these two
adjustments and apply them individually to
the standardized amount. Applying these
factors individually rather than as a
combined factor has no effect mathematically
on adjusting the standardized amount.
c. Reclassified Hospitals—Proposed Budget
Neutrality Adjustment
Section 1886(d)(8)(B) of the Act provides
that certain rural hospitals are deemed urban.
In addition, section 1886(d)(10) of the Act
provides for the reclassification of hospitals
based on determinations by the MGCRB.
Under section 1886(d)(10) of the Act, a
hospital may be reclassified for purposes of
the wage index.
Under section 1886(d)(8)(D) of the Act, the
Secretary is required to adjust the
standardized amount to ensure that aggregate
payments under the IPPS after
implementation of the provisions of sections
1886(d)(8)(B) and (C) and 1886(d)(10) of the
Act are equal to the aggregate prospective
payments that would have been made absent
these provisions. We note that the wage
index adjustments provided for under section
1886(d)(13) of the Act are not budget neutral.
Section 1886(d)(13)(H) of the Act provides
that any increase in a wage index under
section 1886(d)(13) shall not be taken into
account in applying any budget neutrality
adjustment with respect to such index under
section 1886(d)(8)(D) of the Act. To calculate
the proposed budget neutrality adjustment
factor for FY 2017, we used FY 2015
discharge data to simulate payments and
compared the following:
• Aggregate payments using the proposed
FY 2017 labor-related share percentages,
proposed FY 2017 relative weights and
proposed FY 2017 wage data prior to any
reclassifications under sections 1886(d)(8)(B)
and (C) and 1886(d)(10) of the Act, and
applied the proposed FY 2017 hospital
readmissions payment adjustments and the
estimated FY 2017 hospital VBP payment
adjustments; and
• Aggregate payments using the proposed
FY 2017 labor-related share percentages,
proposed FY 2017 relative weights, and
proposed FY 2017 wage data after such
reclassifications, and applied the same
proposed FY 2017 hospital readmissions
payment adjustments and the estimated FY
2017 hospital VBP payment adjustments
applied above.
We note that the reclassifications applied
under the second simulation and comparison
are those listed in Table 2 associated with
this proposed rule, which is available via the
Internet on the CMS Web site. This table
reflects reclassification crosswalks proposed

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for FY 2017, and apply the proposed policies
explained in section III. of the preamble to
this proposed rule. Based on these
simulations, we calculated a proposed budget
neutrality adjustment factor of 0.988816 to
ensure that the effects of these provisions are
budget neutral, consistent with the statute.
The proposed FY 2017 budget neutrality
adjustment factor was applied to the
standardized amount after removing the
effects of the FY 2016 budget neutrality
adjustment factor. We note that the proposed
FY 2017 budget neutrality adjustment reflects
FY 2017 wage index reclassifications
approved by the MGCRB or the
Administrator at the time of development of
the proposed rule.
d. Proposed Rural Floor Budget Neutrality
Adjustment
Under § 412.64(e)(4), we make an
adjustment to the wage index to ensure that
aggregate payments after implementation of
the rural floor under section 4410 of the BBA
(Pub. L. 105–33) and the imputed floor under
§ 412.64(h)(4) are equal to the aggregate
prospective payments that would have been
made in the absence of such provisions.
Consistent with section 3141 of the
Affordable Care Act and as discussed in
section III.H. of the preamble of this
proposed rule and codified at
§ 412.64(e)(4)(ii), the budget neutrality
adjustment for the rural floor and the
imputed floor is a national adjustment to the
wage index.
As noted above and as discussed in section
III.H.2. of the preamble of this proposed rule,
we are proposing to extend the imputed floor
policy (both the original methodology and
alternative methodology) for FY 2017.
Therefore, in order to ensure that aggregate
payments to hospitals are not affected,
similar to prior years, for FY 2017, we would
follow our policy of including the proposed
imputed floor (calculated under the original
and alternative methodologies) in the
proposed national rural floor budget
neutrality adjustment to the wage index.
Similar to our calculation in the FY 2015
IPPS/LTCH PPS final rule (79 FR 50369
through 50370), for FY 2017, we are
proposing to calculate a national rural Puerto
Rico wage index. Because there are no rural
Puerto Rico hospitals with established wage
data, our calculation of the proposed FY 2017
rural Puerto Rico wage index is based on the
policy adopted in the FY 2008 IPPS final rule
with comment period (72 FR 47323). That is,
we will use the unweighted average of the
wage indexes from all CBSAs (urban areas)
that are contiguous (share a border with) to
the rural counties to compute the rural floor
(72 FR 47323; 76 FR 51594). Under the new
OMB labor market area delineations, except
for Arecibo, Puerto Rico (CBSA 11640), all
other Puerto Rico urban areas are contiguous
to a rural area. Therefore, based on our
existing policy, the proposed FY 2017 rural
Puerto Rico wage index is calculated based
on the average of the proposed FY 2017 wage
indexes for the following urban areas:
Aguadilla-Isabela, PR (CBSA 10380);
Guayama, PR (CBSA 25020); Mayaguez, PR
(CBSA 32420); Ponce, PR (CBSA 38660), San
German, PR (CBSA 41900) and San JuanCarolina-Caguas, PR (CBSA 41980).

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25269

To calculate the national rural floor and
imputed floor budget neutrality adjustment
factor, we are proposing to use FY 2015
discharge data to simulate payments and the
proposed post-reclassified national wage
indexes and compared the following:
• National simulated payments without
the proposed national rural floor and
imputed floor; and
• National simulated payments with the
proposed national rural floor and imputed
floor.
Based on this comparison, we determined
a proposed national rural floor and imputed
floor budget neutrality adjustment factor of
0.993806. The national adjustment was
applied to the national wage indexes to
produce a proposed national rural floor and
imputed floor budget neutral wage index.
e. Wage Index Transition Budget Neutrality
As discussed in section III.G. of the
preamble of this proposed rule, in the past,
we have provided for transition periods
when adopting changes that have significant
payment implications, particularly large
negative impacts.
Similar to FY 2005, for FY 2015, we
determined that the transition to using the
new OMB labor market area delineations
would have the largest impact on hospitals
that were located in an urban county that
became rural under the new OMB
delineations or hospitals deemed urban
where the urban area became rural under the
new OMB delineations. To alleviate the
decreased payments associated with having a
rural wage index, in calculating the area
wage index, similar to the transition
provided in the FY 2005 IPPS final rule, we
finalized a policy to generally assign the
hospitals in these counties the urban wage
index value of the CBSA where they are
physically located in for FY 2014 for FYs
2015, 2016, and 2017. FY 2017 will be the
final year of this 3-year transition policy. We
note that the 1-year blended wage index
transitional policy for all hospitals that
would experience any decrease in their wage
index value expired in FY 2015.
As discussed in the FY 2015 IPPS/LTCH
PPS final rule (79 FR 50372 through 50373),
in the past, CMS has budget neutralized
transitional wage indexes. We stated that
because we established a policy that allows
for the application of a transitional wage
index only when it benefits the hospital, we
believe that it would be appropriate to ensure
that such a transitional policy does not
increase aggregate Medicare payments
beyond the payments that would be made
had we simply adopted the OMB
delineations without any transitional
provisions. Therefore, as we did for FYs 2015
and 2016, for FY 2017, we are proposing to
use our exceptions and adjustments authority
under section 1886(d)(5)(I)(i) of the Act to
make an adjustment to the national
standardized amounts to ensure that total
payments for the effect of the 3-year
transitional wage index provisions would
equal what payments would have been if we
had fully adopted the new OMB delineations
without providing these transitional
provisions. To calculate the proposed
transitional wage index budget neutrality
factor for FY 2017, we used FY 2015

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discharge data to simulate payments and
compared the following:
• Aggregate payments using the OMB
delineations for FY 2017, the proposed FY
2017 relative weights, proposed FY 2017
wage data after such reclassifications under
sections 1886(d)(8)(B) and (C) and
1886(d)(10) of the Act, application of the
proposed rural floor budget neutrality
adjustment factor to the wage index, and
application of the proposed FY 2017 hospital
readmissions payment adjustments and the
estimated FY 2017 hospital VBP payment
adjustments; and
• Aggregate payments using the OMB
delineations for FY 2017, the proposed FY
2017 relative weights, proposed FY 2017
wage data after such reclassifications under
sections 1886(d)(8)(B) and (C) and
1886(d)(10) of the Act, application of the
proposed rural floor budget neutrality
adjustment factor to the wage index,
application of the 3-year transitional wage
indexes, and application of the same
proposed FY 2017 hospital readmissions
payment adjustments and the estimated FY
2017 hospital VBP payment adjustments
applied above.
Based on these simulations, we calculated
a proposed budget neutrality adjustment
factor of 0.999999. Therefore, for FY 2017,
we are proposing to apply a transitional wage
index budget neutrality adjustment factor of
0.999999 to the national average
standardized amounts to ensure that the
effects of these proposed transitional wage
indexes are budget neutral.
We note that the proposed budget
neutrality adjustment factor calculated above
is based on the increase in payments in FY
2017 that would result from the final year of
the 3-year transitional wage index policies.
Therefore, we are proposing to apply this
proposed budget neutrality adjustment factor
as a one-time adjustment to the FY 2017
national standardized amounts in order to
offset the increase in payments in FY 2017
as a result of this final year of the 3-year
transitional wage index. For FY 2017, we did
not take into consideration the adjustment
factor applied to the national standardized
amounts in the previous fiscal year’s update
when calculating the current fiscal year
transitional wage index budget neutrality
adjustment factor (that is, this adjustment is
not applied cumulatively).
f. Proposed Case-Mix Budget Neutrality
Adjustment
(1) Background
Below we summarize the proposed
recoupment adjustment to the FY 2017
payment rates, as required by section 631 of
ATRA, to account for the increase in
aggregate payments as a result of not
completing the prospective adjustment
authorized under section 7(b)(1)(A) of Public
Law 110–90 until FY 2013. We refer readers
to section II.D. of the preamble of this
proposed rule for a complete discussion
regarding our proposed policies for FY 2017
in this proposed rule and previously
finalized policies (including our historical
adjustments to the payment rates) relating to
the effect of changes in documentation and
coding that do not reflect real changes in
case-mix.

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(2) Recoupment or Repayment Adjustment
Authorized by Section 631 of the American
Taxpayer Relief Act of 2012 (ATRA) to the
National Standardized Amount
Section 631 of the ATRA amended section
7(b)(1)(B) of Public Law 110–90 to require the
Secretary to make a recoupment adjustment
totaling $11 billion by FY 2017. Our actuaries
estimated that if CMS were to fully account
for the $11 billion recoupment required by
section 631 of ATRA in FY 2014, a one-time
¥9.3 percent adjustment to the standardized
amount would be necessary. It is often our
practice to delay or phase-in payment rate
adjustments over more than 1 year, in order
to moderate the effect on payment rates in
any 1 year. Therefore, consistent with the
policies that we have adopted in many
similar cases, for FY 2014, FY 2015 and FY
2016, we applied a ¥0.8 percent adjustment
to the standardized amount. For FY 2017, we
are proposing to apply a ¥1.5 percent
adjustment to the standardized amount. We
refer the reader to section II. D. 6 of the
preamble to this proposed rule for a complete
discussion on this adjustment. We note that,
as section 631 of the ATRA instructs the
Secretary to make a recoupment adjustment
only to the standardized amount, this
adjustment would not apply to the hospitalspecific payment rates.
g. Proposed Adjustment to IPPS Rates
Resulting From 2-Midnight Policy
As discussed in section IV. O of the
preamble to this proposed rule, in the FY
2014 IPPS/LTCH PPS final rule (78 FR 50906
through 50954), we adopted the 2-midnight
policy effective for dates of admission on or
after October 1, 2013. We used our authority
under section 1886(d)(5)(I)(i) of the Act to
make a reduction of 0.2 percent to the
standardized amount, the Puerto Rico
standardized amount, and the hospitalspecific payment rate, and we used our
authority under section 1886(g) of the Act to
make a reduction of 0.2 percent to the
national capital Federal rate and the Puerto
Rico-specific capital rate, in order to offset
the estimated increase of $220 million in
IPPS expenditures in FY 2014 as a result of
the 2-midnight policy.
In Shands Jacksonville Medical Center, Inc.
v. Burwell, No. 14–263 (D.D.C.) and
consolidated cases, hospitals challenged the
0.2 percent reduction in IPPS rates to account
for the estimated $220 million in additional
FY 2014 expenditures resulting from the 2midnight policy. In its Memorandum
Opinion, issued September 21, 2015, the
Court found that the ‘‘Secretary’s
interpretation of the exceptions and
adjustments provision is a reasonable one’’
for this purpose. However, the Court also
ordered the 0.2 percent reduction remanded
back to the Secretary, without vacating the
rule, to correct certain procedural
deficiencies in the promulgation of the 0.2
percent reduction and reconsider the
adjustment. In accordance with the Court’s
order, we published a notice with comment
period that appeared in the December 1, 2015
Federal Register (80 FR 75107), which
discussed the basis for the 0.2 percent
reduction and its underlying assumptions
and invited comments on the same in order

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to facilitate our further consideration of the
FY 2014 reduction.
We still believe the assumptions
underlying the 0.2 percent reduction to the
rates put in place beginning in FY 2014 were
reasonable at the time we made them in
2013. Nevertheless, taking all the factors
discussed in section IV. O of the preamble to
this proposed rule into account and in the
context of the litigation, we believe it would
be appropriate to use our authority under
section 1886(d)(5)(I)(i) to prospectively
remove, beginning in FY 2017, the 0.2
percent reduction to the standardized
amount and hospital-specific rates put in
place beginning in FY 2014. The 0.2 percent
reduction was implemented by including a
factor of 0.998 in the calculation of the FY
2014 standardized amount and hospitalspecific rates, permanently reducing the
standardized amount and hospital-specific
rates for FY 2014 and future years until the
0.998 is removed. We are proposing to
permanently remove the 0.998 reduction
beginning in FY 2017 by including a factor
of (1/0.998) in the calculation of the FY 2017
standardized amount and hospital specific
rate.
In addition, for the reasons discussed in
section IV.O. of the preamble of this
proposed rule, we believe it would be
appropriate to use our authority under
section 1886(d)(5)(I)(i) to temporarily
increase the standardized amount and
hospital-specific rates, only for FY 2017, to
address the effect of the 0.2 percent reduction
to the standardized amount and hospitalspecific rates in effect for FY 2014, the 0.2
percent reduction to the standardized
amount and hospital-specific rates in effect
for FY 2015 (recall the 0.998 factor included
in the calculation of the FY 2014 rates
permanently reduced the rates for FY 2014
and future years until it is removed), and the
0.2 percent reduction to the standardized
amount and hospital-specific rates in effect
for FY 2016. We believe that the most
transparent, expedient, and administratively
feasible method to accomplish this is a
temporary one-time prospective increase to
the FY 2017 standardized amount and
hospital-specific rates of 0.6 percent (= 0.2
percent + 0.2 percent + 0.2 percent).
Specifically, we are proposing to include a
factor of 1.006 in the calculation of the
standardized amount and the hospitalspecific rates in FY 2017 and then remove
this temporary one-time prospective increase
by including a factor of (1/1.006) in the
calculation of the standardized amount and
hospital-specific rates for FY 2018.
We refer the reader to section IV.O. of the
preamble to this proposed rule for a complete
discussion.
h. Proposed Outlier Payments
Section 1886(d)(5)(A) of the Act provides
for payments in addition to the basic
prospective payments for ‘‘outlier’’ cases
involving extraordinarily high costs. To
qualify for outlier payments, a case must
have costs greater than the sum of the
prospective payment rate for the MS–DRG,
any IME and DSH payments, uncompensated
care payments, any new technology add-on
payments, and the ‘‘outlier threshold’’ or
‘‘fixed-loss’’ amount (a dollar amount by

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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 MS–DRG,
any IME and DSH payments, uncompensated
care 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 2017 is 80 percent, or 90
percent for burn MS–DRGs 927, 928, 929,
933, 934 and 935. We have used a marginal
cost factor of 90 percent since FY 1989 (54
FR 36479 through 36480) for designated burn
DRGs as well as a marginal cost factor of 80
percent for all other DRGs 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 (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. More information on
outlier payments may be found on the CMS
Web site at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/Acute
InpatientPPS/outlier.htm.
(1) Proposed FY 2017 Outlier Fixed-Loss Cost
Threshold
In the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50977 through 50983), in response to
public comments on the FY 2013 IPPS/LTCH
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(January 1, 2014, through
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PPS proposed rule, we made changes to our
methodology for projecting the outlier fixedloss cost threshold for FY 2014. We refer
readers to the FY 2014 IPPS/LTCH PPS final
rule for detailed discussion of the changes.
As we have done in the past, to calculate
the proposed FY 2017 outlier threshold, we
simulated payments by applying proposed
FY 2017 payment rates and policies using
cases from the FY 2015 MedPAR file.
Therefore, in order to determine the
proposed FY 2017 outlier threshold, we
inflated the charges on the MedPAR claims
by 2 years, from FY 2015 to FY 2017. As
discussed in the FY 2015 IPPS/LTCH PPS
final rule, we believe a methodology that is
based on 1-year of charge data will provide
a more stable measure to project the average
charge per case because our prior
methodology used a 6-month measure, which
inherently uses fewer claims than a 1-year
measure and makes it more susceptible to
fluctuations in the average charge per case as
a result of any significant charge increases or
decreases by hospitals. The methodology we
are proposing to calculate the charge
inflation factor for FY 2017 and subsequent
fiscal years is as follows:
• To produce the most stable measure of
charge inflation, we applied the following
inclusion and exclusion criteria of hospitals
claims in our measure of charge inflation:
include hospitals whose last four digits fall
between 0001 and 0899 (section 2779A1 of
Chapter 2 of the State Operations Manual on
the CMS Web site at https://www.cms.gov/
Regulations-and-Guidance/Guidance/
Manuals/Downloads/som107c02.pdf);
include CAHs that were IPPS hospitals for
the time period of the MedPAR data being
used to calculate the charge inflation factor;
include hospitals in Maryland; and remove
PPS excluded cancer hospitals who have a
‘‘V’’ in the fifth position of their provider
number or a ‘‘E’’ or ‘‘F’’ in the sixth position.
• We excluded Medicare Advantage IME
claims for the reasons described in section
I.A.4. of this Addendum. We refer readers to
the FY 2011 IPPS/LTCH PPS final rule for a
complete discussion on our methodology of
identifying and adding the total Medicare
Advantage IME payment amount to the
budget neutrality adjustments.
• In order to ensure that we capture only
FFS claims, we included claims with a
Cases
(January 1, 2014, through
December 31, 2014)

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‘‘Claim Type’’ of 60 (which is a field on the
MedPAR file that indicates a claim is an FFS
claim).
• In order to further ensure that we capture
only FFS claims, we excluded claims with a
‘‘GHOPAID’’ indicator of 1 (which is a field
on the MedPAR file that indicates a claim is
not an FFS claim and is paid by a Group
Health Organization).
• We examined the MedPAR file 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. We
also removed organ acquisition charges from
the covered charge field because organ
acquisition is a pass-through payment not
paid under the IPPS.
In the FY 2016 IPPS/LTCH final rule (80
FR 49779–49780), we stated that commenters
were concerned that they were unable to
replicate the calculation of the charge
inflation factor that CMS used in the
proposed rule. In response to those
comments, we stated that we continue to
believe that it is optimal to use the most
recent period of charge data available to
measure charge inflation. In response to
those comments, similar to FY 2016, for FY
2017 we grouped claims data by quarter in
the table below in order that the public
would be able to replicate the claims
summary for the claims with discharge dates
through September 30, 2015, that are
available under the current LDS structure. In
order to provide even more information in
response to the commenters’ request, similar
to FY 2016, for FY 2017 we have made
available on the CMS Web site at: https://
www.cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/
index.html (click on the link on the left titled
‘‘FY 2017 IPPS Proposed Rule Home Page’’’
and then click the link ‘‘FY 2017 Proposed
Rule Data Files’’’) a more detailed summary
table by provider with the monthly charges
that were used to compute the charge
inflation factor. We continue to work with
our systems teams and privacy office to
explore expanding the information available
in the current LDS, perhaps through the
provision of a supplemental data file for
future rulemaking.

Covered charges
(January 1, 2015, through
December 31, 2015)

Cases
(January 1, 2015, through
December 31, 2015)

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

$126,156,195,005
122,171,248,575
119,364,629,662
124,733,843,923

2,479,295
2,445,370
2,364,553
2,436,787

$134,250,323,661
126,880,227,174
122,165,668,615
90,677,073,204

2,546,078
2,416,569
2,308,537
1,696,180

Total

492,425,917,165

9,726,005

473,973,292,654

8,967,364

Under this methodology, to compute the 1year average annualized rate-of-change in
charges per case for FY 2017, we are
proposing to compare the average covered
charge per case of $50,360
($492,425,917,165/9,726,005) from the
second quarter of FY 2014 through the first
quarter of FY 2015 (January 1, 2014, through

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December 31, 2014) to the average covered
charge per case of $52,855
($473,973,292,654/8,967,364) from the
second quarter of FY 2015 through the first
quarter of FY 2016 (January 1, 2015, through
December 31, 2015). This rate-of-change is
4.4 percent (1.043957) or 9.8 percent
(1.089846) over 2 years. The billed charges

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are obtained from the claim from the
MedPAR file and inflated by the inflation
factor specified above.
As we have done in the past, in this
proposed rule, we are proposing to establish
the proposed FY 2017 outlier threshold using
hospital CCRs from the December 2015
update to the Provider-Specific File (PSF)—

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the most recent available data at the time of
the development of this proposed rule. As
stated in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50979), we apply the following
edits to providers’ CCRs in the PSF. We
believe these edits are appropriate in order to
accurately model the outlier threshold. We
first search for Indian Health Service
providers and those providers assigned the
statewide average CCR from the current fiscal
year. We then replace these CCRs with the
statewide average CCR for the upcoming
fiscal year. We also assign the statewide
average CCR (for the upcoming fiscal year) to
those providers that have no value in the
CCR field in the PSF. We do not apply the
adjustment factors described below to
hospitals assigned the statewide average
CCR.
For FY 2017, we also are proposing to
continue to apply an adjustment factor to the
CCRs to account for cost and charge inflation
(as explained below). We are proposing that,
if more recent data become available, we
would use that data to calculate the final FY
2017 outlier threshold.
In the FY 2014 IPPS/LTCH PPS final rule
(78 FR 50979), we adopted a new
methodology to adjust the CCRs. Specifically,
we finalized a policy to compare the national
average case-weighted operating and capital
CCR from the most recent update of the PSF
to the national average case-weighted
operating and capital CCR from the same
period of the prior year.
Therefore, as we did for the last 3 fiscal
years, we are proposing to adjust the CCRs
from the December 2015 update of the PSF
by comparing the percentage change in the
national average case-weighted operating
CCR and capital CCR from the December
2014 update of the PSF to the national
average case-weighted operating CCR and
capital CCR from the December 2015 update
of the PSF. We note that we used total
transfer-adjusted cases from FY 2015 to
determine the national average case-weighted
CCRs for both sides of the comparison. As
stated in the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50979), we believe that it is
appropriate to use the same case count on
both sides of the comparison because this
will produce the true percentage change in
the average case-weighted operating and
capital CCR from one year to the next
without any effect from a change in case
count on different sides of the comparison.
Using the proposed methodology above,
we calculated a proposed December 2014
operating national average case-weighted
CCR of 0.280907 and a proposed December
2015 operating national average caseweighted CCR of 0.272363. We then
calculated the percentage change between the
two national operating case-weighted CCRs
by subtracting the December 2014 operating
national average case-weighted CCR from the
December 2015 operating national average
case-weighted CCR and then dividing the
result by the December 2014 national
operating average case-weighted CCR. This
resulted in a proposed national operating
CCR adjustment factor of 0.969585.
We used the same methodology proposed
above to adjust the capital CCRs. Specifically,
we calculated a December 2014 capital

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national average case-weighted CCR of
0.024615 and a December 2015 capital
national average case-weighted CCR of
0.024008. We then calculated the percentage
change between the two national capital
case-weighted CCRs by subtracting the
December 2014 capital national average caseweighted CCR from the December 2015
capital national average case-weighted CCR
and then dividing the result by the December
2014 capital national average case-weighted
CCR. This resulted in a proposed national
capital CCR adjustment factor of 0.975335.
As discussed above, for FY 2017, we are
proposing to apply the final year of the 3-year
transitional wage index because of the
adoption of the new OMB labor market area
delineations. Also, 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.H.3. of the preamble
of this proposed rule, in accordance with
section 10324(a) of the Affordable Care Act,
we created a wage index floor of 1.0000 for
all hospitals located in States determined to
be frontier States. We note that the frontier
State floor adjustments would 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 would
receive a wage index less than 1.0000 due to
the proposed 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 2017, it was necessary to
apply the proposed 3-year transitional wage
indexes and adjust the proposed wage index
of those eligible hospitals in a frontier State
when calculating the proposed outlier
threshold that results in outlier payments
being 5.1 percent of total payments for FY
2017. If we did not take the above into
account, our estimate of total FY 2017
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.
As we did in establishing the FY 2009
outlier threshold (73 FR 57891), in our
projection of FY 2017 outlier payments, we
are proposing not to make any adjustments
for the possibility that hospitals’ CCRs and
outlier payments may be reconciled upon
cost report settlement. We continue to
believe that, due to the policy implemented
in the June 9, 2003 Outlier Final Rule (68 FR
34494), CCRs will no longer fluctuate
significantly and, therefore, few hospitals
will actually have these ratios reconciled
upon cost report settlement. In addition, it is
difficult to predict the specific hospitals that
will have CCRs and outlier payments
reconciled in any given year. We note that we
have instructed MACs to identify for CMS
any instances where (1) a hospital’s actual
CCR for the cost reporting period fluctuates
plus or minus 10 percentage points compared
to the interim CCR used to calculate outlier
payments when a bill is processed; and (2)

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the total outlier payments for the hospital
exceeded $500,000.00 for that period. Our
simulations assume that CCRs accurately
measure hospital costs based on information
available to us at the time we set the outlier
threshold. For these reasons, we are
proposing not to make any assumptions
regarding the effects of reconciliation on the
outlier threshold calculation.
As described in sections IV.G. and IV.H.
respectively, of the preamble of this proposed
rule, sections 1886(q) and 1886(o) of the Act
establish the Hospital Readmissions
Reduction Program and the Hospital VBP
Program, respectively. We do not believe that
it is appropriate to include the hospital VBP
payment adjustments and the hospital
readmissions payment adjustments in the
proposed outlier threshold calculation or the
proposed outlier offset to the standardized
amount. Specifically, consistent with our
definition of the base operating DRG payment
amount for the Hospital Readmissions
Reduction Program under § 412.152 and the
Hospital VBP Program under § 412.160,
outlier payments under section 1886(d)(5)(A)
of the Act are not affected by these payment
adjustments. Therefore, outlier payments
would continue to be calculated based on the
unadjusted base DRG payment amount (as
opposed to using the base-operating DRG
payment amount adjusted by the hospital
readmissions payment adjustment and the
hospital VBP payment adjustment).
Consequently, we are proposing to exclude
the hospital VBP payment adjustments and
the hospital readmissions payment
adjustments from the calculation of the
proposed outlier fixed-loss cost threshold.
We note that, to the extent section 1886(r)
of the Act modifies the DSH payment
methodology under section 1886(d)(5)(F) of
the Act, the new uncompensated care
payment under section 1886(r)(2) of the Act,
like the empirically justified Medicare DSH
payment under section 1886(r)(1) of the Act,
may be considered an amount payable under
section 1886(d)(5)(F) of the Act such that it
would be reasonable to include the payment
in the outlier determination under section
1886(d)(5)(A) of the Act. As we have done
since the implementation of uncompensated
care payments in FY 2014, we also are
proposing for FY 2017 to allocate an
estimated per-discharge uncompensated care
payment amount to all cases for the hospitals
eligible to receive the uncompensated care
payment amount in the calculation of the
outlier fixed-loss cost threshold
methodology. We continue to believe that
allocating an eligible hospital’s estimated
uncompensated care payment to all cases
equally in the calculation of the outlier fixedloss cost threshold would best approximate
the amount we would pay in uncompensated
care payments during the year because, when
we make claim payments to a hospital
eligible for such payments, we would be
making estimated per-discharge
uncompensated care payments to all cases
equally. Furthermore, we continue to believe
that using the estimated per-claim
uncompensated care payment amount to
determine outlier estimates provides
predictability as to the amount of
uncompensated care payments included in

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the calculation of outlier payments.
Therefore, consistent with the methodology
used since FY 2014 to calculate the outlier
fixed-loss cost threshold, for FY 2017, we are
proposing to include estimated FY 2017
uncompensated care payments in the
computation of the proposed outlier fixedloss cost threshold. Specifically, we are
proposing to use the estimated per-discharge
uncompensated care payments to hospitals
eligible for the uncompensated care payment
for all cases in the calculation of the
proposed outlier fixed-loss cost threshold
methodology.
Using this methodology, we used the
formula described in section I.C.1 of this
Addendum to simulate and calculate the
Federal payment rate and outlier payments
for all claims. We used a threshold of $23,681
and calculated total operating Federal
payments of $82,727,323,366 and total
outlier payments of $4,445,892,903. We then
divided total outlier payments by total
operating Federal payments plus total outlier
payments and determined that this threshold
met the 5.1 percent target. As a result, we are
proposing an outlier fixed-loss cost threshold
for FY 2017 equal to the prospective payment
rate for the MS–DRG, plus any IME,
empirically justified Medicare DSH
payments, estimated uncompensated care
payment, and any add-on payments for new
technology, plus $23,681.
(2) Other Proposed Changes Concerning
Outliers
As stated in the FY 1994 IPPS final rule (58
FR 46348), we establish an outlier threshold
that is applicable to both hospital inpatient
operating costs and hospital inpatient
capital-related costs. When we modeled the
combined operating and capital outlier
payments, we found that using a common
threshold resulted in a lower percentage of
outlier payments for capital-related costs
than for operating costs. We project that the
thresholds for FY 2017 will result in outlier
payments that will equal 5.1 percent of
operating DRG payments and 6.26 percent of
capital payments based on the Federal rate.
In accordance with section 1886(d)(3)(B) of
the Act, we are proposing to reduce the FY
2017 standardized amount by the same
percentage to account for the projected
proportion of payments paid as outliers.
The proposed outlier adjustment factors
that would be applied to the standardized
amount based on the proposed FY 2017
outlier threshold are as follows:
Operating
standardized
amounts

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

National .............

0.948999

Capital
Federal
rate
0.937400

We are proposing to apply the outlier
adjustment factors to the proposed FY 2017
payment rates after removing the effects of
the FY 2016 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

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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 MAC computes operating CCRs greater
than 1.19 or capital CCRs greater than 0.171,
or hospitals for which the MAC is unable to
calculate a CCR (as described under
§ 412.84(i)(3) of our regulations), statewide
average CCRs are used to determine whether
a hospital qualifies for outlier payments.
Table 8A listed in section VI. of this
Addendum (and available only via the
Internet on the CMS Web site) contains the
proposed statewide average operating CCRs
for urban hospitals and for rural hospitals for
which the MAC is unable to compute a
hospital-specific CCR within the above range.
Effective for discharges occurring on or after
October 1, 2016, these statewide average
ratios would replace the ratios posted on our
Web site at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/Acute
InpatientPPS/FY-2014-IPPS-Final-RuleHome-Page-Items/FY-2014-IPPS-Final-RuleCMS-1599-F-Tables.html. Table 8B listed in
section VI. of this Addendum (and available
via the Internet on the CMS Web site)
contains the comparable proposed statewide
average capital CCRs. As previously stated,
the proposed CCRs in Tables 8A and 8B
would be used during FY 2017 when
hospital-specific CCRs based on the latest
settled cost report either are not available or
are outside the range noted above. Table 8C
listed in section VI. of this Addendum (and
available via the Internet on the CMS Web
site) contains the proposed statewide average
total CCRs used under the LTCH PPS as
discussed in section V. of this Addendum.
We finally note that we published a
manual update (Change Request 3966) to our
outlier policy on October 12, 2005, which
updated Chapter 3, Section 20.1.2 of the
Medicare Claims Processing Manual. The
manual update covered an array of topics,
including CCRs, reconciliation, and the time
value of money. We encourage hospitals that
are assigned the statewide average operating
and/or capital CCRs to work with their 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 MAC
can avoid possible overpayments or
underpayments at cost report settlement,
thereby 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. In addition, 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

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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 2015 Outlier Payments
Our current estimate, using available FY
2015 claims data, is that actual outlier
payments for FY 2015 were approximately
4.68 percent of actual total MS–DRG
payments. Therefore, the data indicate that,
for FY 2015, the percentage of actual outlier
payments relative to actual total payments is
lower than we projected for FY 2015.
Consistent with the policy and statutory
interpretation we have maintained since the
inception of the IPPS, we do not make
retroactive adjustments to outlier payments
to ensure that total outlier payments for FY
2015 are equal to 5.1 percent of total MS–
DRG payments. As explained in the FY 2003
Outlier Final Rule (68 FR 34502), if we were
to make retroactive adjustments to all outlier
payments to ensure total payments are 5.1
percent of MS–DRG payments (by
retroactively adjusting outlier payments), we
would be removing the important aspect of
the prospective nature of the IPPS. Because
such an across-the-board adjustment would
either lead to more or less outlier payments
for all hospitals, hospitals would no longer
be able to reliably approximate their payment
for a patient while the patient is still
hospitalized. We believe it would be neither
necessary nor appropriate to make such an
aggregate retroactive adjustment.
Furthermore, we believe it is consistent with
the intent of the language at section
1886(d)(5)(A)(iv) of the Act not to make
retroactive adjustments to outlier payments.
This section calls for the Secretary to ensure
that outlier payments are equal to or greater
than 5 percent and less than or equal to 6
percent of projected or estimated (not actual)
MS–DRG payments. We believe this language
reflects the intent of Congress regarding the
prospectivity of the IPPS. We believe that an
important goal of a PPS is predictability.
Therefore, we believe that the fixed-loss
outlier threshold should be projected based
on the best available historical data and
should not be adjusted retroactively. A
retroactive change to the fixed-loss outlier
threshold would affect all hospitals subject to
the IPPS, thereby undercutting the
predictability of the system as a whole.
We note that because the MedPAR claims
data for the entire FY 2016 will not be
available until after September 30, 2016, we
are unable to provide an estimate of actual
outlier payments for FY 2016 based on FY
2016 claims data in this proposed rule. We
will provide an estimate of actual FY 2016
outlier payments in the FY 2018 IPPS/LTCH
PPS proposed rule.
5. Proposed FY 2017 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 on the CMS
Web site) contain the national standardized
amounts that we are proposing to apply to all
hospitals, except hospitals located in Puerto

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Rico, for FY 2017. The proposed
standardized amount for hospitals in Puerto
Rico is shown in Table 1C listed and
published in section VI. of this Addendum
(and available via the Internet on the CMS
Web site). The proposed amounts shown in
Tables 1A and 1B differ only in that the
labor-related share applied to the
standardized amounts in Table 1A is 69.6
percent, and the labor-related share applied
to the standardized amounts in Table 1B is
62 percent. In accordance with sections
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act,
we are proposing to apply a labor-related
share of 62 percent, unless application of that
percentage would result in lower payments
to a hospital than would otherwise be made.
In effect, the statutory provision means that
we will apply a labor-related share of 62
percent for all hospitals whose wage indexes
are less than or equal to 1.0000.
In addition, Tables 1A and 1B include the
proposed standardized amounts reflecting

the proposed applicable percentage increases
for FY 2017.
The proposed labor-related and nonlaborrelated portions of the national average
standardized amounts for Puerto Rico
hospitals for FY 2017 are set forth in Table
1C listed and published in section VI. of this
Addendum (and available via the Internet on
the CMS Web site). Similar to above, 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 2016 national standardized
amount to the proposed FY 2017 national
standardized amount. The second through
fifth columns display the proposed changes
from the FY 2016 standardized amounts for
each applicable FY 2017 standardized

amount. The first row of the table shows the
updated (through FY 2016) average
standardized amount after restoring the FY
2016 offsets for outlier payments,
demonstration budget neutrality, geographic
reclassification budget neutrality, new labor
market delineation wage index transition
budget neutrality, retrospective
documentation and coding adjustment under
section 7(b)(1)(B) of Public Law 110–90 and
an adjustment to the standardized amount
using our authority under section
1886(d)(5)(I)(i) of the Act to permanently
prospectively remove the 0.2 percent
reduction to the rate put in place in FY 2014
to offset the estimated increase in IPPS
expenditures as a result of the 2-midnight
policy . The MS–DRG reclassification and
recalibration and wage index budget
neutrality adjustment factors are cumulative.
Therefore, those FY 2016 adjustment factors
are not removed from this table.

COMPARISON OF FY 2016 STANDARDIZED AMOUNTS TO THE PROPOSED FY 2017 STANDARDIZED AMOUNTS
Hospital submitted
quality data and is a
meaningful EHR user

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

FY 2016 Base Rate after removing:

1. FY 2016 Geographic Reclassification
Budget Neutrality (0.988169).
2. FY 2016 Rural Community Hospital
Demonstration Program Budget Neutrality (0.999837).
3. Cumulative FY 2008, FY 2009, FY
2012, FY 2013, FY 2014, FY 2015
and FY 2016 Documentation and
Coding Adjustments as Required
under
Sections
7(b)(1)(A)
and
7(b)(1)(B) of Pub. L. 110–90 and Documentation and Coding Recoupment
Adjustment as required under Section
631 of the American Taxpayer Relief
Act of 2012 (0.9255).
4. FY 2016 Operating Outlier Offset
(0.948998).
5. FY 2016 New Labor Market Delineation Wage Index Transition Budget
Neutrality Factor (0.999998).
6. FY 2017 Proposed 2-Midnight Rule
Permanent Adjustment (1/0.998).
Proposed FY 2017 Update Factor .................
Proposed FY 2017 MS–DRG Recalibration
Budget Neutrality Factor.
Proposed FY 2017 Wage Index Budget Neutrality Factor.
Proposed FY 2017 Reclassification Budget
Neutrality Factor.
Proposed FY 2017 Operating Outlier Factor

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Hospital submitted
quality data and is
NOT a meaningful
EHR user

Hospital did NOT submit quality data and is
a meaningful EHR
user

Hospital did NOT submit quality data and is
NOT a meaningful
EHR user

If Wage Index is
Greater Than
1.0000:
Labor (69.6%):
$4,394.09.
Nonlabor (30.4%):
$1,919.26.
If Wage Index is less
Than or Equal to
1.0000: Labor
(62%): $3,914.28.
Nonlabor (38%):
$2,399.07.

If Wage Index is
Greater Than
1.0000:
Labor (69.6%):
$4,394.09.
Nonlabor (30.4%):
$1,919.26.
If Wage Index is less
Than or Equal to
1.0000: Labor
(62%): $3,914.28.
Nonlabor (38%):
$2,399.07.

If Wage Index is
Greater Than
1.0000:
Labor (69.6%):
$4,394.09.
Nonlabor (30.4%):
$1,919.26.
If Wage Index is less
Than or Equal to
1.0000: Labor
(62%): $3,914.28.
Nonlabor (38%):
$2,399.07.

If Wage Index is
Greater Than
1.0000:
Labor (69.6%):
$4,394.09
Nonlabor (30.4%):
$1,919.26
If Wage Index is less
Than or Equal to
1.0000: Labor
(62%): $3,914.28
Nonlabor (38%):
$2,399.07

1.0155 ........................
0.999006 ....................

0.9945 ........................
0.999006 ....................

1.0085 ........................
0.999006 ....................

0.9875
0.999006

0.999785 ....................

0.999785 ....................

0.999785 ....................

0.999785

0.988816 ....................

0.988816 ....................

0.988816 ....................

0.988816

0.948999 ....................

0.948999 ....................

0.948999 ....................

0.98999

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COMPARISON OF FY 2016 STANDARDIZED AMOUNTS TO THE PROPOSED FY 2017 STANDARDIZED AMOUNTS—Continued

Cumulative Factor: FY 2008, FY 2009, FY
2012, FY 2013, FY 2014, FY 2015, FY
2016 and FY 2017 Documentation and
Coding Adjustment as Required under
Sections 7(b)(1)(A) and 7(b)(1)(B) of Pub.
L. 110–90 and Documentation and Coding
Recoupment Adjustment as required under
Section 631 of the American Taxpayer Relief Act of 2012.
Proposed FY 2017 New Labor Market Delineation Wage Index 3-Year Hold Harmless
Transition Budget Neutrality Factor.
Proposed FY 2017 2-Midnight Rule OneTime Prospective Increase.
Proposed National Standardized Amount for
FY 2017 if Wage Index is Greater Than
1.0000; Labor/Non-Labor Share Percentage (69.6/30.4).
Proposed National Standardized Amount for
FY 2017 if Wage Index is less Than or
Equal to 1.0000; Labor/Non-Labor Share
Percentage (62/38).

B. Proposed Adjustments for Area Wage
Levels and Cost-of-Living
Tables 1A through 1C, as published in
section VI. of this Addendum (and available
via the Internet on the CMS Web site),
contain the proposed labor-related and
nonlabor-related shares that we are proposing
to use to calculate the prospective payment
rates for hospitals located in the 50 States,
the District of Columbia, and Puerto Rico for
FY 2017. This section addresses two types of
adjustments to the standardized amounts that
are made in determining the proposed
prospective payment rates as described in
this Addendum.
1. Proposed Adjustment for Area Wage
Levels
Sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act require that we
make an adjustment to the labor-related
portion of the national prospective payment
rate to account for area differences in
hospital wage levels. This adjustment is
made by multiplying the labor-related

Hospital submitted
quality data and is a
meaningful EHR user

Hospital submitted
quality data and is
NOT a meaningful
EHR user

Hospital did NOT submit quality data and is
a meaningful EHR
user

Hospital did NOT submit quality data and is
NOT a meaningful
EHR user

0.9118 ........................

0.9118 ........................

0.9118 ........................

0.9118

0.999999 ....................

0.999999 ....................

0.999999 ....................

0.999999

1.006 ..........................

1.006 ..........................

1.006 ..........................

1.006

Labor: $3,836.20 ........
Nonlabor: $1,675.59 ..

Labor: $3,756.87 ........
Nonlabor: $1,640.94 ..

Labor: $3,809.76 ........
Nonlabor: $1,664.04 ..

Labor: $3,730.43
Nonlabor: $1,629.39

Labor: $3,417.31 ........
Nonlabor: $2,094.48 ..

Labor: $3,346.64 ........
Nonlabor: $2,051.17 ..

Labor: $3,393.76 ........
Nonlabor: $2,080.04 ..

Labor: $3,323.09
Nonlabor: $2,036.73

portion of the adjusted standardized amounts
by the appropriate wage index for the area in
which the hospital is located. In section III.
of the preamble of this proposed rule, we
discuss the data and methodology for the
proposed FY 2017 wage index.
2. Adjustment for Cost-of-Living in Alaska
and Hawaii
Section 1886(d)(5)(H) of the Act provides
discretionary authority to the Secretary to
make such adjustments as the Secretary
deems appropriate to take into account the
unique circumstances of hospitals located in
Alaska and Hawaii. Higher labor-related costs
for these two States are taken into account in
the adjustment for area wages described
above. To account for higher nonlabor-related
costs for these two States, we multiply the
nonlabor-related portion of the standardized
amount for hospitals located in Alaska and
Hawaii by an adjustment factor.
In the FY 2013 IPPS/LTCH PPS final rule,
we established a methodology to update the
COLA factors for Alaska and Hawaii that
were published by the U.S. Office of

Personnel Management (OPM) every 4 years
(at the same time as the update to the laborrelated share of the IPPS market basket),
beginning in FY 2014. We refer readers to the
FY 2013 IPPS/LTCH PPS proposed and final
rules for additional background and a
detailed description of this methodology (77
FR 28145 through 28146 and 77 FR 53700
through 53701, respectively).
For FY 2014, in the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50985 through 50987),
we updated the COLA factors published by
OPM for 2009 (as these are the last COLA
factors OPM published prior to transitioning
from COLAs to locality pay) using the
methodology that we finalized in the FY
2013 IPPS/LTCH PPS final rule.
Based on the policy finalized in the FY
2013 IPPS/LTCH PPS final rule, we are
proposing to continue to use the same COLA
factors in FY 2017 that were used in FY 2016
to adjust the nonlabor-related portion of the
standardized amount for hospitals located in
Alaska and Hawaii. Below is a table listing
the proposed COLA factors for FY 2017.

PROPOSED FY 2017 COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII HOSPITALS
Cost of living
adjustment
factor

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

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1.23
1.23
1.23
1.25
1.25
1.19
1.25
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Based on the policy finalized in the FY
2013 IPPS/LTCH PPS final rule, the next
update to the COLA factors for Alaska and
Hawaii would occur in FY 2018.
C. Calculation of the Proposed Prospective
Payment Rates
General Formula for Calculation of the
Prospective Payment Rates for FY 2017
In general, the operating prospective
payment rate for all hospitals (including
hospitals in Puerto Rico) paid under the
IPPS, except SCHs and MDHs, for FY 2017
equals the Federal rate (which includes
uncompensated care payments).
SCHs are paid based on whichever of the
following rates yields the greatest aggregate
payment: The Federal national rate (which,
as discussed in section IV.F. of the preamble
of this proposed rule, includes
uncompensated care payments); 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 to determine the rate that
yields the greatest aggregate payment.
The prospective payment rate for SCHs for
FY 2017 equals the higher of the applicable
Federal rate, or the hospital-specific rate as
described below. The prospective payment
rate for MDHs for FY 2017 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.
1. Operating and Capital Federal Payment
Rate and Outlier Payment Calculation
Note: The formula below is used for actual
claim payment and is also used by CMS to
project the outlier threshold for the
upcoming FY. The difference is the source of
some of the variables in the formula. For
example, operating and capital CCRs for
actual claim payment are from the PSF while
CMS uses an adjusted CCR (as described
above) to project the threshold for the
upcoming FY. In addition, charges for a
claim payment are from the bill while
charges to project the threshold are from the
MedPAR data with an inflation factor applied
to the charges (as described above).
Step 1—Determine the MS–DRG and MS–
DRG relative weight for each claim based on
the ICD–10–CM procedure and diagnosis
codes on the claim.
Step 2—Select the applicable average
standardized amount depending on whether
the hospital submitted qualifying quality data
and is a meaningful EHR user, as described
above.
Step 3—Compute the operating and capital
Federal payment rate:

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—Federal Payment Rate for Operating Costs
= MS–DRG Relative Weight × [(LaborRelated Applicable Standardized
Amount × Applicable CBSA Wage Index)
+ (Nonlabor-Related Applicable
Standardized Amount × Cost of Living
Adjustment)] × (1 + IME + (DSH * 0.25))
—Federal Payment for Capital Costs = MS–
DRG Relative Weight × Federal Capital
Rate × Geographic Adjustment Fact × (l
+ IME + DSH)
Step 4—Determine operating and capital
costs:
—Operating Costs = (Billed Charges ×
Operating cost-to-charge ratio)
—Capital Costs = (Billed Charges × Capital
cost-to-charge ratio).
Step 5—Compute operating and capital
outlier threshold (CMS applies a geographic
adjustment to the operating and capital
outlier threshold to account for local cost
variation):
—Operating Cost-to-Charge Ratio to Total
Cost-to-Charge Ratio = (Operating Costto-Charge Ratio)/(Operating Cost-toCharge Ratio + Capital Cost-to-Charge
Ratio)
—Operating Outlier Threshold = [Fixed Loss
Threshold × ((Labor-Related Portion ×
CBSA Wage Index) + Nonlabor-Related
portion)] × Operating Cost-to-Charge
Ratio to Total Cost-to-Charge Ratio +
Federal Payment with IME, DSH +
Uncompensated Care Payment + New
Technology Add-On Payment Amount
—Capital Cost-to-Charge Ratio to Total Costto-Charge Ratio = (Capital Cost-to-Charge
Ratio)/(Operating Cost-to-Charge Ratio +
Capital Cost-to-Charge Ratio)
—Capital Outlier Threshold = (Fixed Loss
Threshold × Geographic Adjustment
Factor × Capital CCR to Total CCR) +
Federal Payment with IME and DSH
Step 6: Compute operating and capital
outlier payments:
—Marginal Cost Factor = 0.80 or 0.90
(depending on the MS–DRG)
—Operating Outlier Payment = (Operating
Costs—Operating Outlier Threshold) ×
Marginal Cost Factor
—Capital Outlier Payment = (Capital Costs—
Capital Outlier Threshold) × Marginal
Cost Factor
The payment rate may then be further
adjusted for hospitals that qualify for a lowvolume payment adjustment under section
1886(d)(12) of the Act and 42 CFR
412.101(b). The base-operating DRG payment
amount may be further adjusted by the
hospital readmissions payment adjustment
and the hospital VBP payment adjustment as
described under sections 1886(q) and 1886(o)
of the Act, respectively. Payments also may
be reduced by the 1-percent adjustment
under the HAC Reduction Program as
described in section 1886(p) of the Act. We
also make new technology add-on payments

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in accordance with section 1886(d)(5)(K) and
(L) of the Act. Finally, we add the
uncompensated care payment to the total
claim payment amount. As noted in the
formula above, we take uncompensated care
payments and new technology add-on
payments into consideration when
calculating outlier payments.
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 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 to determine the rate that
yields the greatest aggregate payment.
As noted above, section 205 of the
Medicare Access and CHIP Reauthorization
Act of 2015 (MACRA) (Pub. L. 114–10)
extended the MDH program through FY 2017
(that is, for discharges occurring on or before
September 30, 2017). Currently MDHs are
paid based on the Federal national rate or, if
higher, the Federal national rate plus 75
percent of the difference between the Federal
national rate and the greater of the updated
hospital-specific rates based on either FY
1982, FY 1987 or FY 2002 costs per
discharge.
For a more detailed discussion of the
calculation of the hospital-specific rates, we
refer readers to the FY 1984 IPPS interim
final rule (48 FR 39772); the April 20, 1990
final rule with comment period (55 FR
15150); the FY 1991 IPPS final rule (55 FR
35994); and the FY 2001 IPPS final rule (65
FR 47082).
b. Updating the FY 1982, FY 1987, FY 1996,
FY 2002 and FY 2006 Hospital-Specific Rate
for FY 2017
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
proposed applicable percentage increases to
the hospital-specific rates applicable to SCHs
and MDHs are the following:

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Hospital submitted quality
data and is a
meaningful
EHR user

FY 2017

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Proposed Market Basket Rate-of-Increase .....................................................
Proposed Adjustment for Failure to Submit Quality Data under Section
1886(b)(3)(B)(viii) of the Act ........................................................................
Proposed Adjustment for Failure to be a Meaningful EHR User under Section 1886(b)(3)(B)(ix) of the Act ...................................................................
Proposed MFP Adjustment under Section 1886(b)(3)(B)(xi) of the Act ..........
Statutory Adjustment under Section 1886(b)(3)(B)(xii) of the Act ...................
Proposed Applicable Percentage Increase Applied to Hospital-Specific Rate

For a complete discussion of the applicable
percentage increase applied to the hospitalspecific rates for SCHs and MDHs, we refer
readers to section IV.B. of the preamble of
this proposed rule.
In addition, because SCHs and MDHs use
the same MS–DRGs as other hospitals when
they are paid based in whole or in part on
the hospital-specific rate, the hospitalspecific rate is adjusted by a budget
neutrality factor to ensure that changes to the
MS–DRG classifications and the recalibration
of the MS–DRG relative weights are made in
a manner so that aggregate IPPS payments are
unaffected. Therefore, the hospital-specific
rate for an SCH or an MDH is adjusted by the
proposed MS–DRG reclassification and
recalibration budget neutrality factor of
0.999006, as discussed in section III. of this
Addendum. The resulting rate is used in
determining the payment rate that an SCH or
MDH will receive for its discharges beginning
on or after October 1, 2016. We note that, in
this proposed rule, for FY 2017, we are not
proposing to make a documentation and
coding adjustment to the hospital-specific
rate. We refer readers to section II.D. of the
preamble of this proposed rule for a complete
discussion regarding our proposed policies
and previously finalized policies (including
our historical adjustments to the payment
rates) relating to the effect of changes in
documentation and coding that do not reflect
real changes in case-mix. Also, as discussed
above and in section IV.O. of the preamble
of this proposed rule, we are proposing an
adjustment to the hospital-specific rates
using our authority under section
1886(d)(5)(I)(i) of the Act to permanently
prospectively remove the 0.2 percent
reduction to the rates put in place in FY 2014
to offset the estimated increase in IPPS
expenditures as a result of the 2-midnight
policy. In addition, as discussed above and
in section IV.O. of the preamble of this
proposed rule, we are proposing a temporary
one-time prospective increase to the FY 2017
hospital-specific rates of 0.6 percent by
including a temporary one-time factor of
1.006 in the calculation of the hospitalspecific rates, using our authority under
section 1886(d)(5)(I)(i) of the Act, to address
the effects of the 0.2 percent reduction to the
rates for the 2-midnight policy in effect for
FY 2014, FY 2015, and FY 2016.

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Hospital did
NOT submit
quality data
and is a
meaningful
EHR user

Hospital did
NOT submit
quality data
and is NOT a
meaningful
EHR user

2.8

2.8

2.8

2.8

0.0

0.0

¥0.7

¥0.7

0.0
¥0.5
¥0.75
1.55

¥2.1
¥0.5
¥0.75
¥0.55

0.0
¥0.5
¥0.75
0.85

¥2.1
¥0.5
¥0.75
¥1.25

III. Proposed Changes to Payment Rates for
Acute Care Hospital Inpatient CapitalRelated Costs for FY 2017
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, over a 10-year transition
period (which extended through FY 2001)
the payment methodology for Medicare acute
care hospital inpatient capital-related costs
changed 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 §§ 412.308 through
412.352. In this section, we discuss the
factors that we used to determine the
proposed capital Federal rate for FY 2017,
which would be effective for discharges
occurring on or after October 1, 2016.
The 10-year transition period ended with
hospital cost reporting periods beginning on
or after October 1, 2001 (FY 2002). Therefore,
for cost reporting periods beginning in FY
2002, all hospitals (except ‘‘new’’ hospitals
under § 412.304(c)(2)) are paid based on the
capital Federal rate. For FY 1992, we
computed the standard Federal payment rate
for capital-related costs under the IPPS by
updating the FY 1989 Medicare inpatient
capital cost per case by an actuarial estimate
of the increase in Medicare inpatient capital
costs per case. Each year after FY 1992, we
update the capital standard Federal rate, as
provided at § 412.308(c)(1), to account for
capital input price increases and other
factors. The regulations at § 412.308(c)(2) also
provide that the capital Federal rate be
adjusted annually by a factor equal to the
estimated proportion of outlier payments
under the capital Federal rate to total capital
payments under the capital Federal rate. In
addition, § 412.308(c)(3) requires that the
capital Federal rate be reduced by an
adjustment factor equal to the estimated
proportion of payments for exceptions under
§ 412.348. (We note that, as discussed in the
FY 2013 IPPS/LTCH PPS final rule (77 FR
53705), there is generally no longer a need for
an exceptions payment adjustment factor.)
However, in limited circumstances, an
additional payment exception for
extraordinary circumstances is provided for
under § 412.348(f) for qualifying hospitals.
Therefore, in accordance with
§ 412.308(c)(3), an exceptions payment
adjustment factor may need to be applied if

PO 00000

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data and is
NOT a
meaningful
EHR user

such payments are made. 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.
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,
historically, under the capital PPS, we have
computed 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.
Effective with discharges occurring on or
after October 1, 2004, in conjunction with the
change to the operating payment
methodology, we adopted a methodology for
computing capital payments made to
hospitals located in Puerto Rico based on a
blend of 25 percent of the Puerto Rico capital
rate and 75 percent of the national capital
Federal rate (69 FR 49185). Effective with
discharges on or after January 1, 2016,
operating IPPS payments to hospitals located
in Puerto Rico are now based on 100 percent
of the Federal rate—the operating payment
methodology is no longer a blend of 75
percent of the Federal rate and 25 percent of
the Puerto Rico rate. Consistent with
historical practice and under the authority of
section 1886(g) of the Act, as discussed in
section V.B.3. of the preamble of this
proposed rule, we are proposing that the
capital IPPS payments to hospitals located in
Puerto Rico would be based on 100 percent
of the capital Federal rate, effective with
discharges on or after October 1, 2016, and
would no longer be based on the current 75/
25 blended rate.
A. Determination of the Proposed Federal
Hospital Inpatient Capital-Related
Prospective Payment Rate Update
In the discussion that follows, we explain
the factors that we used to determine the
proposed capital Federal rate for FY 2017. In
particular, we explain why the proposed FY
2017 capital Federal rate increases
approximately 1.7 percent, compared to the
FY 2016 capital Federal rate. As discussed in
the impact analysis in Appendix A to this
proposed rule, we estimate that capital
payments per discharge will increase
approximately 2.0 percent during that same
period. Because capital payments constitute
approximately 10 percent of hospital

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payments, a percent change in the capital
Federal rate yields only approximately a 0.1
percent change in actual payments to
hospitals.
1. Projected Capital Standard Federal Rate
Update
a. Description of the Update Framework
Under § 412.308(c)(1), the capital standard
Federal rate is updated on the basis of an
analytical framework that takes into account
changes in a capital input price index (CIPI)
and several other policy adjustment factors.
Specifically, we adjust the projected CIPI
rate-of-increase as appropriate each year for
case-mix index-related changes, for intensity,
and for errors in previous CIPI forecasts. The
proposed update factor for FY 2017 under
that framework is 0.9 percent based on the
best data available at the time of
development of this proposed rule. The
proposed update factor under that framework
is based on a projected 1.2 percent increase
in the FY 2010-based CIPI, a 0.0 percentage
point adjustment for intensity, a 0.0
percentage point adjustment for case-mix, a
0.0 percentage point adjustment for the DRG
reclassification and recalibration, and a
forecast error correction of -0.3 percentage
point. As discussed 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 2017 CIPI
projection in that same section of this
Addendum. Below we describe the policy
adjustments that we are proposing to apply
in the update framework for FY 2017.
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
patient changes (‘‘real’’ case-mix change);
• Changes in hospital documentation and
coding of patient records result in higherweighted 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 to the FY 2006 IPPS
final rule (70 FR 47707).)
For FY 2017, we are projecting a 0.5
percent total increase in the case-mix index.

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We estimated that the real case-mix increase
will equal 0.5 percent for FY 2017. 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, we are
proposing the net adjustment for case-mix
change in FY 2017 of 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 of illness. Due
to the lag time in the availability of data,
there is a 2-year lag in data used to determine
the adjustment for the effects of DRG
reclassification and recalibration. For
example, we have data available to evaluate
the effects of the FY 2015 DRG
reclassification and recalibration as part of
our update for FY 2017. We estimate that FY
2015 DRG reclassification and recalibration
resulted in no change in the case-mix when
compared with the case-mix index that
would have resulted if we had not made the
reclassification and recalibration changes to
the DRGs. Therefore, we are proposing a 0.0
percentage point adjustment for
reclassification and recalibration in the
update framework for FY 2017.
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. Historically, when a forecast
error of the CIPI is greater than 0.25
percentage point in absolute terms, it is
reflected in the update recommended under
this framework. A forecast error of ¥0.3
percentage point was calculated for the FY
2015 update, for which there are historical
data. That is, current historical data indicate
that the forecasted FY 2015 CIPI (1.5 percent)
used in calculating the FY 2015 update factor
was 0.3 percentage points higher than actual
realized price increases (1.2 percent). This
over-prediction was primarily due to prices
from municipal bond yields declining in
2015 whereas the forecast projected an
increase. Therefore, we are proposing to
make a ¥0.3 percentage point adjustment for
forecast error in the update for FY 2017.
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

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factor for the operating update framework
reflected how hospital services are utilized to
produce the final product, that is, the
discharge. This component accounts for
changes in the use of quality-enhancing
services, for changes within DRG severity,
and for expected modification of practice
patterns to remove noncost-effective services.
Our intensity measure is based on a 5-year
average.
We calculate case-mix constant intensity as
the change in total cost per discharge,
adjusted for price level changes (the CPI for
hospital and related services) and changes in
real case-mix. Without reliable estimates of
the proportions of the overall annual
intensity increases that are due, respectively,
to ineffective practice patterns and the
combination of 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.
In this proposed rule, we are continuing to
use a Medicare-specific intensity measure
that is based on a 5-year adjusted average of
cost per discharge for FY 2017 (we refer
readers to the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50436) for a full description of
our Medicare-specific intensity measure).
Specifically, for FY 2017, we are using an
intensity measure that is based on an average
of cost per discharge data from the 5-year
period beginning with FY 2010 and
extending through FY 2014. Based on these
data, we estimated that case-mix constant
intensity declined during FYs 2010 through
2014. In the past, when we found intensity
to be declining, we believed a zero (rather
than a negative) intensity adjustment was
appropriate. Consistent with this approach,
because we estimate that intensity declined
during that 5-year period, we believe it is
appropriate to continue to apply a zero
intensity adjustment for FY 2017. Therefore,
we are proposing to make a 0.0 percentage
point adjustment for intensity in the update
for FY 2017.
Above, we described the basis of the
components used to develop the proposed
0.9 percent capital update factor under the
capital update framework for FY 2017 as
shown in the following table.

PROPOSED CMS FY 2017 UPDATE
FACTOR TO THE CAPITAL FEDERAL
RATE
Capital Input Price Index * ...............
Intensity: ..........................................
Case-Mix Adjustment Factors:
Real Across DRG Change .......
Projected Case-Mix Change ....
Subtotal .............................
Effect of FY 2015 Reclassification
and Recalibration .........................
Forecast Error Correction ...............

1.2
0.0

0.0
¥0.3

Total Update .....................

0.9

0.5
0.5
1.2

* The capital input price index represents the
FY 2010-based CIPI.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
b. Comparison of CMS and MedPAC Update
Recommendation
In its March 2016 Report to Congress,
MedPAC did not make a specific update
recommendation for capital IPPS payments
for FY 2017. (We refer readers to MedPAC’s
Report to the Congress: Medicare Payment
Policy, March 2016, Chapter 3, available on
the Web site at: http://www.medpac.gov.)
2. Proposed 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 2016, we estimated that outlier
payments for capital would equal 6.35
percent of inpatient capital-related payments
based on the capital Federal rate in FY 2016.
Based on the proposed thresholds as set forth
in section II.A. of this Addendum, we
estimate that outlier payments for capitalrelated costs will equal 6.26 percent for
inpatient capital-related payments based on
the proposed capital Federal rate in FY 2017.
Therefore, we are proposing to apply an
outlier adjustment factor of 0.9374 in
determining the capital Federal rate for FY
2017. Thus, we estimate that the percentage
of capital outlier payments to total capital
Federal rate payments for FY 2017 will be
lower than the percentage for FY 2016.
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
proposed FY 2017 outlier adjustment of
0.9374 is a 0.10 percent change from the FY
2016 outlier adjustment of 0.9365. Therefore,
the net change in the outlier adjustment to
the proposed capital Federal rate for FY 2017
is 1.0010 (0.9374/0.9365). Thus, the proposed
outlier adjustment will increase the FY 2017
capital Federal rate by 0.10 percent compared
to the FY 2016 outlier adjustment.
3. Proposed 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 are proposing to
determine capital IPPS payments to hospitals
located in Puerto Rico based on 100 percent
of the capital Federal rate beginning in FY
2017, we have not calculated a separate GAF
for Puerto Rico, and therefore, we are not
applying a separate budget neutrality

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adjustment for the Puerto Rico GAF.
Similarly, the budget neutrality factor for
DRG reclassifications and recalibration
nationally is applied in determining the
capital IPPS Federal rate, and is applicable
for all hospitals, including those hospitals
located in Puerto Rico.
To determine the proposed national capital
rate factors for FY 2017, we compared
estimated aggregate capital Federal rate
payments based on the FY 2016 MS–DRG
classifications and relative weights and the
FY 2016 GAF to estimated aggregate capital
Federal rate payments based on the FY 2016
MS–DRG classifications and relative weights
and the proposed FY 2017 GAFs. To achieve
budget neutrality for the changes in the
national GAFs, based on calculations using
updated data, we are proposing to apply an
incremental budget neutrality adjustment
factor of 0.9997 for FY 2017 to the previous
cumulative FY 2016 adjustment factor of
0.9860, yielding an adjustment factor of
0.9857 through FY 2017.
We then compared estimated aggregate
capital Federal rate payments based on the
FY 2016 MS–DRG relative weights and the
proposed FY 2017 GAFs to estimated
aggregate capital Federal rate payments based
on the cumulative effects of the proposed FY
2017 MS–DRG classifications and relative
weights and the proposed FY 2017 GAFs.
The proposed incremental adjustment factor
for DRG classifications and changes in
relative weights is 0.9996. The proposed
cumulative adjustment factor for MS–DRG
classifications and proposed changes in
relative weights and for proposed changes in
the GAFs through FY 2017 is 0.9853. (We
note that all the values are calculated with
unrounded numbers.)
The GAF/DRG budget neutrality
adjustment factors are built permanently into
the capital rates; that is, they are applied
cumulatively in determining the capital
Federal rate. This follows the requirement
under § 412.308(c)(4)(ii) 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 methodology used to determine the
recalibration and geographic adjustment
factor (GAF/DRG) budget neutrality
adjustment is similar to the methodology
used in establishing budget neutrality
adjustments under the IPPS for operating
costs. One difference is that, under the
operating IPPS, the budget neutrality
adjustments for the effect of geographic
reclassifications are determined separately
from the effects of other changes in the
hospital wage index and the MS–DRG
relative weights. Under the capital IPPS,
there is a single GAF/DRG budget neutrality
adjustment factor for changes in the GAF
(including geographic reclassification) and
the MS–DRG relative weights. In addition,
there is no adjustment for the effects that
geographic reclassification has on the other
payment parameters, such as the payments
for DSH or IME.
The proposed cumulative adjustment
factor of 0.9993 (the product of the proposed
incremental national GAF budget neutrality
adjustment factor of 0.9997 and the proposed

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25279

incremental DRG budget neutrality
adjustment factor of 0.9996) accounts for the
MS–DRG reclassifications and recalibration
and for changes in the GAFs. It also
incorporates the effects on the GAFs of FY
2017 geographic reclassification decisions
made by the MGCRB compared to FY 2016
decisions. However, it does not account for
changes in payments due to changes in the
DSH and IME adjustment factors.
As discussed in section V.C. of the
preamble of this proposed rule, we are
proposing to make an adjustment of (1/0.998)
to the proposed national capital Federal rate
to remove the 0.2 percent reduction (an
adjustment factor of 0.998) to the national
capital Federal rate to offset the estimated
increase in capital IPPS expenditures
associated with the 2-midnight policy. This
is consistent with the proposed adjustment to
the operating IPPS standardized amount and
the hospital-specific payment rates. In
addition, consistent with the approach
proposed for the operating IPPS standardized
amount and hospital-specific payment rates
and for the reasons discussed in sections
IV.O. and V.C. of the preamble of this
proposed rule, we are proposing a one-time
prospective adjustment of 1.006 in FY 2017
to the proposed national capital Federal rate
to address the effect of the 0.2 percent
reduction to the national capital Federal rates
in effect for FY 2014, FY 2015, and FY 2016.
We also are proposing to remove this onetime prospective adjustment through an
adjustment of (1/1.006) to the national capital
Federal rate in FY 2018, consistent with the
approach proposed for the operating IPPS
standardized amount and hospital-specific
payment rates (as discussed in section IV.O.
of the preamble of this proposed rule). We
refer readers to sections IV.O. and V.C. of the
preamble of this proposed rule for a complete
discussion of these proposals.
4. Proposed Capital Federal Rate for FY 2017
For FY 2016, we established a capital
Federal rate of $438.75 (as revised, in the FY
2016 IPPS/LTCH PPS correction notice CMS–
1632–CN2 (80 FR 60060 and 60061)). We are
proposing to establish an update of 0.9
percent in determining the FY 2017 capital
Federal rate for all hospitals. As a result of
this proposed update, the proposed budget
neutrality factors discussed earlier, and the
proposed adjustments to remove the 0.2
percent reductions (both the (1/0.998)
adjustment to permanently remove the 0.2
percent reduction and the one-time 0.6
percent adjustment) resulting from the 2midnight policy, we are proposing to
establish a national capital Federal rate of
$446.35 for FY 2017. The proposed national
capital Federal rate for FY 2017 was
calculated as follows:
• The proposed FY 2017 update factor is
1.009, that is, the proposed update is 0.9
percent.
• The proposed FY 2017 budget neutrality
adjustment factor that is applied to the
capital Federal rate for changes in the MS–
DRG classifications and relative weights and
changes in the GAFs is 0.9993.
• The proposed FY 2017 outlier
adjustment factor is 0.9374.

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• The proposed 2-midnight policy
adjustment to permanently remove the 0.2
percent reduction is (1/0.998).
• The proposed 2-midnight one-time
policy adjustment is 1.006.
(We note that, as discussed in section V.C.
of the preamble of this proposed rule, we are
not making an additional MS–DRG
documentation and coding adjustment to the
proposed capital IPPS Federal rate for FY
2017.)
Because the proposed FY 2017 capital
Federal rate has already been adjusted for
differences in case-mix, wages, cost-of-living,
indirect medical education costs, and
payments to hospitals serving a
disproportionate share of low-income

patients, we are not proposing to make
additional adjustments in the capital 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 proposed factors and
adjustments for FY 2017 affects the
computation of the proposed FY 2017
national capital Federal rate in comparison to
the FY 2016 national capital Federal rate.
The proposed FY 2017 update factor has the
effect of increasing the capital Federal rate by
0.9 percent compared to the FY 2016 capital
Federal rate. The proposed GAF/DRG budget
neutrality adjustment factor has the effect of

decreasing the proposed capital Federal rate
by 0.07 percent. The proposed FY 2017
outlier adjustment factor has the effect of
increasing the proposed capital Federal rate
by 0.10 percent compared to the FY 2016
capital Federal rate. The proposed permanent
2-midnight policy adjustment has the effect
of increasing the proposed capital Federal
rate by 0.2 percent and the proposed
temporary 2-midnight policy adjustment has
the effect of increasing the proposed capital
Federal rate by 0.6 percent. The combined
effect of all the proposed changes would
increase the proposed national capital
Federal rate by approximately 1.7 percent
compared to the FY 2016 national capital
Federal rate.

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2016 CAPITAL FEDERAL RATE AND PROPOSED FY 2017 CAPITAL
FEDERAL RATE
FY 2016
Update Factor 1 ................................................................................................
GAF/DRG Adjustment Factor 1 ........................................................................
Outlier Adjustment Factor 2 ..............................................................................
Permanent 2-midnight Policy Adjustment Factor ............................................
One-Time 2-midnight Policy Adjustment Factor ..............................................
Capital Federal Rate ........................................................................................

1.0130
0.9976
0.9365
N/A
N/A
$438.75

Proposed FY
2017
1.009
0.9993
0.9374
1.002
1.006
$446.35

Change
1.009
0.9993
1.0010
1.002
1.006
1.0173

Percent
change
0.9
¥0.07
0.10
0.2
0.6
1.73

1 The proposed update factor and the proposed GAF/DRG budget neutrality adjustment factors are built permanently into the capital Federal
rates. Thus, for example, the incremental change from FY 2016 to FY 2017 resulting from the application of the proposed 0.9993 GAF/DRG
budget neutrality adjustment factor for FY 2017 is a net change of 0.9993 (or ¥0.07 percent).
2 The proposed outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change resulting from the application of the proposed FY 2017 outlier adjustment
factor is 0.9374/0.9365, or 1.0010 (or 0.10 percent).

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B. Calculation of the Proposed Inpatient
Capital-Related Prospective Payments for FY
2017
For purposes of calculating payments for
each discharge during FY 2017, the capital
Federal rate is adjusted as follows: (Standard
Federal Rate) × (DRG weight) × (GAF) ×
(COLA for hospitals located in Alaska and
Hawaii) × (1 + DSH Adjustment Factor + IME
Adjustment Factor, if applicable). The result
is the adjusted capital Federal rate.
Hospitals also may receive outlier
payments for those cases that qualify under
the thresholds established for each fiscal
year. Section 412.312(c) provides for a single
set of thresholds to identify outlier cases for
both inpatient operating and inpatient
capital-related payments. The proposed
outlier thresholds for FY 2017 are in section
II.A. of this Addendum. For FY 2017, a case
would qualify as a cost outlier if the cost for
the case plus the (operating) IME and DSH
payments (including both the empirically
justified Medicare DSH payment and the
estimated uncompensated care payment, as
discussed in section II.A.4.g.(1) of this
Addendum) is greater than the prospective
payment rate for the MS–DRG plus the
proposed fixed-loss amount of $23,681.
Currently, as provided under
§ 412.304(c)(2), we pay a new hospital 85
percent of its reasonable costs during the first
2 years of operation unless it elects to receive
payment based on 100 percent of the capital
Federal rate. Effective with the third year of
operation, we pay the hospital based on 100
percent of the capital Federal rate (that is, the

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same methodology used to pay all other
hospitals subject to the capital PPS).
C. Capital Input Price Index
1. Background
Like the operating input price index, the
capital input price index (CIPI) is a fixedweight price index that measures the price
changes associated with capital costs during
a given year. The CIPI differs from the
operating input price index in one important
aspect—the CIPI reflects the vintage nature of
capital, which is the acquisition and use of
capital over time. Capital expenses in any
given year are determined by the stock of
capital in that year (that is, capital that
remains on hand from all current and prior
capital acquisitions). An index measuring
capital price changes needs to reflect this
vintage nature of capital. Therefore, the CIPI
was developed to capture the vintage nature
of capital by using a weighted-average of past
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
2014 IPPS/LTCH PPS final rule (78 FR 50603
through 50607), we rebased and revised the
CIPI to a FY 2010 base year to reflect the
more current structure of capital costs in
hospitals. For a complete discussion of this
rebasing, we refer readers to the FY 2014
IPPS/LTCH PPS final rule.

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2. Forecast of the CIPI for FY 2017
Based on the latest forecast by IHS Global
Insight, Inc. (first quarter of 2016), we are
forecasting the FY 2010-based CIPI to
increase 1.2 percent in FY 2017. This reflects
a projected 1.6 percent increase in vintageweighted depreciation prices (building and
fixed equipment, and movable equipment),
and a projected 2.6 percent increase in other
capital expense prices in FY 2017, partially
offset by a projected 1.5 percent decline in
vintage-weighted interest expense prices in
FY 2017. The weighted average of these three
factors produces the forecasted 1.2 percent
increase for the FY 2010-based CIPI as a
whole in FY 2017.
IV. Proposed Changes to Payment Rates for
Excluded Hospitals: Proposed Rate-ofIncrease Percentages for FY 2017
Payments for services furnished in
children’s hospitals, 11 cancer hospitals, and
hospitals located outside the 50 States, the
District of Columbia and Puerto Rico (that is,
short-term acute care hospitals located in the
U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa) that
are excluded from the IPPS are made on the
basis of reasonable costs based on the
hospital’s own historical cost experience,
subject to a rate-of-increase ceiling. A per
discharge limit (the target amount as defined
in § 413.40(a) of the regulations) is set for
each hospital based on the hospital’s own
cost experience in its base year, and updated
annually by a rate-of-increase percentage.
(We note that, in accordance with
§ 403.752(a), RNHCIs are also subject to the

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rate-of-increase limits established under
§ 413.40 of the regulations.)
In this proposed rule, the FY 2017 rate-ofincrease percentage for updating the target
amounts for the 11 cancer hospitals,
children’s hospitals, the short-term acute care
hospitals located in the U.S. Virgin Islands,
Guam, the Northern Mariana Islands, and
American Samoa, and RNHCIs is the
estimated percentage increase in the IPPS
operating market basket for FY 2017, in
accordance with applicable regulations at
§ 413.40. Based on IHS Global Insight, Inc.’s
2016 first quarter forecast, we estimated that
the FY 2010-based IPPS operating market
basket update for FY 2017 would be 2.8
percent (that is, the estimate of the market
basket rate-of-increase). 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 2017. Therefore, based
on IHS Global Insight, Inc.’s 2016 first
quarter forecast, with historical data through
2015 fourth quarter, we estimate that the FY
2010-based IPPS operating market basket
update for FY 2017 is 2.8 percent (that is, the
estimate of the market basket rate-ofincrease). For children’s hospitals, the 11
cancer hospitals, hospitals located outside
the 50 States, the District of Columbia and
Puerto Rico (that is, short-term acute care
hospitals located in the U.S. Virgin Islands,
Guam, the Northern Mariana Islands, and
American Samoa), and RNHCIs, the proposed
FY 2017 rate-of-increase percentage that
would be applied to the FY 2016 target
amounts in order to determine the proposed
FY 2017 target amounts is 2.8 percent.
The IRF PPS, the IPF PPS, and the LTCH
PPS are updated annually. We refer readers
to section VII. of the preamble of this
proposed rule and section V. of the
Addendum to this proposed rule for the
proposed update changes to the Federal
payment rates for LTCHs under the LTCH
PPS for FY 2017. 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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V. Proposed Changes to the Payment Rates
for the LTCH PPS for FY 2017
A. Proposed LTCH PPS Standard Federal
Payment Rate for FY 2017
1. Background
In section VII. of the preamble of this
proposed rule, we discuss our proposed
annual updates to the payment rates, factors,
and specific policies under the LTCH PPS for
FY 2017.
Under § 412.523(c)(3)(ii) of the regulations,
for LTCH PPS rate years beginning RY 2004
through RY 2006, we updated the standard
Federal rate annually by a factor to adjust for
the most recent estimate of the increases in
prices of an appropriate market basket of
goods and services for LTCHs. We
established this policy of annually updating
the standard Federal rate because, at that
time, we believed that was the most
appropriate method for updating the LTCH
PPS standard Federal rate for years after the
initial implementation of the LTCH PPS in
FY 2003. Therefore, under § 412.523(c)(3)(ii),

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for RYs 2004 through 2006, the annual
update to the LTCH PPS standard Federal
rate was equal to the previous rate year’s
Federal rate updated by the most recent
estimate of increases in the appropriate
market basket of goods and services included
in covered inpatient LTCH services.
In determining the annual update to the
standard Federal rate for RY 2007, based on
our ongoing monitoring activity, we believed
that, rather than solely using the most recent
estimate of the LTCH PPS market basket
update as the basis of the annual update
factor, it was appropriate to adjust the
standard Federal rate to account for the effect
of documentation and coding in a prior
period that was unrelated to patients’
severity of illness (71 FR 27818).
Accordingly, we established under
§ 412.523(c)(3)(iii) that the annual update to
the standard Federal rate for RY 2007 was
zero percent based on the most recent
estimate of the LTCH PPS market basket at
that time, offset by an adjustment to account
for changes in case-mix in prior periods due
to the effect of documentation and coding
that were unrelated to patients’ severity of
illness. For RY 2008 through FY 2011, we
also made an adjustment to account for the
effect of documentation and coding that was
unrelated to patients’ severity of illness in
establishing the annual update to the
standard Federal rate as set forth in the
regulations at §§ 412.523(c)(3)(iv) through
(c)(3)(vii). For FYs 2012 through 2016, we
updated the standard Federal rate by the
most recent estimate of the LTCH PPS market
basket at that time, including additional
statutory adjustments required by section
1886(m)(3)(A) of the Act as set forth in the
regulations at §§ 412.523(c)(3)(viii) through
(c)(3)(ix).
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. of the preamble
of this proposed 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.a. of the preamble of this
proposed rule, the annual update to the
LTCH PPS occurs on October 1 and we have
adopted the term ‘‘fiscal year’’ (FY) rather
than ‘‘rate year’’ (RY) under the LTCH PPS
beginning October 1, 2010. Therefore, for
purposes of clarity, when discussing the
annual update for the LTCH PPS, including
the provisions of the Affordable Care Act, we
use the term ‘‘fiscal year’’ rather than ‘‘rate
year’’ for 2011 and subsequent years.)
For FY 2016, consistent with our historical
practice, we established an update to the

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LTCH PPS standard Federal payment rate
based on the full estimated LTCH PPS market
basket increase of 2.4 percent and the 0.7
percentage point reductions required by
sections 1886(m)(3)(A)(i) and
1886(m)(3)(A)(ii) with 1886(m)(4)(E) of the
Act. Accordingly, at § 412.523(c)(3)(xii) of the
regulations, we established an annual update
of 1.7 percent to the standard Federal
payment rate for FY 2016 (80 FR 49636
through 49637). In addition, as discussed in
that same final rule, the annual update for FY
2016 was further reduced by 2.0 percentage
points for LTCHs that failed to submit quality
reporting data in accordance with the
requirements of the LTCH QRP under section
1886(m)(5) of the Act.
For FY 2017, in this proposed rule, based
on the best available data, we are proposing
an annual update to the LTCH PPS standard
Federal payment rate of 1.45 percent, which
is based on the full estimated increase in the
LTCH PPS market basket of 2.7 percent, less
the MFP adjustment of 0.5 percentage point
consistent with section 1886(m)(3)(A)(i) of
the Act, and less the 0.75 percentage point
required by sections 1886(m)(3)(A)(ii) and
(m)(4)(F) of the Act. (As discussed in section
VII.E. of the preamble of this proposed rule,
we are proposing to rebase and revise the
2009-based LTCH-specific market basket to
reflect a 2013 base year.) For LTCHs that fail
to submit the required quality reporting data
for FY 2017 in accordance with the LTCH
QRP, the annual update is further reduced by
2.0 percentage points as required by section
1886(m)(5) of the Act (as discussed in greater
detail in section VII.E.2.c. of the preamble of
this proposed rule). Accordingly, we are
proposing an annual update to the LTCH PPS
standard Federal payment rate of ¥0.55
percent for LTCHs that fail to submit the
required quality reporting data for FY 2017.
This proposed ¥0.55 percent update was
calculated based on the full estimated
increase in the LTCH PPS market basket of
2.7 percent, less a MFP adjustment of 0.5
percentage point, less an additional
adjustment of 0.75 percentage point required
by the statute, and less 2.0 percentage points
for failure to submit quality reporting data as
required by section 1886(m)(5) of the Act.
2. Development of the Proposed FY 2017
LTCH PPS Standard Federal Payment Rate
We continue to believe that the annual
update to the LTCH PPS standard Federal
payment rate should be based on the most
recent estimate of the increase in the LTCH
PPS market basket, including any statutory
adjustments. Consistent with our historical
practice, for FY 2017, we are proposing to
apply the annual update to the LTCH PPS
standard Federal payment rate from the
previous year. Furthermore, in determining
the LTCH PPS standard Federal payment rate
for FY 2017, we also are proposing to make
certain regulatory adjustments, consistent
with past practices. Specifically, in
determining the proposed FY 2017 LTCH
PPS standard Federal payment rate, we are
proposing to apply a budget neutrality
adjustment factor for the proposed changes
related to the area wage adjustment (that is,
changes to the wage data and labor-related
share) in accordance with § 412.523(d)(4). We
also are proposing to use more recent data to

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determine the update to the LTCH PPS
standard Federal payment rate for FY 2017 in
the final rule.
For FY 2016, we established an annual
update to the LTCH PPS standard Federal
payment rate of 1.7 percent based on the full
estimated LTCH PPS market basket increase
of 2.4 percent, less the MFP adjustment of 0.5
percentage point consistent with section
1886(m)(3)(A)(i) of the Act and less the 0.2
percentage point required by sections
1886(m)(3)(A)(ii) and (m)(4)(E) of the Act.
Accordingly, at § 412.523(c)(3)(xii), we
established an annual update to the LTCH
PPS standard Federal payment rate for FY
2015 of 1.7 percent. That is, we applied an
update factor of 1.017 to the FY 2015 Federal
rate of $41,043.71 to determine the FY 2016
LTCH PPS standard Federal payment rate.
We also applied an area wage level budget
neutrality factor for FY 2016 of 1.000513 to
the LTCH PPS standard Federal payment rate
to ensure that any changes to the area wage
level adjustment would not result in any
change in estimated aggregate LTCH PPS
payments. Consequently, we established a
LTCH PPS standard Federal payment rate for
FY 2016 of $41,762.85 (calculated as
$41,043.71 × 1.017 × 1.000513) (80 FR
49797).
In this proposed rule, we are proposing an
annual update to the LTCH PPS standard
Federal payment rate of 1.45 percent, which
was determined using the methodology
previously described. Accordingly, under
§ 412.523(c)(3)(xiii), we are proposing to
apply a factor of 1.0145 to the FY 2017 LTCH
PPS standard Federal payment rate of
$41,762.85 to determine the proposed FY
2017 LTCH PPS standard Federal payment
rate. These factors are based on IGI’s first
quarter 2016 forecast, which are the best
available data at this time. For LTCHs that
fail to submit quality reporting data for FY
2017 under the LTCH QRP, under proposed
§ 412.523(c)(3)(xiii), applied in conjunction
with the provisions of § 412.523(c)(4), we are
proposing to reduce the annual update to the
LTCH PPS standard Federal payment rate by
an additional 2.0 percentage points,
consistent with section 1886(m)(5) of the Act.
In those cases, the LTCH PPS standard
Federal payment rate is updated by -0.55
percent (that is, a proposed update factor of
0.9945) for FY 2017 for LTCHs that fail to
submit the required quality reporting data for
FY 2017 as required under the LTCH QRP.
Consistent with § 412.523(d)(4), we also are
proposing to apply an area wage level budget
neutrality factor to the FY 2017 LTCH PPS
standard Federal payment rate of 0.998723,
which was determined using the
methodology described below in section
V.B.4. of this Addendum. We are proposing
to apply this area wage level budget
neutrality factor to the FY 2017 LTCH PPS
standard Federal payment rate to ensure that
any proposed changes to the area wage level
adjustment (that is, the proposed annual
update of the wage index values and laborrelated share) will not result in any change
(increase or decrease) in estimated aggregate
LTCH PPS standard Federal payment rate
payments. Accordingly, we are proposing a
LTCH PPS standard Federal payment rate of
$42,314.31 (calculated as $41,762.85 × 1.0145

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× 0.998723) for FY 2017. For LTCHs that fail
to submit quality reporting data for FY 2017
in accordance with the requirements of the
LTCHQRP under section 1886(m)(5) of the
Act, we are proposing a LTCH PPS standard
Federal payment rate of $41,480.12
(calculated as $41,762.85× 0.9945 ×
0.998723) for FY 2017. We note, as discussed
in section VII.B. of the preamble of this
proposed rule, under our application of the
site neutral payment rate required under
section 1886(m)(6) of the Act, this LTCH PPS
standard Federal payment rate will only be
used to determine payments for LTCH PPS
standard Federal payment rate cases (that is,
those LTCH PPS cases that meet the statutory
criteria to be excluded from the site neutral
payment rate).
B. Proposed Adjustment for Area Wage
Levels Under the LTCH PPS for FY 2017
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 payment rate to
account for differences in LTCH area wage
levels under § 412.525(c). The labor-related
share of the LTCH PPS standard Federal
payment rate is adjusted to account for
geographic differences in area wage levels by
applying the applicable LTCH PPS wage
index. The applicable LTCH PPS wage index
is computed using wage data from inpatient
acute care hospitals without regard to
reclassification under section 1886(d)(8) or
section 1886(d)(10) of the Act.
When we implemented the LTCH PPS, we
established a 5-year transition to the full area
wage 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 area wage index values are
the full LTCH PPS area wage index values
calculated based on acute care hospital
inpatient wage index data without taking into
account geographic reclassification under
section 1886(d)(8) and section 1886(d)(10) of
the Act. For additional information on the
phase-in of the area wage level adjustment
under the LTCH PPS, we refer readers to the
August 30, 2002 LTCH PPS final rule (67 FR
56015 through 56019) and the RY 2008 LTCH
PPS final rule (72 FR 26891).
2. Proposed Geographic Classifications
(Labor Market Areas) for the LTCH PPS
Standard Federal Payment Rate
In adjusting for the differences in area
wage levels under the LTCH PPS, the laborrelated portion of an LTCH’s Federal
prospective payment is adjusted by using an
appropriate area wage index based on the
geographic classification (labor market area)
in which the LTCH is located. Specifically,
the application of the LTCH PPS area wage
level adjustment under existing § 412.525(c)
is made based on the location of the LTCH—
either in an ‘‘urban area,’’ or a ‘‘rural area,’’
as defined in § 412.503. Under § 412.503, an
‘‘urban area’’ is defined as a Metropolitan
Statistical Area (MSA) (which includes a
Metropolitan division, where applicable), as
defined by the Executive OMB and a ‘‘rural

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area’’ is defined as any area outside of an
urban area. (Information on OMB’s MSA
delineations based on the 2010 standards can
be found at: http://www.whitehouse.gov/
sites/default/files/omb/assets/fedreg_2010/
06282010_metro_standards-Complete.pdf).
The CBSA-based geographic classifications
(labor market area definitions) currently used
under the LTCH PPS, effective for discharges
occurring on or after October 1, 2014, are
based on the OMB labor market area
delineations based on the 2010 Decennial
Census data. The current statistical areas
(which were implemented beginning with FY
2015) are based on revised OMB delineations
issued on February 28, 2013, in OMB
Bulletin No. 13–01. We adopted these labor
market area delineations because they are
based on the best available data that reflect
the local economies and area wage levels of
the hospitals that are currently located in
these geographic areas. We also believe that
these OMB delineations will ensure that the
LTCH PPS area wage level 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 noted that this policy was consistent with
the IPPS policy adopted in FY 2015 under
§ 412.64(b)(1)(ii)(D) of the regulations (79 FR
49951 through 49963). (For additional
information on the CBSA-based labor market
area (geographic classification) delineations
currently used under the LTCH PPS and the
history of the labor market area definitions
used under the LTCH PPS, we refer readers
to the FY 2015 IPPS/LTCH PPS final rule (79
FR 50180 through 50185).)
In general, it is our historical practice to
update the CBSA-based labor market area
delineations annually based on the most
recent updates issued by OMB. Generally,
OMB issues major revisions to statistical
areas every 10 years, based on the results of
the decennial census. However, OMB
occasionally issues minor updates and
revisions to statistical areas in the years
between the decennial censuses. On July 15,
2015, OMB issued OMB Bulletin No. 15–01,
which provides updates to and supersedes
OMB Bulletin No. 13–01 that was issued on
February 28, 2013. The attachment to OMB
Bulletin No. 15–01 provides detailed
information on the update to statistical areas
since February 28, 2013. As discussed in
section III.A.2. of the preamble of this
proposed rule, the updates provided in OMB
Bulletin No. 15–01 are based on the
application of the 2010 Standards for
Delineating Metropolitan and Micropolitan
Statistical Areas to Census Bureau
population estimates for July 1, 2012 and July
1, 2013. A copy of this bulletin may be
obtained on the Web site at: https://www.
whitehouse.gov/omb/bulletins_/.
OMB Bulletin No. 15–01 made the
following changes that are relevant to the
LTCH PPS CBSA-based labor market area
(geographic classification) delineations:
• Garfield County, OK, with principal city
Enid, OK, which was a Micropolitan
(geographically rural) area, now qualifies as
an urban area under new CBSA 21420
entitled Enid, OK.
• The county of Bedford City, VA, a
component of the Lynchburg, VA CBSA

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31340, changed to town status and is added
to Bedford County. Therefore, the county of
Bedford City is now part of the county of
Bedford, VA. The CBSA remains Lynchburg,
VA, 31340.
• The name of Macon, GA, CBSA 31420,
as well as a principal city of the MaconWarner Robins, GA combined statistical area,
is now Macon-Bibb County, GA. The CBSA
code remains as 31420.
We believe that these revisions to the
CBSA-based labor market area delineations
will ensure that the LTCH PPS area wage
level 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 based on the best available data
that reflect the local economies and area
wage levels of the hospitals that are currently
located in these geographic areas and,
therefore, we are proposing to adopt them
under the LTCH PPS, effective October 1,
2016. Accordingly, the proposed FY 2017
LTCH PPS wage index values in Tables 12A
and 12B listed in section VI. of the
Addendum of this proposed rule (which are
available via the Internet on the CMS Web
site) reflect the revisions to the CBSA-based
labor market area delineations described
above. We note that, as discussed in section
III.C.2. of the preamble of this proposed rule,
the revisions to the CBSA-based delineations
also are proposed for adoption under the
IPPS, effective beginning October 1, 2016.
3. Proposed Labor-Related Share for the
LTCH PPS Standard Federal Payment Rate
Under the payment adjustment for the
differences in area wage levels under
§ 412.525(c), the labor-related share of an
LTCH’s standard Federal payment rate
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 Labor-Related,
Administrative and Business Support
Services; and All-Other: Labor-Related
Services) and a labor-related portion of
capital costs using the applicable LTCH PPS
market basket. Additional background
information on the historical development of
the labor-related share under the LTCH PPS
can be found in the RY 2007 LTCH PPS final
rule (71 FR 27810 through 27817 and 27829
through 27830) and the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51766 through 51769
and 51808).
For FY 2013, we revised and rebased the
market basket used under the LTCH PPS by
adopting the newly created FY 2009-based
LTCH-specific market basket. In addition,
beginning in FY 2013, we determined the
labor-related share annually as the sum of the
relative importance of each labor-related cost
category of the 2009-based LTCH-specific
market basket for the respective fiscal year
based on the best available data. (For more
details, we refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53477 through
53479).) As noted previously, we are
proposing to rebase and revise the 2009based LTCH-specific market basket to reflect
a 2013 base year. In conjunction with that

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proposal, as discussed in section VII.D.4.e. of
the preamble of this proposed rule, we are
proposing that the LTCH PPS labor-related
share for FY 2017 would be the sum of the
FY 2017 relative importance of each laborrelated cost category in the proposed 2013based LTCH market basket using the most
recent available data. Specifically, we are
proposing that the labor related share for FY
2017 would include the sum of the laborrelated portion of operating costs from the
proposed 2013-based LTCH market basket
(that is, the sum of the FY 2017 relative
importance share of Wages and Salaries;
Employee Benefits; Professional Fees: LaborRelated; Administrative and Facilities
Support Services; Installation, Maintenance,
and Repair Services; All Other: Labor-related
Services) and a portion of the Capital-Related
cost weight from the proposed 2013-based
LTCH PPS market basket. Based on IGI’s first
quarter 2016 forecast of the proposed 2013based LTCH market basket, we are proposing
a labor-related share under the LTCH PPS for
FY 2017 of 66.6 percent. This proposed
labor-related share is determined using the
same methodology as employed in
calculating all previous LTCH PPS laborrelated shares. Consistent with our historical
practice, we are proposing to use more recent
data to determine the final FY 2017 laborrelated share in the final rule.
Table VII–9 in section VII.D.4.e. of the
preamble of this proposed rule shows the
proposed FY 2017 relative importance laborrelated share using the proposed 2013-based
LTCH market basket and the FY 2016 relative
importance labor-related share using the
2009-based LTCH-specific market basket. The
proposed labor-related share for FY 2017 is
the sum of the proposed FY 2017 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 (2013) and FY 2017.
The sum of the proposed relative importance
for FY 2017 for operating costs (Wages and
Salaries; Employee Benefits; Professional
Fees: Labor-Related; Administrative and
Facilities Support Services; Installation,
Maintenance, and Repair Services; All Other:
Labor-related Services) is 62.3 percent. We
are proposing that the portion of capitalrelated costs that is influenced by the local
labor market is estimated to be 46 percent
(the same percentage applied to the 2009based LTCH-specific market basket). Because
the relative importance for capital-related
costs under our proposals would be 9.4
percent of the proposed 2013-based LTCH
market basket in FY 2017, we are proposing
to take 46 percent of 9.4 percent to determine
the proposed labor-related share of capitalrelated costs for FY 2017 (0.46 x 9.4). The
result is 4.3 percent, which we are proposing
to add to 62.3 percent for the operating cost
amount to determine the total proposed
labor-related share for FY 2017. Therefore,
the proposed labor-related share under the
LTCH PPS for FY 2017 is 66.6 percent. We
note that the proposed FY 2017 labor-related
share using the proposed 2013-based LTCH
market basket is 4.6 percentage points higher
than the FY 2016 labor-related share using
the 2009-based LTCH-specific market basket.
This is primarily due to, as discussed in

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25283

greater detail in section VII.D.4.e. of the
preamble of this proposed rule, the change in
the quantity of labor, particularly for
professional services, outpacing the change
in quantity of products (which are not
included in the labor-related share) between
2009 and 2013, which more than offsets the
faster relative growth in prices for products.
4. Proposed Wage Index for FY 2017 for the
LTCH PPS Standard Federal Payment Rate
Historically, we have established LTCH
PPS area 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 an LTCH’s actual
location without regard to the ‘‘urban’’ or
‘‘rural’’ designation of any related or
affiliated provider.
In the FY 2016 LTCH PPS final rule (80 FR
49798through 49799), we calculated the FY
2016 LTCH PPS area wage index values using
the same data used for the FY 2016 acute care
hospital IPPS (that is, data from cost
reporting periods beginning during FY 2012),
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 2016 LTCH PPS area wage
index values, consistent with the urban and
rural geographic classifications (labor market
areas) that were in place at that time and
consistent with the pre-reclassified IPPS
wage index policy (that is, our historical
policy of not taking into account IPPS
geographic reclassifications in determining
payments under the LTCH PPS). As with the
IPPS wage index, wage data for multicampus
hospitals with campuses located in different
labor market areas (CBSAs) are apportioned
to each CBSA where the campus (or
campuses) are located. We also continued to
use our existing policy for determining area
wage index values for areas where there are
no IPPS wage data.
Consistent with our historical
methodology, to determine the applicable
area wage index values for the FY 2017 LTCH
PPS standard Federal payment rate, under
the broad authority of section 123 of the
BBRA, as amended by section 307(b) of the
BIPA, we are proposing to use wage data
collected from cost reports submitted by IPPS
hospitals for cost reporting periods beginning
during FY 2013, without taking into account
geographic reclassification under sections
1886(d)(8) and 1886(d)(10) of the Act,
because these data are the most recent
complete data available. We also note that
these are the same data we are using to
compute the proposed FY 2017 acute care
hospital inpatient wage index, as discussed
in section III. of the preamble of this
proposed rule. We are computing the
proposed FY 2017 LTCH PPS standard
Federal payment rate area wage index values
consistent with the ‘‘urban’’ and ‘‘rural’’
geographic classifications (that is, labor
market area delineations, including the
proposed updates, as previously discussed in
section V.B.2. of this Addendum) and our
historical policy of not taking into account

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IPPS geographic reclassifications under
sections 1886(d)(8) and 1886(d)(10) of the
Act in determining payments under the
LTCH PPS. We also are proposing to
continue to apportion wage data for
multicampus hospitals with campuses
located in different labor market areas to each
CBSA where the campus or campuses are
located, consistent with the IPPS policy.
Lastly, consistent with our existing
methodology for determining the LTCH PPS
wage index values, for FY 2017 we are
proposing to continue to use our existing
policy for determining area wage index
values for areas where there are no IPPS wage
data.
Under our existing methodology, the LTCH
PPS wage index value for urban CBSAs with
no IPPS wage data would be 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 would be determined by using the
unweighted average of the wage indices from
all of the CBSAs that are contiguous to the
rural counties of the State.
Based on the FY 2013 IPPS wage data that
we are using to determine the proposed FY
2017 LTCH PPS standard Federal payment
rate area wage index values in this proposed
rule, there are no IPPS wage data for the
urban area of Hinesville, GA (CBSA 25980).
Consistent with the methodology discussed
above, we calculated the proposed FY 2017
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 proposed rule and
available via the Internet on the CMS Web
site). We note that, as IPPS wage data are
dynamic, it is possible that urban areas
without IPPS wage data will vary in the
future.
Based on the FY 2013 IPPS wage data that
we are using to determine the proposed FY
2017 LTCH PPS standard Federal payment
rate area wage index values in this proposed
rule, there are no rural areas without IPPS
hospital wage data. Therefore, it is not
necessary to use our established methodology
to calculate a proposed LTCH PPS standard
Federal payment rate wage index value for
rural areas with no IPPS wage data for FY
2017. We note that, as IPPS wage data are
dynamic, it is possible that the number of
rural areas without IPPS wage data will vary
in the future. The proposed FY 2017 LTCH
PPS standard Federal payment rate wage
index values that would be applicable for
LTCH PPS standard Federal payment rate
discharges occurring on or after October 1,
2016, through September 30, 2017, 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
proposed rule and available via the Internet
on the CMS Web site.

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5. Proposed Budget Neutrality Adjustment
for Changes to the LTCH PPS Standard
Federal Payment Rate Area Wage Level
Adjustment
Historically, the LTCH PPS wage index and
labor-related share are updated annually
based on the latest available data. Under
§ 412.525(c)(2), any changes to the area wage
index values or labor-related share are to be
made in a budget neutral manner such that
estimated aggregate LTCH PPS payments are
unaffected; that is, will be neither greater
than nor less than estimated aggregate LTCH
PPS payments without such changes to the
area wage level adjustment. Under this
policy, we determine an area wage-level
adjustment budget neutrality factor that will
be applied to the standard Federal payment
rate to ensure that any changes to the area
wage level adjustments are budget neutral
such that any changes to the area wage index
values or labor-related share would not result
in any change (increase or decrease) in
estimated aggregate LTCH PPS payments.
Accordingly, under § 412.523(d)(4), we apply
an area wage level adjustment budget
neutrality factor in determining the standard
Federal payment rate, and we also
established a methodology for calculating an
area wage level adjustment budget neutrality
factor. (For additional information on the
establishment of our budget neutrality policy
for changes to the area wage level
adjustment, we refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51771
through 51773 and 51809).)
In this proposed rule, for FY 2017 LTCH
PPS standard Federal payment rate cases, in
accordance with § 412.523(d)(4), we are
proposing to apply an area wage level
adjustment budget neutrality factor to adjust
the LTCH PPS standard Federal payment rate
to account for the estimated effect of the
proposed adjustments or updates to the area
wage level adjustment under § 412.525(c)(1)
on estimated aggregate LTCH PPS payments
using a methodology that is consistent with
the methodology we established in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51773). Specifically, we are proposing to
determine an area wage level adjustment
budget neutrality factor that would be
applied to the LTCH PPS standard Federal
payment rate under § 412.523(d)(4) for FY
2017 using the following methodology:
Step 1—We simulated estimated aggregate
LTCH PPS standard Federal payment rate
payments using the FY 2016 wage index
values and the FY 2016 labor-related share of
62.0 percent (as established in the FY 2016
IPPS/LTCH PPS final rule (80 FR 49798 and
49799).
Step 2—We simulated estimated aggregate
LTCH PPS standard Federal payment rate
payments using the proposed FY 2017 wage
index values (as shown in Tables 12A and
12B listed in the Addendum to this proposed
rule and available via the Internet on the
CMS Web site) and the proposed FY 2017
labor-related share of 66.6 percent (based on
the latest available data as previously
discussed previously in this Addendum).
Step 3—We calculated the ratio of these
estimated total LTCH PPS standard Federal
payment rate payments by dividing the
estimated total LTCH PPS standard Federal

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payment rate payments using the FY 2016
area wage level adjustments (calculated in
Step 1) by the estimated total LTCH PPS
standard Federal payment rate payments
using the proposed FY 2017 area wage level
adjustments (calculated in Step 2) to
determine the proposed area wage level
adjustment budget neutrality factor for FY
2017 LTCH PPS standard Federal payment
rate payments.
Step 4—We then applied the proposed FY
2017 area wage level adjustment budget
neutrality factor from Step 3 to determine the
proposed FY 2017 LTCH PPS standard
Federal payment rate after the application of
the proposed FY 2017 annual update
(discussed previously in section V.A.2. of
this Addendum).
We note that, with the exception of cases
subject to the transitional blend payment rate
provisions in the first 2 years, under the dual
rate LTCH PPS payment structure, only
LTCH PPS cases that meet the statutory
criteria to be excluded from the site neutral
payment rate (that is, LTCH PPS standard
Federal payment rate cases) are paid based
on the LTCH PPS standard Federal payment
rate. Because the area wage level adjustment
under § 412.525(c) is an adjustment to the
LTCH PPS standard Federal payment rate, we
only used data from claims that would have
qualified for payment at the LTCH PPS
standard Federal payment rate if such rate
were in effect at the time of discharge to
calculate the FY 2017 LTCH PPS standard
Federal payment rate area wage level
adjustment budget neutrality factor described
above.
For this proposed rule, using the steps in
the methodology previously described, we
determined a proposed FY 2017 LTCH PPS
standard Federal payment rate area wage
level adjustment budget neutrality factor of
0.998723. Accordingly, in section V.A.2. of
the Addendum to this propose rule, to
determine the proposed FY 2017 LTCH PPS
standard Federal payment rate, we are
applying a proposed area wage level
adjustment budget neutrality factor of
0.998723, in accordance with § 412.523(d)(4).
The proposed FY 2017 LTCH PPS standard
Federal payment rate shown in Table 1E of
the Addendum to this proposed rule reflects
this adjustment factor.
C. Proposed Cost-of-Living Adjustment
(COLA) for LTCHs Located in Alaska and
Hawaii
Under § 412.525(b), a cost-of-living
adjustment (COLA) is provided for LTCHs
located in Alaska and Hawaii to account for
the higher costs incurred in those States.
Specifically, we apply a COLA to payments
to LTCHs located in Alaska and Hawaii by
multiplying the nonlabor-related portion of
the standard Federal payment rate by the
applicable COLA factors established annually
by CMS. Higher labor-related costs for LTCHs
located in Alaska and Hawaii are taken into
account in the adjustment for area wage
levels previously described.
Under our current methodology, we update
the COLA factors for Alaska and Hawaii
every 4 years (at the same time as the update
to the labor-related share of the IPPS market
basket) (77 FR 53712 through 53713). This

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methodology is based on a comparison of the
growth in the Consumer Price Indexes (CPIs)
for Anchorage, Alaska, and Honolulu,
Hawaii, relative to the growth in the CPI for
the average U.S. city as published by the
Bureau of Labor Statistics (BLS). It also
includes a 25-percent cap on the CPI-updated
COLA factors. (For additional details on our
current methodology for updating the COLA
factors for Alaska and Hawaii, we refer
readers to section VII.D.3. of the preamble of
the FY 2013 IPPS/LTCH PPS final rule (77 FR
53481 through 53482).)
We continue to believe that determining
updated COLA factors using this
methodology would appropriately adjust the
nonlabor-related portion of the LTCH PPS
standard Federal payment rate for LTCHs
located in Alaska and Hawaii. Under our
current policy, we update the COLA factors
using the methodology described above every
4 years; the first year began in FY 2014 (77
FR 53482). Therefore, in this proposed rule
for FY 2017, under the broad authority
conferred upon the Secretary by section 123
of the BBRA, as amended by section 307(b)
of the BIPA, to determine appropriate
payment adjustments under the LTCH PPS,
we are proposing to continue to use the
COLA factors based on the 2009 OPM COLA
factors updated through 2012 by the
comparison of the growth in the CPIs for
Anchorage, Alaska, and Honolulu, Hawaii,
relative to the growth in the CPI for the
average U.S. city as established in the FY
2014 IPPS/LTCH PPS final rule. (We refer
readers to the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50998) for a discussion of the FY
2014 COLA factors.) Consistent with our
historical practice, we are proposing to
establish that the COLA factors shown in the
following table will be used to adjust the
nonlabor-related portion of the LTCH PPS
standard Federal payment rate for LTCHs
located in Alaska and Hawaii under
§ 412.525(b).

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PROPOSED COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND
HAWAII HOSPITALS UNDER THE
LTCH PPS FOR FY 2017
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
1.19
1.25
1.25

D. Proposed Adjustment for LTCH PPS HighCost Outlier (HCO) Cases
1. HCO Background
From the beginning of the LTCH PPS, we
have included an adjustment to account for

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cases in which there are extraordinarily high
costs relative to the costs of most discharges.
Under this policy, additional payments are
made based on the degree to which the
estimated cost of a case (which is calculated
by multiplying the Medicare allowable
covered charge by the hospital’s overall
hospital CCR) exceeds a fixed-loss amount.
This policy results in greater payment
accuracy under the LTCH PPS and the
Medicare program, and the LTCH sharing the
financial risk for the treatment of
extraordinarily high-cost cases.
We retained the basic tenets of our HCO
policy in FY 2016 when we implemented the
dual rate LTCH PPS payment structure under
section 1206 of Public Law 113–67. LTCH
discharges that meet the criteria for exclusion
from site neutral payment rate (that is, LTCH
PPS standard Federal payment rate cases) are
paid at the LTCH PPS standard Federal
payment rate, which includes, as applicable,
HCO payments under § 412.523(e). LTCH
discharges that do not meet the criteria for
exclusion are paid at the site neutral payment
rate, which includes, as applicable, HCO
payments under § 412.522(c)(2)(i). In the
same rule, we established separate fixed-loss
amounts and targets for the two different
LTCH PPS payment rates. Under this
bifurcated policy, the historic 8 percent HCO
target was retained for LTCH PPS standard
Federal payment rate cases, with the fixedloss amount calculated using only data from
LTCH cases which would have been paid at
the LTCH PPS standard Federal payment rate
if that rate had been in effect at the time of
those discharges. For site neutral payment
rate cases, we adopted the operating IPPS
HCO target (currently 5.1 percent) and set the
fixed-loss amount for site neutral payment
rate cases at the value of the IPPS fixed-loss
amount. Under the HCO policy for both
payment rates, an LTCH receives 80 percent
of the difference between the estimated cost
of the case and the applicable HCO
threshold, which is the sum of the LTCH PPS
payment for the case and the applicable
fixed-loss amount for such case. In order to
maintain budget neutrality, consistent with
the budget neutrality requirement for HCO
payments to LTCH PPS standard Federal rate
payment cases, we also adopted a budget
neutrality requirement for HCO payments to
site neutral payment rate cases by applying
a budget neutrality factor to the LTCH PPS
payment for those site neutral payment rate
cases. (We refer readers to § 412.522(c)(2)(i)
of the regulation for further details). We note
during the 2-year transitional period, the site
neutral payment rate HCO budget neutrality
factor does not apply to the LTCH PPS
standard Federal payment rate portion of the
blended rate at § 412.522(c)(3) payable to site
neutral payment rate cases. (For additional
details on the HCO policy adopted for site
neutral payment rate cases under the dual
rate LTCH PPS payment structure, including
the budget neutrality adjustment for HCO
payments to site neutral payment rate cases,
we refer readers to the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49617 through 49623).)

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2. Determining LTCH CCRs under the LTCH
PPS
a. Background
As noted above, CCRs are used to
determine payments for HCO adjustments for
both payment rates under the LTCH PPS, and
are also used to determine payments for SSO
cases under § 412.529 as well as payments for
site neutral payment rate cases. (We note that
the provisions of § 412.529 are only
applicable to LTCH PPS standard Federal
payment rate cases.) Therefore, this
discussion is relevant to all HCO, SSO, and
site neutral payment rate calculations.
As noted earlier, in determining HCO,
SSO, and the site neutral payment rate
(regardless of whether the case is also an
HCO) payments, we generally calculate the
estimated cost of the case by multiplying the
LTCH’s overall CCR by the Medicare
allowable charges for the case. An overall
CCR is used because the LTCH PPS uses a
single prospective payment per discharge
that covers both inpatient operating and
capital-related costs. The LTCH’s overall CCR
is generally computed 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 Medicare
charges (that is, the sum of its operating and
capital inpatient routine and ancillary
charges), with those values determined from
either the most recently settled cost report or
the most recent tentatively settled cost report,
whichever is from the latest cost reporting
period. However, in certain instances, we use
an alternative CCR, such as the statewide
average CCR, a CCR that is specified by CMS,
or one that is requested by the hospital. (We
refer readers to § 412.525(a)(4)(iv) of the
regulations for further details regarding HCO
adjustments for either LTCH PPS payment
rate, § 412.529(f)(4) for SSO adjustments, and
§ 412.522(c)(1)(ii) for the site neutral
payment rate, respectively.)
The LTCH’s calculated CCR is then
compared to the LTCH total CCR ceiling.
Under our established policy, an LTCH with
a calculated CCR in excess of the applicable
maximum CCR threshold (that is, the LTCH
total CCR ceiling, which is calculated as 3
standard deviations from the national
geometric average CCR) is generally assigned
the applicable statewide CCR. This policy is
premised on a belief that calculated CCRs
above the LTCH total CCR ceiling are most
likely due to faulty data reporting or entry,
and CCRs based on erroneous data should
not be used to identify and make payments
for outlier cases.
b. LTCH Total CCR Ceiling
In this proposed rule, using our established
methodology for determining the LTCH total
CCR ceiling based on IPPS total CCR data
from the December 2015 update of the
Provider Specific File (PSF), we are
proposing a LTCH total CCR ceiling of 1.302
under the LTCH PPS for FY 2017 in
accordance with § 412.525(a)(4)(iv)(C)(2) for
HCO cases under either payment rate,
§ 412.529(f)(4)(iii)(B) for SSOs, and
§ 412.522(c)(1)(ii) for the site neutral
payment rate. Consistent with our historical
practice, we also are proposing to use more

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recent data to determine the LTCH total CCR
ceiling for the FY 2017 final rule. (For
additional information on our methodology
for determining the LTCH total CCR ceiling,
we refer readers to the FY 2007 IPPS final
rule (71 FR 48118 through 48119).)
c. LTCH Statewide Average CCRs
Our general methodology for determining
the statewide average CCRs used under the
LTCH PPS is similar to our established
methodology for determining the LTCH total
CCR ceiling because it is based on ‘‘total’’
IPPS CCR data. (For additional information
on our methodology for determining
statewide average CCRs under the LTCH PPS,
we refer readers to the FY 2007 IPPS final
rule (71 FR 48119 through 48120).) Under the
LTCH PPS HCO policy for cases paid under
either payment rate at § 412.525(a)(4)(iv)(C),
the SSO policy at § 412.529(f)(4)(iii), and the
site neutral payment rate at
§ 412.522(c)(1)(ii), the MAC may use a
statewide average CCR, which is established
annually by CMS, if it is unable to determine
an accurate CCR for an LTCH in one of the
following circumstances: (1) New LTCHs that
have not yet submitted their first Medicare
cost report, 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
calculated CCR is in excess of the LTCH total
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 MAC
may consider in determining an LTCH’s CCR
include data from a different cost reporting
period for the LTCH, data from the cost
reporting period preceding the period in
which the hospital began to be paid as an
LTCH (that is, the period of at least 6 months
that it was paid as a short-term, acute care
hospital), or data from other comparable
LTCHs, such as LTCHs in the same chain or
in the same region.)
Consistent with our historical practice of
using the best available data, in this 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
2015 update of the PSF, we are proposing
LTCH PPS statewide average total CCRs for
urban and rural hospitals that would be
effective for discharges occurring on or after
October 1, 2016 through September 30, 2017,
in Table 8C listed in section VI. of the
Addendum to this proposed rule (and
available via the Internet on the CMS Web
site). Consistent with our historical practice,
we are proposing to use more recent data to
determine the LTCH PPS statewide average
total CCRs for FY 2017 in the final rule.
Under the current LTCH PPS labor market
areas, all areas in Delaware, the District of
Columbia, New Jersey, and Rhode Island are
classified as urban. Therefore, there are no
rural statewide average total CCRs listed for
those jurisdictions in Table 8C. This policy
is consistent with the policy that we
established when we revised our
methodology for determining the applicable
LTCH statewide average CCRs in the FY 2007
IPPS final rule (71 FR 48119 through 48121)
and is the same as the policy applied under

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the IPPS. In addition, although Connecticut
and North Dakota have areas that are
designated as rural, in our calculation of the
LTCH statewide average CCRs, there was no
data available from short-term, acute care
IPPS hospitals to compute a rural statewide
average CCR or there were no short-term,
acute care IPPS hospitals or LTCHs located
in those areas as of December 2015.
Therefore, consistent with our existing
methodology, we are proposing to use the
national average total CCR for rural IPPS
hospitals for rural Connecticut and North
Dakota in Table 8C listed in section VI. of the
Addendum to this proposed rule (and
available via the Internet on the CMS Web
site). Furthermore, consistent with our
existing methodology, in determining the
urban and rural statewide average total CCRs
for Maryland LTCHs paid under the LTCH
PPS, we are proposing to continue to use, as
a proxy, the national average total CCR for
urban IPPS hospitals and the national
average total CCR for rural IPPS hospitals,
respectively. We use this proxy because we
believe that the CCR data in 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 HCO and SSO Payments
Under the HCO policy for cases paid under
either payment rate at § 412.525(a)(4)(iv)(D)
and the SSO policy at § 412.529(f)(4)(iv), the
payments for HCO and SSO cases are subject
to reconciliation. Specifically, any such
payments are reconciled at settlement based
on the CCR that is calculated based on the
cost report coinciding with the discharge.
(We note the existing reconciliation process
for HCO payments is also applicable to LTCH
PPS payments for site neutral payment rate
cases (80 FR 49610).) For additional
information on the reconciliation policy, 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).
e. Proposed Technical Change to the
Definition of ‘‘Outlier Payment’’
The existing regulations at § 412.503
includes a definition of ‘‘outlier payment,’’
which was adopted when the LTCH PPS was
implemented (67 FR 56049). This definition
does not account for the dual rate LTCH PPS
payment structure that began in FY 2016.
Therefore, in this proposed rule, to account
for our HCO policy for LTCH cases paid
under either payment rate, we are proposing
to revise the definition of ‘‘outlier payment’’
at § 412.503 to mean an additional payment
beyond the LTCH PPS standard Federal
payment rate or the site neutral payment rate
(including, when applicable, the transitional
blended rate), as applicable, for cases with
unusually high costs.

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3. Proposed High-Cost Outlier Payments for
LTCH PPS Standard Federal Payment Rate
Cases
a. Establishment of the Proposed Fixed-Loss
Amount for LTCH PPS Standard Federal
Payment Rate Cases for FY 2017
When we implemented the LTCH PPS, 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 (67 FR 56022 through
56026). When we implemented the dual rate
LTCH PPS payment structure beginning in
FY 2016, we established that, in general, that
the historical LTCH PPS HCO policy will
continue to apply to LTCH PPS standard
Federal payment rate cases. That is, the
fixed-loss amount and target for LTCH PPS
standard Federal payment rate cases is
determined using the LTCH PPS HCO policy
adopted when the LTCH PPS was first
implemented, but we limited the data used
under that policy to LTCH cases that would
have been LTCH PPS standard Federal
payment rate cases if the statutory changes
had been in effect at the time of those
discharges.
To determine the applicable fixed-loss
amount for LTCH PPS standard Federal
payment rate cases, we estimate outlier
payments and total LTCH PPS payments for
each LTCH PPS standard Federal payment
rate case (or for each case that would have
been a LTCH PPS standard Federal payment
rate case if the statutory changes had been in
effect at the time of the discharge) using
claims data from the MedPAR files. The
applicable fixed-loss amount for LTCH PPS
standard Federal payment rate cases results
in estimated total outlier payments being
projected to be equal to 8 percent of projected
total LTCH PPS payments for LTCH PPS
standard Federal payment rate cases. We use
MedPAR claims data and CCRs based on data
from the most recent PSF (or from the
applicable statewide average CCR if an
LTCH’s CCR data are faulty or unavailable)
to establish an applicable fixed-loss
threshold amount for LTCH PPS standard
Federal payment rate cases.
For FY 2017, we are not proposing to make
any modifications to the current LTCH PPS
HCO payment methodology for LTCH PPS
standard Federal payment rate cases.
Therefore, for FY 2017, we are proposing to
determine an applicable fixed-loss amount
for LTCH PPS standard Federal payment rate
cases using data from LTCH PPS standard
Federal payment rate cases (or cases that
would have been LTCH PPS standard Federal
payment rate cases had the dual rate LTCH
PPS payment structure been in effect at the
time of those discharges). The proposed
fixed-loss amount for LTCH PPS standard
Federal payment rate cases would continue
to be determined so that estimated HCO
payments would be projected to equal 8
percent of estimated total LTCH PPS
standard Federal payment rate cases.
Furthermore, in accordance with
§ 412.523(d)(1), a budget neutrality factor
would continue to be applied to LTCH PPS
standard Federal payment rate cases to offset
that 8 percent so that HCO payments for
LTCH PPS standard Federal payment rate

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cases will be budget neutral. Below we
present our calculation of the proposed fixedloss amount for LTCH PPS standard Federal
payment rate cases for FY 2017, which is
consistent with the methodology used to
establish the FY 2016 LTCH PPS fixed-loss
amount.
In the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49803 through 49804), we presented
our policies regarding the methodology and
data we used to establish a fixed-loss amount
of $16,432 for FY 2016 for LTCH PPS
standard Federal payment rate cases, which
was calculated based on the data and the
rates and policies presented in that final rule
in order to maintain estimated HCO
payments at the projected 8 percent of total
estimated LTCH PPS payments. Consistent
with our historical practice of using the best
data available, in determining the proposed
fixed-loss amount for LTCH PPS standard
Federal payment rate cases for FY 2017, we
used the most recent available LTCH claims
data and CCR data, that is, LTCH claims data
from the December 2015 update of the FY
2015 MedPAR file and CCRs from the
December 2015 update of the PSF, as these
data were the most recent complete LTCH
data available at that time.
For FY 2017, we are proposing to continue
to use our current methodology to calculate
an applicable fixed-loss amount for LTCH
PPS standard Federal payment rate cases for
FY 2017 using the best available data that
would maintain estimated HCO payments at
the projected 8 percent of total estimated
LTCH PPS payments for LTCH PPS standard
Federal payment rate cases (based on the
rates and policies for these cases presented
in this proposed rule). Specifically, based on
the most recent complete LTCH data
available (that is, LTCH claims data from the
December 2015 update of the FY 2015
MedPAR file and CCRs from the December
2015 update of the PSF), we determined a
proposed fixed-loss amount for LTCH PPS
standard Federal payment rate cases for FY
2017 that will result in estimated outlier
payments projected to be equal to 8 percent
of estimated FY 2017 payments for such
cases. Under the broad authority of section
123(a)(1) of the BBRA and section 307(b)(1)
of the BIPA, we are proposing a fixed-loss
amount of $22,728 for LTCH PPS standard
Federal payment rate cases for FY 2017.
Under our proposal, we would continue to
make an additional HCO payment for the cost
of an LTCH PPS standard Federal payment
rate case that exceeds the HCO threshold
amount 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 LTCH PPS standard Federal
payment rate payment and the fixed-loss
amount for LTCH PPS standard Federal
payment rate cases of $22,728).
We note that the proposed fixed-loss
amount of $22,728 for FY 2017 for LTCH PPS
standard Federal payment rate cases is
notably higher than the FY 2016 fixed-loss
amount for LTCH PPS standard Federal
payment rate cases of $16,423. The FY 2016
fixed-loss amount for LTCH PPS standard
Federal payment rate cases was determined
using LTCH claims data from the March 2015
update of the FY 2014 MedPAR file and

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CCRs from the March 2015 update of the
PSF. Based on that data, the estimated outlier
payments were projected to be equal to 8
percent of estimated FY 2016 payments for
such cases (80 FR 49803). Using the more
recent LTCH claims data (that is, FY 2015
LTCH discharges from the December 2015
update of the MedPAR file and CCRs from
the December 2015 update of the PSF), we
currently estimate that the FY 2016 fixed-loss
amount of $16,423 results in estimated HCO
payments for LTCH PPS standard Federal
payment rate cases of approximately 9.1
percent of total estimated FY 2016 LTCH PPS
payments to those cases, which exceeds the
8 percent target. While many factors
contribute to this increase, we found that the
rate-of-change in the Medicare allowable
charges on the claims data in the MedPAR is
a significant contributing factor. In the
payment modeling used to estimate LTCH
PPS payments for the FY 2016 IPPS/LTCH
PPS final rule, for SSO and HCO cases paid
as LTCH PPS standard Federal payment rate
cases, we applied an inflation factor of 4.6
percent (determined by the Office of the
Actuary) to update the 2014 costs of each
case to 2016 (80 FR 49833). Upon examining
the FY 2014 LTCH discharge data and the FY
2015 discharge data, we found that Medicare
allowable charges for LTCH PPS standard
Federal payment rate cases (had the dual rate
LTCH PPS payment structure been in effect
at the time of the discharges) increased
approximately 7 percent. This higher
inflation factor results in higher estimated
costs for outlier cases and, therefore, more
estimated outlier payments.
Fluctuations in the fixed-loss amount
occurred in the first few years after the
implementation of the LTCH PPS, due, in
part, to the changes in LTCH behavior (such
as Medicare beneficiary treatment patterns)
in response to the new payment system and
the lack of data and information available to
predict how those changes would affect the
estimate costs of LTCH cases. As we gained
more experience with the effects and
implementation of the LTCH PPS, the annual
changes on the fixed-loss amount generally
stabilized relative to the fluctuations that
occurred in the early years of the LTCH PPS.
At this time, we are not proposing any
changes to our method for the inflation factor
applied to update the costs of each case (that
is, an inflation factor based on the most
recent estimate of the proposed 2013-based
LTCH market basket as determined by the
Office of the Actuary) in determining the
proposed fixed-loss amount for LTCH PPS
standard Federal payment rate cases for FY
2017. We continue to believe that it is
appropriate to continue to use our historical
approach until we gain experience with the
effects and implementation of the dual rate
LTCH PPS payment structure that began with
discharges occurring in cost reporting
periods beginning on or after October 1,
2015, and the types of cases paid at the LTCH
PPS standard Federal payment rate under
this dual rate payment structure. We may
revisit this issue in the future if data
demonstrate such a change is warranted, and
would propose any changes in the future
through the notice-and-comment rulemaking
process. However, we are inviting public

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comments on potential improvements to the
determination of the fixed-loss amount for
LTCH PPS standard Federal payment rate
cases, including the most appropriate method
of determining an inflation factor for
projecting the costs of each case when
determining the fixed-loss threshold.
For the reasons discussed above, we
believe it is necessary and appropriate to
propose an increase to the fixed-loss amount
for LTCH PPS standard Federal payment rate
cases for FY 2017 to maintain that, for LTCH
PPS standard Federal payment rate cases,
estimated HCO payments would equal 8
percent of estimated total LTCH PPS
payments for those cases as required under
§ 412.525(a). (For further information on the
existing 8 percent HCO ‘‘target’’ requirement,
we refer readers to the August 30, 2002 LTCH
PPS final rule (67 FR 56022 through 56024).)
Maintaining the fixed-loss amount at the
current level would result in HCO payments
that are substantially more than the current
regulatory 8 percent target that we are
applying to total payments for LTCH PPS
standard Federal payment rate cases because
a lower fixed-loss amount would result in
more cases qualifying as outlier cases, as well
as higher outlier payments for qualifying
HCO cases because the maximum loss that an
LTCH must incur before receiving an HCO
payment (that is, the fixed-loss amount)
would be smaller.
b. Application of the High-Cost Outlier
Policy to SSO Cases
Under our implementation of the dual rate
LTCH PPS payment structure required by
statute, LTCH PPS standard Federal payment
rate cases (that is, LTCH discharges that meet
the criteria for exclusion from the site neutral
payment rate) will continue to be paid based
on the LTCH PPS standard Federal payment
rate, and will include all of the existing
payment adjustments under § 412.525(d),
such as the adjustments for SSO cases under
§ 412.529. Under some rare circumstances, an
LTCH discharge can qualify as an SSO case
(as defined in the regulations at § 412.529 in
conjunction with § 412.503) and also as an
HCO case, as discussed in the August 30,
2002 final rule (67 FR 56026). 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 applicable fixed-loss amount), the
discharge is eligible for payment as an HCO.
Therefore, for an SSO case in FY 2017, we
are proposing the HCO payment would be 80
percent of the difference between the
estimated cost of the case and the outlier
threshold (the sum of the proposed fixed-loss
amount of $22,728 and the amount paid
under the SSO policy as specified in
§ 412.529).
4. Proposed High-Cost Outlier Payments for
Site Neutral Payment Rate Cases
Under § 412.525(a), site neutral payment
rate cases receive an additional HCO
payment for costs that exceed the HCO
threshold that is equal to 80 percent of the
difference between the estimated cost of the
case and the applicable HCO threshold (80

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FR 49618 through 49629). In the FY 2016
IPPS/LTCH PPS final rule, in examining the
appropriate fixed-loss amount for site neutral
payment rate cases issue, we considered how
LTCH discharges based on historical claims
data would have been classified under the
dual rate LTCH PPS payment structure and
the CMS’ Office of the Actuary (OACT)
projections regarding how LTCHs would
likely respond to our proposed
implementation of policies resulting from the
statutory payment changes. For FY 2016, at
that time our actuaries projected that the
proportion of cases that would qualify as
LTCH PPS standard Federal payment rate
cases versus site neutral payment rate cases
under the statutory provisions would remain
consistent with what is reflected in the
historical LTCH PPS claims data. Although
our actuaries did not project an immediate
change in the proportions found in the
historical data, they did project cost and
resource changes to account for the lower
payment rates. Our actuaries also projected
that the costs and resource use for cases paid
at the site neutral payment rate would likely
be lower, on average, than the costs and
resource use for cases paid at the LTCH PPS
standard Federal payment rate and would
likely mirror the costs and resource use for
IPPS cases assigned to the same MS–DRG,
regardless of whether the proportion of site
neutral payment rate cases in the future
remains similar to what is found based on the
historical data. In light of these projections
and expectations, we discussed that we
believed that the use of a single fixed-loss
amount and HCO target for all LTCH PPS
cases would be problematic. In addition, we
discussed that we did not believe that it
would be appropriate for comparable LTCH
PPS site neutral payment rate cases to receive
dramatically different HCO payments from
those cases that would be paid under the
IPPS (80 FR 49618 through 49619). For those
reasons, in the FY 2016 IPPS/LTCH PPS final
rule (FR 80 49619), we stated that we believe
that the most appropriate fixed-loss amount
for site neutral payment rate cases for a given
fiscal year, beginning with FY 2016, would
be the IPPS fixed-loss amount for that fiscal
year. Accordingly, we established that for FY
2016, a fixed-loss amount for site neutral
payment rate cases of $22,544, which was the
same as the FY 2016 IPPS fixed-loss amount.
(We note that the FY 2016 fixed-loss amount
under the IPPS was updated, applicable for
discharges on or after January 1, 2016, as a
conforming change to the implementation of
section 601 of the Consolidated
Appropriations Act, 2016, which modified
the payment calculation with respect to
operating costs of inpatient hospital services
of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after
January 1, 2016 (Change Request 9523,
Transmittal 3449, dated February 4, 2016).)
Consistent with this change, the FY 2016
fixed-loss amount for site neutral payment
rate cases under the LTCH PPS was updated,
applicable for discharges on or after January
1, 2016, to $22,538, which is the same as the
updated IPPS outlier fixed-loss cost
threshold for FY 2016. (We refer readers to
Change Request 9527, Transmittal 3445,
dated January 29, 2016, which also updated

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the IPPS comparable amount calculation,
applicable to discharges occurring on or after
January 1, 2016, consistent with the
conforming changes made as a result of the
new IPPS payment requirement.)
For this proposed rule, in developing a
proposed fixed-loss amount for site neutral
payment rate cases for FY 2017, we
considered the same factors we did
developing a fixed-loss amount for such
cases for FY 2016. For FY 2017, our actuaries
currently project that the proportion of cases
that would qualify as LTCH PPS standard
Federal payment rate cases versus site
neutral payment rate cases under the dual
rate LTCH PPS payment structure provisions
would remain consistent with what is
reflected in the historical LTCH PPS claims
data. Based on FY 2014 LTCH claims data,
LTCH claims data, we found that
approximately 55 percent of LTCH cases
would have been paid the LTCH PPS
standard Federal payment rate and
approximately 45 percent of LTCH cases
would have been paid the site neutral
payment rate if those rates had been in effect
at that time.) At this time, our actuaries
continue to project no immediate change in
these proportions. However, they do
continue to project that the costs and
resource use for cases paid at the site neutral
payment rate would likely be lower, on
average, than the costs and resource use for
cases paid at the LTCH PPS standard Federal
payment rate and would likely mirror the
costs and resource use for IPPS cases
assigned to the same MS–DRG, regardless of
whether the proportion of site neutral
payment rate cases in the future remains
similar to what is found based on the
historical data. As discussed in the FY 2016
IPPS/LTCH PPS final rule (80 FR 49619), this
actuarial assumption is based on our
expectation that site neutral payment rate
cases would generally be paid based on an
IPPS comparable per diem amount under the
statutory LTCH PPS payment changes that
began in FY 2016, which, in the majority of
cases, is much lower than the payment that
would have been paid if these statutory
changes were not enacted. For these reasons,
we continue to believe that the most
appropriate fixed-loss amount for site neutral
payment rate cases for FY 2017 is the IPPS
fixed-loss amount for FY 2017.
Therefore, for FY 2017, we are proposing
that the applicable HCO threshold for site
neutral payment rate cases is the sum of the
site neutral payment rate for the case and the
IPPS fixed-loss amount. That is, we are
proposing a fixed-loss amount for site neutral
payment rate cases of $23,681, which is the
same proposed FY 2017 IPPS fixed-loss
amount discussed in section II.A.4.g.(1). of
the Addendum to this proposed rule. We
continue to believe that this policy will
reduce differences between HCO payments
for similar cases under the IPPS and site
neutral payment rate cases under the LTCH
PPS and promote fairness between the two
systems. Accordingly, under this proposal,
for FY 2017, we would calculate a HCO
payment for site neutral payment rate cases
with costs that exceed the HCO threshold
amount, which is equal to 80 percent of the
difference between the estimated cost of the

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case and the outlier threshold (the sum of site
neutral payment rate payment and the
proposed fixed-loss amount for site neutral
payment rate cases of $23,681). (We note that
any site neutral payment rate case that is
paid 100 percent of the estimated cost of the
case (because that amount is lower than the
IPPS comparable per diem amount) will not
be eligible to receive a HCO payment
because, by definition, the estimated costs of
such cases would never exceed the IPPS
comparable per diem amount by any
threshold.)
In establishing a HCO policy for site
neutral payment rate cases, we established a
budget neutrality requirement at
§ 412.522(c)(2)(i). We established this
requirement because we believe that the HCO
policy for site neutral payment rate cases
should be budget neutral, just as the HCO
policy for LTCH PPS standard Federal
payment rate cases are budget neutral,
meaning that estimated site neutral payment
rate HCO payments should not result in any
change in estimated aggregate LTCH PPS
payments. Under § 412.522(c)(2)(i), we adjust
all payments for site neutral payment rate
cases by a budget neutrality factor so that the
estimated HCO payments payable for site
neutral payment rate cases do not result in
any increase in aggregate LTCH PPS
payments. Specifically, under
§ 412.522(c)(2)(i), we apply a budget
neutrality factor to the site neutral payment
rate portion of the transitional blended rate
payment (that is applicable to site neutral
payment rate cases during the 2-year
transition period provided by the statute) that
is established based on an estimated basis.
(We refer readers to 80 FR 49621 through
49622 and 49805.)
Under the approach adopted for applying
the budget neutrality adjustment to the site
neutral payment rate portion of the
transitional blended rate payment in the FY
2016 IPPS/LTCH PPS final rule (80 FR
49805), we explained that there is no need
to perform any calculation of the site neutral
payment rate case HCO payment budget
neutrality adjustment under our finalized
policy. This is because, as discussed
previously, based on our actuarial
assumptions we project that our proposal to
use the IPPS fixed-loss threshold for the site
neutral payment rate cases would result in
HCO payments for those cases that are
similar in proportion as is seen in IPPS cases
assigned to the same MS–DRG; that is, 5.1
percent. In other words, we estimated that
HCO payments for site neutral payment rate
cases would be 5.1 percent of the site neutral
payment rate payments. Under the statutory
transition period, payments to site neutral
payment rate cases in FY 2017 will be paid
under the blended transitional rate. As such,
estimated HCO payments for site neutral
payment rate cases in the FY 2017 proposal
would be projected to be 5.1 percent of the
portion of the blended rate payment that is
based on the estimated site neutral payment
rate payment amount (and would not include
the LTCH PPS standard Federal payment rate
payment amount as specified in
§ 412.522(c)(2)(i)). To ensure that estimated
HCO payments payable to site neutral
payment rate cases in FY 2017 would not

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result any increase in estimated aggregate FY
2017 LTCH PPS payments, under the budget
neutrality requirement at § 412.522(c)(2)(i), it
is necessary to reduce the site neutral
payment rate portion of the blended rate
payment by 5.1 percent to account for the
estimated additional HCO payments payable
to those cases in FY 2017. In order to achieve
this, for FY 2017, we are proposing to
continue to apply a budget neutrality factor
of 0.949 (that is, the decimal equivalent of a
5.1 percent reduction, determined as 1.0–5.1/
100 = 0.949) to the site neutral payment rate
portion of the blended rate payment (80 FR
49805). As stated previously, this adjustment
is necessary so that the estimated HCO
payments payable for site neutral payment
rate cases do not result in any increase in
aggregate LTCH PPS payments.
E. Proposed Update to the IPPS Comparable/
Equivalent Amounts to Reflect the Statutory
Changes to the IPPS DSH Payment
Adjustment Methodology
In the FY 2014 IPPS/LTCH PPS final rule,
we established a policy for reflecting the
changes to the Medicare IPPS DSH payment
adjustment methodology provided for by
section 3133 of the Affordable Care Act in the
calculation of the ‘‘IPPS comparable amount’’
under the SSO policy at § 412.529 and the
‘‘IPPS equivalent amount’’ under the 25percent threshold payment adjustment policy
at § 412.534 and § 412.536. Historically, the
determination of both the ‘‘IPPS comparable
amount’’ and the ‘‘IPPS equivalent amount’’
includes an amount for inpatient operating
costs ‘‘for the costs of serving a
disproportionate share of low-income
patients.’’ Under the statutory changes to the
Medicare DSH payment adjustment
methodology that began in FY 2014, in
general, eligible IPPS hospitals receive an
empirically justified Medicare DSH payment
equal to 25 percent of the amount they
otherwise would have received under the
statutory formula for Medicare DSH
payments prior to the amendments made by
the Affordable Care Act. The remaining
amount, equal to an estimate of 75 percent
of the amount that otherwise would have
been paid as Medicare DSH payments,
reduced to reflect changes in the percentage
of individuals under the age of 65 who are
uninsured, is made available to make
additional payments to each hospital that
qualifies for Medicare DSH payments and
that has uncompensated care. The additional
uncompensated care payments are based on
the hospital’s amount of uncompensated care
for a given time period relative to the total
amount of uncompensated care for that same
time period reported by all IPPS hospitals
that receive Medicare DSH payments.
To reflect the statutory changes to the
Medicare DSH payment adjustment
methodology in the calculation of the ‘‘IPPS
comparable amount’’ and the ‘‘IPPS
equivalent amount’’ under the LTCH PPS, we
stated that we will include a reduced
Medicare DSH payment amount that reflects
the projected percentage of the payment
amount calculated based on the statutory
Medicare DSH payment formula prior to the
amendments made by the Affordable Care
Act that will be paid to eligible IPPS

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hospitals as empirically justified Medicare
DSH payments and uncompensated care
payments in that year (that is, a percentage
of the operating DSH payment amount that
has historically been reflected in the LTCH
PPS payments that is based on IPPS rates).
We also stated that the projected percentage
will be updated annually, consistent with the
annual determination of the amount of
uncompensated care payments that will be
made to eligible IPPS hospitals. We believe
that this approach results in appropriate
payments under the LTCH PPS and is
consistent with our intention that the ‘‘IPPS
comparable amount’’ and the ‘‘IPPS
equivalent amount’’ under the LTCH PPS
closely resemble what an IPPS payment
would have been for the same episode of
care, while recognizing that some features of
the IPPS cannot be translated directly into
the LTCH PPS (79 FR 50766 through 50767).
For FY 2017, as discussed in greater detail
in section IV.D.3.d.(2) of the preamble of this
proposed rule, based on the most recent data
available, our estimate of 75 percent of the
amount that would otherwise have been paid
as Medicare DSH payments (under the
methodology outlined in section 1886(r)(2) of
the Act) is adjusted to 56.74 percent of that
amount to reflect the change in the
percentage of individuals who are uninsured.
The resulting amount is then used to
determine the amount of uncompensated
care payments that will be made to eligible
IPPS hospitals in FY 2017. In other words,
Medicare DSH payments prior to the
amendments made by the Affordable Care
Act would be adjusted to 42.56 percent (the
product of 75 percent and 56.74 percent) and
the resulting amount will be used to calculate
the uncompensated care payments to eligible
hospitals. As a result, for FY 2017, we project
that the reduction in the amount of Medicare
DSH payments pursuant to section 1886(r)(1)
of the Act, along with the payments for
uncompensated care under section 1886(r)(2)
of the Act, would result in overall Medicare
DSH payments of 67.56 percent of the
amount of Medicare DSH payments that
would otherwise have been made in the
absence of amendments made by the
Affordable Care Act (that is, 25 percent +
56.74 percent = 67.56 percent).
In this proposed rule, for FY 2017, we are
proposing that the calculation of the ‘‘IPPS
comparable amount’’ under § 412.529 and the
‘‘IPPS equivalent amount’’ under new
§ 412.538 would include an applicable
operating Medicare DSH payment amount
that is equal to 67.5677 percent of the
operating Medicare DSH payment amount
that would have been paid based on the
statutory Medicare DSH payment formula but
for the amendments made by the Affordable
Care Act. Furthermore, consistent with our
historical practice, we are proposing to use
more recent data, if available, to determine
this factor in the final rule.
F. Computing the Proposed Adjusted LTCH
PPS Federal Prospective Payments for FY
2017
Section 412.525 sets forth the adjustments
to the LTCH PPS standard Federal payment
rate. Under the dual rate LTCH PPS payment
structure, only LTCH PPS cases that meet the

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statutory criteria to be excluded from the site
neutral payment rate are paid based on the
LTCH PPS standard Federal payment rate.
Under § 412.525(c), the LTCH PPS standard
Federal payment rate is adjusted to account
for differences in area wages by multiplying
the labor-related share of the LTCH PPS
standard Federal payment for a case by the
applicable LTCH PPS wage index (the
proposed FY 2017 values are shown in
Tables 12A through 12B listed in section VI.
of the Addendum of this proposed rule and
are available via the Internet on the CMS
Web site). The LTCH PPS standard Federal
payment is also adjusted to account for the
higher costs of LTCHs located in Alaska and
Hawaii by the applicable COLA factors (the
proposed FY 2017 factors are shown in the
chart in section V.D. of this Addendum) in
accordance with § 412.525(b). In this
proposed rule, we are proposing an LTCH
PPS standard Federal payment rate for FY
2017 of $42,314.31, as discussed in section
V.A.2. of the Addendum to this proposed
rule. We illustrate the methodology to adjust
the proposed LTCH PPS standard Federal
payment rate for FY 2017 in the following
example:
Example: During FY 2017, a Medicare
discharge that meets the criteria to be
excluded from the site neutral payment rate,
that is an LTCH PPS standard Federal
payment rate case, is from an LTCH that is
located in Chicago, Illinois (CBSA 16974).
The FY 2017 LTCH PPS proposed wage
index value for CBSA 16974 is 1.0486
(obtained from Table 12A listed in section VI.
of the Addendum of this proposed rule and
available via the Internet on the CMS Web
site). The Medicare patient case is classified
into MS–LTC–DRG 189 (Pulmonary Edema &
Respiratory Failure), which has a proposed
relative weight for FY 2017 of 0.9107
(obtained from Table 11 listed in section VI.
of the Addendum of this proposed rule and
available via the Internet on the CMS Web
site). The LTCH submitted quality reporting
data for FY 2017 in accordance with the
LTCHQRP under section 1886(m)(5) of the
Act.
To calculate the LTCH’s total proposed
adjusted Federal prospective payment for
this Medicare patient case in FY 2017, we
computed the wage-adjusted Federal
prospective payment amount by multiplying
the unadjusted proposed FY 2017 LTCH PPS
standard Federal payment rate ($42,314.31)
by the proposed labor-related share (66.6
percent) and the wage index value (1.0486).
This wage-adjusted amount was then added
to the proposed nonlabor-related portion of
the unadjusted LTCH PPS standard Federal
payment rate (33.4 percent; adjusted for cost
of living, if applicable) to determine the
adjusted proposed LTCH PPS standard
Federal payment rate, which is then
multiplied by the proposed MS–LTC–DRG
relative weight (0.9107) to calculate the total
proposed adjusted LTCH PPS standard
Federal prospective payment for FY 2017
($39,782.95). The table below illustrates the
components of the calculations in this
example.

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Proposed LTCH PPS Standard Federal Prospective Payment Rate ..............................................................................................
Proposed Labor-Related Share ........................................................................................................................................................
Proposed Labor-Related Portion of the LTCH PPS Standard Federal Payment Rate ...................................................................
Proposed Wage Index (CBSA 16974) .............................................................................................................................................
Proposed Wage-Adjusted Labor Share of LTCH PPS Standard Federal Payment Rate ...............................................................
Proposed Nonlabor-Related Portion of the LTCH PPS Standard Federal Payment Rate ($42,314.31 × 0.334) ...........................
Proposed Adjusted LTCH PPS Standard Federal Payment Amount ..............................................................................................
Proposed MS–LTC–DRG 189 Relative Weight ...............................................................................................................................
Total Proposed Adjusted LTCH PPS Standard Federal Prospective Payment ...............................................................................

VI. Tables Referenced in This Proposed Rule
and Available Only Through the Internet on
the CMS Web Site
This section lists the tables referred to
throughout the preamble of this proposed
rule and in this Addendum. In the past, a
majority of these tables were published in the
Federal Register as part of the annual
proposed and final rules. However, similar to
FYs 2012 through 2016, for the FY 2017
rulemaking cycle, the IPPS and LTCH tables
will not be published in the Federal Register
in the annual IPPS/LTCH PPS proposed and
final rules and will be available only through
the Internet. Specifically, all IPPS tables
listed below, with the exception of IPPS
Tables 1A, 1B, 1C, and 1D, and LTCH PPS
Table 1E will be available only through the
Internet. IPPS Tables 1A, 1B, 1C, and 1D, and
LTCH PPS Table 1E are displayed at the end
of this section and will continue to be
published in the Federal Register as part of
the annual proposed and final rules.
As discussed in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49807), we streamlined
and consolidated the wage index tables for
FY 2016 and subsequent fiscal years.
As discussed in sections II.F.14., II.F.15.b.,
II.F.16., II.F.17.a., and II.F.19.a.1., a.3., and
c.1. of the preamble of this proposed rule, we
developed the following ICD–10–CM and
ICD–10–PCS code tables for FY 2017: Table
6A—New Diagnosis Codes; Table 6B—New
Procedure Codes; Table 6C—Invalid
Diagnosis Codes; Table 6G.1—Proposed
Secondary Diagnosis Order Additions to the
CC Exclusion List; Table 6G.2—Proposed
Principal Diagnosis Order Additions to the
CC Exclusion List; Table 6H.1—Proposed
Secondary Diagnosis Order Deletions to the
CC Exclusion List; Table 6H.2—Proposed
Principal Diagnosis Order Deletions to the CC
Exclusion List; Table 6I—Proposed Complete
MCC List; Table 6I.1—Proposed Additions to
MCC List; Table 6I.2—Proposed Deletions to
MCC List; Table 6J—Proposed Complete CC
List; Table 6J.1—Proposed Additions to CC
List; Table 6J.2—Proposed Deletions to CC
List; Table 6L—Proposed Principal Diagnosis
Is Its Own MCC List; Table 6M—Proposed
Principal Diagnosis Is Its Own CC List; Table
6M.1—Proposed Additions to the Principal
Diagnosis Is Its Own CC List; and Table 6P—
ICD–10–CM and ICD–10–PCS Codes for
Proposed MCE and MS–DRG Changes. Table
6P contains multiple tables, 6P.1a through
6P.4k, that include the ICD–10–CM and ICD–
10–PCS code lists and translations relating to
specific MCE and MS–DRG proposed
changes. In addition, under the HAC
Reduction Program established by section
3008 of the Affordable Care Act, a hospital’s
total payment may be reduced by 1 percent
if it is in the lowest HAC performance

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quartile. However, as discussed in section
IV.F. of the preamble of this proposed rule,
we are not providing the hospital-level data
as a table associated with this proposed rule.
The hospital-level data for the FY 2017 HAC
Reduction Program will be made publicly
available once it has undergone the review
and corrections process.
Finally, a hospital’s Factor 3 is the
proportion of the uncompensated care
amount that a DSH eligible hospital will
receive under section 3133 of the Affordable
Care Act. Factor 3 is the hospital’s estimated
number of Medicaid days and Medicare SSI
days (or for a Puerto Rico hospital, a proxy
for its Medicare SSI days) relative to the
estimate of all DSH hospitals’ Medicaid days
and Medicare SSI days (or for Puerto Rico
hospitals that are estimated to be eligible for
DSH payments, a proxy for their Medicare
SSI days). Table 18 associated with this
proposed rule contains the FY 2017 Medicare
DSH uncompensated care payment Factor 3
for all hospitals and identifies whether or not
a hospital is projected to receive DSH and,
therefore, eligible to receive the additional
payment for uncompensated care for FY
2017.
Readers who experience any problems
accessing any of the tables that are posted on
the CMS Web sites identified below should
contact Michael Treitel at (410) 786–4552.
The following IPPS tables for this FY 2017
proposed rule are available only through the
Internet on the CMS Web site at: http://www.
cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.
Click on the link on the left side of the screen
titled, ‘‘FY 2017 IPPS Proposed Rule Home
Page’’ or ‘‘Acute Inpatient—Files for
Download’’.
Table 2.—Proposed Case-Mix Index and
Wage Index Table by CCN—FY 2017
Table 3.—Proposed Wage Index Table by
CBSA—FY 2017
Table 5.—Proposed List of Proposed
Medicare Severity Diagnosis-Related
Groups (MS DRGs), Relative Weighting
Factors, and Geometric and Arithmetic
Mean Length of Stay—FY 2017
Table 6A.—New Diagnosis Codes for FY 2017
Table 6B.—New Procedure Codes for FY
2017
Table 6C.—Invalid Diagnosis Codes for FY
2017
Table 6G.1.—Proposed Secondary Diagnosis
Order Additions to the CC Exclusions
List—FY 2017
Table 6G.2.—Proposed Principal Diagnosis
Order Additions to the CC Exclusions
List—FY 2017
Table 6H.1.—Proposed Secondary Diagnosis
Order Deletions to the CC Exclusions
List—FY 2017

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$42,314.31
× 0.666
= $28,181.33
× 1.0486
= $29,550.94
+ $14,132.98
= $43,683.92
× 0.9107
= $39,782.95

Table 6H.2.—Proposed Principal Diagnosis
Order Deletions to the CC Exclusions
List—FY 2017
Table 6I.—Proposed Complete Major
Complication and Comorbidity (MCC)
List—FY 2017
Table 6I.1.—Proposed Additions to the MCC
List—FY 2017
Table 6I.2.—Proposed Deletions to the MCC
List—FY 2017
Table 6J.—Proposed Complete Complication
and Comorbidity (CC) List—FY 2017
Table 6J.1.—Proposed Additions to the CC
List—FY 2017
Table 6J.2.—Proposed Deletions to the CC
List—FY 2017
Table 6L.—Proposed Principal Diagnosis Is
Its Own MCC List—FY 2017
Table 6M.—Proposed Principal Diagnosis Is
Its Own CC List—FY 2017
Table 6M.1.—Proposed Additions to the
Principal Diagnosis Is Its Own CC List—FY
2017
Table 6P.—ICD–10–CM and ICD–10–PCS
Codes for Proposed MCE and MS–DRG
Changes—FY 2017
Table 7A.—Medicare Prospective Payment
System Selected Percentile Lengths of Stay:
FY 2015 MedPAR Update—December 2015
GROUPER V33.0 MS–DRGs
Table 7B.—Medicare Prospective Payment
System Selected Percentile Lengths of Stay:
FY 2015 MedPAR Update—December 2015
GROUPER V34.0 MS–DRGs
Table 8A.—Proposed FY 2017 Statewide
Average Operating Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals (Urban
and Rural)
Table 8B.—Proposed FY 2017 Statewide
Average Capital Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals
Table 10.—Proposed New Technology AddOn Payment Thresholds for Applications
for FY 2018
Table 14.—List of Hospitals with Fewer Than
1,600 Medicare Discharges Based on the
December 2015 Update of the FY 2015
MedPAR File and Potentially Eligible
Hospitals for the Proposed FY 2017 Low
Volume Hospital Payment Adjustment
(eligibility for the low-volume hospital
payment adjustment is also dependent
upon meeting the mileage criteria specified
at 42 CFR 412.101(b)(2)(ii).)
Table 15.—Proposed FY 2017 Proxy
Readmissions Adjustment Factors
Table 16.—Proposed Proxy Hospital
Inpatient Value-Based Purchasing (VBP)
Adjustment Factors for FY 2017
Table 18.—Proposed FY 2017 Medicare DSH
Uncompensated Care Payment Factor 3
The following LTCH PPS tables for this FY
2017 proposed rule are available only
through the Internet on the CMS Web site at

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http://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/LongTermCareHospital
PPS/index.html under the list item for
Regulation Number CMS–1655–P:
Table 8C.—Proposed FY 2017 Statewide
Average Total Cost-to-Charge Ratios (CCRs)
for LTCHs (Urban and Rural)
Table 11.—Proposed MS–LTC–DRGs,
Relative Weights, Geometric Average

Table 12B.—Proposed LTCH PPS Wage Index
for Rural Areas for Discharges Occurring
from October 1, 2016 through September
30, 2017
Table 13A.—Proposed Composition of Low
Volume Quintiles for MS–LTC–DRGs—FY
2017
Table 13B.—Proposed No Volume MS LTC–
DRG Crosswalk for FY 2017

Length of Stay, Short-Stay Outlier (SSO)
Threshold, and ‘‘IPPS Comparable’’
Threshold for LTCH PPS Discharges
Occurring from October 1, 2016 through
September 30, 2017
Table 12A.—Proposed LTCH PPS Wage
Index for Urban Areas for Discharges
Occurring from October 1, 2016 through
September 30, 2017

TABLE 1A—PROPOSED NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (69.6 PERCENT
LABOR SHARE/30.4 PERCENT NONLABOR SHARE IF WAGE INDEX IS GREATER THAN 1)—FY 2017
Hospital submitted quality data
and is a meaningful EHR user
(update = 1.55 percent)
Labor

Hospital submitted quality data
and is NOT a meaningful EHR
user
(update = ¥0.55 percent)

Nonlabor

$3,836.20

Labor

$1,675.59

Nonlabor

$3,756.87

$1,640.94

Hospital did NOT submit quality
data and is a meaningful EHR
user
(update = 0.850 percent)
Labor

Hospital did NOT submit quality
data and is NOT a meaningful
EHR user
(update = ¥1.25 percent)

Nonlabor

$3,809.76

Labor

$1,664.04

Nonlabor

$3,730.43

$1,629.39

TABLE 1B—PROPOSED NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (62 PERCENT
LABOR SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX IS LESS THAN 1)—FY 2017
Hospital submitted quality data
and is a meaningful EHR user
(update = 1.55 percent)
Labor

Hospital submitted quality data
and is NOT a meaningful EHR
user
(update = ¥0.55 percent)

Nonlabor

$3,417.31

Labor

$2,094.48

Nonlabor

$3,346.64

$2,051.17

Hospital did NOT submit quality
data and is a meaningful EHR
user
(update = 0.850 percent)
Labor

Hospital did NOT submit quality
data and is NOT a meaningful
EHR user
(update = ¥1.25 percent)

Nonlabor

$3,393.76

Labor

$2,080.04

Nonlabor

$3,323.09

$2,036.73

TABLE 1C—PROPOSED ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR HOSPITALS IN PUERTO RICO, LABOR/
NONLABOR (NATIONAL: 62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE BECAUSE WAGE INDEX IS LESS
THAN OR EQUAL TO 1)—FY 2017
Rates if wage index is greater than 1

Rates if wage index is less
than or equal to 1

Standardized amount

National1 .........................................
1 For

Labor

Nonlabor

Not Applicable ................................

Not Applicable ................................

Labor

Nonlabor

$3,417.31

$2,094.48

FY 2017, there are no CBSAs in Puerto Rico with a national wage index greater than 1.

TABLE 1D—PROPOSED CAPITAL
STANDARD
FEDERAL
PAYMENT
RATE—FY 2017
Rate
National .................................

$446.35

TABLE 1E—PROPOSED LTCH PPS STANDARD FEDERAL PAYMENT RATE—FY 2017
Full update
(1.45 percent)

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Standard Federal Rate ................................................................................................................................

$42,314.31

Reduced update *
(¥0.55 percent)
$41,480.12

* For LTCHs that fail to submit quality reporting data for FY 2017 in accordance with the LTCH Quality Reporting Program (LTCH QRP), the
annual update is reduced by 2.0 percentage points as required by section 1886(m)(5) of the Act.

Appendix A: Economic Analyses
I. Regulatory Impact Analysis
A. Introduction
We have examined the impacts of this
proposed rule as required by Executive Order
12866 on Regulatory Planning and Review

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(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

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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,

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environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, of reducing costs, of harmonizing
rules, and of promoting flexibility. A
regulatory impact analysis (RIA) must be
prepared for major rules with economically
significant effects ($100 million or more in
any 1 year).
We have determined that this proposed
rule is a major rule as defined in 5 U.S.C.
804(2). We estimate that the proposed
changes for FY 2017 acute care hospital
operating and capital payments would
redistribute amounts in excess of $100
million to acute care hospitals. The
applicable percentage increase to the IPPS
rates required by the statute, in conjunction
with other proposed payment changes in this
proposed rule, would result in an estimated
$693 million increase in FY 2017 proposed
operating payments (or 0.7 percent change)
and an estimated $164 million increase in FY
2017 proposed capital payments (or 2.0
percent change). These proposed changes are
relative to payments made in FY 2016. The
impact analysis of the proposed 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 decrease in
payments by $355 million in FY 2017
relative to FY 2016.
Our operating impact estimate includes the
proposed ¥1.5 percent documentation and
coding adjustment applied to the IPPS
standardized amount, as discussed in section
II.D. of the preamble of this proposed rule,
which represents part of the recoupment
required under section 631 of the ATRA. In
addition, our operating payment impact
estimate includes the proposed 1.55 percent
hospital update to the standardized amount
(which includes the estimated 2.8 percent
market basket update less 0.5 percentage
point for the proposed multifactor
productivity adjustment and less 0.75
percentage point required under the
Affordable Care Act). Our operating payment
impact estimate also includes a proposed
adjustment of (1/0.998) to permanently
remove the ¥0.2 percent reduction and a
proposed 1.006 temporary adjustment to
address the effects of the 0.2 percent
reduction in effect for FYs 2014 through 2016
as a result of the 2-midnight policy (we refer
readers to section IV.O. of the preamble of
this proposed rule for an explanation of these
proposed adjustments). The estimates of IPPS
operating payments to acute care hospitals do
not reflect any changes in hospital
admissions or real case-mix intensity, which
will also affect overall proposed payment
changes.
The analysis in this Appendix, in
conjunction with the remainder of this
document, demonstrates that this proposed
rule is consistent with the regulatory
philosophy and principles identified in
Executive Orders 12866 and 13563, the RFA,
and section 1102(b) of the Act. This proposed
rule would affect payments to a substantial
number of small rural hospitals, as well as
other classes of hospitals, and the effects on
some hospitals may be significant. Finally, in

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accordance with the provisions of Executive
Order 12866, the Executive Office of
Management and Budget has reviewed this
proposed rule.
B. Statement of Need
This proposed rule is necessary in order to
make payment and policy changes under the
Medicare IPPS for Medicare acute care
hospital inpatient services for operating and
capital-related costs as well as for certain
hospitals and hospital units excluded from
the IPPS. This proposed rule also is
necessary to make payment and policy
changes for Medicare hospitals under the
LTCH PPS.
C. Objectives of the IPPS
The primary objective of the IPPS is to
create incentives for hospitals to operate
efficiently and minimize unnecessary costs
while at the same time ensuring that
payments are sufficient to adequately
compensate hospitals for their legitimate
costs in delivering necessary care to
Medicare beneficiaries. In addition, we share
national goals of preserving the Medicare
Hospital Insurance Trust Fund.
We believe that the changes in this
proposed rule would further each of these
goals while maintaining the financial
viability of the hospital industry and
ensuring access to high quality health care
for Medicare beneficiaries. We expect that
these proposed changes 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 proposed
policy changes, as well as statutory changes
effective for FY 2017, on various hospital
groups. We estimate the effects of individual
proposed policy changes by estimating
payments per case while holding all other
payment policies constant. We use the best
data available, but, generally, we do not
attempt to make adjustments for future
changes in such variables as admissions,
lengths of stay, or case-mix.
E. Hospitals Included in and Excluded From
the IPPS
The prospective payment systems for
hospital inpatient operating and capitalrelated costs of acute care hospitals
encompass most general short-term, acute
care hospitals that participate in the
Medicare program. There were 31 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,
hospitals in Maryland are paid in accordance
with the Maryland All-Payer Model, and
hospitals located outside the 50 States, the
District of Columbia, and Puerto Rico (that is,
5 short-term acute care hospitals located in
the U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa)
receive payment for inpatient hospital
services they furnish on the basis of

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reasonable costs, subject to a rate-of-increase
ceiling.
As of March 2016, there were 3,330 IPPS
acute care hospitals included in our analysis.
This represents approximately 55 percent of
all Medicare-participating hospitals. The
majority of this impact analysis focuses on
this set of hospitals. There also are
approximately 1,374 CAHs. These small,
limited service hospitals are paid on the basis
of reasonable costs rather than under the
IPPS. IPPS-excluded hospitals and units,
which are paid under separate payment
systems, include IPFs, IRFs, LTCHs, RNHCIs,
children’s hospitals, 11 cancer hospitals, and
5 short-term acute care hospitals located in
the Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa.
Changes in the prospective payment systems
for IPFs and IRFs are made through separate
rulemaking. Payment impacts of changes to
the prospective payment systems for these
IPPS-excluded hospitals and units are not
included in this proposed rule. The impact
of the proposed update and proposed policy
changes to the LTCH PPS for FY 2017 is
discussed in section I.J. of this Appendix.
F. Effects on Hospitals and Hospital Units
Excluded From the IPPS
As of March 2016, there were 98 children’s
hospitals, 11 cancer hospitals, 5 short-term
acute care hospitals located in the Virgin
Islands, Guam, the Northern Mariana Islands
and American Samoa, and 18 RNHCIs being
paid on a reasonable cost basis subject to the
rate-of-increase ceiling under § 413.40. (In
accordance with § 403.752(a) of the
regulation, RNHCIs are paid under § 413.40.)
Among the remaining providers, 262
rehabilitation hospitals and 869
rehabilitation units, and approximately 430
LTCHs, are paid the Federal prospective per
discharge rate under the IRF PPS and the
LTCH PPS, respectively, and 495 psychiatric
hospitals and 1,122 psychiatric units are paid
the Federal per diem amount under the IPF
PPS. As stated previously, IRFs and IPFs are
not affected by the rate updates discussed in
this proposed rule. The impacts of the
changes on LTCHs are discussed in section
I.J. of this Appendix.
For children’s hospitals, the 11 cancer
hospitals, the 5 short-term acute care
hospitals located in the Virgin Islands, Guam,
the Northern Mariana Islands, and American
Samoa, and RNHCIs, the update of the rateof-increase limit (or target amount) is the
estimated FY 2017 percentage increase in the
IPPS operating market basket, consistent with
section 1886(b)(3)(B)(ii) of the Act, and
§§ 403.752(a) and 413.40 of the regulations.
As discussed in section IV. of the preamble
of the FY 2014 IPPS/LTCH PPS final rule, we
rebased the IPPS operating market basket to
a FY 2010 base year. Therefore, we are using
the percentage increase in the FY 2010-based
IPPS operating market basket to update the
target amounts for FY 2017 and subsequent
fiscal years for children’s hospitals, the 11
cancer hospitals, the 5 short-term acute care
hospitals located in the Virgin Islands, Guam,
the Northern Mariana Islands, and American
Samoa, and RNHCIs that are paid based on
reasonable costs subject to the rate-ofincrease limits. Consistent with current law,

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based on IHS Global Insight, Inc.’s first
quarter 2016 forecast of the FY 2010-based
IPPS market basket increase, we are
estimating the FY 2017 update to be 2.8
percent (that is, the current estimate of the
market basket rate-of-increase). However, the
Affordable Care Act requires an adjustment
for multifactor productivity (currently
estimated to be 0.5 percentage point for FY
2017) and a 0.75 percentage point reduction
to the market basket update, resulting in a
1.55 percent applicable percentage increase
for IPPS hospitals that submit quality data
and are meaningful EHR users, as discussed
in section IV.B. of the preamble of this
proposed rule. Children’s hospitals, the 11
cancer hospitals, the 5 short-term acute care
hospitals located in the Virgin Islands, Guam,
the Northern Mariana Islands, and American
Samoa, and RNHCIs that continue to be paid
based on reasonable costs subject to rate-ofincrease limits under § 413.40 of the
regulations are not subject to the reductions
in the applicable percentage increase
required under the Affordable Care Act.
Therefore, for those hospitals paid under
§ 413.40 of the regulations, the update is the
percentage increase in the FY 2010-based
IPPS operating market basket for FY 2017,
estimated at 2.8 percent, without the
reductions described previously under the
Affordable Care Act.
The impact of the update in the rate-ofincrease limit on those excluded hospitals
depends on the cumulative cost increases
experienced by each excluded hospital since
its applicable base period. For excluded
hospitals that have maintained their cost
increases at a level below the rate-of-increase
limits since their base period, the major effect
is on the level of incentive payments these
excluded hospitals receive. Conversely, for
excluded hospitals with cost increases above
the cumulative update in their rate-ofincrease limits, the major effect is the amount
of excess costs that would not be paid.
We note that, under § 413.40(d)(3), an
excluded hospital that continues to be paid
under the TEFRA system and whose costs
exceed 110 percent of its rate-of-increase
limit receives its rate-of-increase limit plus
the lesser of: (1) 50 percent of its reasonable
costs in excess of 110 percent of the limit; or
(2) 10 percent of its limit. In addition, under
the various provisions set forth in § 413.40,
hospitals can obtain payment adjustments for
justifiable increases in operating costs that
exceed the limit.
G. Quantitative Effects of the Proposed Policy
Changes Under the IPPS for Operating Costs
1. Basis and Methodology of Estimates
In this proposed rule, we are announcing
proposed policy changes and proposed
payment rate updates for the IPPS for FY
2017 for operating costs of acute care
hospitals. The proposed FY 2017 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 2017 operating payments would
increase by 0.7 percent compared to FY 2016.
In addition to the applicable percentage
increase, this amount reflects the proposed

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FY 2017 recoupment adjustment for
documentation and coding described in
section II.D. of the preamble of this proposed
rule of ¥1.5 percent to the IPPS national
standardized amounts. This amount also
reflects the proposed adjustment of (1/0.998)
to permanently remove the 0.2 percent
reduction and the proposed 1.006 temporary
adjustment to address the effects of the 0.2
percent reduction in effect for FYs 2014
through 2016 related to the 2-midnight
policy, which are discussed in section IV.O.
of the preamble of this proposed rule. The
impacts do not reflect changes in the number
of hospital admissions or real case-mix
intensity, which would also affect overall
proposed payment changes.
We have prepared separate impact analyses
of the proposed changes to each system. This
section deals with the proposed changes to
the operating inpatient prospective payment
system for acute care hospitals. Our payment
simulation model relies on the most recent
available data to enable us to estimate the
impacts on payments per case of certain
changes in this proposed rule. However,
there are other proposed changes for which
we do not have data available that would
allow us to estimate the payment impacts
using this model. For those proposed
changes, we have attempted to predict the
payment impacts based upon our experience
and other more limited data.
The data used in developing the
quantitative analyses of proposed changes in
payments per case presented in this section
are taken from the FY 2015 MedPAR file and
the most current Provider-Specific File (PSF)
that is used for payment purposes. Although
the analyses of the proposed changes to the
operating PPS do not incorporate cost data,
data from the most recently available hospital
cost reports were used to categorize
hospitals. Our analysis has several
qualifications. First, in this analysis, we do
not make adjustments for future changes in
such variables as admissions, lengths of stay,
or underlying growth in real case-mix.
Second, due to the interdependent nature of
the IPPS payment components, it is very
difficult to precisely quantify the impact
associated with each proposed 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 2015 MedPAR
file, we simulate payments under the
operating IPPS given various combinations of
payment parameters. As described
previously, Indian Health Service hospitals
and hospitals in Maryland were excluded
from the simulations. The proposed 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 2017 are discussed in
section I.I. of this Appendix.
We discuss the following proposed
changes:

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• The effects of the proposed application
of the documentation and coding adjustment
and the applicable percentage increase
(including the proposed market basket
update, the proposed multifactor
productivity adjustment, and the applicable
percentage reduction in accordance with the
Affordable Care Act) to the standardized
amount and hospital-specific rates.
• The effects of the proposed adjustment of
(1/0.998) to permanently remove the 0.2
percent reduction and the proposed 1.006
temporary adjustment to address the effects
of the 0.2 percent reduction in effect for FYs
2014 through 2016 related to the 2-midnight
policy, as discussed in section IV.O. of the
preamble of this proposed rule.
• The effects of the proposed changes to
the relative weights and MS–DRG GROUPER.
• The effects of the proposed changes in
hospitals’ wage index values reflecting
updated wage data from hospitals’ cost
reporting periods beginning during FY 2013,
compared to the FY 2012 wage data, to
calculate the FY 2017 wage index.
• The effects of the geographic
reclassifications by the MGCRB (as of
publication of this proposed rule) that would
be effective for FY 2017.
• The effects of the proposed rural floor
and imputed floor with the application of the
proposed national budget neutrality factor to
the wage index.
• The effects of the last year of the 3-year
transition for hospitals that were located in
an urban county that became rural under the
new OMB delineations or hospitals that were
deemed urban where the urban area became
rural under the new OMB delineations.
• The effects of the proposed frontier State
wage index adjustment under the statutory
provision that requires that hospitals located
in States that qualify as frontier States to not
have a wage index less than 1.0. This
provision is not budget neutral.
• The effects of the implementation of
section 1886(d)(13) of the Act, as added by
section 505 of Public Law 108–173, which
provides for an increase in a hospital’s wage
index if a threshold percentage of residents
of the county where the hospital is located
commute to work at hospitals in counties
with higher wage indexes. This provision is
not budget neutral.
• The total estimated change in payments
based on the proposed FY 2017 policies
relative to payments based on FY 2016
policies that include the applicable
percentage increase of 1.55 percent (or 2.8
percent market basket update with a
proposed reduction of 0.5 percentage point
for the multifactor productivity adjustment,
and a 0.75 percentage point reduction, as
required under the Affordable Care Act).
To illustrate the impact of the proposed FY
2017 changes, our analysis begins with a FY
2016 baseline simulation model using: The
FY 2016 applicable percentage increase of 1.7
percent and the documentation and coding
recoupment adjustment of ¥0.8 percent to
the Federal standardized amount; the FY
2016 MS–DRG GROUPER (Version 33); the
FY 2016 CBSA designations for hospitals
based on the new OMB definitions; the FY
2016 wage index; and no MGCRB
reclassifications. Outlier payments are set at

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5.1 percent of total operating MS–DRG and
outlier payments for modeling purposes.
Section 1886(b)(3)(B)(viii) of the Act, as
added by section 5001(a) of Public Law 109–
171, as amended by section 4102(b)(1)(A) of
the ARRA (Pub. L. 111–5) and by section
3401(a)(2) of the Affordable Care Act (Pub. L.
111–148), provides that, for FY 2007 and
each subsequent year through FY 2014, the
update factor will include a reduction of 2.0
percentage points for any subsection (d)
hospital that does not submit data on
measures in a form and manner and at a time
specified by the Secretary. Beginning in FY
2015, the reduction is one-quarter of such
applicable percentage increase determined
without regard to section 1886(b)(3)(B)(ix),
(xi), or (xii) of the Act, or one-quarter of the
market basket update. Therefore, for FY 2017,
we are proposing that hospitals that do not
submit quality information under rules
established by the Secretary and that are
meaningful EHR users under section
1886(b)(3)(B)(ix) of the Act would receive an
applicable percentage increase of 0.85
percent. At the time that this impact was
prepared, 90 hospitals are estimated to not
receive the full market basket rate-of-increase
for FY 2016 because they failed the quality
data submission process or did not choose to
participate but are meaningful EHR users. For
purposes of the simulations shown later in
this section, we modeled the proposed
payment changes for FY 2017 using a
reduced update for these 90 hospitals.
For FY 2017, in accordance with section
1886(b)(3)(B)(ix) of the Act, a hospital that
has been identified as not a meaningful EHR
user would be subject to a reduction of threequarters of such applicable percentage
increase determined without regard to
section 1886(b)(3)(B)(ix), (xi), or (xii) of the
Act. Therefore, for FY 2017, we are proposing
that hospitals that are identified as not
meaningful EHR users and do submit quality
information under section 1886(b)(3)(B)(viii)
of the Act would receive an applicable
percentage increase of ¥0.55 percent. At the
time that this impact analysis was prepared,
147 hospitals are estimated to not receive the
full market basket rate-of-increase for FY
2017 because they are identified as not
meaningful EHR users that do submit quality
information under section 1886(b)(3)(B)(viii)
of the Act. For purposes of the simulations
shown in this section, we modeled the
proposed payment changes for FY 2017 using
a reduced update for these 147 hospitals.
Hospitals that are identified as not
meaningful EHR users under section
1886(b)(3)(B)(ix) of the Act and also do not
submit quality data under section
1886(b)(3)(B)(viii) of the Act would receive
an applicable percentage increase of ¥1.25
percent, which reflects a one-quarter
reduction of the market basket update for
failure to submit quality data and a threequarter reduction of the market basket update
for being identified as not a meaningful EHR
user. At the time that this impact was
prepared, 30 hospitals are estimated to not
receive the full market basket rate-of-increase
for FY 2017 because they are identified as not
meaningful EHR users that do not submit
quality data under section 1886(b)(3)(B)(viii)
of the Act.

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Each proposed policy change, statutory or
otherwise, is then added incrementally to
this baseline, finally arriving at an FY 2017
model incorporating all of the proposed
changes. This simulation would allow us to
isolate the effects of each proposed change.
Our final comparison illustrates the
percent change in payments per case from FY
2016 to FY 2017. Three factors not discussed
separately have significant impacts here. The
first factor is the proposed update to the
standardized amount. In accordance with
section 1886(b)(3)(B)(i) of the Act, we are
proposing to update the standardized
amounts for FY 2017 using a proposed
applicable percentage increase of 1.55
percent. This includes our forecasted IPPS
operating hospital market basket increase of
2.8 percent with a reduction of 0.5
percentage point for the multifactor
productivity adjustment and a 0.75
percentage point reduction as required under
the Affordable Care Act. Hospitals that fail to
comply with the quality data submission
requirements and are meaningful EHR users
would receive a proposed update of 0.85
percent. This update includes a reduction of
one-quarter of the market basket update for
failure to submit these data. Hospitals that do
comply with the quality data submission
requirements but are not meaningful EHR
users would receive an update of ¥0.55
percent, which includes a reduction of threequarters of the market basket update.
Furthermore, hospitals that do not comply
with the quality data submission
requirements and also are not meaningful
EHR users would receive an update of ¥1.25
percent. Under section 1886(b)(3)(B)(iv) of
the Act, the update to the hospital-specific
amounts for SCHs and MDHs also is equal to
the applicable percentage increase, or 1.55
percent if the hospital submits quality data
and is a meaningful EHR user.
A second significant factor that affects the
proposed changes in hospitals’ payments per
case from FY 2016 to FY 2017 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 2016 that are no longer
reclassified in FY 2017. Conversely,
payments may increase for hospitals not
reclassified in FY 2016 that are reclassified
in FY 2017.
A third significant factor is that we
currently estimate that actual outlier
payments during FY 2016 would be 5.3
percent of total MS–DRG payments. When
the FY 2016 IPPS/LTCH PPS final rule was
published, we projected FY 2016 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 higher
than expected outlier payments during FY
2016 are reflected in the analyses in this
section comparing our current estimates of
FY 2016 payments per case to estimated FY
2017 payments per case (with outlier
payments projected to equal 5.1 percent of
total MS–DRG payments).
2. Analysis of Table I
Table I displays the results of our analysis
of the proposed changes for FY 2017. The

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table categorizes hospitals by various
geographic and special payment
consideration groups to illustrate the varying
impacts on different types of hospitals. The
top row of the table shows the overall impact
on the 3,330 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 2,512 hospitals
located in urban areas included in our
analysis. Among these, there are 1,378
hospitals located in large urban areas
(populations over 1 million), and 1,134
hospitals in other urban areas (populations of
1 million or fewer). In addition, there are 818
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 2017 proposed
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 2,455;
1,372; 1,083; and 875, respectively.
The next three groupings examine the
impacts of the proposed changes on hospitals
grouped by whether or not they have GME
residency programs (teaching hospitals that
receive an IME adjustment) or receive
Medicare DSH payments, or some
combination of these two adjustments. There
are 2,275 nonteaching hospitals in our
analysis, 804 teaching hospitals with fewer
than 100 residents, and 251 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 three rows examine the impacts
of the proposed changes on rural hospitals by
special payment groups (SCHs, RRCs, and
MDHs). There were 193 RRCs, 326 SCHs, 146
MDHs, 126 hospitals that are both SCHs and
RRCs, and 15 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 2013 or FY 2012 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 2017. The second grouping
shows the MGCRB rural reclassifications.

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TABLE I—IMPACT ANALYSIS OF PROPOSED CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2017

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Number of
hospitals 1

All Hospitals ............................
By Geographic Location:
Urban hospitals ................
Large urban areas ...........
Other urban areas ............
Rural hospitals .................
Bed Size (Urban):
0–99 beds ........................
100–199 beds ..................
200–299 beds ..................
300–499 beds ..................
500 or more beds ............
Bed Size (Rural):
0–49 beds ........................
50–99 beds ......................
100–149 beds ..................
150–199 beds ..................
200 or more beds ............
Urban by Region:
New England ....................
Middle Atlantic ..................
South Atlantic ...................
East North Central ...........
East South Central ...........
West North Central ..........
West South Central ..........
Mountain ..........................
Pacific ...............................
Puerto Rico ......................
Rural by Region:
New England ....................
Middle Atlantic ..................
South Atlantic ...................
East North Central ...........
East South Central ...........
West North Central ..........
West South Central ..........
Mountain ..........................
Pacific ...............................
By Payment Classification:
Urban hospitals ................
Large urban areas ...........
Other urban areas ............
Rural areas ......................
Teaching Status:
Nonteaching .....................
Fewer than 100 residents
100 or more residents ......
Urban DSH:
Non-DSH ..........................
100 or more beds ............
Less than 100 beds .........
Rural DSH:
SCH ..................................
RRC .................................
100 or more beds ............
Less than 100 beds .........
Urban teaching and DSH:
Both teaching and DSH ...
Teaching and no DSH .....
No teaching and DSH ......
No teaching and no DSH
Special Hospital Types:
RRC .................................
SCH ..................................
MDH .................................
SCH and RRC .................
MDH and RRC .................
Type of Ownership:
Voluntary ..........................
Proprietary ........................
Government .....................

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Proposed
hospital rate
update and
documentation
and coding
adjustment

Proposed FY
2017 weights
and DRG
changes with
application of
recalibration
budget
neutrality

Proposed FY
2017 wage
data under
new CBSA
designations
with application of wage
budget
neutrality

(1) 2

(2) 3

(3) 4

FY 2017
MGCRB
reclassifications

Proposed rural
and imputed
floor with application of
national rural
and imputed
floor budget
neutrality

Proposed application of the
frontier wage
index and
out-migration
adjustment

All proposed
FY 2017
changes

(4) 5

(5) 6

(6) 7

(7) 8

3,330

0.9

0

0

0

0

0.1

0.7

2,512
1,378
1,134
818

0.8
0.8
0.9
1.5

0
0.1
0
¥0.4

0
0
0
0.1

¥0.1
¥0.3
0.1
1.4

0
¥0.1
0.2
¥0.2

0.1
0
0.2
0.1

0.6
0.6
0.7
0.8

656
765
449
429
213

0.8
0.9
0.9
0.9
0.8

¥0.2
¥0.2
¥0.1
0.1
0.2

0.2
0
¥0.1
0.1
¥0.1

¥0.5
0
0.1
¥0.2
¥0.2

0.1
0.3
0
0
¥0.1

0.2
0.2
0.1
0.2
0

0.7
0.5
0.5
0.7
0.8

320
292
119
46
41

1.3
1.7
1.5
1.5
1.5

¥0.5
¥0.6
¥0.4
¥0.2
¥0.1

0.1
0.1
0
0.1
0.2

0.3
0.8
1.5
1.7
2.5

¥0.2
¥0.1
¥0.2
¥0.2
¥0.2

0.3
0.1
0.2
0
0

0.6
0.8
0.6
1.0
1.2

116
315
406
390
147
163
384
163
377
51

0.7
0.8
0.9
0.8
0.9
1
0.8
1
0.8
0.8

0
0.1
0
0
0
0.1
0
0
0
0.1

¥0.4
¥0.3
¥0.1
0.1
¥0.2
0
0.3
0.2
0.4
¥0.4

1.3
0.5
¥0.4
¥0.2
¥0.4
¥0.7
¥0.4
¥0.4
¥0.4
¥0.9

0.8
¥0.2
¥0.2
¥0.3
¥0.3
¥0.3
¥0.3
0
1.1
0.2

0
0.1
0.1
0
0
0.7
0
0.2
0.1
0.1

¥0.6
0.2
0.8
1.1
1.0
0.9
1.2
0.7
0.4
0.3

21
55
127
115
156
99
161
60
24

1.2
1.7
1.4
1.6
1
2.1
1.6
1.6
1.7

¥0.2
¥0.4
¥0.4
¥0.4
¥0.3
¥0.4
¥0.5
¥0.4
¥0.5

0.4
0.1
¥0.1
0
0.4
0
0.2
0.1
¥0.2

1.5
0.6
2.5
1
2.1
0.3
1.6
0.2
1.3

¥0.2
¥0.1
¥0.2
¥0.1
¥0.3
¥0.1
¥0.2
¥0.1
¥0.1

0
0.1
0.1
0
0.1
0.3
0.1
0.1
0

1.2
0.9
0.8
0.9
0.7
1.0
0.9
0.7
0.8

2,455
1,372
1,083
875

0.8
0.8
0.9
1.6

0
0.1
0
¥0.4

0
0
0
0.1

¥0.1
¥0.3
0.2
1.1

0
¥0.1
0.2
¥0.1

0.1
0
0.2
0.3

0.6
0.6
0.7
0.9

2,275
804
251

1
0.9
0.8

¥0.2
0
0.2

0
0
¥0.1

0.2
¥0.1
¥0.1

0.1
0
¥0.2

0.1
0.2
0

0.6
0.7
0.8

597
1,608
330

0.9
0.8
0.8

0
0.1
¥0.3

¥0.1
0
0.1

0.1
¥0.1
¥0.6

¥0.1
0
0.1

0.1
0.1
0.1

0.5
0.7
0.5

266
347
33
149

2
1.5
0.8
0.7

¥0.5
¥0.3
¥0.4
¥0.4

0.1
0.1
¥0.1
0.1

0
1.5
2.9
1.4

0
¥0.2
¥0.3
¥0.3

0
0.3
0.1
0.5

0.9
0.9
0.5
0.2

880
107
1,058
410

0.8
0.8
0.8
0.8

0.1
0
¥0.1
0

0
0
0.1
¥0.1

¥0.2
0.7
0
¥0.3

¥0.1
¥0.1
0.2
0

0.1
0
0.1
0.1

0.7
0.2
0.5
0.7

193
326
146
126
15

0.8
2
1.6
2
1.8

¥0.1
¥0.3
¥0.6
¥0.3
¥0.5

0.2
¥0.1
0
0.1
¥0.1

2
0
0.5
0.4
0.8

¥0.1
0
¥0.1
¥0.1
¥0.1

0.4
0
0.2
0
0

1.1
1.0
0.8
1.2
1.3

1,914
858
516

0.9
0.9
0.9

0
0
0

0
0.1
¥0.2

0
0.1
¥0.2

0
0
0.1

0.1
0.1
0.1

0.7
0.8
0.5

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TABLE I—IMPACT ANALYSIS OF PROPOSED CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2017—Continued

Number of
hospitals 1

Medicare Utilization as a Percent of Inpatient Days:
0–25 .................................
25–50 ...............................
50–65 ...............................
Over 65 ............................
FY 2017 Reclassifications by
the Medicare Geographic
Classification Review Board:
All Reclassified Hospitals
Non-Reclassified Hospitals .............................
Urban Hospitals Reclassified ................................
Urban Nonreclassified
Hospitals .......................
Rural Hospitals Reclassified Full Year ................
Rural Nonreclassified
Hospitals Full Year .......
All Section 401 Reclassified Hospitals: ...............
Other Reclassified Hospitals (Section
1886(d)(8)(B)) ...............

Proposed
hospital rate
update and
documentation
and coding
adjustment

Proposed FY
2017 weights
and DRG
changes with
application of
recalibration
budget
neutrality

Proposed FY
2017 wage
data under
new CBSA
designations
with application of wage
budget
neutrality

(1) 2

(2) 3

(3) 4

FY 2017
MGCRB
reclassifications

Proposed rural
and imputed
floor with application of
national rural
and imputed
floor budget
neutrality

Proposed application of the
frontier wage
index and
out-migration
adjustment

All proposed
FY 2017
changes

(4) 5

(5) 6

(6) 7

(7) 8

517
2,128
546
94

0.7
0.9
1.1
1.1

0.1
0
¥0.2
¥0.3

0
0
¥0.1
0.3

¥0.4
0
0.6
¥0.5

0.1
0
0.1
0.3

0
0.1
0.1
0.2

0.7
0.7
0.5
0.9

853

0.9

0

0

2.1

¥0.1

0

0.6

2,477

0.9

0

0

¥0.9

0

0.1

0.7

576

0.8

0

0

2

¥0.1

0

0.5

1,879

0.8

0.1

0

¥0.9

0.1

0.1

0.7

277

1.6

¥0.3

0.1

2.3

¥0.2

0

1.0

484

1.5

¥0.5

0.2

¥0.2

¥0.1

0.3

0.7

57

1.7

¥0.2

0.2

¥0.4

0

1.2

1.0

57

1.2

¥0.4

0.1

3

¥0.3

0

0.6

1 Because

data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY 2015, and hospital cost report data are from reporting periods beginning in FY 2012 and FY 2013.
2 This column displays the payment impact of the proposed hospital rate update and other proposed adjustments including the proposed 1.55 percent adjustment to
the national standardized amount and hospital-specific rate (the estimated 2.8 percent market basket update reduced by the 0.5 percentage point for the proposed
multifactor productivity adjustment and the 0.75 percentage point reduction under the Affordable Care Act), the ¥1.5 percent proposed documentation and coding adjustment to the national standardized amount and the proposed adjustment of (1/0.998) to permanently remove the ¥0.2 percent reduction, and the proposed 1.006
temporary adjustment to address the effects of the 0.2 percent reduction in effect for FYs 2014 through 2016 related to the 2-midnight policy.
3 This column displays the payment impact of the proposed changes to the Version 34 GROUPER, the proposed changes to the relative weights and the recalibration of the MS–DRG weights based on FY 2015 MedPAR data in accordance with section 1886(d)(4)(C)(iii) of the Act. This column displays the application of the proposed recalibration budget neutrality factor of 0.999006 in accordance with section 1886(d)(4)(C)(iii) of the Act.
4 This column displays the payment impact of the proposed update to wage index data using FY 2013 cost report data and the OMB labor market area delineations
based on 2010 Decennial Census data. This column displays the payment impact of the application of the proposed wage budget neutrality factor, which is calculated
separately from the proposed recalibration budget neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The proposed wage budget neutrality factor is 0.999785.
5 Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB) along with the effects of the continued implementation of the new OMB labor market area delineations on these reclassifications. The effects demonstrate the FY 2017 payment impact of going from no
reclassifications to the reclassifications scheduled to be in effect for FY 2017. Reclassification for prior years has no bearing on the payment impacts shown here.
This column reflects the proposed geographic budget neutrality factor of 0.988816.
6 This column displays the effects of the proposed rural and imputed floor based on the continued implementation of the new OMB labor market area delineations.
The Affordable Care Act requires the rural floor budget neutrality adjustment to be 100 percent national level adjustment. The proposed rural floor budget neutrality
factor (which includes the proposed imputed floor) applied to the wage index is 0.993806. This column also shows the effect of the 3-year transition for hospitals that
were located in urban counties that became rural under the new OMB delineations or hospitals deemed urban where the urban area became rural under the new
OMB delineations, with a proposed budget neutrality factor of 0.999999.
7 This column shows the combined impact of the policy required under section 10324 of the Affordable Care Act that hospitals located in frontier States have a
wage index no less than 1.0 and of section 1886(d)(13) of the Act, as added by section 505 of Public Law 108–173, which provides for an increase in a hospital’s
wage index if a threshold percentage of residents of the county where the hospital is located commute to work at hospitals in counties with higher wage indexes.
These are non-budget neutral policies.
8 This column shows the proposed changes in payments from FY 2016 to FY 2017. It reflects the impact of the proposed FY 2017 hospital update and the proposed adjustment for documentation and coding. It also reflects proposed changes in hospitals’ reclassification status in FY 2017 compared to FY 2016. It incorporates all of the proposed changes displayed in Columns 1 through 6. The sum of these impacts may be different from the proposed percentage changes shown
here due to rounding and interactive effects.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

a. Effects of the Proposed Hospital Update,
Documentation and Coding Adjustment, and
Other Adjustments (Column 1)
As discussed in section IV.B. of the
preamble of this proposed rule, this column
includes the proposed hospital update,
including the proposed 2.8 percent market
basket update, the proposed reduction of 0.5
percentage point for the multifactor
productivity adjustment, and the 0.75
percentage point reduction in accordance
with the Affordable Care Act. In addition, as
discussed in section II.D. of the preamble of
this proposed rule, this column includes the

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proposed FY 2017 documentation and coding
recoupment adjustment of ¥1.5 percent on
the national standardized amount as part of
the recoupment required by section 631 of
the ATRA and, as discussed in section IV.O.
of the preamble of this proposed rule, the
proposed adjustment of (1/0.998) to
permanently remove the 0.2 percent
reduction and the proposed 1.006 temporary
adjustment to address the effects of the 0.2
percent reduction in effect for FYs 2014
through 2016 related to the 2-midnight
policy. As a result, we are proposing to make
a 0.9 percent update to the national
standardized amount. This column also

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includes the proposed 1.55 percent update to
the hospital-specific rates which includes the
proposed 2.8 percent market basket update,
the proposed reduction of 0.5 percentage
point for the multifactor productivity
adjustment, the 0.75 percentage point
reduction in accordance with the Affordable
Care Act. In addition, this column includes
the proposed adjustment to the hospitalspecific rates of (1/0.998) to permanently
remove the ¥0.2 percent reduction and the
proposed 1.006 temporary adjustment to
address the effects of the 0.2 percent
reduction in effect for FYs 2014 through
2016, which are discussed in section IV.O. of

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asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
the preamble of this proposed rule. As a
result, we are proposing to make a 2.35
percent update to the hospital-specific rates.
Overall, hospitals would experience a 0.9
percent increase in payments primarily due
to the combined effects of the proposed
hospital update and the proposed
documentation and coding adjustment on the
national standardized amount and the
proposed hospital update to the hospitalspecific rate as well as the proposed
adjustment of (1/0.998) to permanently
remove the ¥0.2 percent reduction and the
proposed 1.006 temporary adjustment to
address the effects of the 0.2 percent
reduction in effect for FYs 2014 through 2016
related to the 2-midnight policy to both the
national standardized amount and the
hospital-specific rate. Hospitals that are paid
under the hospital-specific rate, namely
SCHs, would experience a 2.0 percent
increase in payments; therefore, hospital
categories with SCHs paid under the
hospital-specific rate would experience
increases in payments of more than 0.9
percent.
b. Effects of the Proposed Changes to the MS–
DRG Reclassifications and Relative CostBased Weights With Recalibration Budget
Neutrality (Column 2)
Column 2 shows the effects of the
proposed changes to the MS–DRGs and
relative weights with the application of the
recalibration budget neutrality factor to the
standardized amounts. Section
1886(d)(4)(C)(i) of the Act requires us
annually to make appropriate classification
changes in order to reflect changes in
treatment patterns, technology, and any other
factors that may change the relative use of
hospital resources. Consistent with section
1886(d)(4)(C)(iii) of the Act, we are
calculating a recalibration budget neutrality
factor to account for the changes in MS–
DRGs and relative weights to ensure that the
overall payment impact is budget neutral.
As discussed in section II.E. of the
preamble of this proposed rule, the FY 2017
MS–DRG relative weights would be 100
percent cost-based and 100 percent MS–
DRGs. For FY 2017, the MS–DRGs are
calculated using the FY 2015 MedPAR data
grouped to the Version 34 (FY 2017) MS–
DRGs. The methodology to calculate the
relative weights and the reclassification
changes to the GROUPER are described in
more detail in section II.G. of the preamble
of this proposed rule.
The ‘‘All Hospitals’’ line in Column 2
indicates that proposed changes due to the
MS–DRGs and relative weights would result
in a 0.0 percent change in payments with the
application of the proposed recalibration
budget neutrality factor of 0.999006 on to the
standardized amount. Hospital categories
that generally treat more surgical cases than
medical cases would experience increases in
their payments under the relative weights.
Rural hospitals would experience a 0.4
percent decrease in payments because rural
hospitals tend to treat fewer surgical cases
than medical cases, while teaching hospitals
with more than 100 residents would
experience an increase in payments by 0.2
percent as those hospitals treat more surgical
cases than medical cases.

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c. Effects of the Proposed Wage Index
Changes (Column 3)
Column 3 shows the impact of updated
wage data using FY 2013 cost report data,
with the application of the wage budget
neutrality factor. The wage index is
calculated and assigned to hospitals on the
basis of the labor market area in which the
hospital is located. Under section
1886(d)(3)(E) of the Act, beginning with FY
2005, we delineate hospital labor market
areas based on the Core Based Statistical
Areas (CBSAs) established by OMB. The
current statistical standards used in FY 2017
are based on OMB standards published on
February 28, 2013 (75 FR 37246 and 37252),
and 2010 Decennial Census data (OMB
Bulletin No. 13–01). (We refer readers to the
FY 2015 IPPS/LTCH PPS final rule (79 FR
49951 through 49963) for a full discussion on
our adoption of the OMB labor market area
delineations based on the 2010 Decennial
Census data, effective beginning with the FY
2015 IPPS wage index).
Section 1886(d)(3)(E) of the Act requires
that, beginning October 1, 1993, we annually
update the wage data used to calculate the
wage index. In accordance with this
requirement, the proposed wage index for
acute care hospitals for FY 2017 is based on
data submitted for hospital cost reporting
periods beginning on or after October 1, 2012
and before October 1, 2013. The estimated
impact of the updated wage data using the
FY 2013 cost report data and the OMB labor
market area delineations on hospital
payments is isolated in Column 3 by holding
the other payment parameters constant in
this simulation. That is, Column 3 shows the
percentage change in payments when going
from a model using the FY 2016 wage index,
based on FY 2012 wage data, the laborrelated share of 69.6 percent, under the OMB
delineations and having a 100-percent
occupational mix adjustment applied, to a
model using the FY 2017 pre-reclassification
wage index based on FY 2013 wage data with
the labor-related share of 69.6 percent, under
the OMB delineations, also having a 100percent occupational mix adjustment
applied, while holding other proposed
payment parameters such as use of the
Version 34 MS–DRG GROUPER constant.
The proposed FY 2017 occupational mix
adjustment is based on the CY 2013
occupational mix survey.
In addition, the column shows the impact
of the proposed application of the 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 index 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
2017, we are proposing to calculate the wage
budget neutrality factor to ensure that
payments under updated wage data and the
labor-related share of 69.6 percent are budget
neutral without regard to the lower laborrelated share of 62 percent applied to
hospitals with a wage index less than or

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25297

equal to 1.0. In other words, the wage budget
neutrality is calculated under the assumption
that all hospitals receive the higher laborrelated share of the standardized amount.
The proposed FY 2017 wage budget
neutrality factor is 0.999785, and the overall
payment change is 0.0 percent.
Column 3 shows the impacts of updating
the wage data using FY 2013 cost reports.
Overall, the new wage data and the laborrelated share, combined with the proposed
wage budget neutrality adjustment, would
lead to no change for all hospitals as shown
in Column 3.
In looking at the wage data itself, the
proposed national average hourly wage
would increase 1.02 percent compared to FY
2016. Therefore, the only manner in which
to maintain or exceed the previous year’s
wage index was to match or exceed the
national 1.02 percent increase in average
hourly wage. Of the 3,303 hospitals with
wage data for both FYs 2016 and 2017, 1.634
or 49.5 percent would experience an average
hourly wage increase of 1.02 percent or more.
The following chart compares the shifts in
wage index values for hospitals due to
proposed changes in the average hourly wage
data for FY 2017 relative to FY 2016. Among
urban hospitals, 5 would experience a
decrease of 10 percent or more, and 14 urban
hospitals would experience an increase of 10
percent or more. One hundred and thirtynine urban hospitals would experience an
increase or decrease of at least 5 percent or
more but less than 10 percent. Among rural
hospitals, 9 would experience an increase of
at least 5 percent but less than 10 percent,
but no rural hospitals would experience a
decrease of greater than or equal to 5 percent
but less than 10 percent. No rural hospital
would experience increases of 10 percent or
more, but 2 rural hospitals would experience
decreases of 10 percent or more. However,
794 rural hospitals would experience
increases or decreases of less than 5 percent,
while 2,340 urban hospitals would
experience increases or decreases of less than
5 percent. No urban hospital and no rural
hospital would experience no change to their
wage index. These figures reflect proposed
changes in the ‘‘pre-reclassified, occupational
mix-adjusted wage index,’’ that is, the
proposed wage index before the application
of proposed geographic reclassification, the
proposed rural and imputed floors, the
proposed out-migration adjustment, and
other proposed wage index exceptions and
adjustments. (We refer readers to sections
III.G. through III.L. of the preamble of this
proposed rule for a complete discussion of
the exceptions and adjustments to the wage
index.) We note that the proposed ‘‘postreclassified wage index’’ or proposed
‘‘payment wage index,’’ which is the
proposed wage index that includes all such
exceptions and adjustments (as reflected in
Tables 2 and 3 associated with this proposed
rule, which are available via the Internet on
the CMS Web site) is used to adjust the laborrelated share of a hospital’s standardized
amount, either 69.6 percent or 62 percent,
depending upon whether a hospital’s wage
index is greater than 1.0 or less than or equal
to 1.0. Therefore, the proposed prereclassified wage index figures in the

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

following chart may illustrate a somewhat
larger or smaller change than would occur in

a hospital’s proposed payment wage index
and total payment.

The following chart shows the projected
impact of proposed changes in the area wage
index values for urban and rural hospitals.

PROPOSED FY 2017 PERCENTAGE CHANGE IN AREA WAGE INDEX VALUES
Number of hospitals
Urban

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Increase 10 percent or more ...................................................................................................................................
Increase greater than or equal to 5 percent and less than 10 percent ..................................................................
Increase or decrease less than 5 percent ...............................................................................................................
Decrease greater than or equal to 5 percent and less than 10 percent ................................................................
Decrease 10 percent or more .................................................................................................................................
Unchanged ...............................................................................................................................................................

d. Effects of MGCRB Reclassifications
(Column 4)
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 bases other than where they are
geographically located). The proposed
changes in Column 4 reflect the per case
payment impact of moving from this baseline
to a simulation incorporating the MGCRB
decisions for FY 2017.
By spring of each year, the MGCRB makes
reclassification determinations that would 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 proposed 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 purposes of this impact
analysis, we are proposing to apply an
adjustment of 0.988816 to ensure that the
effects of the reclassifications under section
1886(d)(10) of the Act are budget neutral
(section II.A. of the Addendum to this
proposed rule). Geographic reclassification
generally benefits hospitals in rural areas. We
estimate that the geographic reclassification
would increase payments to rural hospitals
by an average of 1.4 percent. By region, all
the rural hospital categories will experience
increases in payments due to MGCRB
reclassifications.
New Table 2 listed in section VI. of the
Addendum to this proposed rule and
available via the Internet on the CMS Web
site reflects the proposed reclassifications for
FY 2017.
e. Effects of the Proposed Rural Floor and
Imputed Floor, Including Application of
National Budget Neutrality (Column 5)
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 FYs 2011, 2012, 2013, 2014, 2015, 2016
IPPS/LTCH PPS final rules, and this

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proposed rule, section 4410 of Public Law
105–33 established the rural floor by
requiring that the wage index for a hospital
in any urban area cannot be less than the
wage index received by rural hospitals in the
same State. We would apply a uniform
budget neutrality adjustment to the wage
index. The imputed floor, which is also
included in the calculation of the budget
neutrality adjustment to the wage index, was
extended in FY 2012 for 2 additional years
and in FY 2014 and FY 2015 for 1 additional
year. Prior to FY 2013, only urban hospitals
in New Jersey received the imputed floor. As
discussed in the FY 2013 IPPS/LTCH PPS
final rule (77 FR 53369), we established an
alternative temporary methodology for the
imputed floor, which resulted in an imputed
floor for Rhode Island for FY 2013. For FY
2014 and FY 2015, we extended the imputed
rural floor, as calculated under the original
methodology and the alternative
methodology. Due to the adoption of the new
OMB labor market area delineations in FY
2015, the State of Delaware also became an
all-urban State and thus eligible for an
imputed floor. For FY 2016, we extended the
imputed floor for 1 year, as calculated under
the original methodology and the alternative
methodology, through September 30, 2016.
For FY 2017, we are proposing to extend the
imputed rural floor for 1 year, as calculated
under the original methodology and the
alternative methodology, through September
20, 2017. As a result, New Jersey, Rhode
Island, and Delaware would be able to
receive an imputed floor through September
30, 2017. In New Jersey, 20 out of 64
hospitals would receive the imputed floor,
and 10 out of 11 hospitals in Rhode Island
would receive the imputed floor for FY 2017.
For FY 2017, no hospitals would benefit from
the imputed floor in Delaware because the
CBSA wage index for each CBSA in Delaware
under the new OMB delineations is equal to
or higher than the imputed rural floor.
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. We have calculated a proposed
FY 2017 rural floor budget neutrality factor
to be applied to the wage index of 0.993806,
which would reduce wage indexes by 0.62
percent.
Column 5 shows the projected impact of
the proposed rural floor and imputed floor

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14
88
2,340
51
5
0

Rural
0
9
794
0
2
0

with the national rural floor budget neutrality
factor applied to the wage index based on the
OMB labor market area delineations. The
column compares the proposed postreclassification FY 2017 wage index of
providers before the proposed rural floor and
imputed floor adjustment and the proposed
post-reclassification FY 2017 wage index of
providers with the proposed rural floor and
imputed floor adjustment based on the OMB
labor market area delineations. Only urban
hospitals can benefit from the rural and
imputed floors. 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) would
experience a decrease in payments due to the
budget neutrality adjustment that is applied
nationally to their wage index.
We estimate that 401 hospitals would
benefit from the proposed rural and imputed
floors in FY 2017, while the remaining 2,929
IPPS hospitals in our model would have their
wage index reduced by the rural floor budget
neutrality adjustment of 0.993806 (or 0.62
percent). We project that, in aggregate, rural
hospitals would experience a 0.2 percent
decrease in payments as a result of the
application of the proposed 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 urban areas would experience no
change in payments because increases in
payments by hospitals benefitting from the
rural floor offset decreases in payments by
nonrural floor urban hospitals whose wage
index is downwardly adjusted by the rural
floor budget neutrality factor. Urban
hospitals in the New England region would
experience a 0.8 percent increase in
payments primarily due to the application of
the proposed rural floor in Massachusetts
and the proposed imputed floor in Rhode
Island. Fifteen urban providers in
Massachusetts are expected to receive the
proposed rural floor wage index value,
including the rural floor budget neutrality of
0.993806, increasing payments overall to
Massachusetts by an estimated $25 million.
We estimate that Massachusetts hospitals
would receive approximately a 0.8 percent
increase in IPPS payments due to the
application of the proposed rural floor in FY
2017.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
Urban Puerto Rico hospitals are expected
to experience a 0.2 percent increase in
payments as a result of the application of the
proposed rural floor budget neutrality factor,
of 0.993806 or 0.62 percent, to the proposed
rural floor wage index.
There are 20 hospitals out of the 64
hospitals in New Jersey that would benefit
from the proposed extension of the imputed
floor and would receive the imputed floor
wage index value under the OMB labor
market area delineations, including the rural
floor budget neutrality of 0.993806, which we
estimate would increase payments to those
imputed floor hospitals by $20 million
(overall, the State would receive an increase
of $8 million in payments due to the other
hospitals in the State that would experience
decreases in payments due to the proposed
rural floor budget neutrality adjustment). Ten
hospitals out of the 11 hospitals in Rhode
Island would benefit from the proposed
imputed rural floor calculated under the
alternative methodology and would receive
an additional $18 million. While some
hospitals in Delaware are geographically
located in CBSAs that are assigned the
imputed floor, none of these hospitals benefit
from the imputed floor because they are

reclassifying to CBSAs with a higher wage
index than the imputed floor.
Column 5 also shows the projected effects
of the last year of the 3-year hold harmless
provision for hospitals that were located in
an urban county that became rural under the
new OMB delineations or hospitals deemed
urban where the urban area became rural
under the new OMB delineations. As
discussed in section III.G.2. of the preamble
of this proposed rule, under this transition,
hospitals that were located in an urban
county that became rural under the new
OMB delineations will generally be assigned
the urban wage index value of the CBSA in
which they are physically located in FY 2014
for a period of 3 fiscal years (that is, FYs
2015, 2016, and 2017). In addition, as
discussed in section III.G.3. of the preamble
of this proposed rule, under this transition,
hospitals that were deemed urban where the
urban area became rural under the new OMB
delineations will generally be assigned the
area wage index value of hospitals
reclassified to the urban CBSA (that is, the
attaching wage index, if applicable) to which
they were designated in FY 2014. For FY
2017, we are applying the 3-year transition
wage index adjustments in a budget neutral

25299

manner, with a budget neutrality factor of
0.999999.
In response to a public comment addressed
in the FY 2012 IPPS/LTCH PPS final rule (76
FR 51593), we are providing the payment
impact of the proposed rural floor and
imputed floor with budget neutrality at the
State level. Column 1 of the following table
displays the number of IPPS hospitals
located in each State. Column 2 displays the
number of hospitals in each State that would
receive the proposed rural floor or imputed
floor wage index for FY 2017. Column 3
displays the percentage of total payments
each State would receive or contribute to
fund the rural floor and imputed floor with
national budget neutrality. The column
compares the proposed post-reclassification
FY 2017 wage index of providers before the
proposed rural floor and imputed floor
adjustment and the proposed postreclassification FY 2017 wage index of
providers with the proposed rural floor and
imputed floor adjustment. Column 4 displays
the estimated payment amount that each
State would gain or lose due to the
application of the proposed rural floor and
imputed floor with national budget
neutrality.

PROPOSED FY 2017 IPPS ESTIMATED PAYMENTS DUE TO RURAL AND IMPUTED FLOOR WITH NATIONAL BUDGET
NEUTRALITY

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

State

Number of
hospitals

Number of
hospitals that will
receive the rural
floor or imputed
floor

Proposed percent
change in
payments due to
application of rural
floor and
Imputed floor with
budget neutrality

Proposed
difference
(in millions)

(1)

(2)

(3)

(4)

Alabama ...................................................................................
Alaska ......................................................................................
Arizona .....................................................................................
Arkansas ..................................................................................
California ..................................................................................
Colorado ..................................................................................
Connecticut ..............................................................................
Delaware ..................................................................................
Washington, DC .......................................................................
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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6
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44
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48
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12
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95
18
58
95
49
62
75
12
26
24
13
64
25
154
84
6

6
1
7
0
185
3
13
0
0
15
0
0
0
3
0
0
0
0
0
0
15
0
0
0
2
4
0
3
9
20
0
21
4
1

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¥0.3
¥0.2
¥0.1
¥0.3
1.4
0.3
0
¥0.4
¥0.3
¥0.2
¥0.3
¥0.3
¥0.2
¥0.3
¥0.3
¥0.3
¥0.3
¥0.3
¥0.3
¥0.3
0.8
¥0.3
¥0.2
¥0.3
¥0.3
0.3
¥0.2
¥0.1
0.4
0.2
¥0.2
¥0.3
¥0.2
¥0.2

27APP2

$¥4.43
¥0.34
¥1.55
¥3.07
139.3
3.57
0.29
¥1.64
¥1.62
¥11.11
¥7.76
¥0.76
¥0.74
¥14.43
¥8.24
¥2.83
¥2.5
¥4.71
¥4.19
¥1.53
25.4
¥14.07
¥5.06
¥3.08
¥6.19
0.96
¥1.67
¥0.79
2.24
7.84
¥0.88
¥20.52
¥5.88
¥0.57

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PROPOSED FY 2017 IPPS ESTIMATED PAYMENTS DUE TO RURAL AND IMPUTED FLOOR WITH NATIONAL BUDGET
NEUTRALITY—Continued

State

Number of
hospitals

Number of
hospitals that will
receive the rural
floor or imputed
floor

Proposed percent
change in
payments due to
application of rural
floor and
Imputed floor with
budget neutrality

Proposed
difference
(in millions)

(1)

(2)

(3)

(4)

Ohio .........................................................................................
Oklahoma .................................................................................
Oregon .....................................................................................
Pennsylvania ............................................................................
Puerto Rico ..............................................................................
Rhode Island ............................................................................
South Carolina .........................................................................
South Dakota ...........................................................................
Tennessee ...............................................................................
Texas .......................................................................................
Utah .........................................................................................
Vermont ...................................................................................
Virginia .....................................................................................
Washington ..............................................................................
West Virginia ............................................................................
Wisconsin .................................................................................
Wyoming ..................................................................................

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

f. Effects of the Application of the Proposed
Frontier State Wage Index and Out-Migration
Adjustment (Column 6)
This column shows the combined effects of
the application of section 10324(a) of the
Affordable Care Act, which requires that we
establish a minimum post-reclassified wageindex of 1.00 for all hospitals located in
‘‘frontier States,’’ and the effects of section
1886(d)(13) of the Act, as added by section
505 of Public Law 108–173, which 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. These two wage index provisions are
not budget neutral and increase payments
overall by 0.1 percent compared to the
provisions not being in effect.
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, 5 States (Montana, Nevada,
North Dakota, South Dakota, and Wyoming)
are considered frontier States and 50
hospitals located in those States will receive
a frontier wage index of 1.0000. Overall, this
provision is not budget neutral and is
estimated to increase IPPS operating
payments by approximately $56 million.
Rural and urban hospitals located in the West
North Central region would experience an
increase in payments by 0.3 and 0.7 percent,
respectively, because many of the hospitals
located in this region are frontier State
hospitals.
In addition, 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

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86
34
152
51
11
56
18
93
320
33
6
75
49
29
65
10

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, postreclassification and the higher wage index
work area(s), weighted by the overall
percentage of workers who are employed in
an area with a higher wage index. There are
an estimated 249 providers that would
receive the out-migration wage adjustment in
FY 2017. Rural hospitals generally qualify for
the adjustment, resulting in a 0.1 percent
increase in payments. This provision appears
to benefit section 401 hospitals and RRCs in
that they would experience a 1.2 percent and
0.4 percent increase in payments,
respectively. This out-migration wage
adjustment also is not budget neutral, and we
estimate the impact of these providers
receiving the out-migration increase would
be approximately $31 million.
g. Effects of All FY 2017 Changes (Column
7)
Column 7 shows our estimate of the
proposed changes in payments per discharge
from FY 2016 and FY 2017, resulting from all
proposed changes reflected in this proposed
rule for FY 2017. It includes combined effects
of the previous columns in the table.
The proposed average increase in
payments under the IPPS for all hospitals is
approximately 0.7 percent for FY 2017
relative to FY 2016. This column includes
the proposed annual hospital update of 1.55
percent to the national standardized amount.
This proposed annual hospital update
includes the 2.8 percent market basket
update, the proposed reduction of 0.5
percentage point for the multifactor

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¥0.3
¥0.3
¥0.3
0.2
4.8
¥0.1
¥0.2
¥0.2
¥0.3
¥0.3
¥0.2
¥0.2
0.2
¥0.2
¥0.2
¥0.1

8
2
2
5
12
10
5
0
20
1
1
0
1
8
2
12
0

¥9.5
¥3.53
¥3.1
¥15.88
0.26
18.11
¥0.99
¥0.67
¥5.59
¥20.35
¥1.33
¥0.39
¥6.29
4.38
¥1.21
¥2.85
¥0.15

productivity adjustment, and the 0.75
percentage point reduction under section
3401 of the Affordable Care Act. As
discussed in section II.D. of the preamble of
this proposed rule, this column also includes
the proposed FY 2017 documentation and
coding recoupment adjustment of -1.5
percent on the national standardized amount
as part of the recoupment required under
section 631 of the ATRA. In addition, this
column includes the proposed adjustment of
(1/0.998) to permanently remove the 0.2
percent reduction, and the proposed 1.006
temporary adjustment to address the effects
of the 0.2 percent reduction in effect for FYs
2014 through 2016 related to the 2-midnight
policy, which are discussed in section IV.O.
of the preamble of this proposed rule.
Hospitals paid under the hospital-specific
rate would receive a 1.55 percent proposed
hospital update in addition to the proposed
adjustment of (1/0.998) to permanently
remove the 0.2 percent reduction, and the
proposed 1.006 temporary adjustment to
address the effects of the 0.2 percent
reduction in effect for FYs 2014 through 2016
previously described. As described in
Column 1, the proposed annual hospital
update with the proposed documentation
and coding recoupment adjustment for
hospitals paid under the national
standardized amount, the proposed
adjustment of (1/0.998) to permanently
remove the 0.2 percent reduction and the
proposed 1.006 temporary adjustment to
address the effects of the 0.2 percent
reduction in effect for FYs 2014 through 2016
for hospitals paid under the national
standardized amount and hospitals paid
under the hospital-specific rates, which are
discussed in section IV.O. of the preamble of
this proposed rule, combined with the
proposed annual hospital update for
hospitals paid under the hospital-specific

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
rates would result in a 0.7 percent increase
in payments in FY 2017 relative to FY 2016.
The impact of moving from our estimate of
FY 2016 outlier payments, 5.3 percent, to the
proposed estimate of FY 2017 outlier
payments, 5.1 percent, would result in a
decrease of 0.2 percent in FY 2017 payments
relative to FY 2016. There also might 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 7 may not equal the sum
of the estimated percentage changes
described previously.

Overall payments to hospitals paid under
the IPPS due to the proposed applicable
percentage increase and proposed changes to
policies related to MS–DRGs, geographic
adjustments, and outliers are estimated to
increase by 0.7 percent for FY 2017.
Hospitals in urban areas would experience a
0.6 percent increase in payments per
discharge in FY 2017 compared to FY 2016.
Hospital payments per discharge in rural
areas are estimated to increase by 0.8 percent
in FY 2017.
3. Impact Analysis of Table II
Table II presents the projected impact of
the proposed changes for FY 2017 for urban

25301

and rural hospitals and for the different
categories of hospitals shown in Table I. It
compares the estimated average payments
per discharge for FY 2016 with the proposed
estimated average payments per discharge for
FY 2017, as calculated under our models.
Therefore, this table presents, in terms of the
average dollar amounts paid per discharge,
the combined effects of the proposed changes
presented in Table I. The proposed estimated
percentage changes shown in the last column
of Table II equal the estimated percentage
changes in average payments per discharge
from Column 7 of Table I.

TABLE II—IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2017 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE
PAYMENT SYSTEM

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

[Payments per discharge]
Number of
hospitals

Estimated average
FY 2016 payment
per discharge

Estimated average
FY 2017 payment
per discharge

Proposed
FY 2017 changes

(1)

(2)

(3)

(4)

All Hospitals .............................................................................
By Geographic Location:
Urban hospitals .................................................................
Large urban areas ............................................................
Other urban areas ............................................................
Rural hospitals ..................................................................
Bed Size (Urban):
0–99 beds .........................................................................
100–199 beds ...................................................................
200–299 beds ...................................................................
300–499 beds ...................................................................
500 or more beds .............................................................
Bed Size (Rural):
0–49 beds .........................................................................
50–99 beds .......................................................................
100–149 beds ...................................................................
150–199 beds ...................................................................
200 or more beds .............................................................
Urban by Region:
New England ....................................................................
Middle Atlantic ..................................................................
South Atlantic ...................................................................
East North Central ............................................................
East South Central ...........................................................
West North Central ...........................................................
West South Central ..........................................................
Mountain ...........................................................................
Pacific ...............................................................................
Puerto Rico .......................................................................
Rural by Region:
New England ....................................................................
Middle Atlantic ..................................................................
South Atlantic ...................................................................
East North Central ............................................................
East South Central ...........................................................
West North Central ...........................................................
West South Central ..........................................................
Mountain ...........................................................................
Pacific ...............................................................................
By Payment Classification:
Urban hospitals .................................................................
Large urban areas ............................................................
Other urban areas ............................................................
Rural areas .......................................................................
Teaching Status:
Nonteaching ......................................................................
Fewer than 100 residents .................................................
100 or more residents ......................................................
Urban DSH:
Non-DSH ..........................................................................

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11,524

11,599

0.7

2,512
1,378
1,134
818

11,869
12,658
10,924
8,614

11,944
12,729
11,004
8,686

0.6
0.6
0.7
0.8

656
765
449
429
213

9,393
10,006
10,758
12,068
14,591

9,462
10,052
10,807
12,153
14,703

0.7
0.5
0.5
0.7
0.8

320
292
119
46
41

7,187
8,214
8,457
9,263
10,175

7,230
8,278
8,506
9,359
10,295

0.6
0.8
0.6
1.0
1.2

116
315
406
390
147
163
384
163
377
51

12,947
13,445
10,494
11,167
10,022
11,589
10,688
12,273
15,279
8,409

12,870
13,469
10,574
11,290
10,123
11,694
10,812
12,361
15,336
8,432

¥0.6
0.2
0.8
1.1
1.0
0.9
1.2
0.7
0.4
0.3

21
55
127
115
156
99
161
60
24

11,758
8,646
8,059
8,947
7,642
9,464
7,254
10,142
11,976

11,897
8,726
8,120
9,023
7,694
9,555
7,321
10,214
12,066

1.2
0.9
0.8
0.9
0.7
1.0
0.9
0.7
0.8

2,455
1,372
1,083
875

11,888
12,664
10,926
8,890

11,963
12,735
11,006
8,967

0.6
0.6
0.7
0.9

2,275
804
251

9,593
11,122
16,697

9,649
11,194
16,821

0.6
0.7
0.8

597

10,104

10,156

0.5

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TABLE II—IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2017 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE
PAYMENT SYSTEM—Continued
[Payments per discharge]
Number of
hospitals

Estimated average
FY 2016 payment
per discharge

Estimated average
FY 2017 payment
per discharge

Proposed
FY 2017 changes

(1)

(2)

(3)

(4)

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

100 or more beds .............................................................
Less than 100 beds ..........................................................
Rural DSH:
SCH ..................................................................................
RRC ..................................................................................
100 or more beds .............................................................
Less than 100 beds ..........................................................
Urban teaching and DSH:
Both teaching and DSH ....................................................
Teaching and no DSH ......................................................
No teaching and DSH ......................................................
No teaching and no DSH .................................................
Special Hospital Types:
RRC ..................................................................................
SCH ..................................................................................
MDH ..................................................................................
SCH and RRC ..................................................................
MDH and RRC .................................................................
Type of Ownership:
Voluntary ...........................................................................
Proprietary ........................................................................
Government ......................................................................
Medicare Utilization as a Percent of Inpatient Days:
0–25 ..................................................................................
25–50 ................................................................................
50–65 ................................................................................
Over 65 .............................................................................
FY 2017 Reclassifications by the Medicare Geographic Classification Review Board:
All Reclassified Hospitals .................................................
Non-Reclassified Hospitals ...............................................
Urban Hospitals Reclassified ...........................................
Urban Nonreclassified Hospitals ......................................
Rural Hospitals Reclassified Full Year .............................
Rural Nonreclassified Hospitals Full Year ........................
All Section 401 Reclassified Hospitals: ............................
Other Reclassified Hospitals (Section 1886(d)(8)(B)) ......

H. Effects of Other Proposed Policy Changes
In addition to those proposed policy
changes discussed previously that we are
able to model using our IPPS payment
simulation model, we are proposing to make
various other changes in this proposed rule.
Generally, we have limited or no specific
data available with which to estimate the
impacts of these proposed changes. Our
estimates of the likely impacts associated
with these other proposed changes are
discussed in this section.
1. Effects of Proposed Policy Relating to New
Medical Service and Technology Add-On
Payments
In section II.H. of the preamble to this
proposed rule, we discuss nine technologies
for which we received applications for addon payments for new medical services and
technologies for FY 2017, as well as the
status of the new technologies that were
approved to receive new technology add-on
payments in FY 2016. We note that one
applicant withdraw its application prior to
the issuance of this proposed rule. As

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1,608
330

12,247
8,718

12,327
8,759

0.7
0.5

266
347
33
149

9,218
9,200
7,070
6,783

9,299
9,286
7,102
6,798

0.9
0.9
0.5
0.2

880
107
1,058
410

13,362
11,418
10,009
9,519

13,456
11,438
10,061
9,585

0.7
0.2
0.5
0.7

193
326
146
126
15

9,673
10,357
7,202
10,814
9,216

9,782
10,459
7,262
10,940
9,334

1.1
1.0
0.8
1.2
1.3

1,914
858
516

11,704
10,110
12,474

11,781
10,188
12,532

0.7
0.8
0.5

517
2,128
546
94

14,964
11,446
9,341
6,966

15,062
11,523
9,387
7,025

0.7
0.7
0.5
0.9

853
2,477
576
1,879
277
484
57
57

11,571
11,504
12,191
11,774
8,994
8,193
10,782
7,949

11,641
11,581
12,256
11,852
9,080
8,250
10,892
7,998

0.6
0.7
0.5
0.7
1.0
0.7
1.0
0.6

explained in the preamble to this proposed
rule, add-on payments for new medical
services and technologies under section
1886(d)(5)(K) of the Act are not required to
be budget neutral. As discussed in section
II.H.5. of the preamble of this proposed rule,
we have not yet determined whether any of
these nine technologies for which we
received applications for consideration for
new technology add-on payments for FY
2017 will meet the specified criteria.
Consequently, it is premature to estimate the
potential payment impact of these nine
technologies for any potential new
technology add-on payments for FY 2017. We
note that if any of the nine technologies are
found to be eligible for new technology addon payments for FY 2017, in the FY 2017
IPPS/LTCH PPS final rule, we would discuss
the estimated payment impact for FY 2017.
In section II.H.4. of the preamble of this
proposed rule, we are proposing to
discontinue new technology add-on
payments for the Argus® II Retinal Prosthesis
System, KcentraTM, the MitraClip® System,
and the Responsive Neurostimulator (RNS®)

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for FY 2017 because these technologies will
have been on the U.S. market for 3 years. We
also are proposing to continue to make new
technology add-on payments for the
CardioMEMSTM HF (Heart Failure)
Monitoring System, Blinatumomab
(BLINCYTOTM), and the LUTONIX® Drug
Coated Balloon (DCB) Percutaneous
Transluminal Angioplasty (PTA) and
IN.PACTTM AdmiralTM Pacliaxel Coated
Percutaneous Transluminal Angioplasty
(PTA) Balloon Catheter in FY 2017 because
these technologies are still considered new.
We note that new technology add-on
payments for each case are limited to the
lesser of (1) 50 percent of the costs of the new
technology or (2) 50 percent of the amount
by which the costs of the case exceed the
standard MS–DRG payment for the case.
Because it is difficult to predict the actual
new technology add-on payment for each
case, our estimates below are based on the
increase in new technology add-on payments
for FY 2017 as if every claim that would
qualify for a new technology add-on payment
would receive the maximum add-on

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
payment. For the CardioMEMSTM HF
Monitoring System, based on the applicant’s
estimate from FY 2015, we currently estimate
that new technology add-on payments for the
CardioMEMSTM HF Monitoring System will
increase overall FY 2017 payments by
$11,315,625. Based on the applicant’s
estimate for FY 2016, we currently estimate
that new technology add-on payments for
BLINCYTOTM will increase overall FY 2017
payments by $4,593,034 (maximum add-on
payment of $27,017.85 * 170 patients). Based
on the weighted cost average for FY 2016
described in the FY 2016 IPPS/LTCH final
rule (80 FR 49469 through 49470), we
currently estimate that new technology addon payments for the LUTONIX® DCB PTA
and IN.PACTTM AdmiralTM Pacliaxel Coated
PTA Balloon Catheter will increase overall
FY 2017 payments by $36,120,735
(maximum add-on payment of $1,035.72 *
8,875 patients for LUTONIX® DCB PTA
Balloon Catheter; maximum add-on payment
of $1,035.72 * 26,000 patients for IN.PACTTM
AdmiralTM Pacliaxel Coated PTA Balloon
Catheter).
2. Effects of the Proposed Changes to
Medicare DSH Payments for FY 2017
As discussed in section IV.F. of the
preamble of this proposed rule, under section
3133 of the Affordable Care Act, hospitals
that are eligible to receive Medicare DSH
payments will receive 25 percent of the
amount they previously would have received
under the former statutory formula for
Medicare DSH payments. The remainder,
equal to an estimate of 75 percent of what
formerly would have been paid as Medicare
DSH payments (Factor 1), reduced to reflect
changes in the percentage of individuals
under age 65 who are uninsured and
additional statutory adjustments (Factor 2), is
available to make additional payments to
each hospital that qualifies for Medicare DSH
payments and that has uncompensated care.
Each hospital eligible for Medicare DSH
payments will receive an additional payment
based on its estimated share of the total
amount of uncompensated care for all
hospitals eligible for Medicare DSH
payments. The uncompensated care payment
methodology has redistributive effects based
on the proportion of a hospital’s
uncompensated care relative to the
uncompensated care for all hospitals eligible
for Medicare DSH payments (Factor 3). For
FY 2017, because we are proposing to
continue to use low-income insured patient
days as a proxy for uncompensated care, the
uncompensated care payment methodology
has redistributive effects based on the

proportion of a hospital’s low-income
insured patient days (sum of Medicaid
patient days and Medicare SSI patient days)
relative to the low-income insured patient
days for all hospitals eligible for DSH
payments. The reduction to Medicare DSH
payments under section 3133 of the
Affordable Care Act is not budget neutral.
In this proposed rule, we are proposing to
establish the overall amount available to be
distributed as uncompensated care payments
to DSH eligible hospitals, which for FY 2017
is $6,054,458,492.68, or 75 percent of what
otherwise would have been paid for
Medicare DSH payment adjustments adjusted
by a proposed Factor 2 of 56.74 percent. For
FY 2016, the amount available to be
distributed for uncompensated care was
$6,406,145,534.04, or 75 percent of what
otherwise would have been paid for
Medicare DSH payment adjustments adjusted
by a Factor 2 of 63.69 percent. To calculate
Factor 3 for FY 2017, we are proposing to use
an average of data computed using Medicaid
days from hospitals’ 2011, 2012, and 2013
cost reports, Medicaid days from 2011 and
2012 cost report data submitted to CMS by
IHS hospitals, and SSI days from the FY
2012, FY 2013, and FY 2014 SSI ratios. That
is, for each hospital we are proposing to
calculate an individual Factor 3 for cost
reporting periods beginning during FYs 2011,
2012, and 2013, sum the individual amounts,
and divide the sum by three in order to
calculate an average Factor 3 for the hospital.
The FY 2017 proposal to use data on lowincome insured days from 3 years of cost
reports to determine Factor 3, as described
earlier, is in contrast to the methodology
used in FY 2016, when we used Medicaid
days from the more recent of a hospital’s full
year 2012 or 2011 cost report from the March
2015 update of the HCRIS database, Medicaid
days from 2012 cost report data submitted to
CMS by IHS hospitals, and SSI days from the
FY 2013 SSI ratios to calculate Factor 3. In
addition, as explained in section IV.F. of the
preamble of this proposed rule, we are
proposing to make two additional
modifications to the Factor 3 methodology:
(1) To create proxy Medicare SSI values for
Puerto Rico hospitals and (2) to include all
hospitals’ cost reports that begin during FYs
2011, 2012, and 2013, even in the instance
where a hospital has more than one cost
report beginning during a given fiscal year.
Because residents of Puerto Rico are not
eligible for SSI benefits, we are proposing to
impute a Medicare SSI value for each Puerto
Rico hospital equal to 14 percent of its
Medicaid days. The proposed FY 2017
uncompensated care payment methodology

25303

is discussed in more detail in section IV.F.
of the preamble of this proposed rule.
To estimate the impact of the combined
effect of reductions in the percent of
individuals under age 65 who are uninsured
and additional statutory adjustments (Factor
2) and changes in Medicaid and SSI patient
days (components of Factor 3) on the
calculation of Medicare DSH payments,
including both empirically justified Medicare
DSH payments and uncompensated care
payments, we compared total DSH payments
estimated in the FY 2016 IPPS/LTCH PPS
final rule to total DSH payments estimated in
this FY 2017 IPPS/LTCH PPS proposed rule.
For FY 2016, for each hospital, we calculated
the sum of: (1) 25 percent of the estimated
amount of what would have been paid as
Medicare DSH in FY 2016 in the absence of
section 3133 of the Affordable Care Act; and
(2) 75 percent of the estimated amount of
what would have been paid as Medicare DSH
payments in the absence of section 3133 of
the Affordable Care Act, adjusted by a Factor
2 of 63.69 percent and multiplied by a Factor
3 as stated in the FY 2016 IPPS/LTCH PPS
final rule. For FY 2017, we would calculate
the sum of: (1) 25 percent of the estimated
amount of what would be paid as Medicare
DSH payments in FY 2017 absent section
3133 of Affordable Care Act; and (2) 75
percent of the estimated amount of what
would have been paid as Medicare DSH
payments absent section 3133 of the
Affordable Care Act, adjusted by a Factor 2
of 56.74 percent and multiplied by a Factor
3 as previously stated.
Our analysis included 2,434 hospitals that
are projected to be eligible for DSH in FY
2017. It did not include hospitals that
terminated their participation from the
Medicare program as of July 1, 2015,
Maryland hospitals, and SCHs that are
expected to be paid based on their hospitalspecific rates. In addition, low-income
insured days from merged or acquired
hospitals were combined into the surviving
hospital’s CCN, and the nonsurviving CCN
was excluded from the analysis. In contrast
to FY 2016, hospitals participating in the
Rural Community Hospital Demonstration
program, which is scheduled to end in FY
2017, are included in the analysis if projected
to be eligible for DSH payments during FY
2017. The estimated impact of the proposed
changes in Factors 1, 2, and 3 across all
hospitals projected to be eligible for DSH
payments in FY 2017, by hospital
characteristic, is presented in the following
table.

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

MODELED DISPROPORTIONATE SHARE HOSPITAL PAYMENTS FOR ESTIMATED FY 2017 DSHS BY HOSPITAL TYPE: MODEL
DSH $ (IN MILLIONS) FROM FY 2016 TO FY 2017

Total .....................................................................................
By Geographic Location:
Urban Hospitals ............................................................

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Number of
estimated
DSHs
(FY 2017)

FY 2016 final
rule estimated
DSH $ *
(in millions)

FY 2017
proposed rule
estimated
DSH $ *
(in millions)

Dollar
difference: FY
2017–FY 2016
(in millions)

Percent
change **

(1)

(2)

(3)

(4)

(5)

2,434

$9,732

$9,598

¥$134

¥1.4%

1,927

9,262

9,148

¥114

¥1.2

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MODELED DISPROPORTIONATE SHARE HOSPITAL PAYMENTS FOR ESTIMATED FY 2017 DSHS BY HOSPITAL TYPE: MODEL
DSH $ (IN MILLIONS) FROM FY 2016 TO FY 2017—Continued

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Large Urban Areas .......................................................
Other Urban Areas .......................................................
Rural Hospitals .....................................................................
Bed Size (Urban):
0 to 99 Beds .................................................................
100 to 249 Beds ...........................................................
250 to 499 Beds ...........................................................
Bed Size (Rural):
0 to 99 Beds .................................................................
100 to 249 Beds ...........................................................
250 to 499 Beds ...........................................................
Urban by Region:
East North Central ........................................................
East South Central .......................................................
Middle Atlantic ..............................................................
Mountain .......................................................................
New England ................................................................
Pacific ...........................................................................
Puerto Rico ...................................................................
South Atlantic ................................................................
West North Central .......................................................
West South Central ......................................................
Rural by Region:
East North Central ........................................................
East South Central .......................................................
Middle Atlantic ..............................................................
Mountain .......................................................................
New England ................................................................
Pacific ...........................................................................
South Atlantic ................................................................
West North Central .......................................................
West South Central ......................................................
By Payment Classification:
Urban Hospitals ............................................................
Large Urban Areas ................................................
Other Urban Areas ................................................
Rural Hospitals .............................................................
Teaching Status:
Nonteaching ..................................................................
Fewer than 100 residents .............................................
100 or more residents ..................................................
Type of Ownership:
Voluntary .......................................................................
Proprietary ....................................................................
Government ..................................................................
Unknown .......................................................................
Medicare Utilization Percent:
0–25 ..............................................................................
25–50 ............................................................................
50–65 ............................................................................
Over 65 .........................................................................

Number of
estimated
DSHs
(FY 2017)

FY 2016 final
rule estimated
DSH $ *
(in millions)

FY 2017
proposed rule
estimated
DSH $ *
(in millions)

Dollar
difference: FY
2017–FY 2016
(in millions)

Percent
change **

(1)

(2)

(3)

(4)

(5)

1,048
879
507

5,861
3,401
470

5,789
3,359
450

¥72
¥42
¥20

¥1.2
¥1.2
¥4.3

337
841
749

184
2,199
$6,879

186
2,171
$6,791

2
¥28
¥$88

0.9
¥1.3
¥1.3

375
118
14

205
209
56

192
202
56

¥$13
¥7
0

¥6.3
¥3.4
¥0.3

317
132
233
122
90
313
42
320
103
255

1,268
575
1,607
447
386
1,459
100
1,772
450
1,198

1,253
566
1,583
449
388
1,453
113
1,737
440
1,168

¥$15
¥9
¥24
2
2
¥6
12
¥35
¥10
¥30

¥1.2
¥1.6
¥1.5
0.4
0.5
¥0.4
12.2
¥2.0
¥2.3
¥2.5

65
142
26
21
11
7
88
34
113

48
151
34
16
15
8
96
20
83

45
142
32
16
16
7
96
19
78

¥3
¥9
¥2
0
1
¥1
0
¥1
¥5

¥6.7
¥6.0
¥6.2
0.1
8.8
¥16.2
0.2
¥5.4
¥5.9

1,896
1,046
850
538

9,212
5,859
3,353
520

9,097
5,788
3,310
501

¥115
¥72
¥43
¥20

¥1.2
¥1.2
¥1.3
¥3.8

1,551
644
239

3,101
3,206
3,425

3,065
3,157
3,375

¥36
¥49
¥50

¥1.2
¥1.5
¥1.5

1,400
550
482
2

6,020
1,664
2,022
27

5,939
1,638
1,996
25

¥81
¥26
¥26
¥2

¥1.3
¥1.5
¥1.3
¥5.8

430
1,625
320
59

3,008
6,329
382
14

2,972
6,235
379
12

¥36
¥94
¥3
¥2

¥1.2
¥1.5
¥0.8
¥12.9

Source: Dobson | DaVanzo analysis of 2011–2013 Hospital Cost Reports.
* Dollar DSH calculated by [0.25 * estimated section 1886(d)(5)(F) payments] + [0.75 * estimated section 1886(d)(5)(F) payments * Factor 2 *
Factor 3]. When summed across all hospitals projected to receive DSH payments, DSH payments are estimated to be $9,372 million in FY 2016
and $9,598 million in FY 2017.
** Percentage change is determined as the difference between Medicare DSH payments modeled for the FY 2017 IPPS/LTCH PPS proposed
rule (column 3) and Medicare DSH payments modeled for the FY 2016 IPPS/LTCH final rule (column 2) divided by Medicare DSH payments
modeled for the FY 2016 final rule (column 2) 1 times 100 percent.
Changes in projected FY 2017 DSH
payments from DSH payments in FY 2016 are
primarily driven by three factors: (1) An
increase in Factor 1 from $13.411 billion to

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$14.227 billion; (2) a reduction in the percent
of uninsured (Factor 2) from 63.69 percent to
56.74 percent; and (3) a revised proxy
methodology for calculating Factor 3 values.

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The proposed impact analysis found that,
across all projected DSH eligible hospitals,
FY 2017 DSH payments are estimated at
approximately $9.598 billion, or a decrease of

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
approximately 1.4 percent from FY 2016 DSH
payments (approximately $9.732 billion).
Although Factor 1 increased by
approximately 6.1 percent, the reduction in
Factor 2 offsets this and results in a net
decrease in the amount available to be
distributed in uncompensated care payments.
As seen in the above table, percent
reductions greater than 1.4 percent indicate
that hospitals within the specified category
are projected to experience a greater
reduction in DSH payments, on average,
compared to the universe of FY 2017
projected DSH hospitals. Conversely, percent
reductions that are less than 1.4 percent
indicate a hospital type is projected to have
a smaller reduction than the overall average.
The variation in the distribution of payments
by hospital characteristic is largely
dependent on the change in a given
hospital’s number of Medicaid days and SSI
days used in the Factor 3 computation.
Rural hospitals, grouped by geographic
location, payment classification, and bed
size, are projected to experience a larger
reduction in DSH payments than urban
hospitals. Overall, urban hospitals are
projected to receive a 1.2 percent decrease in
DSH payments, and rural hospitals are
projected to receive a 4.3 percent decrease in
DSH payments. The smaller the rural
hospital, the larger the projected reduction in
DSH payments, with rural hospitals that have
0–99 beds projected to experience a 6.3
percent payment reduction, and larger rural
hospitals with 250–499 beds projected to
experience a 0.3 percent payment reduction.
In contrast, the smallest urban hospitals (0–
99 beds) are projected to receive an increase
in DSH payments of 0.9 percent. Larger
hospitals (100–250 beds and 250+ beds) are
projected to receive reductions of 1.3 percent
in DSH payments that are smaller than the
overall average.
By region, projected DSH payment
reductions for urban hospitals were largest in
the West South Central, West North Central,
and South Atlantic regions. The Mountain,
New England, and Puerto Rico region
hospitals are projected to receive an increase
in DSH payments. Reductions in remaining
urban hospital regions are generally
consistent with the overall average percent
reduction of 1.4. Regionally, rural hospitals
are projected to receive a wider range of
reductions. Rural hospitals in the South
Atlantic, Mountain, and most notably New
England regions are projected to receive an
increase in DSH payments. Reductions are
projected to be larger than the overall average
in most remaining regions, particularly in the
Pacific region.
Teaching hospitals are projected to receive
relatively larger reductions than nonteaching
hospitals. Voluntary, proprietary, and
government hospitals are projected to receive
payment reductions generally consistent with
the overall average percent reduction of 1.4.
Government hospitals are projected to
receive slightly smaller reductions in DSH
payments, while proprietary hospitals are
projected to receive slightly larger reductions
than the overall average. Hospitals with over
65 percent Medicare utilization are projected
to receive a significant reduction in DSH
payments, while lower Medicare utilization
percentiles show smaller reductions.

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Puerto Rico hospitals are projected to
receive an increase in overall DSH payments,
including both empirically justified DSH
payments and uncompensated care
payments, due to the proposal to create proxy
values for SSI days for hospitals in Puerto
Rico for purposes of calculating Factor 3 of
the uncompensated care payment
methodology. For FY 2017, Puerto Rico
hospitals are projected to receive $113
million in overall DSH and uncompensated
care payments, or a 12.2 percent increase
from FY 2016 payments ($100 million). Of
the estimated $113 million for FY 2017, we
estimate that $75 million will be
uncompensated care payments to Puerto Rico
hospitals. This represents an increase of
approximately 11.2 percent, or $7.6 million,
in FY 2017 compared to the estimated $68
million in uncompensated care payments to
Puerto Rico hospitals in FY 2016. Moreover,
we estimate that uncompensated care
payments to Puerto Rico hospitals for FY
2017 are 12.6 percent, or $8.4 million, higher
with the proposed SSI proxy than they
otherwise would have been without the
proposed SSI proxy for FY 2017. In other
words, without the proposed SSI proxy, we
would have expected uncompensated care
payments to Puerto Rico hospitals to decline
by approximately $0.9 million between FY
2016 and FY 2017. We note that because the
proposed SSI proxy for Puerto Rico hospitals
increases the number of days in the
denominator of Factor 3, this affects hospitals
nationally. We estimate that uncompensated
care payments to non-Puerto Rico hospitals
for FY 2017 are approximately 0.1 percent
lower with the proposed SSI proxy than they
otherwise would have been without the
proposed SSI proxy.
3. Effects of Proposed Reduction Under the
Hospital Readmissions Reduction Program
In section IV.G. of the preamble of this
proposed rule, we discuss our proposals for
the FY 2017 Hospital Readmissions
Reduction Program (established under
section 3025 of the Affordable Care Act),
which requires a reduction to a hospital’s
base operating DRG payments to account for
excess readmissions. For FY 2017, the
reduction is based on a hospital’s riskadjusted readmission rate during a 3-year
period for acute myocardial infarction (AMI),
heart failure (HF), pneumonia, chronic
obstructive pulmonary disease (COPD), total
hip arthroplasty/total knee arthroplasty
(THA/TKA), and coronary artery bypass graft
(CABG). This provision is not budget neutral.
A hospital’s readmission adjustment is the
higher of a ratio of the hospital’s aggregate
payments for excess readmissions to their
aggregate payments for all discharges, or a
floor, which has been defined in the statute
as 0.97 (or a 3.0 percent reduction). A
hospital’s base operating DRG payment (that
is, wage-adjusted DRG payment amount, as
discussed in section IV.G. of the preamble of
this proposed rule) is the portion of the IPPS
payment subject to the readmissions payment
adjustment (DSH, IME, outliers and lowvolume add-on payments are not subject to
the readmissions adjustment). In this
proposed rule, we estimate that 2,603
hospitals would have their base operating
DRG payments reduced by their proxy FY

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2017 hospital-specific readmissions
adjustment. As a result, we estimate that the
Hospital Readmissions Reduction Program
would save approximately $523 million in
FY 2017, an increase of $100 million over the
estimated FY 2016 savings.
4. Effects of Proposed Changes Under the FY
2017 Hospital Value-Based Purchasing (VBP)
Program
In section IV.H. of the preamble of this
proposed rule, we discuss the Hospital VBP
Program under which the Secretary makes
value-based incentive payments to hospitals
based on their performance on measures
during the performance period with respect
to a fiscal year. These incentive payments
will be funded for FY 2017 through a
reduction to the FY 2017 base operating DRG
payment amount for the discharge for the
hospital for such fiscal year, as required by
section 1886(o)(7)(B) of the Act. The
applicable percentage for FY 2017 and
subsequent years is 2 percent. The total
amount available for value-based incentive
payments must be equal to the total amount
of reduced payments for all hospitals for the
fiscal year, as estimated by the Secretary.
In section IV.H. of the preamble of this
proposed rule, we estimate the available pool
of funds for value-based incentive payments
in the FY 2017 program year, which, in
accordance with section 1886(o)(7)(C)(v) of
the Act, will be 2.00 percent of base
operating DRG payments, or a total of
approximately $1.7 billion. This estimated
available pool for FY 2017 is based on the
historical pool of hospitals that were eligible
to participate in the FY 2016 program year
and the payment information from the
December 2015 update to the FY 2015
MedPAR file.
The proposed estimated impacts of the FY
2017 program year by hospital characteristic,
found in the table below, are based on
historical TPSs. We used the FY 2016
program year’s TPSs to calculate the proxy
adjustment factors used for this impact
analysis. These are the most recently
available scores that hospitals were given an
opportunity to review and correct. The proxy
adjustment factors use estimated annual base
operating DRG payment amounts derived
from the December 2015 update to the FY
2015 MedPAR file. The proxy adjustment
factors can be found in Table 16 associated
with this proposed rule (available via the
Internet on the CMS Web site).
The impact analysis shows that, for the FY
2017 program year, the number of hospitals
that would receive an increase in their base
operating DRG payment amount is higher
than the number of hospitals that would
receive a decrease. Among urban hospitals,
those in the New England, South Atlantic,
East North Central, East South Central, West
North Central, West South Central,
Mountain, and Pacific regions would have an
increase, on average, in their base operating
DRG payment amount. Urban hospitals in the
Middle Atlantic region would receive an
average decrease in their base operating DRG
payment amount. Among rural hospitals,
those in all regions would have an increase,
on average, in their base operating DRG
payment amounts.

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On average, hospitals that receive a higher
(50–65) percent of DSH payments would
receive decreases in base operating DRG
payment amount. With respect to hospitals’
Medicare utilization as a percent of inpatient

days (MCR), those hospitals with an MCR
above 65 percent would have the largest
average increase in base operating DRG
payment amount.

Nonteaching hospitals would have an
average increase, and teaching hospitals
would experience an average decrease in
base operating DRG payment amount.

IMPACT ANALYSIS OF BASE OPERATING DRG PAYMENT AMOUNT PROPOSED CHANGES RESULTING FROM THE FY 2017
HOSPITAL VBP PROGRAM
Number of
hospitals

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

By Geographic Location:
All Hospitals ......................................................................................................................................................
Large Urban ..............................................................................................................................................
Other Urban ...............................................................................................................................................
Rural Area .................................................................................................................................................
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 ........................................................................................................................................................
Rural By Region ...............................................................................................................................................
New England .............................................................................................................................................
Middle Atlantic ...........................................................................................................................................
South Atlantic ............................................................................................................................................
East North Central .....................................................................................................................................
East South Central ....................................................................................................................................
West North Central ....................................................................................................................................
West South Central ...................................................................................................................................
Mountain ....................................................................................................................................................
Pacific ........................................................................................................................................................
By MCR Percent:
0–25 ..................................................................................................................................................................
25–50 ................................................................................................................................................................
50–65 ................................................................................................................................................................
Over 65 .............................................................................................................................................................
Missing ..............................................................................................................................................................
BY DSH Percent:
0–25 ..................................................................................................................................................................
25–50 ................................................................................................................................................................
50–65 ................................................................................................................................................................
Over 65 .............................................................................................................................................................
By Teaching Status:
Non-Teaching ...................................................................................................................................................
Teaching ...........................................................................................................................................................

Actual FY 2017 program year’s TPSs will
not be reviewed and corrected by hospitals
until after the FY 2017 IPPS/LTCH PPS final
rule has been published. Therefore, the same
historical universe of eligible hospitals and
corresponding TPSs from the FY 2016
program year will be used for the updated
impact analysis in that final rule.
5. Effects of Proposed Changes to the HAC
Reduction Program for FY 2017
In section IV.I. of the preamble of this
proposed rule, we discuss the proposed
changes to the HAC Reduction Program for
FY 2017. The table and analysis below show

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the estimated cumulative effect of the
measures and scoring system for the HAC
Reduction Program proposed in this
proposed rule. In the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49575 through 49576),
we finalized a Total HAC Score methodology
that assigns, for FY 2017, weights for Domain
1 and Domain 2 at 15 percent and 85 percent,
respectively. Based on this methodology, the
table below presents data on the estimated
proportion of hospitals in the worstperforming quartile of the Total HAC Scores
by hospital characteristic. We note that
because scores will undergo a 30-day review
and correction period by the hospitals that

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Average
(%)

3,041
1,247
1,046
748
2,293
517
719
430
419
208
748
265
286
115
45
37

0.244
0.117
0.202
0.514
0.156
0.708
0.143
¥0.035
¥0.146
¥0.171
0.514
0.695
0.540
0.304
0.159
0.103

2,293
110
297
389
368
141
155
324
159
350
748
20
53
117
112
138
94
135
55
24

0.156
0.152
¥0.065
0.108
0.204
0.126
0.370
0.211
0.128
0.225
0.514
0.528
0.373
0.621
0.514
0.389
0.623
0.416
0.713
0.677

374
2,024
508
126
9

0.131
0.205
0.409
0.539
0.204

1,427
1,320
156
138

0.384
0.154
¥0.067
0.007

2,041
1,000

0.381
¥0.036

will not conclude until after the publication
of the FY 2017 IPPS/LTCH PPS final rule, we
are not providing hospital-level data or a
hospital-level payment impact in conjunction
with this FY 2017 IPPS/LTCH PPS proposed
rule.
To estimate the impact of the FY 2017 HAC
Reduction Program, we used, as previously
finalized, AHRQ PSI 90 measure results
based on Medicare FFS discharges from July
2013 through June 2015 and version 5.0.1
(recalibrated) of the AHRQ software. For the
CLABSI, CAUTI, Colon and Abdominal
Hysterectomy SSI, MRSA Bacteremia, and
CDI measure results, we used standardized

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infection ratios (SIRs) calculated with
hospital surveillance data reported to the
NHSN for infections occurring between
January 1, 2013 and December 31, 2014.
To analyze the results by hospital
characteristic, we used the FY 2016 Final

Rule Impact File. This table includes 3,225
non-Maryland hospitals that had a Total HAC
Score for FY 2017. Of these, 3,211 hospitals
had information for geographic location,
region, bed size, DSH percent, and teaching
status, 3,197 had information for ownership,

and 3,191 had information for MCR percent.
Maryland hospitals and hospitals without a
Total HAC Score are not included in the table
below.

ESTIMATED PROPORTION OF HOSPITALS IN THE WORST-PERFORMING QUARTILE (75TH PERCENTILE) OF THE TOTAL HAC
SCORE FOR THE FY 2017 HAC REDUCTION PROGRAM
[By hospital characteristic]

Number of
hospitals a

Hospital characteristic

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Total d ...........................................................................................................................................
By Geographic Location:
All hospitals:
Urban ....................................................................................................................................
Rural .....................................................................................................................................
Urban hospitals:
1–99 beds .............................................................................................................................
100–199 beds .......................................................................................................................
200–299 beds .......................................................................................................................
300–399 beds .......................................................................................................................
400–499 ................................................................................................................................
500 or more beds .................................................................................................................
Rural hospitals:
1–49 beds .............................................................................................................................
50–99 beds ...........................................................................................................................
100–149 beds .......................................................................................................................
150–199 beds .......................................................................................................................
200 or more beds .................................................................................................................
By Region:
New England ........................................................................................................................
Mid-Atlantic ...........................................................................................................................
South Atlantic .......................................................................................................................
East North Central ................................................................................................................
East South Central ...............................................................................................................
West North Central ...............................................................................................................
West South Central ..............................................................................................................
Mountain ...............................................................................................................................
Pacific ...................................................................................................................................
By DSH Percent: e
0–24 ......................................................................................................................................
25–49 ....................................................................................................................................
50–64 ....................................................................................................................................
65 and over ..........................................................................................................................
By Teaching Status: f
Non-teaching ........................................................................................................................
Fewer than 100 residents .....................................................................................................
100 or more residents ..........................................................................................................
By Type of Ownership:
Voluntary ...............................................................................................................................
Proprietary ............................................................................................................................
Government ..........................................................................................................................
By MCR Percent:
0–24 ......................................................................................................................................
25–49 ....................................................................................................................................
50–64 ....................................................................................................................................
65 and over ..........................................................................................................................

Number of
hospitals in
the worstperforming
quartile b

Percent of
hospitals in
the worstperforming
quartile c

3,225

774

24.0

2,403
808

656
108

27.3
13.4

593
737
436
273
151
213

90
164
128
103
62
109

15.2
22.3
29.4
37.7
41.1
51.2

306
294
120
47
41

44
32
11
11
10

14.4
10.9
9.2
23.4
24.4

134
367
520
499
299
262
510
225
395

46
130
131
105
58
39
79
64
112

34.3
35.4
25.2
21.0
19.4
14.9
15.5
28.4
28.4

1,512
1,370
170
159

336
329
48
51

22.2
24.0
28.2
32.1

2,189
1,022
777

398
366
230

18.2
35.8
29.6

1,874
834
489

480
160
122

25.6
19.2
24.9

480
2,096
533
82

143
498
104
14

29.8
23.8
19.5
17.1

Source: FY 2017 HAC Reduction Program Proposed Rule Preliminary Results. Scores are based on AHRQ PSI 90 data from July 2013
through June 2015 and CDC CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, MRSA Bacteremia and CDI data from January 2013 to
December 2014. Hospital Characteristics are based on the FY 2016 Final Rule Impact File updated on October 8, 2015.
a The total number of non-Maryland hospitals with a Total HAC Score with hospital characteristic data (3,211 for geographic location, region,
bed size, DSH percent, and teaching status; 3,197 for type of ownership; and 3,191 for MCR) does not add up to the total number of non-Maryland hospitals with a Total HAC Score for the FY 2017 HAC Reduction Program (3,225) because 14 hospitals are not included in the FY 2016
Final Rule Impact File and not all hospitals have data for all characteristics.
b This column is the number of non-Maryland hospitals with a Total HAC Score within the corresponding characteristic that are estimated to be
in the worst-performing quartile.
c This column is the percent of hospitals within each characteristic that are estimated to be in the worst-performing quartile. The percentages
are calculated by dividing the number of non-Maryland hospitals with a Total HAC Score in the worst-performing quartile by the total number of
non-Maryland hospitals with a Total HAC Score within that characteristic.
d Total excludes 47 Maryland hospitals and 64 non-Maryland hospitals without a Total HAC Score for FY 2017.
e A hospital is considered to be a DSH hospital if it has a disproportionate patient percentage (DPP) greater than zero.
f A hospital is considered to be a teaching hospital if it has an IME adjustment factor for Operation PPS (TCHOP) greater than zero.

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6. Effects of Proposed Policy Changes
Relating to Direct GME and IME Payments for
Rural Training Tracks at Urban Hospitals
In section IV.J. of the preamble of this
proposed rule, we discuss our proposal to
extend the period for establishing rural track
FTE limitations from 3 years to 5 years for
purposes of direct GME and IME payments
to urban hospitals with rural track training
programs. Specifically, we are proposing to
revise the regulations to permit that, in the
first 5 program years (rather than the first 3
program years) of the rural track’s existence,
the rural track FTE limitation for each urban
hospital will be the actual number of FTE
residents training in the rural training track
at the urban hospital, and beginning with the
urban hospital’s cost reporting period that
coincides with or follows the start of the
sixth program year of the rural training
track’s existence, the rural track FTE
limitation would take effect. This proposed
change addresses concerns expressed by the
hospital community that rural training tracks,
like any program, should have a sufficient
amount of time for a hospital to ‘‘grow’’ and
to establish a rural track FTE limitation that
reflects the number of FTE residents that it
will actually train, once the program is fully
grown. In section IV.J. of the preamble of this
proposed rule, we explain that because we
inadvertently did not also amend the
separate direct GME and IME regulations
regarding the growth window and effective
date of FTE limitations for rural track
training programs when we amended the
regulations regarding the 5-year growth
window in the FY 2013 IPPS/LTCH PPS final
rule and regarding the additional changes we
made in the FY 2015 IPPS/LTCH PPS final
rule, we are proposing that the effective date
regarding the change in the growth window
also be effective for rural track training
programs started on or after October 1, 2012.
Mostly due to the relatively small size of
rural track programs, we estimate that the
proposal would cost approximately $1
million by the end of the 10-year period, a
negligible cost.
7. Effects of Implementation of Rural
Community Hospital Demonstration Program
In section IV.K. of the preamble of this
proposed rule, for FY 2017, 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 payments for inpatient
services for up to 30 rural community
hospitals. Section 410A(c)(2) requires that in
conducting the demonstration program under
this section, the Secretary shall ensure that
the aggregate payments made by the
Secretary do not exceed the amount which
the Secretary would have paid if the
demonstration program under this section
was not implemented.
As discussed in section IV.K. of the
preamble of this proposed rule, in the IPPS
final rules for each of the previous 12 fiscal
years, we have estimated the additional
payments made by the program for each of
the participating hospitals as a result of the
demonstration. In order to achieve budget
neutrality, we have adjusted the national
IPPS rates by an amount sufficient to account

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for the added costs of this demonstration. In
other words, we have applied budget
neutrality across the payment system as a
whole rather than across the participants of
this demonstration. 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.
In this FY 2017 proposed rule, we are
proposing a different methodology as
compared to previous years for analyzing the
costs attributable to the demonstration for FY
2017. The demonstration will have
substantially phased out by the beginning of
FY 2017. The 7 ‘‘originally participating
hospitals’’, that is, those hospitals that were
selected for the demonstration in 2004 and
2008, ended their participation in the 5-year
extension period authorized by the
Affordable Care Act prior to the start of FY
2016. In addition, the participation period for
the 14 hospitals that entered the
demonstration following the extension of the
demonstration mandated by the Affordable
Care Act and that are still participating will
end on a rolling basis according to the end
dates of the hospitals’ cost report periods,
respectively, from April 30, 2016 through
December 31, 2016. Of these 14 hospitals, 10
hospitals will end participation on or before
September 30, 2016, leaving 4 hospitals
participating for the last 3 months of CY 2016
(that is, the first 3 months of FY 2017). Given
the small number of participating hospitals
and the limited time of participation, we are
proposing to forego the process of estimating
the costs attributable to the demonstration for
FY 2017 and to instead analyze the set of
finalized cost reports for reporting periods
beginning in FY 2016 when they become
available.
In previous IPPS/LTCH PPS final rules, we
have determined the amount by which the
actual costs of the demonstration for an
earlier, previous year differed from the
estimated costs of the demonstration set forth
in the corresponding final rule for the
corresponding fiscal year, and we
incorporated that amount into the budget
neutrality offset amount for the upcoming
fiscal year. We note that we have calculated
this difference between the actual costs of the
demonstration for FYs 2005 through 2010, as
determined from finalized cost reports once
available, and estimated costs of the
demonstration as identified in the applicable
IPPS final rules for these years. In this
proposed rule, we are proposing to conduct
this analysis for FYs 2011 through 2016 at
one time, when all of the finalized cost
reports for cost reporting periods beginning
in FYs 2011 through 2016 are available.
Given the general lag of 3 years in finalizing
cost reports, we expect any such analysis to
be conducted in FY 2020.
Because, as discussed earlier, we are
proposing that we would not calculate and
apply an estimated budget neutrality offset
amount for FY 2017, but instead analyze the

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set of finalized cost reports for cost reporting
periods beginning in FY 2016 when they
become available, and are proposing to
reconcile the budget neutrality offset
amounts for FYs 2011 through 2016 with the
actual costs of the demonstration once the
finalized cost reports for all of these years are
available, we believe there would be no
impact from the demonstration on the
national IPPS rates for FY 2017.
8. Effects of Proposed Implementation of the
Notice of Observation Treatment and
Implications for Care Eligibility Act (NOTICE
Act)
In section IV.L. of the preamble of this
proposed rule, we discuss our proposal to
implement section 1866(a)(1)(Y) of the Act as
amended by the NOTICE Act (Pub. L. 114–
42) by revising the basic commitments
providers agree to as part of participating in
Medicare under a provider agreement by
establishing regulations that would specify a
process for hospitals and CAHs to notify an
individual, orally and in writing, regarding
the individual’s receipt of observation
services as an outpatient for more than 24
hours and the implications of receiving such
services. The statute mandates the Secretary
develop a plain language written notice for
this purpose. The written notice must be
delivered no later than 36 hours after
observation services are initiated. We have
developed a standardized format for the
notice, which is undergoing OMB approval.
The notice would be disseminated during the
normal course of related business activities.
In 2014, there were approximately 977,000
claims for Medicare outpatient observation
services lasting greater than 24 hours
furnished by 6,142 hospitals and CAHs.322
We refer readers to section IX.B. of the
preamble of this proposed rule for a
discussion of the burden associated with this
notice requirement.
9. Effects of Proposed Technical Changes and
Correction of Typographical Errors in Certain
Regulations Under 42 CFR Part 413 Relating
to Costs to Related Organizations and
Medicare Cost Reports
In section IV.M. of the preamble of this
proposed rule, we discuss a number of
proposed technical changes or corrections of
typographical errors in 42 CFR part 413
relating to costs to related organizations and
Medicare cost reports that need to be made.
We believe that the impact of these proposed
technical changes and corrections is
negligible.
10. Effects of Proposed Implementation of the
Frontier Community Health Integration
Project (FCHIP) Demonstration
In section VI.B. of the preamble of this
proposed rule, we discuss the
implementation of the FCHIP demonstration,
which will allow eligible entities to develop
and test new models for the delivery of
health care services in eligible counties in
order to improve access to and better
integrate the delivery of acute care, extended
care, and other health care services to
Medicare beneficiaries in no more than four
322 Source: CMS Office of Enterprise and Data
Analytics.

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States. CMS has selected CAHs to participate
in the demonstration, and budget neutrality
estimates will be based on the demonstration
period, which is expected to be August 1,
2016 through July 31, 2019. The selected
CAHs are located in three States: Montana,
Nevada, and North Dakota. The
demonstration design includes three
intervention prongs, under which specific
waivers of Medicare payment rules will
allow for enhanced payment: telemedicine,
nursing facility, and ambulance services.
These waivers were formulated with the goal
of increasing access to care with no net
increase in costs.
We have specified the payment
enhancements for the demonstration, and
based our selection of CAHs for participation,
with the goal of maintaining the budget
neutrality of the demonstration on its own
terms (that is, the demonstration will
produce savings from reduced transfers and
admissions to other health care providers,
thus offsetting any increase in payments
resulting from the demonstration). However,
because of the small size of this
demonstration program and uncertainty
associated with projected Medicare
utilization and costs, we are proposing a
contingency plan to ensure that the budget
neutrality requirement in section 123 of
Public Law 110–275 is met. Accordingly, if
analysis of claims data for the Medicare
beneficiaries receiving services at each of the
participating CAHs, as well as of other data
sources, including cost reports for these
CAHs, shows that increases in Medicare
payments under the demonstration during
the 3-year period are not sufficiently offset by
reductions elsewhere, we will recoup the
additional expenditures attributable to the
demonstration through a reduction in
payments to all CAHs nationwide. The
demonstration is projected to impact
payments to participating CAHs under both
Medicare Part A and Part B. Thus, in the
event that we determine that aggregate
payments under the demonstration exceed
the payments that would otherwise have
been made, we are proposing that CMS
would recoup payments through reductions
of Medicare payments to all CAHs under
both Medicare Part A and Part B. Because of
the small scale of the demonstration, it
would be not be feasible to implement budget
neutrality by reducing only payments to the
participating CAH providers. We are
proposing to make the reduction to payments
to all CAHs, not just those participating in
the demonstration, because the FCHIP
program is specifically designed to test
innovations that affect delivery of services by
this provider category. We believe that the
language of the statutory budget neutrality
requirement at section 123(g)(1)(B) of the Act
permits the agency to implement the budget
neutrality provision in this manner. The
statutory language refers merely to ensuring
that aggregate payments made by the
Secretary do not exceed the amount which
the Secretary estimates would have been paid
if the demonstration project was not
implemented, and does not identify the range
across which aggregate payments must be
held equal.
Given the 3-year period of performance of
the FCHIP demonstration and the time

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needed to conduct the budget neutrality
analysis, we are proposing that, in the event
the demonstration is found not to have been
budget neutral, any excess costs would be
recouped over a period of three cost report
periods, beginning in CY 2020. Therefore,
this proposal does not impact any national
payment system for FY 2017.
I. Effects of Proposed Changes in the Capital
IPPS
1. General Considerations
For the impact analysis presented below,
we used data from the December 2015 update
of the FY 2015 MedPAR file and the
December 2015 update of the ProviderSpecific File (PSF) that is used for payment
purposes. Although the analyses of the
proposed changes to the capital prospective
payment system do not incorporate cost data,
we used the December 2015 update of the
most recently available hospital cost report
data (FYs 2013 and 2014) to categorize
hospitals. Our analysis has several
qualifications. We use the best data available
and make assumptions about case-mix and
beneficiary enrollment as described later in
this section.
Due to the interdependent nature of the
IPPS, it is very difficult to precisely quantify
the impact associated with each change. In
addition, we draw upon various sources for
the data used to categorize hospitals in the
tables. In some cases (for instance, the
number of beds), there is a fair degree of
variation in the data from different sources.
We have attempted to construct these
variables with the best available sources
overall. However, it is possible that some
individual hospitals are placed in the wrong
category.
Using cases from the December 2015
update of the FY 2015 MedPAR file, we
simulated payments under the capital IPPS
for FY 2016 and FY 2017 for a comparison
of total payments per case. Any short-term,
acute care hospitals not paid under the
general IPPS (for example, 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 the
proposed capital IPPS payments in FY 2017
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 receive outlier payments for
those cases that qualify under the threshold
established for each fiscal year. We modeled
payments for each hospital by multiplying
the capital Federal rate by the GAF and the
hospital’s case-mix. We then added estimated
payments for indirect medical education,
disproportionate share, and outliers, if
applicable. For purposes of this impact
analysis, the model includes the following
assumptions:
• We estimate that the Medicare case-mix
index will increase by 0.5 percent in both
FYs 2016 and 2017.

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25309

• We estimate that Medicare discharges
will be approximately 11.3 million in FY
2016 and 11.5 million in FY 2017.
• The capital Federal rate was updated
beginning in FY 1996 by an analytical
framework that considers changes in the
prices associated with capital-related costs
and adjustments to account for forecast error,
changes in the case-mix index, allowable
changes in intensity, and other factors. As
discussed in section III.A.1.a. of the
Addendum to this proposed rule, the
proposed update is 0.9 percent for FY 2017.
• In addition to the proposed FY 2017
update factor, the proposed FY 2017 capital
Federal rate was calculated based on a
proposed GAF/DRG budget neutrality
adjustment factor of 0.9993, a proposed
outlier adjustment factor of 0.9374, and a
proposed adjustment of (1/0.998) to
permanently remove the 0.2 percent
adjustment, as well as a proposed temporary
2-midnight adjustment of 1.006. The 2midnight adjustments are discussed in
section V.C. of the preamble of this proposed
rule and are consistent with the proposed 2midnight adjustments on the operating
Federal rate. As discussed in section V.C. of
the preamble of this proposed rule, we are
not proposing to make an additional MS–
DRG documentation and coding adjustment
to the capital IPPS Federal rates for FY 2017.
2. Results
We used the actuarial model previously
described in section I.I. of Appendix A of this
proposed rule to estimate the potential
impact of our proposed changes for FY 2017
on total capital payments per case, using a
universe of 3,330 hospitals. As previously
described, the individual hospital payment
parameters are taken from the best available
data, including the December 2015 update of
the FY 2015 MedPAR file, the December
2015 update to the PSF, and the most recent
cost report data from the December 2015
update of HCRIS. In Table III, we present a
comparison of estimated total payments per
case for FY 2016 and estimated total
payments per case for FY 2017 based on the
proposed FY 2017 payment policies. Column
2 shows estimates of payments per case
under our model for FY 2016. Column 3
shows estimates of payments per case under
our model for FY 2017. Column 4 shows the
total percentage change in payments from FY
2016 to FY 2017. The change represented in
Column 4 includes the proposed 0.9 percent
update to the capital Federal rate and other
proposed changes in the adjustments to the
capital Federal rate. The comparisons are
provided by: (1) Geographic location; (2)
region; and (3) payment classification.
The simulation results show that, on
average, proposed capital payments per case
in FY 2017 are expected to increase as
compared to capital payments per case in FY
2016. This expected increase is due to the
proposed approximately 1.7 percent increase
in the capital Federal rate for FY 2017 as
compared to the FY 2016 capital Federal rate
and, to a lesser degree, changes to the MS–
DRG reclassifications and recalibrations. (For
a discussion of the determination of the
capital Federal rate, we refer readers to
section III.A. of the Addendum to this
proposed rule.) The proposed increase in

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capital payments per case due to the effects
of changes to the MS–DRG reclassifications
and recalibrations is expected to be slightly
greater for urban hospitals than for rural
hospitals. However, less than half of the
hospitals in urban areas are expected to
experience a slight increase in capital
payments per case due to the effects of
proposed changes to the GAFs, while the
remainder of these urban area hospitals
would experience no change or a decrease in
capital payments per case due to proposed
changes in the GAFs. For most hospitals in
rural areas, proposed changes in the GAFs
are expected to increase capital payments, to
a greater or lesser extent, except for two rural
areas where proposed changes in the GAFs
are expected to decrease capital payments
per case. These regional effects of the
proposed changes to the GAFs on capital
payments are consistent with the projected
changes in payments due to proposed
changes in the wage index (and proposed
policies affecting the wage index) as shown
in Table I in section I.G. of this Appendix A.
The net impact of these proposed changes
is an estimated proposed 2.0 percent change
in capital payments per case from FY 2016
to FY 2017 for all hospitals (as shown in
Table III).
The geographic comparison shows that, on
average, hospitals in all classifications (urban
and rural) would experience an increase in
capital IPPS payments per case in FY 2017
as compared to FY 2016. Capital IPPS

payments per case for hospitals in ‘‘large
urban areas’’ have an estimated increase of
2.0 percent, while hospitals in rural areas, on
average, are expected to experience a 2.1
percent increase in proposed capital
payments per case from FY 2016 to FY 2017.
Capital IPPS payments per case for ‘‘other
urban hospitals’’ are also estimated to
increase 2.1 percent. The primary factor
contributing to the difference in the proposed
projected increase in capital IPPS payments
per case for urban hospitals as compared to
rural hospitals is the proposed changes to the
MS–DRGs reclassifications and
recalibrations.
The comparisons by region show that the
estimated increases in capital payments per
case from FY 2016 to FY 2017 in urban areas
range from a 2.7 percent increase for the West
South Central urban region to a 0.7 percent
increase for the New England urban region.
For rural regions, the Middle Atlantic rural
region is projected to experience the largest
increase in capital IPPS payments per case of
2.9 percent; the Mountain rural region is
projected to experience the smallest increase
in capital IPPS payments per case of 0.7
percent. The proposed change in the GAFs is
the main factor for the Mountain rural region
experiencing the smallest projected increase
in capital IPPS payments among rural
regions, and it is also the main contributor
for the smallest projected increase in capital
IPPS payments for the New England urban
region.

Hospitals of all types of ownership (that is,
voluntary hospitals, government hospitals,
and proprietary hospitals) are expected to
experience an increase in capital payments
per case from FY 2016 to FY 2017. The
proposed increase in capital payments for
voluntary and proprietary hospitals is
estimated to be 2.0 percent and 2.2 percent,
respectively. For government hospitals, the
increase is estimated to be 1.8 percent.
Section 1886(d)(10) of the Act established
the MGCRB. Hospitals may apply for
reclassification for purposes of the wage
index for FY 2017. 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 as of the
publication of this proposed rule for FY
2017, we show the average capital payments
per case for reclassified hospitals for FY
2017. Urban reclassified hospitals are
expected to experience an increase in capital
payments of 2.0 percent; urban
nonreclassified hospitals are expected to
experience an increase in capital payments of
2.1 percent. The estimated percentage
increase for rural reclassified hospitals is 2.3
percent, and for rural nonreclassified
hospitals, the estimated percentage increase
is 1.5 percent. Other reclassified hospitals
(section 1886(d)(8)(B) of the Act) are
expected to experience the largest increase in
capital payments of 2.6 percent.

TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE
[FY 2016 payments compared to FY 2017 payments]

asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

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

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Average
FY 2016
payments/
case

Average
FY 2017
payments/
case

Change

3,330
1,378
1,134
818
2,512
656
765
449
429
213
818
320
292
119
46
41

895
991
855
607
929
752
805
848
943
1,118
607
509
568
599
656
727

913
1,010
873
619
948
766
819
864
963
1,142
619
519
579
610
669
744

2.0
2.0
2.1
2.1
2.0
2.0
1.8
1.9
2.1
2.1
2.1
2.0
2.1
1.8
2.1
2.3

2,512
116
315
406
390
147
163
384
163
377
51
818
21
55

929
1,011
1,035
826
892
780
907
839
961
1,194
426
607
847
579

948
1,018
1,050
843
913
800
926
862
980
1,218
450
619
866
595

2.0
0.7
1.5
2.1
2.3
2.5
2.1
2.7
1.9
2.0
5.5
2.1
2.3
2.9

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25311

TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued
[FY 2016 payments compared to FY 2017 payments]
Number of
hospitals
South Atlantic ....................................................................................
East North Central .............................................................................
East South Central ............................................................................
West North Central ............................................................................
West South Central ...........................................................................
Mountain ............................................................................................
Pacific ................................................................................................
By Payment Classification:
All hospitals ..............................................................................................
Large urban areas (populations over 1 million) .......................................
Other urban areas (populations of 1 million of fewer) .............................
Rural areas ...............................................................................................
Teaching Status:
Non-teaching .....................................................................................
Fewer than 100 Residents ................................................................
100 or more Residents ......................................................................
Urban DSH:
100 or more beds .......................................................................
Less than 100 beds ...................................................................
Rural DSH:
Sole Community (SCH/EACH) ...................................................
Referral Center (RRC/EACH) ....................................................
Other Rural:
100 or more beds ................................................................
Less than 100 beds ............................................................
Urban teaching and DSH:
Both teaching and DSH ....................................................................
Teaching and no DSH .......................................................................
No teaching and DSH .......................................................................
No teaching and no DSH ..................................................................
Rural Hospital Types:
Non special status hospitals ..............................................................
RRC/EACH ........................................................................................
SCH/EACH ........................................................................................
SCH, RRC and EACH .......................................................................
Hospitals Reclassified by the Medicare Geographic Classification Review
Board:
FY2017 Reclassifications:
All Urban Reclassified .......................................................................
All Urban Non-Reclassified ...............................................................
All Rural Reclassified ........................................................................
All Rural Non-Reclassified .................................................................
Other Reclassified Hospitals (Section 1886(d)(8)(B)) .......................
Type of Ownership:
Voluntary ...........................................................................................
Proprietary .........................................................................................
Government .......................................................................................
Medicare Utilization as a Percent of Inpatient Days:
0–25 ...................................................................................................
25–50 .................................................................................................
50–65 .................................................................................................
Over 65 ..............................................................................................

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J. Effects of Proposed Payment Rate Changes
and Policy Changes Under the LTCH PPS
1. Introduction and General Considerations
In section VII. of the preamble of this
proposed rule and section V. of the
Addendum to this proposed rule, we set forth
the proposed annual update to the payment
rates for the LTCH PPS for FY 2017. In the
preamble of this proposed rule, we specify
the statutory authority for the proposed
provisions that are presented, identify those
proposed policies, and present rationales for

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Average
FY 2017
payments/
case

Change

127
115
156
99
161
60
24

573
627
552
655
524
710
794

581
642
563
666
538
715
813

1.5
2.4
2.0
1.8
2.6
0.7
2.4

3,330
1,372
1,083
875

895
992
860
622

913
1,011
878
634

2.0
2.0
2.1
1.9

2,275
804
251

755
868
1,264

770
886
1,290

1.9
2.1
2.1

1,608
330

954
688

973
700

2.1
1.8

266
347

590
652

603
665

2.2
2.0

33
149

537
515

545
523

1.4
1.6

880
107
1,058
410

1,029
928
800
804

1,051
942
816
820

2.1
1.5
2.0
1.9

2,522
193
326
126

931
754
689
735

949
774
702
749

2.0
2.6
2.0
1.9

576
1,879
277
484
57

952
925
636
570
582

971
944
651
578
597

2.0
2.1
2.3
1.5
2.6

1,914
858
516

908
803
946

927
820
963

2.0
2.2
1.8

517
2,128
546
94

1,086
899
730
518

1,109
917
744
528

2.2
2.0
1.9
2.0

our proposed decisions as well as
alternatives that were considered. In this
section of Appendix A to this proposed rule,
we discuss the impact of the proposed
changes to the payment rate, factors, and
other payment rate policies related to the
LTCH PPS that are presented in the preamble
of this proposed rule in terms of their
estimated fiscal impact on the Medicare
budget and on LTCHs.
There are 420 LTCHs included in this
impacts analysis, which includes data for 78
nonprofit (voluntary ownership control)

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Average
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payments/
case

LTCHs, 325 proprietary LTCHs, and 17
LTCHs that are government-owned and
operated. (We note that, although there are
currently approximately 430 LTCHs, for
purposes of this impact analysis, we
excluded the data of all-inclusive rate
providers consistent with the development of
the proposed FY 2017 MS–LTC–DRG relative
weights (discussed in section VII.C.3.c. of the
preamble of this proposed rule).) In the
impact analysis, we used the proposed
payment rate, factors, and policies presented
in this proposed rule, which includes the

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continued transition to the site neutral
payment rate required by section
1886(m)(6)(A) of the Act (discussed in
section VII.B. of the preamble of this
proposed rule), the proposed 1.45 percent
annual update to the LTCH PPS standard
Federal payment rate in accordance with
section 1886(m)(5)(C) of the Act (which is
based on the full estimated increase of the
proposed revised and rebased LTCH PPS
market basket and the reductions required by
sections 1886(m)(3) and (m)(4) of the Act),
the proposed update to the MS–LTC–DRG
classifications and relative weights, the
proposed update to the wage index values
and labor-related share, and the best
available claims and CCR data to estimate the
proposed change in payments for FY 2017.
Under the dual rate LTCH PPS payment
structure, payment for LTCH discharges that
meet the criteria for exclusion from the site
neutral payment rate (that is, LTCH PPS
standard Federal payment rate cases) is based
on the LTCH PPS standard Federal payment
rate. Consistent with the statute, the site
neutral payment rate is the lower of the IPPS
comparable per diem amount as determined
under § 412.529(d)(4), including any
applicable outlier payments as specified in
§ 412.525(a); or 100 percent of the estimated
cost of the case as determined under existing
§ 412.529(d)(2). In addition, there are two
separate HCO targets—one for LTCH PPS
standard Federal payment rate cases and one
for site neutral payment rate cases. The
statute also establishes a transitional
payment method for cases that are paid the
site neutral payment rate for LTCH
discharges occurring in cost reporting
periods beginning during FY 2016 and FY
2017. The transitional payment amount for
site neutral payment rate cases is a blended
payment rate, which is calculated as 50
percent of the applicable site neutral
payment rate amount for the discharge as
determined under new § 412.522(c)(1) and 50
percent of the applicable LTCH PPS standard
Federal payment rate for the discharge
determined under § 412.523.
Based on the best available data for the 420
LTCHs in our database that were considered
in the analyses used for this proposed rule,
we estimate that overall LTCH PPS payments
in FY 2017 would decrease by approximately
6.9 percent (or approximately $355 million).
This projection takes into account estimated
payments for LTCH cases in our database that
would have met the patient-level criteria and
been paid the LTCH PPS standard Federal
payment rate if those criteria had been in
effect at the time of the discharge, and
estimated payments for LTCH cases that
would not have met the patient-level criteria
and been paid under the site neutral payment
rate if that rate had been in effect at the time
of the discharge, as described in the
following paragraph.
The statutory transitional payment method
for cases that are paid the site neutral
payment rate for LTCH discharges occurring
in cost reporting periods beginning during
FY 2016 or FY 2017 uses a blended payment
rate, which is determined as 50 percent of the
site neutral payment rate amount for the
discharge and 50 percent of the standard
Federal prospective payment rate amount for

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the discharge (§ 412.522(c)(3)). The
transitional blended payment rate uses the
same blend percentages (that is, 50 percent)
for both years of the 2-year transition period.
Therefore, when estimating FY 2017 LTCH
PPS payments for site neutral payment rate
cases for this impact analysis, the transitional
blended payment rate was applied to all such
cases because all discharges in FY 2017 will
either be in the hospital’s cost reporting
period that began during FY 2016 or in the
hospital’s cost reporting period that will
begin during FY 2017. However, when
estimating FY 2016 LTCH PPS payments for
site neutral payment rate cases for this
impact analysis because the statute specifies
that the site neutral payment rate effective
date for a given LTCH is determined based
on the date on which that LTCH’s cost
reporting period begins during FY 2016, we
included an adjustment to account for this
rolling effective date, consistent with the
approach used for the LTCH PPS impact
analysis presented in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49831). This
approach accounts for the fact that LTCHs
with discharges in FY 2016 that are in cost
reporting periods that begin before October 1,
2015, continued to be paid for all discharges
(including those that did not meet the
patient-level criteria for exclusion from the
site neutral payment rate) at the LTCH PPS
standard Federal payment rate until the start
of their first cost reporting period beginning
after October 1, 2015.
For purposes of this impact analysis, to
estimate total FY 2016 LTCH PPS payments
for site neutral payment rate cases, we used
the same approach as was used in the FY
2016 IPPS/LTCH PPS final rule. In summary,
under this approach, we grouped LTCHs
based on the quarter of FY 2016 their cost
reporting periods began during FY 2016. For
example, LTCHs with cost reporting periods
that began during October through December
2015 began during the first quarter of FY
2016. For LTCHs grouped in each quarter of
FY 2016, we modeled those LTCHs’
estimated FY 2016 site neutral payment rate
payments under the transitional blended
payment rate based on the quarter in which
the LTCHs in each group become subject to
the site neutral payment rate. Then, we
modeled for LTCHs grouped in each quarter
of FY 2016, estimated FY 2016 payments
under the LTCH PPS standard Federal
payment rate based on the quarter in which
the LTCHs in each group become subject to
the site neutral payment rate. (For additional
details on our method of taking into account
the rolling effective date of the application of
the site neutral payment rate when
estimating payments for FY 2016, we refer
readers to the description presented in FY
2016 IPPS/LTCH PPS final rule (80 FR
49831).) We continue to believe that this
approach is a reasonable means of taking the
rolling effective date into account when
estimating FY 2016 payments.
Based on the fiscal year start dates
recorded in the December 2015 update of the
PSF, of the 420 LTCHs in our database of
LTCH claims from the December 2015 update
of the FY 2015 MedPAR files used for this
proposed rule, the following percentages
apply in the approach previously described:

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9.9 percent of site neutral payment rate cases
are from LTCHs whose cost reporting periods
begin in the first quarter of FY 2016; 26.4
percent of site neutral payment rate cases are
from LTCHs whose cost reporting periods
begin in the second quarter of FY 2016; 10.3
percent of site neutral payment rate cases are
from LTCHs whose cost reporting periods
begin in the third quarter of FY 2016; and
53.4 percent of site neutral payment rate
cases are from LTCHs whose cost reporting
periods begin in the fourth quarter of FY
2016.
Based on the FY 2015 LTCH cases that
were used for the analyses in this proposed
rule, approximately 45 percent of those
LTCH cases would have been classified as
site neutral payment rate cases if the site
neutral payment rate had been in effect in FY
2015 (that is, 45 percent of such LTCH cases
would not have met the patient-level criteria
for exclusion from the site neutral payment
rate). Our Office of the Actuary estimates that
the percent of LTCH PPS cases that will be
paid at the site neutral payment rate in FY
2017 will not change significantly from the
historical data. Taking into account the
transitional blended payment rate and other
proposed changes that would apply to the
site neutral payment rate cases in FY 2017,
we estimate that aggregate LTCH PPS
payments for these site neutral payment rate
cases would decrease by approximately 21
percent (or approximately $367 million).
Approximately 55 percent of LTCH cases
are expected to meet the patient-level criteria
for exclusion from the site neutral payment
rate in FY 2017, and will be paid based on
the LTCH PPS standard Federal payment rate
for the full year. We estimate that total LTCH
PPS payments for these LTCH PPS standard
Federal payment rate cases in FY 2017 would
increase approximately 0.3 percent (or
approximately $12 million). This estimated
increase in LTCH PPS payments for LTCH
PPS standard Federal payment rate cases in
FY 2017 is primarily due to the combined
effects of the proposed 1.45 percent annual
update to the LTCH PPS standard Federal
payment rate for FY 2017 (discussed in
section V.A. of the Addendum to this
proposed rule) and an estimated decrease in
HCO payments for these cases (discussed in
section V.D.3. of the Addendum to this
proposed rule).
Based on the 420 LTCHs that were
represented in the FY 2015 LTCH cases that
were used for the analyses in this proposed
rule, we estimate that aggregate FY 2017
LTCH PPS payments would be
approximately $4.757 billion, as compared to
estimated aggregate FY 2016 LTCH PPS
payments of approximately $5.112 billion,
resulting in an estimated overall decrease in
LTCH PPS payments of approximately $355
million. Because the combined distributional
effects and estimated payment changes
exceed $100 million, this proposed rule is a
major economic rule. We note that this
estimated $355 million decrease in LTCH
PPS payments in FY 2017 (which includes
estimated payments for LTCH PPS standard
Federal payment rate cases and site neutral
payment rate cases) does not reflect changes
in LTCH admissions or case-mix intensity,
which would also affect the overall payment
effects of the proposals in this proposed rule.

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Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules
The LTCH PPS standard Federal payment
rate for FY 2016 is $41,762.85. For FY 2017,
we are proposing an LTCH PPS standard
Federal payment rate of $42,314.31, which
reflects the proposed 1.45 percent annual
update to the LTCH PPS standard Federal
payment rate and the proposed area wage
budget neutrality factor of 0.998723 to ensure
that the proposed changes in the wage
indexes and labor-related share do not
influence aggregate payments. For LTCHs
that fail to submit data for the LTCH QRP,
in accordance with section 1886(m)(5)(C) of
the Act, we are proposing an LTCH PPS
standard Federal payment rate of $41,480.12.
This proposed reduced LTCH PPS standard
Federal payment rate reflects the updates
previously described as well as the required
2.0 percentage point reduction to the annual
update for failure to submit data under the
LTCH QRP. We note that the factors
previously described to determine the
proposed FY 2017 LTCH PPS standard
Federal payment rate are applied to the FY
2016 LTCH PPS standard Federal rate set
forth under § 412.523(c)(3)(xi) (that is,
$41,762.85).
Table IV shows the estimated impact for
LTCH PPS standard Federal payment rate
cases. The estimated change attributable
solely to the proposed annual update to the
LTCH PPS standard Federal payment rate is
projected to result in an increase of 1.3
percent in payments per discharge for LTCH
PPS standard Federal payment rate cases
from FY 2016 to FY 2017, on average, for all
LTCHs (Column 6). In addition to the
proposed annual update to the LTCH PPS
standard Federal payment rate for FY 2017,
the estimated increase of 1.3 percent shown
in Column 6 of Table IV also includes
estimated payments for SSO cases that will
be paid using special methodologies that are
not affected by the proposed annual update
to the LTCH PPS standard Federal payment
rate, as well as the reduction that is applied
to the proposed annual update of LTCHs that
do not submit the required LTCH QRP data.
Therefore, for all hospital categories, the
projected increase in payments based on the
proposed LTCH PPS standard Federal
payment rate to LTCH PPS standard Federal
payment rate cases is somewhat less than the
proposed 1.45 percent proposed annual
update for FY 2017.
For FY 2017, we are proposing to update
the wage index values based on the most
recent available data, and we are proposing
to continue to use labor market areas based
on the OMB CBSA delineations (as discussed
in section V.B. of the Addendum to this
proposed rule). In addition, we are proposing
an increase in the labor-related share from
62.0 percent to 66.6 percent under the LTCH
PPS for FY 2017, based on the most recent
available data on the relative importance of
the labor-related share of operating and
capital costs of the proposed 2013-based
LTCH market basket (as discussed in section
VII.D. of the preamble of this proposed rule).
We also are proposing to apply an area wage
level budget neutrality factor of 0.998723 to
ensure that the proposed changes to the wage
data and labor-related share do not result in
a change in estimated aggregate LTCH PPS
payments to LTCH PPS standard Federal

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payment rate cases, which decreases the
LTCH PPS standard Federal payment rate by
approximately 0.13 percent.
We currently estimate total HCO payments
for LTCH PPS standard Federal payment rate
cases would decrease from FY 2016 to FY
2017. Based on the FY 2015 LTCH cases that
were used for the analyses in this proposed
rule, we estimate that the FY 2016 HCO
threshold of $16,423 (as established in the FY
2016 IPPS/LTCH PPS final rule) would result
in estimated HCO payments for LTCH PPS
standard Federal payment rate cases in FY
2016 that are above the estimated 8 percent
target. Specifically, we currently estimate
that HCO payments for LTCH PPS standard
Federal payment rate cases would be
approximately 9.1 percent of the estimated
total LTCH PPS standard Federal payment
rate payments in FY 2016. Combined with
our estimate that FY 2017 HCO payments for
LTCH PPS standard Federal payment rate
cases would be 8.0 percent of estimated total
LTCH PPS standard Federal payment rate
payments in FY 2017, this results in the
estimated decrease in HCO payments of
approximately 1.1 percent between FY 2016
and FY 2017.
In calculating these estimated HCO
payments, we increased estimated costs by
our actuaries’ projected market basket
percentage increase factor. This increase in
estimated costs also results in a projected
increase in SSO payments in FY 2017
(because 100 percent of the estimated cost of
the case is an option in the SSO payment
formula (§ 412.529)). We estimate that these
increased SSO payments in FY 2017 would
increase total payments for LTCH PPS
standard Federal payment rate cases by
approximately 0.25 percent. (Payments for
SSO cases represent approximately 14
percent of the estimated total FY 2017
payments for LTCH PPS standard Federal
payment rate cases.)
Table IV shows the estimated impact of the
proposed payment rate and policy changes
on LTCH PPS payments for LTCH PPS
standard Federal payment rate cases for FY
2017 by comparing estimated FY 2016 LTCH
PPS payments to estimated FY 2017 LTCH
PPS payments. (As noted earlier, our analysis
does not reflect changes in LTCH admissions
or case-mix intensity.) The projected increase
in payments from FY 2016 to FY 2017 for
LTCH PPS standard Federal payment rate
cases of 0.3 percent is attributable to the
impacts of the change to the LTCH PPS
standard Federal payment rate (1.3 percent in
Column 6) and the effect of the estimated
decrease in HCO payments for LTCH PPS
standard Federal payment cases (¥1.1
percent), and the estimated increase in
payments for SSO cases (0.25 percent). We
note that these impacts do not include LTCH
PPS site neutral payment rate cases for the
reasons discussed in section I.J.3. of this
Appendix.
As we discuss in detail throughout this
proposed rule, based on the most recent
available data, we believe that the provisions
of this proposed rule relating to the LTCH
PPS, which are projected to result in an
overall decrease in estimated aggregate LTCH
PPS payments, and the resulting LTCH PPS
payment amounts would result in

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appropriate Medicare payments that are
consistent with the statute.
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 0.3 percent increase
in estimated payments for LTCH PPS
standard Federal payment rate cases. This
estimated impact is based on the FY 2015
data for the 21 rural LTCHs (out of 420
LTCHs) that were used for the impact
analyses shown in Table VI.
3. Anticipated Effects of Proposed LTCH PPS
Payment Rate Changes and Policy Changes
a. Budgetary Impact
Section 123(a)(1) of the BBRA requires that
the PPS developed for LTCHs ‘‘maintain
budget neutrality.’’ We believe that the
statute’s mandate for budget neutrality
applies only to the first year of the
implementation of the LTCH PPS (that is, FY
2003). Therefore, in calculating the FY 2003
standard Federal payment 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.
Section 1886(m)(6)(A) of the Act
establishes a dual rate LTCH PPS payment
structure with two distinct payment rates for
LTCH discharges beginning in FY 2016.
Under this statutory change, LTCH
discharges that meet the patient-level criteria
for exclusion from the site neutral payment
rate (that is, LTCH PPS standard Federal
payment rate cases) are paid based on the
LTCH PPS standard Federal payment rate.
LTCH discharges paid at the site neutral
payment rate are generally paid the lower of
the IPPS comparable per diem amount,
including any applicable HCO payments, or
100 percent of the estimated cost of the case.
The statute also establishes a transitional
payment method for cases that are paid at the
site neutral payment rate for LTCH
discharges occurring in cost reporting
periods beginning during FY 2016 or FY
2017, under which the site neutral payment
rate cases are paid based on a blended
payment rate calculated as 50 percent of the
applicable site neutral payment rate amount
for the discharge and 50 percent of the
applicable LTCH PPS standard Federal
payment rate for the discharge.
As discussed in section I.J.1. of this
Appendix, we project a decrease in aggregate
LTCH PPS payments in FY 2017 of
approximately $355 million. This estimated
decrease in payments reflects the projected
increase in payments to LTCH PPS standard
Federal payment rate cases of approximately
$12 million and the projected decrease in
payments to site neutral payment rate cases
of approximately $367 million under the
dual rate LTCH PPS payment rate structure
required by the statute beginning in FY 2016.
As discussed in section VII.B.7.b. of the
preamble of this proposed rule, our actuaries
project cost and resource changes for site
neutral payment rate cases due to the site

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neutral payment rates required under the
statute. Specifically, our actuaries project
that the costs and resource use for cases paid
at the site neutral payment rate will likely be
lower, on average, than the costs and
resource use for cases paid at the LTCH PPS
standard Federal payment rate, and will
likely mirror the costs and resource use for
IPPS cases assigned to the same MS–DRG.
While we are able to incorporate this
projection at an aggregate level into our
payment modeling, because the historical
claims data that we are using in this
proposed rule to project estimated FY 2017
LTCH PPS payments (that is, FY 2015 LTCH
claims data) do not reflect this actuarial
projection, we are unable to model the
impact of the change in LTCH PPS payments
for site neutral payment rate cases at the
same level of detail with which we are able
to model the impacts of the changes to LTCH
PPS payments for LTCH PPS standard
Federal payment rate cases. Therefore, Table
IV only reflects proposed changes in LTCH
PPS payments for LTCH PPS standard
Federal payment rate cases and, unless
otherwise noted, the remaining discussion in
section I.J.3. of this Appendix refers only to
the impact on LTCH PPS payments for LTCH
PPS standard Federal payment rate cases. In
the following section, we present our
provider impact analysis for the changes that
affect LTCH PPS payments for LTCH PPS
standard Federal payment rate cases.
b. Impact on Providers
Under the dual rate LTCH PPS payment
structure, there are two distinct payment
rates for LTCH discharges occurring in cost
reporting periods beginning on or after
October 1, 2016. Under that statute, any
discharges that occur on or after October 1,
2015, but prior to the start of the LTCH’s FY
2016 cost reporting period, will be paid at the
LTCH PPS standard Federal payment rate.
On or after the start of an LTCH’s FY 2017
cost reporting period, discharges are paid
based on the nature of the case. As described
previously, LTCH PPS standard Federal
payment rate cases are defined as LTCH
discharges that meet the patient-level criteria
to be excluded from the typically lower site
neutral payment rate, and site neutral
payment rate cases are defined as LTCH
discharges that do not meet the patient-level
criteria and generally will be paid the lower
site neutral payment rate. However, for
discharges occurring in cost reporting
periods beginning in FY 2016 or 2017, the
statute specifies that site neutral payment
rate cases are paid based on a transitional
payment method that is calculated as 50
percent of the applicable site neutral
payment rate amount and 50 percent of the
applicable LTCH PPS standard Federal
payment rate.
The basic methodology for determining a
per discharge payment for LTCH PPS
standard Federal payment rate cases is
currently set forth under §§ 412.515 through
412.536. In addition to adjusting the LTCH
PPS standard Federal payment rate by the
MS–LTC–DRG relative weight, we make
adjustments to account for area wage levels
and SSOs. LTCHs located in Alaska and
Hawaii also have their payments adjusted by
a COLA. Under our application of the dual

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rate LTCH PPS payment structure, the LTCH
PPS standard Federal payment rate is
generally only used to determine payments
for LTCH PPS standard Federal payment rate
cases (that is, those LTCH PPS cases that
meet the statutory criteria to be excluded
from the site neutral payment rate). LTCH
discharges that do not meet the patient-level
criteria for exclusion are paid the site neutral
payment rate, which we are calculating as the
lower of the IPPS comparable per diem
amount as determined under § 412.529(d)(4),
including any applicable outlier payments, or
100 percent of the estimated cost of the case
as determined under existing § 412.529(d)(2).
In addition, when certain thresholds are met,
LTCHs also receive HCO payments for both
LTCH PPS standard Federal payment rate
cases and site neutral payment rate cases that
are paid at the IPPS comparable per diem
amount.
To understand the impact of the changes
to the LTCH PPS payments for LTCH PPS
standard Federal payment rate cases
presented in this proposed rule on different
categories of LTCHs for FY 2017, it is
necessary to estimate payments per discharge
for FY 2016 using the rates, factors, and the
policies established in the FY 2016 IPPS/
LTCH PPS final rule and estimate payments
per discharge for FY 2017 using the rates,
factors, and the policies proposed in this FY
2017 IPPS/LTCH PPS proposed rule (as
discussed in section VII. of the preamble of
this proposed rule and section V. of the
Addendum to this proposed rule). As
discussed elsewhere in this proposed rule,
these estimates 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. The resulting analyses can then be used
to compare how our proposed policies
applicable to LTCH PPS standard Federal
payment rate cases affect different groups of
LTCHs.
For the following analysis, we group
hospitals based on characteristics provided
in the OSCAR data, FY 2012 through FY
2013 cost report data in HCRIS, and PSF
data. Hospital groups included the following:
• Location: Large urban/other urban/rural.
• Participation date.
• Ownership control.
• Census region.
• Bed size.
c. Calculation of LTCH PPS Payments for
LTCH PPS Standard Federal Payment Rate
Cases
For purposes of this impact analysis, to
estimate the per discharge payment effects of
our proposed policies on payments for LTCH
PPS standard Federal payment rate cases, we
simulated FYs 2016 and 2017 payments on
a case-by-case basis using historical LTCH
claims from the FY 2015 MedPAR files that
would have met the criteria to be paid at the
LTCH PPS standard Federal payment rate if
the statutory patient-level criteria had been
in effect at the time of discharge for those
cases. For modeling FY 2016 LTCH PPS
payments, we used the FY 2016 standard
Federal payment rate of $41,762.85, or
$40,941.55 for LTCHs that failed to submit
quality data as required under the
requirements of the LTCH QRP. Similarly, for

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modeling payments based on the FY 2017
LTCH PPS standard Federal payment rate, we
used the proposed FY 2017 standard Federal
payment rate of $42,314.31, or $41,480.12 for
LTCHs that failed to submit quality data as
required under the requirements of the LTCH
QRP. In each case, we applied the applicable
proposed adjustments for area wage levels
and the COLA for LTCHs located in Alaska
and Hawaii. Specifically, for modeling FY
2016 LTCH PPS payments, we used the
current FY 2016 labor-related share (62.0
percent); the wage index values established
in the Tables 12A through 12D listed in the
Addendum to the FY 2016 IPPS/LTCH PPS
final rule (which are available via the
Internet on the CMS Web site); the FY 2016
HCO fixed-loss amount for LTCH PPS
standard Federal payment rate cases of
$16,423 (as discussed in section V.D. of the
Addendum to that final rule) and the FY
2016 COLA factors (shown in the table in
section V.C. of the Addendum to that final
rule) to adjust the FY 2016 nonlabor-related
share (38.0 percent) for LTCHs located in
Alaska and Hawaii. Similarly, for modeling
FY 2017 LTCH PPS payments, we used the
proposed FY 2017 LTCH PPS labor-related
share (66.6 percent), the proposed FY 2017
wage index values from Tables 12A and 12B
listed in section VI. of the Addendum to this
proposed rule (which are available via the
Internet on the CMS Web site), the proposed
FY 2017 fixed-loss amount for LTCH PPS
standard Federal payment rate cases of
$22,728 (as discussed in section V.D.3. of the
Addendum to this proposed rule), and the
proposed FY 2017 COLA factors (shown in
the table in section V.C. of the Addendum to
this proposed rule) to adjust the proposed FY
2017 nonlabor-related share (33.4 percent) for
LTCHs located in Alaska and Hawaii.
As previously discussed, our impact
analysis reflects an estimated change in
payments for SSO cases, as well as an
estimated decrease in HCO payments for
LTCH PPS standard Federal payment rate
cases (as described previously in section I.J.1.
of this Appendix). In modeling proposed
payments for SSO and HCO cases for LTCH
PPS standard Federal payment rate cases, we
applied an inflation factor of 4.8 percent
(determined by the Office of the Actuary) to
update the 2015 costs of each case.
The impacts that follow reflect the
estimated ‘‘losses’’ or ‘‘gains’’ among the
various classifications of LTCHs from FY
2016 to FY 2017 based on the proposed
payment rates and policy changes applicable
to LTCH PPS standard Federal payment rate
cases presented in this proposed rule. Table
IV illustrates the estimated aggregate impact
of the change in LTCH PPS payments for
LTCH PPS standard Federal payment rate
cases among various classifications of
LTCHs. (As discussed previously, these
impacts do not include LTCH PPS site
neutral payment rate cases.)
• 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 expected to meet the LTCH
PPS standard Federal payment rate criteria.
• The fourth column shows the estimated
FY 2016 payment per discharge for LTCH

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cases expected to meet the LTCH PPS
standard Federal payment rate criteria (as
described previously).
• The fifth column shows the estimated FY
2017 payment per discharge for LTCH cases
expected to meet the LTCH PPS standard
Federal payment rate criteria (as described
previously).
• The sixth column shows the percentage
change in estimated payments per discharge
for LTCH cases expected to meet the LTCH
PPS standard Federal payment rate criteria

from FY 2016 to FY 2017 due to the annual
update to the standard Federal rate (as
discussed in section V.A.2. of the Addendum
to this proposed rule).
• The seventh column shows the
percentage change in estimated payments per
discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017
for proposed changes to the area wage level
adjustment (that is, the proposed wage
indexes and the proposed labor-related
share), including the application of the

proposed area wage level budget neutrality
factor (as discussed in section V.B. of the
Addendum to this proposed rule).
• The eighth column shows the percentage
change in estimated payments per discharge
for LTCH PPS standard Federal payment rate
cases from FY 2016 (Column 4) to FY 2017
(Column 5) for all proposed changes (and
includes the effect of estimated changes to
HCO and SSO payments).

TABLE IV—IMPACT OF PROPOSED PAYMENT RATE AND POLICY CHANGES TO LTCH PPS PAYMENTS FOR STANDARD
PAYMENT RATE CASES FOR FY 2017

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[Estimated FY 2016 payments compared to estimated FY 2017 payments]

LTCH classification

Number of
LTCHs

Number of
LTCH PPS
standard
Federal
payment rate
cases

(1)

(2)

(3)

ALL PROVIDERS ........
BY LOCATION:
RURAL ..................
URBAN .................
LARGE ...........
OTHER ..........
BY PARTICIPATION
DATE:
BEFORE OCT.
1983 ..................
OCT. 1983–SEPT.
1993 ..................
OCT. 1993–SEPT.
2002 ..................
OCTOBER 2002
and AFTER .......
BY OWNERSHIP
TYPE:
VOLUNTARY ........
PROPRIETARY ....
GOVERNMENT ...........
BY REGION:
NEW ENGLAND ...
MIDDLE ATLANTIC .....................
SOUTH ATLANTIC
EAST NORTH
CENTRAL ..........
EAST SOUTH
CENTRAL ..........
WEST NORTH
CENTRAL ..........
WEST SOUTH
CENTRAL ..........
MOUNTAIN ...........
PACIFIC ................
BY BED SIZE:
BEDS: 0–24 ..........
BEDS: 25–49 ........
BEDS: 50–74 ........
BEDS: 75–124 ......
BEDS: 125–199 ....
BEDS: 200 + .........

Average FY
2016 LTCH
PPS payment
per case

Proposed
average FY
2017 LTCH
PPS standard
Federal
payment rate
payment per
case 1

(4)

(5)

Proposed
percent
change in payments per
case due to
the annual
update to the
LTCH PPS
standard
Federal rate 2

Proposed
percent
change in payments per
case due to
changes to the
area wage
level
adjustment
with budget
neutrality 3

Percent
change in
payments per
case from FY
2016 to FY
2017 for all
proposed
changes 4

(6)

(7)

(8)

420

72,064

$46,944

$47,105

1.3

0.0

0.3

21
399
202
197

2,271
69,793
41,448
28,345

38,858
47,207
49,428
43,959

38,808
47,375
49,738
43,920

1.3
1.3
1.3
1.3

¥0.6
0.0
0.2
¥0.3

0.2
0.3
0.3
0.2

14

1,929

42,951

43,133

1.3

0.0

0.3

42

8,856

53,153

53,438

1.2

0.3

0.4

174

31,584

45,536

45,721

1.3

0.1

0.2

190

29,695

46,849

46,947

1.3

¥0.2

0.2

78
325
17

10,016
60,366
1,682

47,838
46,633
52,773

47,719
46,844
52,799

1.3
1.3
1.3

¥0.3
0.1
0.0

0.2
0.3
0.3

13

2,792

43,643

43,864

1.3

0.0

0.3

26
63

5,486
12,021

51,620
46,804

52,093
46,754

1.3
1.3

0.5
¥0.4

0.3
0.3

69

11,588

46,982

47,092

1.3

¥0.2

0.2

34

5,367

44,251

44,005

1.3

¥0.8

0.2

29

3,877

46,850

46,623

1.3

¥0.4

0.2

128
33
25

18,590
4,287
8,056

42,312
49,026
56,476

42,344
49,174
57,556

1.3
1.3
1.2

¥0.1
0.2
1.2

0.2
0.2
0.4

26
194
119
48
23
10

1,497
24,575
19,597
12,941
8,347
5,107

43,923
44,012
48,823
49,992
46,472
47,771

44,126
44,018
48,938
50,356
46,688
48,242

1.3
1.3
1.3
1.3
1.3
1.2

¥0.1
¥0.4
0.1
0.3
0.1
0.4

0.2
0.2
0.3
0.3
0.3
0.3

1 Estimated proposed FY 2017 LTCH PPS payments for LTCH PPS standard Federal payment rate criteria based on the proposed payment
rate and factor changes applicable to such cases presented in the preamble of and the Addendum to this proposed rule.

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2 Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 to FY 2017 for the
proposed annual update to the LTCH PPS standard Federal payment rate. The temporary exclusion from the site neutral payment rate provided
by section 231 of Public Law 114–113 is not reflected in these estimated FY 2017 LTCH PPS payments.
3 Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 to FY 2017 for proposed changes to the area wage level adjustment under § 412.525(c) (as discussed in section V.B. of the Addendum to this proposed rule).
4 Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2016 (shown in Column
4) to FY 2017 (shown in Column 5), including all of the proposed changes to the rates and factors applicable to such cases presented in the preamble and the Addendum to this proposed rule. We note that this column, which shows the percent change in estimated payments per discharge
for all proposed changes, does not equal the sum of the percent changes in estimated payments per discharge for the proposed annual update
to the LTCH PPS standard Federal payment rate (Column 6) and the proposed 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 for LTCH PPS standard Federal payment rate cases (as discussed in this impact analysis), as well as other interactive effects that cannot be isolated.

d. Results
Based on the FY 2015 LTCH cases (from
420 LTCHs) that were used for the analyses
in this proposed rule, we have prepared the
following summary of the impact (as shown
in Table IV) of the proposed LTCH PPS
payment rate and proposed policy changes
for LTCH PPS standard Federal payment rate
cases presented in this proposed rule. The
impact analysis in Table IV shows that
estimated payments per discharge for LTCH
PPS standard Federal payment rate cases are
expected to increase 0.3 percent, on average,
for all LTCHs from FY 2016 to FY 2017 as
a result of the proposed payment rate and
policy changes applicable to LTCH PPS
standard Federal payment rate cases
presented in this proposed rule. This
estimated 0.3 percent increase in LTCH PPS
payments per discharge was determined by
comparing estimated FY 2017 LTCH PPS
payments (using the proposed payment rates
and factors discussed in this proposed rule)
to estimated FY 2016 LTCH PPS payments
for LTCH discharges which would be LTCH
PPS standard Federal payment rate cases if
the dual rate LTCH PPS payment structure
had been in effect at the time of the discharge
(as described in section I.J.3. of this
Appendix).
As stated previously, we are proposing to
update the LTCH PPS standard Federal
payment rate for FY 2017 by 1.45 percent
based on the estimate of the proposed 2013based LTCH PPS market basket increase (2.7
percent), the proposed reduction of 0.5
percentage point for the MFP adjustment,
and the 0.75 percentage point reduction
consistent with sections 1886(m)(3) and
(m)(4) of the Act. For LTCHs that fail to
submit quality data under the requirements
of the LTCH QRP, as required by section
1886(m)(5)(C) of the Act, a 2.0 percentage
point reduction is applied to the proposed
annual update to the LTCH PPS standard
Federal payment rate. As explained earlier in
this section, for most categories of LTCHs (as
shown in Table IV, Column 6), the estimated
payment increase due to the 1.45 percent
proposed annual update to the LTCH PPS
standard Federal payment rate is projected to
result in approximately a 1.3 percent increase
in estimated payments per discharge for
LTCH PPS standard Federal payment rate
cases for all LTCHs from FY 2016 to FY 2017.
This is because our estimate of the changes
in payments due to the proposed update to
the LTCH PPS standard Federal payment rate
also reflects estimated payments for SSO
cases that are paid using special
methodologies that are not affected by the
proposed update to the LTCH PPS standard

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Federal payment rate. Consequently, for
certain hospital categories, we estimate that
payments to LTCH PPS standard Federal
payment rate cases may increase by less than
1.45 percent due to the proposed annual
update to the LTCH PPS standard Federal
payment rate for FY 2017.
(1) Location
Based on the most recent available data,
the vast majority of LTCHs are located in
urban areas. Only approximately 5 percent of
the LTCHs are identified as being located in
a rural area, and approximately 3 percent of
all LTCH PPS standard Federal payment rate
cases are expected to be treated in these rural
hospitals. The impact analysis presented in
Table IV shows that the overall average
percent increase in estimated payments per
discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017
for all hospitals is 0.3 percent. For rural
LTCHs, the overall percent change for LTCH
PPS standard Federal payment rate cases is
estimated to be a 0.2 percent increase, while
for urban LTCHs, we estimate the increase
will be 0.3 percent. Large urban LTCHs are
projected to experience an increase of 0.3
percent in estimated payments per discharge
for LTCH PPS standard Federal payment rate
cases from FY 2016 to FY 2017, and other
urban LTCHs are projected to experience an
increase of 0.2 percent in estimated payments
per discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017,
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) October 2002 and
after. Based on the most recent available data,
the categories of LTCHs with the largest
expected percentage of LTCH PPS standard
Federal payment rate cases (approximately
44 percent) are in LTCHs that began
participating in the Medicare program
between October 1993 and September 2002,
and they are projected to experience a 0.2
percent increase in estimated payments per
discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017,
as shown in Table IV.
Approximately 3.3 percent of LTCHs began
participating in the Medicare program before
October 1983, and these LTCHs are projected
to experience an average percent increase
(0.3 percent) in estimated payments per
discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017,
as shown in Table IV. Approximately 10

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percent of LTCHs began participating in the
Medicare program between October 1983 and
September 1993. These LTCHs are projected
to experience a larger than average increase
(0.4 percent) in estimated payments for LTCH
PPS standard Federal payment rate cases
from FY 2016 to FY 2017, which is primarily
due to a projected larger than average
increase in payments due to the proposed
changes to the area wage adjustment. LTCHs
that began participating in the Medicare
program after October 1, 2002, which treat
approximately 41 percent of all LTCH PPS
standard Federal payment rate cases, are
projected to experience a 0.2 percent increase
in estimated payments from FY 2016 to FY
2017.
(3) Ownership Control
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). The majority (approximately 77
percent) of LTCHs are identified as
proprietary, while government owned and
operated LTCHs represent approximately 4
percent of LTCHs. Based on ownership type,
voluntary LTCHs are expected to experience
an average increase in payments to LTCH
PPS standard Federal payment rate cases of
0.2 percent. Both proprietary and government
owned and operating LTCHs are expected to
experience an increase of 0.3 percent in
payments to LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017.
(4) Census Region
Estimated payments per discharge for
LTCH PPS standard Federal payment rate
cases for FY 2017 are projected to increase
for LTCHs located in all regions in
comparison to FY 2016. Of the 9 census
regions, we project that the increase in
estimated payments per discharge to LTCH
PPS standard Federal payment rate cases
would have the largest positive impact on
LTCHs in the Pacific region (0.4 percent as
shown in Table IV), which is largely
attributable to the proposed changes in the
area wage level adjustment.
In contrast, LTCHs located in the East
North Central, East South Central, West
North Central, West South Central, and
Mountain regions are projected to experience
the smallest increase in estimated payments
per discharge for LTCH PPS standard Federal
payment rate cases from FY 2016 to FY 2017.
The lower than national average estimated
increase in payments of 0.2 percent is
primarily due to estimated decreases in
payments associated with the proposed
changes to the area wage level adjustment.

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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. All bed size categories
are projected to receive an increase in
estimated payments per discharge for LTCH
PPS standard Federal payment rate cases
from FY 2016 to FY 2017. We project that
LTCHs with 50 or more beds (that is, LTCHs
in the 50–74 beds; 75–124 beds; 125–199
beds; and 200+ beds categories) would
experience an average increase in payments
for LTCH PPS standard Federal payment rate
cases (0.3 percent). LTCHs with less than 50
beds (that is, LTCHs in the 0–24 beds and
25–49 beds categories) are expected to
experience a smaller than average increase in
payments per discharge for LTCH PPS
standard Federal payment rate cases from FY
2016 to FY 2017 (0.2 percent), mostly due to
estimated decreases in payments from the
proposed area wage level adjustment.
4. Effect on the Medicare Program
As stated previously, we project that the
provisions of this proposed rule would result
in an increase in estimated aggregate LTCH
PPS payments to LTCH PPS standard Federal
payment rate cases in FY 2017 relative to FY
2016 of approximately $12 million (or
approximately 0.3 percent) for the 420
LTCHs in our database. Although, as stated
previously, the hospital-level impacts do not
include LTCH PPS site neutral payment rate
cases, we estimate that the provisions of this
proposed rule would result in a decrease in
estimated aggregate LTCH PPS payments to
site neutral payment rate cases in FY 2017
relative to FY 2016 of approximately
$367million (or approximately 21 percent)
for the 420 LTCHs in our database. Therefore,
we project that the provisions of this
proposed rule would result in a decrease in
estimated aggregate LTCH PPS payments to
all LTCH cases in FY 2017 relative to FY
2016 of approximately $355 million (or
approximately 6.9 percent) for the 420
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 as a result of this proposed rule,
but we continue to expect that paying
prospectively for LTCH services will enhance
the efficiency of the Medicare program.
K. Effects of Proposed Requirements for the
Hospital Inpatient Quality Reporting (IQR)
Program
In section VIII.A. of the preamble of this
proposed rule, we discuss our requirements
for hospitals to report quality data under the
Hospital IQR Program in order to receive the
full annual percentage increase for the FY
2019 payment determination.
In section VIII.A.3.b. of the preamble of
this proposed rule, we are proposing to
remove 15 measures: 13 eCQMs (2 of which
we are proposing to remove also in their
chart-abstracted form) and 2 structural
measures.

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We are proposing to remove the electronic
versions of: (1) AMI–2: Aspirin Prescribed at
Discharge for AMI (NQF #0142); (2) AMI–7a:
Fibrinolytic Therapy Received Within 30
minutes of Hospital Arrival; (3) AMI–10:
Statin Prescribed at Discharge; (4) HTN:
Healthy Term Newborn (NQF #0716); (5) PN–
6: Initial Antibiotic Selection for CommunityAcquired Pneumonia (CAP) in
Immunocompetent Patients (NQF #0147); (6)
SCIP-Inf-1a: Prophylactic Antibiotic Received
within 1 Hour Prior to Surgical Incision
(NQF #0527); (7) SCIP-Inf-2a: Prophylactic
Antibiotic Selection for Surgical Patients
(NQF #0528); (8) SCIP Inf-9: Urinary Catheter
Removed on Postoperative Day 1 (POD1) or
Postoperative Day 2 (POD2) with Day of
Surgery Being Day Zero; (9) STK–4:
Thrombolytic Therapy (NQF #0437); (10)
VTE–3: Venous Thromboembolism Patients
with Anticoagulation Overlap Therapy (NQF
#0373); (11) VTE–4: Venous
Thromboembolism Patients Receiving
Unfractionated Heparin (UFH) with Dosages/
Platelet Count Monitoring by Protocol (or
Nomogram); (12) VTE–5: Venous
Thromboembolism Discharge Instructions;
and (13) VTE–6: Incidence of Potentially
Preventable Venous Thromboembolism.
We are also proposing to remove: (1) STK–
4: Thrombolytic Therapy (NQF #0437); and
(2) VTE–5: Venous Thromboembolism
Discharge Instructions in their chartabstracted form. Finally, we are also
proposing to remove two structural measures:
(1) Participation in a Systematic Clinical
Database Registry for Nursing Sensitive Care;
and (2) Participation in a Systematic Clinical
Database Registry for General Surgery.
As further explained in section X.B.6. of
the preamble of this proposed rule, we
believe that there would be a reduction in
burden for hospitals due to the removal of
two chart-abstracted measures (STK–4 and
VTE–5). Due to the burden associated with
the collection of chart-abstracted data, we
estimate that the removal of STK–4 would
result in a burden reduction of approximately
303,534 hours across all hospitals
participating in the Hospital IQR Program for
the FY 2019 payment determination. We
estimate that the removal of VTE–5 would
result in a burden reduction of approximately
653,565 hours across all hospitals
participating in the Hospital IQR Program for
the FY 2019 payment determination. We
believe that removing 13 eCQMs would
reduce burden for hospitals, however, if our
proposal to require hospitals to submit data
on all of the available eCQMs included in the
Hospital IQR Program measure set is
finalized as proposed, this modest reduction
in burden would be offset by the increased
burden associated with submitting data on 15
eCQMs instead of 4 eCQMs. We believe that
there would be a negligible burden reduction
due to the removal of the two structural
measures.
Also, we are proposing refinements to two
previously adopted measures: (1) Expanding
the population cohort for the Hospital-Level,
Risk-Standardized 30-Day Episode-of-Care
Payment Measure for Pneumonia; and (2)
Patient Safety and Adverse Events Composite
(NQF #0531). As further explained in section
X.B.6. of the preamble of this proposed rule,

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we believe no additional burden on hospitals
will result from the proposed refinements to
these two claims-based measures.
In addition, we are proposing to add four
claims-based measures to the Hospital IQR
Program measure set beginning with the FY
2019 payment determination: (1) Aortic
Aneurysm Procedure Clinical Episode-Based
Payment Measure; (2) Cholecystectomy and
Common Duct Exploration Clinical EpisodeBased Payment Measure; (3) Spinal Fusion
Clinical Episode-Based Payment Measure;
and (4) Excess Days in Acute Care after
Hospitalization for Pneumonia. We believe
no additional burden on hospitals would
result from the addition of these four
proposed claims-based measures.
For the FY 2019 payment determination
and subsequent years, we are proposing to
require hospitals to submit data for all
available eCQMs included in the Hospital
IQR Program measure set in a manner that
will permit eligible hospitals to align
Hospital IQR Program requirements with
some requirements under the Medicare and
Medicaid EHR Incentive Programs.
Specifically, hospitals would be required to
submit a full calendar year of data for all
eCQMs, on an annual basis beginning with
CY 2017 reporting for the FY 2019 payment
determination, as further explained in
section X.B.6. of the preamble of this
proposed rule. In total, we expect that this
proposal would increase burden by 30,800
hours across all hospitals participating in the
Hospital IQR Program.
As we noted in the FY 2016 IPPS/LTCH
PPS final rule (80 FR 49763), for validation
of chart-abstracted data, we require hospitals
to provide 72 charts per hospital per year
(with an average page length of 1,500),
including 40 charts for HAI validation and 32
charts for clinical process of care validation,
for a total of 108,000 pages per hospital per
year. We reimburse hospitals at 12 cents per
photocopied page for a total per hospital cost
of $12,960. For hospitals providing charts
digitally via a re-writable disc, such as
encrypted CD–ROMs, DVDs, or flash drives,
we will reimburse hospitals at a rate of 40
cents per disc, and additionally hospitals
will be reimbursed $3.00 per record. For
hospitals providing charts via secure file
transfer, we will reimburse hospitals at a rate
of $3.00 per record. We will maintain these
requirements for the FY 2019 payment
determination and subsequent years.
In this proposed rule, we are proposing to
modify the existing validation process for
Hospital IQR Program data to include a
random sample of up to 200 hospitals for
validation of eCQMs in the Hospital IQR
Program. As further explained in section
X.B.5. of the preamble of this proposed rule,
we estimate that 43 hours of work for up to
200 hospitals reflects a total burden increase
of 8,533 labor hours. As such, we estimate an
hourly labor cost of $32.84 and a cost
increase of $280,224 (8,533 additional
burden hours × $32.84 per hour) across the
up to 200 hospitals selected for eCQM
validation, on an annual basis.
Finally, we are proposing to update our
Extraordinary Circumstances Extensions or
Exemptions (ECE) policy. We believe the
proposed updates would have no effect on
burden for hospitals.

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Historically, 100 hospitals, on average, that
participate in the Hospital IQR Program do
not receive the full annual percentage
increase in any fiscal year due to the
requirements of this program. We anticipate
that, because of the new requirements for
reporting we are proposing for the FY 2019
payment determination, the number of
hospitals not receiving the full annual
percentage increase may be higher than
average. At this time, information is not
available to determine the precise number of
hospitals that would not meet the proposed
requirements to receive the full annual
percentage increase for the FY 2019 payment
determination. If the number of hospitals
failing to receive the full annual percentage
increase does increase because of the new
requirements, we anticipate that, over the
long run, this number would decline as
hospitals gain more experience with these
requirements.
Under OMB number 0938–1022,
considering the policies proposed above, we
estimate a total burden decrease of 917,766
hours, at a total cost decrease of
approximately $30 million across
approximately 3,300 hospitals participating
in the Hospital IQR Program for the FY 2019
payment determination. 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.
L. Effects of Proposed Requirements for the
PPS-Exempt Cancer Hospital Quality
Reporting (PCHQR) Program
In section VIII.B. of the preamble of this
proposed rule, we discuss our policies for the
quality data reporting program for PPSexempt cancer hospitals (PCHs), which we
refer to as the PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program. The
PCHQR Program is authorized under section
1866(k) of the Act, which was added by
section 3005 of the Affordable Care Act.
In section VIII.B.3. of the preamble of this
proposed rule, we are proposing updates to
one of the measures on which PCHs currently
submit data: Oncology: Radiation Dose
Limits to Normal Tissues (NQF #0382). In
addition, in section VIII.B.4.b. of the
preamble of this proposed rule, we are
proposing the addition of one claims-based
quality measure for the PCHQR Program:
Admissions and Emergency Department (ED)
Visits for Patients Receiving Outpatient
Chemotherapy.
The impact of the proposed new
requirements for the PCHQR Program is
expected to be minimal overall since
beginning with Q1 2016 events, PCHs have
been reporting Clinical Process/Oncology
Care Measures using a sampling methodology
which requires reporting no more than 25
cases per facility (79 FR 28259). As the
measure cohort expansion for Oncology:
Radiation Dose Limits to Normal Tissues
(NQF #0382) does not expand the maximum
required sample, we do not anticipate that
this cohort expansion will significantly
impact the operational burden for PCHs.
In addition, the Admissions and
Emergency Department (ED) Visits for

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Patients Receiving Outpatient Chemotherapy
measure is a claims-based measure and,
therefore, poses no additional burden for
PCHs to submit data beyond that which they
currently submit as part of the claims
process.
One expected effect of the PCHQR Program
is to keep the public informed of the quality
of care provided by PCHs. We will display
publicly the quality measure data collected
under the PCHQR Program as required under
the Act. These data will be displayed on the
Hospital Compare Web site. The goals of
making these data available to the public in
a user-friendly and relevant format include,
but are not limited to: (1) Allowing the public
to compare PCHs in order to make informed
health care decisions regarding care setting;
and (2) providing information about current
trends in health care. Furthermore, PCHs can
use their own health care quality data for
many purposes such as in risk management
programs, healthcare associated infection
prevention programs, and research and
development activities, among others.
M. Effects of Proposed Requirements for the
Long-Term Care Hospital Quality Reporting
Program (LTCH QRP) for the FY 2018
Payment Determination and Subsequent
Years
In section VIII.C.1. of the preamble of this
proposed rule, we discuss the
implementation of section 1886(m)(5) of the
Act, which was added by section 3004(a) of
the Affordable Care Act. Section 1886(m)(5)
of the Act provides that, for rate year 2014
and each subsequent year, any LTCH that
does not submit data to the Secretary in
accordance with section 1886(m)(5)(C) and
(F) of the Act shall receive a 2 percentage
point reduction to the annual update to the
standard Federal rate for discharges for the
hospital during the applicable fiscal year.
In the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49838 through 49839), we estimated
that only a few LTCHs will not receive the
full annual percentage increase in any fiscal
year as a result of failure to submit data
under the LTCH QRP. There are
approximately 432 LTCHs currently
reporting quality data to CMS. At the time
that this analysis was prepared, 39, or
approximately 9.5 percent, of 412 eligible
LTCHs were determined to be noncompliant
and therefore will receive a 2 percentage
point reduction to their FY 2016 annual
payment update.
Information is not available to determine
the precise number of LTCHs that will not
meet the requirements to receive the full
annual percentage increase for the FY 2017
payment determination.
We believe that a majority of LTCHs will
continue to collect and submit data for the
FY 2017 payment determination and
subsequent years because they will continue
to view the LTCH QRP as an important step
in improving the quality of care patients
receive in the LTCHs. We believe that the
burden associated with the LTCH QRP is the
time and effort associated with data
collection.
Currently, LTCHs use two separate data
collection mechanisms to report quality data
to CMS: The CDC’s NHSN, which is used to

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report all Healthcare Associated Infections
(HAI) (CAUTI, CLABSI, MRSA Bacteremia,
CDI, VAE) and vaccination data, (Influenza
Vaccination Coverage Among Healthcare
Personnel measure); and the LTCH CARE
Data Set, which is submitted to the QIES
ASAP system.
The data collection burden associated with
reporting quality measures via the CDC’s
NHSN is discussed in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49838 through
49839). These measures are stewarded by the
CDC, and the reporting burden is approved
under OMB control number 0920–0666.
The All-Cause Unplanned Readmission
Measure for 30 Days Post-Discharge from
Long-Term Care Hospitals (NQF #2512)
measure is calculated based on Medicare FFS
claims data, and therefore does not have any
associated data reporting burden for LTCHs.
The remaining assessment-based quality
measure data are reported to CMS by LTCHs
using the LTCH CARE Data Set. As of April
1, 2016, LTCHs use the LTCH CARE Data Set
Version 3.00 (approved under OMB control
number 0938–1163) which includes data
elements related to the following quality
measures: Percent of Residents or Patients
with Pressure Ulcers That Are New or
Worsened (NQF #0678), Percent of Residents
or Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza
Vaccine (Short Stay) (NQF #0680);
Application of Percent of Residents
Experiencing One or More Falls with Major
Injury (Long Stay) (NQF #0674); Percent of
Long-Term Care Hospital Patients with an
Admission and Discharge Functional
Assessment and a Care Plan That Addresses
Function (NQF #2631); Application of
Percent of Long-Term Care Hospital Patients
with an Admission and Discharge Functional
Assessment and a Care Plan That Addresses
Function (NQF #2631); and Functional
Outcome Measure: Change in Mobility
Among Long-Term Care Hospital Patients
Requiring Ventilator Support (NQF #2632).
In this proposed rule, we are retaining 13
previously finalized quality measures and are
proposing 4 additional measures for use in
the LTCH QRP. In section VII.C.6. of the
preamble of this proposed rule, we are
proposing three measures for the FY 2018
payment determination and subsequent
years: (1) MSPB–PAC LTCH QRP; (2)
Discharge to Community—PAC LTCH QRP;
and (3) Potentially Preventable 30-Day PostDischarge Readmission Measure for the PAC
LTCH QRP. These three measures are
Medicare claims-based measures, and
because claims-based measures can be
calculated based on data that are already
reported to the Medicare program for
payment purposes, we believe there would
be no additional burden if any of these
measures are finalized.
In section VIII.C.9.d. of the preamble of
this proposed rule, we are proposing to
expand the data collection timeframe for the
measure NQF #0680 Percent of Residents or
Patients Who Were Assessed and
Appropriately Given the Seasonal Influenza
Vaccine (77 FR 53624 through 53627),
beginning with the FY 2019 payment
determination. The data collection time
frame and associated data submission

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deadlines are currently aligned with the
Influenza Vaccination Season (IVS) (October
1 of a given year through March 31 of the
subsequent year), and only require data
collection during the two calendar year
quarters that align with the IVS. We have
proposed to expand the data collection
timeframe from just two quarters (covering
the IVS) to a full four quarters or 12 months.
We refer readers to section VIII.C.9.d. of the
preamble of this proposed rule for further
details on the proposed expansion of data
collection for this measures (NQF #0680),
including data collection timeframes and
associated submission deadlines. We
originally finalized this measure for use in
the FY 2013 IPPS/LTCH PPS final rule (77 FR
53624 through 53627). Although we finalized
data collection for this measure to coincide
with the IVS, we originally proposed yearround data collection. The associated PRA
package, which was approved under OMB
control number 0938–1163, included burden
calculations that aligned with our original
proposal for year-round data collection. All
subsequent PRA packages, and the PRA
package that is currently under review by
OMB, included burden calculations
reflecting year-round (12 month) data
collection for this measure. Because of this,
the proposed change in the data collection
timeframe for this measure, and any
associated burden related to increased data
collection, has already been accounted for in
the total burden figures included in this
section of the preamble of this proposed rule.
In section VIII.C.7. of the preamble of this
proposed rule, we are proposing to adopt one
measure for the FY 2020 payment
determination and subsequent years: Drug
Regimen Review Conducted with Follow-Up
for Identified Issues—PAC LTCH QRP. In
addition, we are proposing that data for this
measure will be collected and reported using
the LTCH CARE Data Set Version 4.00
(effective April 1, 2018).
While reporting quality measure data
involves collecting information, we believe
that the burden associated with
modifications to the LTCH CARE Data Set
discussed in this proposed rule fall under the
PRA exceptions provided in section
1899B(m) of the Act. Section 1899B(m) of the
Act, which was added by the IMPACT Act,
states that the PRA requirements do not
apply to section 1899B of the Act and the
sections referenced in section 1899B(a)(2)(B)
of the Act that require modifications in order
to achieve standardized patient assessment
data. However, the PRA requirements and
burden estimates will be submitted to OMB
for review and approval when modifications
to the LTCH CARE Data Set or other
applicable PAC assessment instruments are
not used to achieve standardized patient
assessment data.
In the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49838 through 49840), we discussed
burden estimates for the 13 previously
finalized quality measures which we are
retaining in this proposed rule using the
LTCH CARE Data Set Version 2.01. Based on
a revised PRA package for the LTCH CARE
Data Set Version 3.00, we estimate the total
cost for the previously finalized assessmentbased measures was $13,929 per LTCH

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annually or $6,017,146 for all LTCHs
annually. In addition, we estimate that the
cost to report the previously finalized quality
measures via the CDC’s NHSN was $10,896
per LTCH annually or $4,706,857 for all
LTCHs annually. The revised total estimate
for all 13 previously finalized measures was
$24,825 per LTCH annually or $10,724,003
for all LTCHs annually. The two estimates
discussed above, as well as the
comprehensive estimate discussed below,
include overhead; however, obtaining data
on other overhead costs is challenging.
Overhead costs vary greatly across industries
and firm sizes. In addition, the precise cost
elements assigned as ‘‘indirect’’ or
‘‘overhead’’ costs, as opposed to direct costs
or employee wages, are subject to some
interpretation at the firm level. Therefore, we
have chosen to calculate the cost of overhead
at 100 percent of the mean hourly wage. This
is necessarily a rough adjustment, both
because fringe benefits and overhead costs
vary significantly from employer to employer
and because methods of estimating these
costs vary widely from study to study.
Nonetheless, there is no practical alternative,
and we believe that doubling the hourly wage
to estimate total cost is a reasonably accurate
estimation method.
Because we are proposing to add the Drug
Regimen Review Conducted with Follow-Up
for Identified Issues—PAC LTCH QRP
measure in the LTCH CARE Data Set Version
4.00, the estimated burden and cost would
increase if this measure is finalized. The
additional data elements for this proposed
quality measure will take 6 minutes of
nursing/clinical staff time to report data on
admission and 4 minutes of nursing/clinical
staff time to report data on discharge, for a
total of 10 minutes. We believe that the
additional LTCH CARE Data Set items we are
proposing would be completed by registered
nurses and pharmacists. As a result, we
estimate that the total cost related to the
proposed Drug Regimen Review Conducted
with Follow-Up for Identified Issues—PAC
LTCH QRP measure would be $3,080 per
LTCH annually, or $1,330,721 for all LTCHs
annually. Because the three measures
proposed in section VII.C.6. of the preamble
of this proposed rule are claims-based and
would be calculated based on data that are
already reported to the Medicare program for
payment purposes, we believe that there
would be no additional LTCH burden if any
of these measures is finalized.
Overall, we estimate the total cost for the
13 previously adopted measures and the 4
proposed measures would be $27,905 per
LTCH annually or $12,054,724 for all LTCHs
annually. This is an average increase of 14
percent to all LTCHs over the burden
discussed in the FY 2016 IPPS/LTCH PPS
final rule (80 FR 49838 through 49840),
which included all quality measures that
LTCHs are required to report under the LTCH
QRP, with the exception of those 4 new
measures we are proposing in this proposed
rule.
We intend to continue to closely monitor
the effects of the LTCH QRP on LTCHs and
help facilitate successful reporting outcomes
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Web site postings, CMS Open Door Forums,
and general and technical help desks.
N. Effects of Proposed Updates to the
Inpatient Psychiatric Facility Quality
Reporting (IPFQR) Program
As discussed in section VIII.D. of the
preamble of this proposed rule and in
accordance with section 1886(s)(4)(A)(i) of
the Act, we will implement a 2.0 percentage
point reduction in the FY 2019 market basket
update for IPFs that have failed to comply
with the IPFQR Program requirements for FY
2019, including reporting on the required
measures. In section VIII.D. of the preamble
of this proposed rule, we discuss how the 2
percentage point reduction will be applied.
For FY 2016, of the 1,684 IPFs eligible for the
IPFQR Program, 51 did not receive the full
market basket update because of the IPFQR
Program; 24 of these IPFs chose not to
participate and 27 did not meet the
requirements of the program. We anticipate
that even fewer IPFs will receive the
reduction for FY 2017 as IPFs become more
familiar with the requirements. Thus, we
estimate that this policy will have a
negligible impact on overall IPF payments for
FY 2017.
Based on the proposals in this proposed
rule, we estimate a total increase in burden
due to the proposed addition of a chartabstracted measure set of 212 hours per IPF
or 357,008 hours across all IPFs, resulting in
a total increase in financial burden of
approximately $6,962 per IPF or $11,724,143
across all IPFs. We also estimate a total
increase in burden for training of 2 hours per
IPF or 3,368 hours across all IPFs, resulting
in a total increase in financial burden of
$65.68 per IPF or $110,605 across all IPFs.
Our estimate for the total increase in burden,
including the newly proposed chartabstracted measure set and training, is
360,376 hours across all IPFs, which at
$32.84 labor cost per hour, totals
$11,834,748. As discussed in section X.B.10.
of the preamble of this proposed rule, we will
attribute the costs associated with the
finalized proposals to the year in which these
costs begin; for the purposes of all the
proposed changes made in this proposed
rule, that year is FY 2017. Further
information on these estimates can be found
in section X.B.10. of the preamble of this
proposed rule.
We intend to closely monitor the effects of
this quality reporting program on IPFs and
help facilitate successful reporting outcomes
through ongoing stakeholder education,
national trainings, and a technical help desk.
O. Effects of Proposed Requirements
Regarding Electronic Health Record (EHR)
Meaningful Use Program
In section VIII.E. of the preamble of this
proposed rule, we discuss proposed
requirements for the Medicare and Medicaid
EHR Incentive Programs. We are proposing
CQM reporting requirements, including
reporting periods and submission periods, as
well as CQMs required and information
about CQM specifications’ updates, for the
Medicare and Medicaid EHR Incentive
Programs for eligible hospitals and CAHs for
2017. We note that these proposals would

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only apply for eligible hospitals and CAHs
submitting CQMs electronically in CY 2017.
Because these proposals for data collection
would align with the reporting requirements
in place for the Hospital IQR Program and
eligible hospitals and CAHs still have the
option to submit their clinical quality
measures via attestation for the Medicare and
Medicaid EHR Incentive Programs, we do not
believe these proposals would have a
significant impact.

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P. Alternatives Considered
This proposed rule contains a range of
proposed policies. It also provides
descriptions of the statutory provisions that
are addressed, identifies the proposed
policies, and presents rationales for our
decisions and, where relevant, alternatives
that were considered.
Q. 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 proposed MS–DRG and
wage index changes, and for the wage index
reclassifications under the MGCRB. Table I
also shows a projected overall increase of 0.7
percent in operating payments. As discussed
in section I.G. of this Appendix, we estimate
that operating payments would increase by
approximately $693 million in FY 2017
relative to FY 2016. However, when we
account for the impact of the proposed
changes in Medicare DSH payments and the
impact of the proposed additional payments
based on uncompensated care in accordance
with section 3133 of the Affordable Care Act,
based on estimates provided by the CMS
Office of the Actuary, consistent with our
policy discussed in section IV.F. of the
preamble of this proposed rule, we estimate
that operating payments would increase by
approximately $525 million relative to FY
2016. We currently estimate that the
proposed changes in new technology add-on
payments for FY 2017 would decrease
spending by approximately $50 million due
to the expiration of new technology add-on
payments for four technologies. In addition,
the proposed changes to the Hospital
Readmissions Reduction Program for FY
2017 would decrease spending by $100
million, as a result of the proposed inclusion
of the refinement to the pneumonia
readmissions measure that expanded the
measure cohort, along with the addition of
the CABG readmission measure, in the
calculation of the FY 2017 payment
adjustment factor. This estimate, combined
with our estimated increase in FY 2017
operating payment of $525 million, would
result in an estimated increase of
approximately $375 million for FY 2017. We
estimate that hospitals would experience a
2.0 percent increase in capital payments per
case, as shown in Table III of section I.I. of
this Appendix. We project that there would
be a $164 million increase in capital
payments in FY 2017 compared to FY 2016.
The cumulative operating and capital
payments would result in a net increase of
approximately $539 million to IPPS
providers. The discussions presented in the

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previous pages, in combination with the rest
of this proposed rule, constitute a regulatory
impact analysis.
2. LTCHs
Overall, LTCHs are projected to experience
a decrease in estimated payments per
discharge in FY 2017. In the impact analysis,
we are using the proposed rates, factors, and
policies presented in this proposed 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
2017. Accordingly, based on the best
available data for the 420 LTCHs in our
database, we estimate that FY 2017 LTCH
PPS payments would decrease approximately
$355 million relative to FY 2016 as a result
of the proposed payment rates and factors
presented in this proposed rule.
II. Accounting Statements and Tables
A. Acute Care Hospitals
As required by OMB Circular A–4
(available at http://www.whitehouse.gov/
omb/circulars/a004/a-4.pdf), in the following
Table V, we have prepared an accounting
statement showing the classification of the
expenditures associated with the provisions
of this proposed rule as they relate to acute
care hospitals. This table provides our best
estimate of the change in Medicare payments
to providers as a result of the proposed
changes to the IPPS presented in this
proposed rule. All expenditures are classified
as transfers to Medicare providers.
The costs to the Federal Government
associated with the proposed policies in this
proposed rule are estimated at $539 million.

TABLE V—ACCOUNTING STATEMENT:
CLASSIFICATION OF ESTIMATED EXPENDITURES
UNDER THE IPPS
FROM FY 2016 TO FY 2017
Category
Annualized
Monetized
Transfers.
From Whom to
Whom.

Transfers
$539 million.
Federal Government to IPPS
Medicare Providers.

B. LTCHs
As discussed in section I.J. of this
Appendix, the impact analysis of the
proposed payment rates and factors
presented in this proposed rule under the
LTCH PPS is projected to result in a decrease
in estimated aggregate LTCH PPS payments
in FY 2017 relative to FY 2016 of
approximately $355 million based on the
data for 420 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, we
have prepared an accounting statement
showing the classification of the
expenditures associated with the provisions
of this proposed rule as they relate to the
proposed changes to the LTCH PPS. Table VI
provides our best estimate of the estimated
change in Medicare payments under the

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LTCH PPS as a result of the proposed
payment rates and factors and other
provisions presented in this proposed rule
based on the data for the 420 LTCHs in our
database. All expenditures are classified as
transfers to Medicare providers (that is,
LTCHs).
The savings to the Federal Government
associated with the policies for LTCHs in this
proposed rule are estimated at $355 million.

TABLE VI—ACCOUNTING STATEMENT:
CLASSIFICATION OF ESTIMATED EXPENDITURES FROM THE FY 2016
LTCH PPS TO THE FY 2017 LTCH
PPS
Category
Annualized
Monetized
Transfers.
From Whom to
Whom.

Transfers
¥$355 million.
Federal Government to
LTCH Medicare Providers

III. 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
organizations or by meeting the SBA
definition of a small business (having
revenues of less than $7.5 million to $38.5
million in any 1 year). (For details on the
latest standards for health care providers, we
refer readers to page 36 of the Table of Small
Business Size Standards for NAIC 622 found
on the SBA Web site at: http://www.sba.gov/
sites/default/files/files/Size_Standards_
Table.pdf.)
For purposes of the RFA, all hospitals and
other providers and suppliers are considered
to be small entities. Individuals and States
are not included in the definition of a small
entity. We believe that the provisions of this
proposed rule relating to acute care hospitals
would have a significant impact on small
entities as explained in this Appendix.
Because we lack data on individual hospital
receipts, we cannot determine the number of
small proprietary LTCHs. Therefore, we are
assuming that all LTCHs are considered
small entities for the purpose of the analysis
in section I.J. of this Appendix. MACs are not
considered to be small entities. Because we
acknowledge that many of the affected
entities are small entities, the analysis
discussed throughout the preamble of this
proposed rule constitutes our regulatory
flexibility analysis. In this proposed rule, we
are soliciting public comments on our
estimates and analysis of the impact of our
proposals on those small entities. Any public
comments that we receive and our responses
will be presented in the final rule.

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IV. Impact on Small Rural Hospitals
Section 1102(b) of the Social Security Act
requires us to prepare a regulatory impact
analysis for any proposed or final rule that
may have a significant impact on the
operations of a substantial number of small
rural hospitals. This analysis must conform
to the provisions of section 603 of the RFA.
With the exception of hospitals located in
certain New England counties, for purposes
of section 1102(b) of the Act, we define a
small rural hospital as a hospital that is
located outside of an urban area and has
fewer than 100 beds. Section 601(g) of the
Social Security Amendments of 1983 (Pub. L.
98–21) designated hospitals in certain New
England counties as belonging to the adjacent
urban area. Thus, for purposes of the IPPS
and the LTCH PPS, we continue to classify
these hospitals as urban hospitals. (We refer
readers to Table I in section I.G. of this
Appendix for the quantitative effects of the
proposed policy changes under the IPPS for
operating costs.)
V. Unfunded Mandates Reform Act Analysis
Section 202 of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104–4) also
requires that agencies assess anticipated costs
and benefits before issuing any rule whose
mandates require spending in any 1 year of
$100 million in 1995 dollars, updated
annually for inflation. In 2016, that threshold
level is approximately $146 million. This
proposed rule would not mandate any
requirements for State, local, or tribal
governments, nor would it affect private
sector costs.
VI. Executive Order 12866
In accordance with the provisions of
Executive Order 12866, the Executive Office
of Management and Budget reviewed this
proposed 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
hospital-specific rate for SCHs and MDHs,
and the rate-of-increase limits for certain
hospitals excluded from the IPPS, as well as
LTCHs. In prior years, we have made a
recommendation in the IPPS proposed rule
and final rule for the update factors for the
payment rates for IRFs and IPFs. However,
for FY 2017 consistent with approach for FY
2016, we are including the Secretary’s
recommendation for the update factors for
IRFs and IPFs in separate Federal Register
documents at the time that we announce the
annual updates for IRFs and IPFs. We also
discuss our response to MedPAC’s
recommended update factors for inpatient
hospital services.
II. Inpatient Hospital Update for FY 2017
A. Proposed FY 2017 Inpatient Hospital
Update
As discussed in section IV.B. of the
preamble to this proposed rule, consistent
with section 1886(b)(3)(B) of the Act, as
amended by sections 3401(a) and 10319(a) of
the Affordable Care Act, we are setting the
applicable percentage increase by applying
the following adjustments in the following
sequence. Specifically, the applicable
percentage increase under the IPPS is equal
to the rate-of-increase in the hospital market
basket for IPPS hospitals in all areas, subject
to a reduction of one-quarter of the
applicable percentage increase (prior to the
application of other statutory adjustments;
also referred to as the market basket update
or rate-of-increase (with no adjustments)) for
hospitals that fail to submit quality
information under rules established by the
Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act and a reduction
Hospital
submitted
quality data
and is a
meaningful
EHR user

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FY 2017

Proposed Market Basket Rate-of-Increase .....................................................
Proposed Adjustment for Failure to Submit Quality Data under Section
1886(b)(3)(B)(viii) of the Act ........................................................................
Proposed Adjustment for Failure to be a Meaningful EHR User under Section 1886(b)(3)(B)(ix) of the Act ...................................................................
Proposed MFP Adjustment under Section 1886(b)(3)(B)(xi) of the Act ..........
Statutory Adjustment under Section 1886(b)(3)(B)(xii) of the Act ...................
Proposed Applicable Percentage Increase Applied to Standardized Amount

B. Proposed Update for SCHs and MDHs for
FY 2017
Section 1886(b)(3)(B)(iv) of the Act
provides that the FY 2017 applicable

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Hospital
submitted
quality data
and is NOT a
meaningful
EHR user

Hospital did
NOT submit
quality data
and is a
meaningful
EHR user

Hospital did
NOT submit
quality data
and is NOT a
meaningful
EHR user

2.8

2.8

2.8

2.8

0.0

0.0

¥0.7

¥0.7

0.0
¥0.5
¥0.75
1.55

¥2.1
¥0.5
¥0.75
¥0.55

0.0
¥0.5
¥0.75
0.85

¥2.1
¥0.5
¥0.75
¥1.25

percentage increase in the hospital-specific
rate for SCHs and MDHs equals the
applicable percentage increase set forth in
section 1886(b)(3)(B)(i) of the Act (that is, the

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of three-quarters of the applicable percentage
increase (prior to the application of other
statutory adjustments; also referred to as the
market basket update or rate-of-increase
(with no adjustments)) for hospitals not
considered to be meaningful electronic
health record (EHR) users in accordance with
section 1886(b)(3)(B)(ix) 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 0.75 percentage point
as required by section 1886(b)(3)(B)(xii) of
the Act. 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 2017 adjustment of 0.75
percentage point may result in the applicable
percentage increase being less than zero.
Based on the most recent data available for
this FY 2017 IPPS/LTCH PPS proposed rule,
in accordance with section 1886(b)(3)(B) of
the Act, we are proposing to base the
proposed FY 2017 market basket update used
to determine the applicable percentage
increase for the IPPS on the IHS Global
Insight, Inc. (IGI’s) first quarter 2016 forecast
of the FY 2010-based IPPS market basket
rate-of-increase with historical data through
fourth quarter 2015, which is estimated to be
2.8 percent. 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.B. of the preamble of this proposed
rule, we are proposing an MFP adjustment of
0.5 percent for FY 2017. Therefore, based on
IGI’s first quarter 2016 forecast of the FY
2010-based IPPS market basket, depending
on whether a hospital submits quality data
under the rules established in accordance
with section 1886(b)(3)(B)(viii) of the Act
(hereafter referred to as a hospital that
submits quality data) and is a meaningful
EHR user under section 1886(b)(3)(B)(ix) of
the Act (hereafter referred to as a hospital
that is a meaningful EHR user), there are four
possible applicable percentage increases that
can be applied to the standardized amount.
Below we provide a table summarizing the
four proposed applicable percentage
increases.

same update factor as for all other hospitals
subject to the IPPS).
As discussed in section IV.N. of the
preamble of this proposed rule, section 205
of the Medicare Access and CHIP

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Reauthorization Act of 2015 (MACRA) (Pub.
L. 114–10, enacted on April 16, 2015)
extended the MDH program (which, under
previous law, was to be in effect for
discharges on or before March 31, 2015 only)
for discharges occurring on or after April 1,
2015, through FY 2017 (that is, for discharges
occurring on or before September 30, 2017).
As previously mentioned, the update to the
hospital specific rate 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,
depending on whether a hospital submits
quality data and is a meaningful EHR user,
we are proposing the same four possible
applicable percentage increases in the table
above for the hospital-specific rate applicable
to SCHs and MDHs.

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C. Proposed FY 2017 Puerto Rico Hospital
Update
As discussed in section IV.A. of the
preamble of this proposed rule, prior to
January 1, 2016, Puerto Rico hospitals were
paid based on 75 percent of the national
standardized amount and 25 percent of the
Puerto Rico-specific standardized amount.
Section 601 of Public Law 114–113 amended
section 1886(d)(9)(E) of the Act to specify
that the payment calculation with respect to
operating costs of inpatient hospital services
of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after
January 1, 2016, shall use 100 percent of the
national standardized amount. Because
Puerto Rico hospitals are no longer paid with
a Puerto Rico-specific standardized amount
under the amendments to section
1886(d)(9)(E) of the Act, there is no longer a
need for us to propose an update to the
Puerto Rico standardized amount. Hospitals
in Puerto Rico are now paid 100 percent of
the national standardized amount and,
therefore, are subject to the same update to
the national standardized amount discussed
under section IV.B.1. of the preamble of this
proposed rule. Accordingly, for FY 2017, we
are proposing an applicable percentage
increase of 1.55 percent to the standardized
amount for hospitals located in Puerto Rico.
D. Proposed Update for Hospitals Excluded
From the IPPS for FY 2017
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 hospitals, cancer hospitals, and
hospitals located outside the 50 States, the
District of Columbia, and Puerto Rico (that is,
short-term acute care hospitals located in the
U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and America Samoa).
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 the
provisions of § 413.40, which also use section
1886(b)(3)(B)(ii) of the Act to update the
percentage increase in the rate-of-increase
limits.
Currently, children’s hospitals, PPSexcluded cancer hospitals, RNHCIs, and
short-term acute care hospitals located in the
U.S. Virgin Islands, Guam, the Northern

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Mariana Islands, and American Samoa are
among the remaining types of hospitals still
paid under the reasonable cost methodology,
subject to the rate-of-increase limits. As we
finalized in the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50156 through 50157), we
are applying the FY 2017 percentage increase
in the IPPS operating market basket to the
target amount for children’s hospitals, PPSexcluded cancer hospitals, RNHCIs, and
short-term acute care hospitals located in the
U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa. For
this proposed rule, the current estimate of the
IPPS operating market basket percentage
increase for FY 2017 is 2.8 percent.
E. Proposed Update for LTCHs for FY 2017
Section 123 of Public Law 106–113, as
amended by section 307(b) of Public Law
106–554 (and codified at section 1886(m)(1)
of the Act), provides the statutory authority
for updating payment rates under the LTCH
PPS.
As discussed in section V.A. of the
Addendum to this proposed rule, we are
proposing to establish an update to the LTCH
PPS standard Federal rate for FY 2017 based
on the full proposed 2013-based LTCH PPS
market basket increase estimate (for this
proposed rule, estimated to be 2.7 percent),
subject to an adjustment based on changes in
economy-wide productivity and an
additional reduction required by sections
1886(m)(3)(A)(ii) and (m)(4)(F) of the Act. In
accordance with the LTCHQR Program under
section 1886(m)(5) of the Act, we are
proposing to reduce the annual update to the
LTCH PPS standard Federal rate by 2.0
percentage points for failure of a LTCH to
submit the required quality data. The MFP
adjustment described in section
1886(b)(3)(B)(xi)(ii) of the Act is currently
estimated to be 0.5 percent for FY 2017. In
addition, section 1886(m)(3)(A)(ii) of the Act
requires that any annual update for FY 2017
be reduced by the ‘‘other adjustment’’ at
section 1886(m)(4)(F) of the Act, which is
0.75 percentage point. Therefore, based on
IGI’s first quarter 2016 forecast of the
proposed FY 2017 LTCH PPS market basket
increase, we are proposing to establish an
annual update to the LTCH PPS standard
Federal rate of 1.45 percent (that is, the
current FY 2017 estimate of the proposed
market basket rate-of-increase of 2.7 percent
less a proposed adjustment of 0.5 percentage
point for MFP and less 0.75 percentage
point). Accordingly, we are proposing to
apply an update factor of 1.0145 percent in
determining the LTCH PPS standard Federal
rate for FY 2017. For LTCHs that fail to
submit quality data for FY 2017, we are
proposing to apply an annual update to the
LTCH PPS standard Federal rate of ¥0.55
percent (that is, the proposed annual update
for FY 2017 of 1.45 percent less 2.0
percentage points for failure to submit the
required quality data in accordance with
section 1886(m)(5)(C) of the Act and our
rules) by applying a proposed update factor
of 0.9945 percent in determining the LTCH
PPS standard Federal rate for FY 2017.
III. Secretary’s Recommendations
MedPAC is recommending an inpatient
hospital update in the amount specified in

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current law for FY 2017. 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, depending on whether a
hospital submits quality data and is a
meaningful EHR user, we are recommending
the four applicable percentage increases to
the standardized amount listed in the table
under section II. of this Appendix B. We are
recommending that the same applicable
percentage increases apply to SCHs and
MDHs.
In addition to making a recommendation
for IPPS hospitals, in accordance with
section 1886(e)(4)(A) of the Act, we are
recommending update factors for certain
other types of hospitals excluded from the
IPPS. Consistent with our policies for these
facilities, we are recommending an update to
the target amounts for children’s hospitals,
cancer hospitals, RNHCIs, and short-term
acute care hospitals located in the U.S. Virgin
Islands, Guam, the Northern Mariana Islands,
and American Samoa of 2.8 percent.
For FY 2017, consistent with policy set
forth in section VII. of the preamble of this
proposed rule, for LTCHs that submit quality
data, we are recommending an update of 1.45
percent to the LTCH PPS standard Federal
rate. For LTCHs that fail to submit quality
data for FY 2017, we are recommending an
annual update to the LTCH PPS standard
Federal rate of ¥0.55 percent.
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating Payments
in Traditional Medicare
In its March 2016 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 in the amount
specified in current law. We refer the reader
to the March 2016 MedPAC report, which is
available for download at www.medpac.gov
for a complete discussion on this
recommendation. MedPAC expects Medicare
margins to remain low in 2016. At the same
time, MedPAC’s analysis finds that efficient
hospitals have been able to maintain positive
Medicare margins while maintaining a
relatively high quality of care.
Response: We agree with MedPAC and
consistent with current law we are proposing
an applicable percentage increase for FY
2017 of 1.55 percent, provided the hospital
submits quality data and is a meaningful EHR
user, consistent with statutory requirements.
We note that, because the operating and
capital prospective payment systems remain
separate, we are continuing to use separate
updates for operating and capital payments.
The update to the capital rate is discussed in
section III. of the Addendum to this proposed
rule.
[FR Doc. 2016–09120 Filed 4–18–16; 4:15 pm]
BILLING CODE 4120–01–P

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