[Federal Register Volume 70, Number 85 (Wednesday, May 4, 2005)]
[Proposed Rules]
[Pages 23306-23673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-8507]
[[Page 23305]]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 405, 412, et al.
Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2006 Rates; Proposed Rule
Federal Register / Vol. 70, No. 85 / Wednesday, May 4, 2005 /
Proposed Rules
[[Page 23306]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 405, 412, 413, 415, 419, 422, and 485
[CMS-1500-P]
RIN 0938-AN57
Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2006 Rates
AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment systems (IPPS) for operating and capital-related
costs to implement changes arising from our continuing experience with
these systems. In addition, in the Addendum to this proposed rule, we
describe the proposed changes to the amounts and factors used to
determine the rates for Medicare hospital inpatient services for
operating costs and capital-related costs. We also are setting forth
proposed rate-of-increase limits as well as proposed policy changes for
hospitals and hospital units excluded from the IPPS that are paid in
full or in part on a reasonable cost basis subject to these limits.
These proposed changes would be applicable to discharges occurring on
or after October 1, 2005, with one exception: The proposed changes
relating to submittal of hospital wage data by a campus or campuses of
a multicampus hospital system (that is, the proposed changes to Sec.
412.230(d)(2) of the regulations) would be effective upon publication
of the final rule.
Among the policy changes that we are proposing to make are changes
relating to: the classification of cases to the diagnosis-related
groups (DRGs); the long-term care (LTC)-DRGs and relative weights; the
wage data, including the occupational mix data, used to compute the
wage index; rebasing and revision of the hospital market basket;
applications for new technologies and medical services add-on payments;
policies governing postacute care transfers, payments to hospitals for
the direct and indirect costs of graduate medical education, submission
of hospital quality data, payment adjustment for low-volume hospitals,
changes in the requirements for provider-based facilities; and changes
in the requirements for critical access hospitals (CAHs).
DATES: Comments will be considered if received at the appropriate
address, as provided in the ADDRESSES section, no later than 5 p.m. on
June 24, 2005.
ADDRESSES: In commenting, please refer to file code CMS-1500-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of three ways (no duplicates,
please):
1. Electronically
You may submit electronic comments to http://www.cms.hhs.gov/regulations/ecomments (attachments should be in Microsoft Word,
WordPerfect, or Excel; however, we prefer Microsoft Word).
2. By Mail
You may mail written comments (one original and two copies) to the
following address only: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1500-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 Hand or Courier
If you prefer, you may deliver (by hand or courier) your written
comments (one original and two copies) before the close of the comment
period to one of the following addresses. If you intend to deliver your
comments to the Baltimore address, please call telephone number (410)
786-7195 in advance to schedule your arrival with one of our staff
members.
Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue,
SW., Washington, DC 20201, or 7500 Security Boulevard, Baltimore, MD
21244-1850.
(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 proof of filing by
stamping in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. After the close of the
comment period, CMS posts all electronic comments received before the
close of the comment period on its public Web site. Written comments
received timely will be available for public inspection as they are
received, generally beginning approximately 4 weeks after publication
of a document, at the headquarters of the Centers for Medicare &
Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244, Monday
through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an
appointment to view public comments, phone 1-800-743-3951.
For comments that relate to information collection requirements,
mail a copy of comments to the following addresses:
Centers for Medicare & Medicaid Services, Office of Strategic
Operations and Regulatory Affairs, Security and Standards Group, Office
of Regulations Development and Issuances, Room C4-24-02 7500 Security
Boulevard, Baltimore, Maryland 21244-1850, Attn: James Wickliffe, CMS-
1500-P; and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 3001, New Executive Office Building, Washington, DC 20503,
Attn: Christopher Martin, CMS Desk Officer, CMS-1500-P, [email protected]. Fax (202) 395-6974.
FOR FURTHER INFORMATION CONTACT:
Marc Harstein, (410) 786-4539, Operating Prospective Payment,
Diagnosis-Related Groups (DRGs), Wage Index, New Medical Services and
Technology Add-On Payments, Hospital Geographic Reclassifications,
Postacute Care Transfers, and Disproportionate Share Hospital Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, Graduate Medical Education, Critical Access Hospitals, and
Long-Term Care (LTC)-DRGs, and Provider-Based Facilities Issues.
Steve Heffler, (410) 786-1211, Hospital Market Basket Revision and
Rebasing.
Siddhartha Mazumdar, (410) 786-6673, Rural Hospital Community
Demonstration Project Issues.
Mary Collins, (410) 786-3189, Critical Access Hospitals (CAHs) Issues.
Dr. Mark Krushat, (410) 786-6809, Quality Data for Annual Payment
Update Issues.
Martha Kuespert, (410) 786-4605 Specialty Hospitals Definition Issues.
SUPPLEMENTARY INFORMATION:
Electronic Access
This Federal Register document is also available from the Federal
Register
[[Page 23307]]
online database through GPO Access, a service of the U.S. Government
Printing Office. Free public access is available on a Wide Area
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required).
Acronyms
AAOS American Association of Orthopedic Surgeons
ACGME Accreditation Council on Graduate Medical Education
AHIMA American Health Information Management Association
AHA American Hospital Association
AICD Automatic cardioverter defibrillator
AMI Acute myocardial infarction
AOA American Osteopathic Association
ASC Ambulatory Surgical Center
ASP Average sales price
AWP Average wholesale price
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BES Business Expenses Survey
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000,
Pub. L. 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CBSAs Core-Based Statistical Areas
CC Complication or comorbidity
CIPI Capital Input Price Index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-
272
CoP Condition of Participation
CPI Consumer Price Index
CRNA Certified registered nurse anesthetist
CRT Cardiac Resynchronization Therapy
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment Cost Index
FDA Food and Drug Administration
FIPS Federal Information Processing Standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Federal fiscal year
GAAP Generally accepted accounting principles
GAF Geographic adjustment factor
HIC Health Insurance Card
HIS Health Information System
GME Graduate medical education
HCRIS Hospital Cost Report Information System
HIPC Health Information Policy Council
HIPAA Health Insurance Portability and Accountability Act of 1996,
Pub. L. 104-191
HHA Home health agency
HHS Department of Health and Human Services
HPSA Health Professions Shortage Area
HQA Hospital Quality Alliance
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Edition,
Procedure Coding System
ICF/MRs Intermediate care facilities for the mentally retarded
ICU Intensive Care Unit
IHS Indian Health Service
IME Indirect medical education
IPPS Acute care hospital inpatient prospective payment system
IPF Inpatient psychiatric facility
IRF Inpatient rehabilitation facility
IRP Initial residency period
JCAHO Joint Commission on Accreditation of Healthcare Organizations
LAMCs Large area metropolitan counties
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
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
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Pub. L. 108-173
MRHFP Medicare Rural Hospital Flexibility Program
MSA Metropolitan Statistical Area
NAICS North American Industrial Classification System
NCD National coverage determination
NCHS National Center for Health Statistics
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NICU Neonatal intensive care unit
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital Reporting Initiative
OES Occupational Employment Statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
O.R. Operating room
OSCAR Online Survey Certification and Reporting (System)
OSHA Occupational Safety and Health Act
PRM Provider Reimbursement Manual
PPI Producer Price Index
PMS Performance Measurement System
PMSAs Primary Metropolitan Statistical Areas
PPS Prospective payment system
PRA Per resident amount
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PS&R Provider Statistical and Reimbursement System
QIA Quality Improvement Organizations
RHC Rural health clinic
RHQDAPU Reporting Hospital Quality Data for Annual Payment Update
RNHCI Religious nonmedical health care institution
RRC Rural referral center
RUCAs Rural-Urban Commuting Area Codes
SCH Sole community hospital
SDP Single Drug Pricer
SIC Standard Industrial Codes
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSA Social Security Administration
SSI Supplemental Security Income
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248
UHDDS Uniform Hospital Discharge Data Set
Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System
(IPPS)
2. Hospitals and Hospital Units Excluded from the IPPS
a. IRFs
b. LTCH
c. IPFs
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical Education (GME)
B. Major Contents of this Proposed Rule
1. Proposed Changes to the DRG Reclassifications and
Recalibrations of Relative Weights
2. Proposed Changes to the Hospital Wage Index
3. Proposed Revision and Rebasing of the Hospital Market Basket
4. Other Decisions and Proposed Changes to the PPS for Inpatient
Operating and GME Costs
5. PPS for Capital-Related Costs
6. Proposed Changes for Hospitals and Hospital Units Excluded
from the IPPS
7. Proposed Payment for Blood Clotting Factors for Inpatients
with Hemophilia
8. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate-of-Increase Limits
9. Impact Analysis
10. Recommendation of Update Factor for Hospital Inpatient
Operating Costs
11. Discussion of Medicare Payment Advisory Commission
Recommendations
II. Proposed Changes to DRG Classifications and Relative Weights
A. Background
B. DRG Reclassifications
1. General
2. Pre-MDC: Intestinal Transplantation
3. MDC 1 (Diseases and Disorders of the Nervous System)
a. Strokes
b. Unruptured Cerebral Aneurysms
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Automatic Implantable Cardioverter/Defibrillator
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b. Coronary Artery Stents
c. Insertion of Left Atrial Appendage Device
d. External Heart Assist System Implant
e. Carotid Artery Stent
f. Extracorporeal Membrane Oxygenation (ECMO)
5. MDC 6 (Diseases and Disorders of the Digestive System):
Artificial Anal Sphincter
6. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. Hip and Knee Replacements
b. Kyphoplasty
c. Multiple Level Spinal Fusion
7. MDC 18 (Infectious and Parasitic Diseases (Systemic or
Unspecified Sites)): Severe Sepsis
8. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic
Mental Disorders): Drug-Induced Dementia
9. Medicare Code Editor (MCE) Changes
a. Newborn Age Edit
b. Newborn Diagnoses Edit
c. Diagnoses Allowed for ``Males Only'' Edit
d. Tobacco Use Disorder Edit
e. Noncovered Procedure Edit
10. Surgical Hierarchies
11. Refinement of Complications and Comorbidities (CC) List
a. Background
b. Comprehensive Review of the CC List
c. CC Exclusion List for FY 2006
12. Review of Procedure Codes in DRGs 468, 476, and 477
a. Moving Procedure Codes from DRG 468 or DRG 477 to MDCs
b. Reassignment of Procedures among DRGs 468, 476, and 477
c. Adding Diagnosis or Procedure Codes to MDCs
13. Changes to the ICD-9-CM Coding System
14. Other Issues: Acute Intermittent Porphyria
C. Proposed Recalibration of DRG Weights
D. Proposed LTC-DRG Reclassifications and Relative Weights for
LTCHs for FY 2006
1. Background
2. Proposed Changes in the LTC-DRG Classifications
a. Background
b. Patient Classifications into DRGs
3. Development of the Proposed FY 2006 LTC-DRG Relative Weights
a. General Overview of Development of the LTC-DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value Methodology
d. Proposed Low-Volume LTC-DRGs
4. Steps for Determining the Proposed FY 2006 LTC-DRG Relative
Weights
E. Proposed Add-On Payments for New Services and Technologies
1. Background
2. FY 2006 Status of Technology Approved for FY 2005 Add-On
Payments
3. Reevaluation of FY 2005 Applications That Were Not Approved
4. FY 2006 Applicants for New Technology Add-On Payments
III. Proposed Changes to the Hospital Wage Index
A. Background
B. Core-Based Statistical Areas for the Proposed Hospital Wage
Index
C. Proposed Occupational Mix Adjustment to FY 2006 Index
1. Development of Data for the Proposed Occupational Mix
Adjustment
2. Calculation of the Proposed Occupational Mix Adjustment
Factor and the Proposed Occupational Mix Adjusted Wage Index
D. Worksheet S-3 Wage Data for the Proposed FY 2006 Wage Index
Update
E. Verification of Worksheet S-3 Wage Data
F. Computation of the Proposed FY 2006 Unadjusted Wage Index
G. Computation of the Proposed FY 2006 Blended Wage Index
H. Proposed Revisions to the Wage Index Based on Hospital
Redesignation
1. General
2. Effects of Reclassification
3. Proposed Application of Hold Harmless Protection for Certain
Urban Hospitals Redesignated as Rural
4. FY 2006 MGCRB Reclassifications
5. Proposed FY 2006 Redesignations under Section 1886(d)(8)(B)
of the Act
6. Reclassifications under Section 508 of Pub. L. 108-173
I. Proposed FY 2006 Wage Index Adjustment Based on Commuting
Patterns of Hospital Employees
J. Process for Requests for Wage Index Data Corrections
IV. Proposed Rebasing and Revision of the Hospital Market Baskets
A. Background
B. Rebasing and Revising the Hospital Market Basket
1. Development of Cost Categories and Weights
2. PPS--Selection of Price Proxies
3. Labor-Related Share
C. Separate Market Basket for Hospitals and Hospital Units
Excluded from the IPPS
1. Hospitals Paid Based on Their Reasonable Costs
2. Excluded Hospitals Paid Under Blend Methodology
3. Development of Cost Categories and Weights for the Proposed
2002-Based Excluded Hospital Market Basket
D. Frequency of Updates of Weights in IPPS Hospital Market
Basket
E. Capital Input Price Index Section
V. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and GME Costs
A. Postacute Care Transfer Payment Policy
1. Background
2. Changes to DRGs Subject to the Postacute Care Transfer Policy
B. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
2. Requirements for Hospital Reporting of Quality Data
C. Sole Community Hospitals and Medicare Dependent Hospitals
1. Background
2. Budget Neutrality Adjustment to Hospital Payments Based on
Hospital-Specific Rate
3. Technical Change
D. Rural Referral Centers
1. Case-Mix Index
2. Discharges
3. Technical Change
E. Payment Adjustment for Low-Volume Hospitals
F. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment for TEFRA Hospitals Converting to IPPS
Hospitals
3. Section 1886(d)(3)(E) Teaching Hospitals That Withdraw Rural
Reclassification
G. Payment to Disproportionate Share Hospitals (DSHs)
1. Background
2. Implementation of Section 951 of Pub. L. 108-173
H. Geographic Reclassifications
1. Background
2. Multicampus Hospitals
3. Urban Group Hospital Reclassifications
4. Clarification of Goldsmith Modification Criterion for Urban
Hospitals Seeking Reclassification as Rural
I. Payment for Direct Graduate Medical Education
1. Background
2. Direct GME Initial Residency Period
a. Background
b. Direct GME Initial Residency Period Limitation: Simultaneous
Match
3. New Teaching Hospitals' Participation in Medicare GME
Affiliated Groups
4. GME FTE Cap Adjustments for Rural Hospitals
5. Technical Changes: Cross-References
J. Provider-Based Status of Facilities under Medicare
1. Background
2. Limits on Scope of Provider-Based Regulations--Facilities for
Which Provider-Based Determinations Will Not Be Made
3. Location Requirement for Off-Campus Facilities: Application
to Certain Neonatal Intensive Care Units
4. Technical and Clarifying Changes
K. Rural Community Hospital Demonstration Program
L. Definition of a Hospital in Connection with Specialty
Hospitals
VI. PPS for Capital-Related Costs
VII. Proposed Changes for Hospitals and Hospital Units Excluded from
the IPPS
A. Payments to Excluded Hospitals and Hospital Units
1. Payments to Existing Excluded Hospitals and Hospital Units
2. Updated Caps for New Excluded Hospitals and Units
3. Implementation of a PPS for IRFs
4. Implementation of a PPS for LTCHs
5. Implementation of a PPS for IPFs
B. Critical Access Hospitals (CAHs)
1. Background
2. Proposed Policy Change Relating to Continued Participation by
CAHs in Lugar Counties
3. Proposed Policy Change Relating to Designation of CAHs as
Necessary Providers
a. Determination of the Relocation Status of a CAH
b. Relocation of a CAH Using a Waiver to Meet the CoP for
Distance
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VIII. Payment for Blood Clotting Factor Administered to Hemophilia
Inpatients
IX. MedPAC Recommendations
A. Medicare Payment Policy
B. Physician-Owned Specialty Hospitals
C. Other MedPAC Recommendations
X. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
C. Public Comments
Regulation Text
Addendum--Proposed Schedule of Standardized Amounts Effective with
Discharges Occurring On or After October 1, 2004 and Update Factors
and Rate-of-Increase Percentages Effective With Cost Reporting
Periods Beginning On or After October 1, 2004
I. Summary and Background
II. Proposed Changes to Prospective Payment Rates for Hospital
Inpatient Operating Costs for FY 2006
A. Calculation of the Adjusted Standardized Amount
1. Standardization of Base-Year Costs or Target Amounts
2. Computing the Average Standardized Amount
3. Updating the Average Standardized Amount
4. Other Adjustments to the Average Standardized Amount
a. Recalibration of DRG Weights and Updated Wage Index--Budget
Neutrality Adjustment
b. Reclassified Hospitals--Budget Neutrality Adjustment
c. Outliers
d. Rural Community Hospital Demonstration Program Adjustment
(Section 410A of Pub. L. 108-173)
5. Proposed FY 2006 Standardized Amount
B. Adjustments for Area Wage Levels and Cost-of-Living
1. Adjustment for Area Wage Levels
2. Adjustment for Cost-of-Living in Alaska and Hawaii
C. DRG Relative Weights
D. Calculation of Proposed Prospective Payment Rates for FY 2006
1. Federal Rate
2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
b. Updating the FY 1982, FY 1987, and FY 1996 Hospital-Specific
Rates for FY 2006
3. General Formula for Calculation of Proposed Prospective
Payment Rates for Hospitals Located in Puerto Rico Beginning On or
After October 1, 2005 and Before October 1, 2006
a. Puerto Rico Rate
b. National Rate
III. Proposed Changes to Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2006
A. Determination of Proposed Federal Hospital Inpatient Capital-
Related Prospective Payment Rate Update
1. Proposed Capital Standard Federal Rate Update
a. Description of the Update Framework
b. Comparison of CMS and MedPAC Update Recommendation
2. Proposed Outlier Payment Adjustment Factor
3. Proposed Budget Neutrality Adjustment Factor for Changes in
DRG Classifications and Weights and the Geographic Adjustment Factor
4. Proposed Exceptions Payment Adjustment Factor
5. Proposed Capital Standard Federal Rate for FY 2006
6. Proposed Special Capital Rate for Puerto Rico Hospitals
B. Calculation of Proposed Inpatient Capital-Related Prospective
Payments for FY 2006
C. Capital Input Price Index
1. Background
2. Forecast of the CIPI for FY 2006
IV. Proposed Changes to Payment Rates for Excluded Hospitals and
Hospital Units: Rate-of-Increase Percentages
A. Payments to Existing Excluded Hospitals and Units
B. Updated Caps for New Excluded Hospitals and Units
V. Payment for Blood Clotting Factor Administered to Hemophilia
Inpatients
Tables
Table 1A--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If
Wage Index Is Greater Than 1)
Table 1B--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage
Index Is Less Than or Equal to 1)
Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico,
Labor/Nonlabor
Table 1D--Capital Standard Federal Payment Rate
Table 2--Hospital Case-Mix Indexes for Discharges Occurring in
Federal Fiscal Year 2004; Hospital Average Hourly Wage for Federal
Fiscal Years 2004 (2000 Wage Data), 2005 (2001 Wage Data), and 2006
(2002 Wage Data) Wage Indexes and 3-Year Average of Hospital Average
Hourly Wages
Table 3A--FY 2006 and 3-Year Average Hourly Wage for Urban Areas
Table 3B--FY 2006 and 3-Year Average Hourly Wage for Rural Areas
Table 4A--Wage Index and Capital Geographic Adjustment Factor (GAF)
for Urban Areas
Table 4B--Wage Index and Capital Geographic Adjustment Factor (GAF)
for Rural Areas
Table 4C--Wage Index and Capital Geographic Adjustment Factor (GAF)
for Hospitals That Are Reclassified
Table 4F--Puerto Rico Wage Index and Capital Geographic Adjustment
Factor (GAF)
Table 4J--Out-Migration Adjustment--FY 2006
Table 5--List of Diagnosis-Related Groups (DRGs), Relative Weighting
Factors, and Geometric and Arithmetic Mean Length of Stay (LOS)
Table 6A--New Diagnosis Codes
Table 6B--New Procedure Codes
Table 6C--Invalid Diagnosis Codes
Table 6D--Invalid Procedure Codes
Table 6E--Revised Diagnosis Code Titles
Table 6F--Revised Procedure Code Titles
Table 6G--Additions to the CC Exclusions List
Table 6H--Deletions from the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2004 MedPAR Update December 2004 GROUPER V22.0
Table 7B--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2004 MedPAR Update December 2004 GROUPER V23.0
Table 8A--Statewide Average Operating Cost-to-Charge Ratios--March
2005
Table 8B--Statewide Average Capital Cost-to-Charge Ratios--March
2005
Table 9A--Hospital Reclassifications and Redesignations by
Individual Hospital--FY 2006
Table 9B--Hospital Reclassifications and Redesignation by Individual
Hospital Under Section 508 of Pub. L. 108-173--FY 2005
Table 9C--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act--FY 2006
Table 10--Geometric Mean Plus the Lesser of .75 of the National
Adjusted Operating Standardized Payment Amount (Increased to Reflect
the Difference Between Costs and Charges) or .75 of One Standard
Deviation of Mean Charges by Diagnosis-Related Groups (DRGs)--March
2005
Table 11--Proposed FY 2006 LTC-DRGs, Relative Weights, Geometric
Average Length of Stay, and 5/6ths of the Geometric Average Length
of Stay
Appendix A--Regulatory Impact Analysis
Appendix B--Recommendation of Update Factors for Operating Cost
Rates of Payment for Inpatient Hospital Services
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
Section 1886(d) of the Social Security Act (the Act) sets forth a
system of payment for the operating costs of acute care hospital
inpatient stays under Medicare Part A (Hospital Insurance) based on
prospectively set rates. Section 1886(g) of the Act requires the
Secretary to pay for the capital-related costs of hospital inpatient
stays under a prospective payment system (PPS). Under these PPSs,
Medicare payment for hospital inpatient operating and capital-related
costs is made at predetermined, specific rates for each hospital
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
The base payment rate is comprised of a standardized amount that is
divided into a labor-related share and a nonlabor-related share. The
labor-related share is adjusted by the wage index applicable to the
area where the
[[Page 23310]]
hospital is located; and 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 low-income patients, it
receives a percentage add-on payment applied to the DRG-adjusted base
payment rate. This add-on payment, known as the disproportionate share
hospital (DSH) adjustment, provides for a percentage increase in
Medicare payments to hospitals that qualify under either of two
statutory formulas designed to identify hospitals that serve a
disproportionate share of low-income patients. For qualifying
hospitals, the amount of this adjustment may vary based on the outcome
of the statutory calculations.
If the hospital is an approved teaching hospital, it receives a
percentage add-on payment for each case paid under the IPPS (known as
the indirect medical education (IME) adjustment). This percentage
varies, depending on the ratio of residents to beds.
Additional payments may be made for cases that involve new
technologies or medical services that have been approved for special
add-on payments. To qualify, a new technology or medical service must
demonstrate that it is a substantial clinical improvement over
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG
payment.
The costs incurred by the hospital for a case are evaluated to
determine whether the hospital is eligible for an additional payment as
an outlier case. This additional payment is designed to protect the
hospital from large financial losses due to unusually expensive cases.
Any outlier payment due 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 the higher of a hospital-specific rate based on their costs in a
base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate
based on the standardized amount. For example, sole community hospitals
(SCHs) are the sole source of care in their areas, and Medicare-
dependent, small rural hospitals (MDHs) are a major source of care for
Medicare beneficiaries in their areas. Both of these categories of
hospitals are afforded this special payment protection in order to
maintain access to services for beneficiaries. (An MDH receives only 50
percent of the difference between the IPPS rate and its hospital-
specific rates if the hospital-specific rate is higher than the IPPS
rate. In addition, an MDH does not have the option of using FY 1996 as
the base year for its hospital-specific rate.)
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 PPS, payments are adjusted by the same DRG for the case as they
are under the operating IPPS. Similar adjustments are also made for IME
and DSH as under the operating IPPS. In addition, hospitals may receive
an outlier payment 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
specialty hospitals and hospital units are excluded from the IPPS.
These hospitals and units are: Psychiatric hospitals and units;
rehabilitation hospitals and units; long-term care hospitals (LTCHs);
children's hospitals; and cancer hospitals. Various sections of the
Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid
and SCHIP [State Children's Health Insurance Program] Balanced Budget
Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid,
and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-
554) provide for the implementation of PPSs for rehabilitation
hospitals and units (referred to as inpatient rehabilitation facilities
(IRFs)), psychiatric hospitals and units (referred to as inpatient
psychiatric facilities (IPFs)), and LTCHs, as discussed below.
Children's hospitals and cancer hospitals continue to be paid under
reasonable cost-based reimbursement.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR Parts 412 and 413.
a. IRFs
Under section 1886(j) of the Act, as amended, rehabilitation
hospitals and units (IRFs) have been transitioned from payment based on
a blend of reasonable cost reimbursement subject to a hospital-specific
annual limit under section 1886(b) of the Act and the adjusted facility
Federal prospective payment rate for cost reporting periods beginning
January 1, 2002 through September 30, 2002, to payment at 100 percent
of the Federal rate effective for cost reporting periods beginning on
or after October 1, 2002 (66 FR 41316, August 7, 2001; 67 FR 49982,
August 1, 2002; and 68 FR 45674, August 1, 2003). The existing
regulations governing payments under the IRF PPS are located in 42 CFR
Part 412, Subpart P.
b. LTCHs
Under the authority of sections 123(a) and (c) of Pub. L. 106-113
and section 307(b)(1) of Pub. L. 106-554, LTCHs are being transitioned
from being paid for inpatient hospital services based on a blend of
reasonable cost-based reimbursement under section 1886(b) of the Act to
100 percent of the Federal rate during a 5-year period, beginning with
cost reporting periods that start on or after October 1, 2002. For cost
reporting periods beginning on or after October 1, 2006, LTCHs will be
paid 100 percent of the Federal rate (May 7, 2004 LTCH PPS final rule
(69 FR 25674)). LTCHs may elect to be paid based on 100 percent of the
Federal rate instead of a blended payment in any year during the 5-year
transition period. The existing regulations governing payment under the
LTCH PPS are located in 42 CFR Part 412, Subpart O.
c. IPFs
Under the authority of sections 124(a) and (c) of Pub. L. 106-113,
inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals
and psychiatric units of acute care hospitals) are paid under the new
IPF PPS. Under the IPF PPS, some IPFs are transitioning from being paid
for inpatient hospital services based on a blend of reasonable cost-
based payment and a Federal per diem payment rate, effective for cost
reporting periods beginning on or after January 1, 2005 (November 15,
2004 IPF PPS final rule (69 FR 66921)). For cost reporting periods
beginning on or after July 1, 2008, IPFs will be paid 100 percent of
the Federal per diem payment amount. The existing regulations governing
payment under the IPF PPS are located in 42 CFR part 412, subpart N.
3. Critical Access Hospitals (CAHs)
Under sections 1814, 1820, and 1834(g) of the Act, payments are
made to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services based
[[Page 23311]]
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.
4. 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.
On August 11, 2004, we published a final rule in the Federal
Register (69 FR 48916) that implemented changes to the Medicare
hospital inpatient prospective payment systems for both operating cost
and capital-related costs, as well as changes addressing payments for
excluded hospitals and payments for GME costs. Generally these changes
were effective for discharges occurring on or after October 1, 2004. On
October 7, 2004, we published a document in the Federal Register (69 FR
60242) that corrected technical errors made in the August 11, 2004
final rule. On December 30, 2004, we published another document in the
Federal Register (69 FR 78525) that further corrected the August 11,
2004 final rule and the October 7, 2004 correction to that rule,
effective January 1, 2005.
B. Major Contents of This Proposed Rule
In this proposed rule, we are setting forth proposed changes to the
Medicare IPPS for operating costs and for capital-related costs in FY
2006. We also are setting forth proposed changes relating to payments
for GME costs, payments to certain hospitals and units that continue to
be excluded from the IPPS and paid on a reasonable cost basis, payments
for DSHs, and requirements and payments for CAHs. The changes being
proposed would be effective for discharges occurring on or after
October 1, 2005, unless otherwise noted.
The following is a summary of the major changes that we are
proposing to make:
1. Proposed Changes to the DRG Reclassifications and Recalibrations of
Relative Weights
As required by section 1886(d)(4)(C) of the Act, in section II. of
this proposed rule, we are proposing annual adjustments to the DRG
classifications and relative weights. Based on analyses of Medicare
claims data, we are proposing to establish a number of new DRGs and
make changes to the designation of diagnosis and procedure codes under
other existing DRGs.
The major DRG classification changes we are proposing include:
Reassigning procedure code 35.52 (Repair of atrial septal
defect with prosthesis, closed technique) from DRG 108 to DRG 518
(Percutaneous Cardiovascular Procedure Without Coronary Artery Stent or
AMI);
Reassigning procedure code 37.26 (Cardiac
electrophysiologic stimulation and recording studies) from DRGs 535 and
536 to DRGs 515 (Cardiac Defibrillator Implant Without Cardiac
Catheterization);
Splitting DRG 209 into two new DRGs based on the presence
or absence of the procedure codes for major joint replacement or
reattachment of lower extremity and revision of hip or knee
replacement, DRG 545 (Revision of Hip or Knee Replacement) and DRG 544
(Major Joint Replacement or Reattachment of Lower Extremity);
Reassigning procedure code 26.12 (Open biopsy of salivary
gland or duct) from DRG 468 to DRG 477 (Nonextensive O.R. Procedure
Unrelated To Principal Diagnosis);
Reassigning the principal diagnosis codes for curvature of
the spine or malignancy from DRGs 497 and 498 to proposed new DRG 546
(Spinal Fusion Except Cervical with PDX of Curvature of the Spine or
Malignancy);
Splitting DRGs 516 and 526 into four new DRGs based on the
presence or absence of a CC;
Reassigning procedure code 39.65 (Extracorporeal membrane
oxygenation [ECMO]) from DRGs 104 and 105 to DRG 541 (ECMO or
Tracheostomy with Mechanical Ventilation 96+ Hours or Principal
Diagnosis Except Face, Mouth and Neck Diagnoses With Major Operating
Room Procedure).
We also are presenting our reevaluation of certain FY 2005
applicants for add-on payments for high-cost new medical services and
technologies, and our analysis of FY 2006 applicants (including public
input, as directed by Pub. L. 108-173, obtained in a town hall
meeting).
We are proposing the annual update of the long-term care diagnosis-
related group (LTC-DRG) classifications and relative weights for use
under the LTCH PPS for FY 2006.
2. Proposed Changes to the Hospital Wage Index
In section III. of this preamble, we are proposing revisions to the
wage index and the annual update of the wage data. Specific issues
addressed include the following:
The FY 2006 wage index update, using wage data from cost
reporting periods that began during FY 2002.
The proposed occupational mix adjustment to the wage index
that we began to apply effective October 1, 2004.
The proposed revisions to the wage index based on hospital
redesignations and reclassifications.
The proposed adjustment to the wage index for FY 2006
based on commuting patterns of hospital employees who reside in a
county and work in a different area with a higher wage index.
The timetable for reviewing and verifying the wage data
that will be in effect for the proposed FY 2006 wage index.
3. Proposed Revision and Rebasing of the Hospital Market Baskets
In section IV. of this proposed rule, we are proposing rebasing and
revising the hospital operating and capital market baskets to be used
in developing the FY 2006 update factor for the operating prospective
payment rates and the excluded hospital market basket to be used in
developing the FY 2006 update factor for the excluded hospital rate-of-
increase limits. We are also setting forth the data sources used to
determine the revised market basket relative weights and choice of
price proxies.
4. Other Decisions and Proposed Changes to the PPS for Inpatient
Operating and GME Costs
In section V. of this proposed rule, we discuss a number of
provisions of the regulations in 42 CFR Parts 412 and 413 and set forth
proposed changes concerning the following:
Solicitation of public comments on two options for
possible expansion of the current postacute care transfer policy.
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Proposed changes in the payment adjustment for low-volume
hospitals.
Proposed IME adjustment for TEFRA hospitals that are
converting to IPPS hospitals, and IME FTE resident caps for urban
hospitals that are granted
[[Page 23312]]
rural reclassification and then withdraw that rural classification.
Proposed changes to implement section 951 of Pub. L. 108-
173 relating to the provision of patient stay/SSI days data maintained
by CMS to hospitals for the purpose of determining their DSH
percentage.
Proposed changes relating to hospitals' geographic
classifications, including multicampus hospitals and urban group
hospital reclassifications.
Proposed changes and clarifications relating to GME,
including GME initial residency period limitation, new teaching
hospitals' participation in Medicare GME affiliated groups, and the GME
FTE cap adjustment for rural hospitals;
Solicitation of public comments on possible changes in
requirements for provider-based entities relating to entities the
location requirements for certain neonatal intensive care units as off-
campus facilities;
Discussion of the second year of implementation of the
Rural Community Hospital Demonstration Program; and
Clarification of the definition of a hospital as it
relates to ``specialty hospitals'' participating in the Medicare
program.
5. PPS for Capital-Related Costs
In section VI. of this proposed rule, we are not proposing any
policy changes to the capital-related prospective payment system. For
the readers' benefit, we discuss the payment policy requirements for
capital-related costs and capital payments to hospitals.
6. Proposed Changes for Hospitals and Hospital Units Excluded From the
IPPS
In section VII. of this proposed rule, we discuss the proposed
revisions and clarifications concerning excluded hospitals and hospital
units, proposed policy changes relating to continued participation by
CAHs located in counties redesignated under section 1886(d)(8)(B) of
the Act (Lugar counties), and proposed policy changes relating to
designation of CAHs as necessary providers.
7. Proposed Changes in Payment for Blood Clotting Factor
In section VIII of this proposed rule, we discuss the proposed
change in payment for blood clotting factor administered to inpatients
with hemophilia for FY 2006.
8. Determining Prospective Payment Operating and Capital Rates and
Rate-of-Increase Limits
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the FY 2006
prospective payment rates for operating costs and capital-related
costs. We also establish the proposed threshold amounts for outlier
cases. In addition, we address the proposed update factors for
determining the rate-of-increase limits for cost reporting periods
beginning in FY 2006 for hospitals and hospital units excluded from the
PPS.
9. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of
the impact that the proposed changes would have on affected hospitals.
10. Recommendation of Update Factor for Hospital Inpatient Operating
Costs
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 2006 for the following:
A single average standardized amount for all areas for
hospital inpatient services paid under the IPPS for operating costs
(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 hospitals and
hospital units excluded from the IPPS.
11. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, the Medicare Payment Advisory
Commission (MedPAC) is required to submit a report to Congress, no
later than March 1 of each year, in which MedPAC reviews and makes
recommendations on Medicare payment policies. MedPAC's March 2005
recommendation concerning hospital inpatient payment policies addressed
only the update factor for inpatient hospital operating costs and
capital-related costs under the IPPS and for hospitals and distinct
part hospital units excluded from the IPPS. This recommendation is
addressed in Appendix B of this proposed rule. MedPAC issued a second
Report to Congress: Physician-Owned Specialty Hospitals, March 2005,
which addressed other issues relating to Medicare payments to hospitals
for inpatient services. The recommendations on these issues from this
second report are addressed in section IX. of this preamble. For
further information relating specifically to the MedPAC March 2005
reports or to obtain a copy of the reports, contact MedPAC at (202)
220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.
II. Proposed Changes to DRG Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as DRGs) for inpatient
discharges and adjust payments under the IPPS based on appropriate
weighting factors assigned to each DRG. Therefore, under the IPPS, we
pay for inpatient hospital services on a rate per discharge basis that
varies according to the DRG to which a beneficiary's stay is assigned.
The formula used to calculate payment for a specific case multiplies an
individual hospital's payment rate per case by the weight of the DRG to
which the case is assigned. Each DRG weight represents the average
resources required to care for cases in that particular DRG, relative
to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
at least annually. These adjustments are made to reflect changes in
treatment patterns, technology, and any other factors that may change
the relative use of hospital resources. The proposed changes to the DRG
classification system and the recalibration of the DRG weights for
discharges occurring on or after October 1, 2005, are discussed below.
B. DRG Reclassifications
(If you choose to comment on issues in this section, please include
the caption ``DRG Reclassifications'' at the beginning of your
comment.)
1. General
Cases are classified into DRGs for payment under the IPPS based on
the principal diagnosis, up to eight additional diagnoses, and up to
six procedures performed during the stay. In a small number of DRGs,
classification is also based on the age, sex, and discharge status of
the patient. The diagnosis and procedure information is reported by the
hospital using codes from the International
[[Page 23313]]
Classification of Diseases, Ninth Revision, Clinical Modification (ICD-
9-CM).
The process of forming the DRGs was begun by dividing all possible
principal diagnoses into mutually exclusive principal diagnosis areas
referred to as Major Diagnostic Categories (MDCs). The MDCs were formed
by physician panels as the first step toward ensuring that the DRGs
would be clinically coherent. The diagnoses in each MDC correspond to a
single organ system or etiology and, in general, are associated with a
particular medical specialty. Thus, in order to maintain the
requirement of clinical coherence, no final DRG could contain patients
in different MDCs. Most MDCs are based on a particular organ system of
the body. For example, MDC 6 is Diseases and Disorders of the Digestive
System. This approach is used because clinical care is generally
organized in accordance with the organ system affected. However, some
MDCs are not constructed on this basis because they involve multiple
organ systems (for example, MDC 22 (Burns)). For FY 2005, cases are
assigned to one of 519 DRGs in 25 MDCs. The table below lists the 25
MDCs.
[GRAPHIC] [TIFF OMITTED] TP04MY05.000
In general, cases are assigned to an MDC based on the patient's
principal diagnosis before assignment to a DRG. However, for FY 2005,
there are nine DRGs to which cases are directly assigned on the basis
of ICD-9-CM procedure codes. These DRGs are for heart transplant or
implant of heart assist systems, liver and/or intestinal transplants,
bone marrow, lung, simultaneous pancreas/kidney, and pancreas
transplants and for tracheostomies. Cases are assigned to these DRGs
before they are classified to an MDC. The table below lists the current
nine pre-MDCs.
[[Page 23314]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.001
Once the MDCs were defined, each MDC was evaluated to identify
those additional patient characteristics that would have a consistent
effect on the consumption of hospital resources. Since the presence of
a surgical procedure that required the use of the operating room would
have a significant effect on the type of hospital resources used by a
patient, most MDCs were initially divided into surgical DRGs and
medical DRGs. Surgical DRGs are based on a hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. Medical DRGs generally are differentiated on the
basis of diagnosis and age (less than or greater than 17 years of age).
Some surgical and medical DRGs are further differentiated based on the
presence or absence of a complication or a comorbidity (CC).
Generally, nonsurgical procedures and minor surgical procedures
that are not usually performed in an operating room are not treated as
O.R. procedures. However, there are a few non-O.R. procedures that do
affect DRG assignment for certain principal diagnoses, for example,
extracorporeal shock wave lithotripsy for patients with a principal
diagnosis of urinary stones.
Once the medical and surgical classes for an MDC were formed, each
class of patients was evaluated to determine if complications,
comorbidities, or the patient's age would consistently affect the
consumption of hospital resources. Physician panels 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, which because of its presence with a specific principal
diagnosis, would cause an increase in the length of stay by at least
one day in at least 75 percent of the patients. Each medical and
surgical class within an MDC was tested to determine if the presence of
any substantial comorbidities or complications would consistently
affect the consumption of hospital resources.
The actual process of forming the DRGs was, and continues to be,
highly iterative, involving a combination of statistical results from
test data combined with clinical judgment. In deciding whether to
create a separate DRG, 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 DRG. We
evaluate patient care costs using average charges and length of stay as
proxies for costs and rely on the judgment of our medical officers to
decide whether patients are distinct or clinically similar to other
patients in the DRG. In evaluating resource costs, we consider both the
absolute and percentage differences in average charges between the
cases we are selecting for review and the remainder of cases in the
DRG. We also consider variation in charges within these groups; that
is, whether observed average differences are consistent across patients
or attributable to cases that are extreme in terms of charges or length
of stay, or both. Further, we also consider the number of patients who
will have a given set of characteristics and generally prefer not to
create a new DRG unless it will include a substantial number of cases.
As we explain in more detail in section IX. of this preamble, MedPAC
has made a number of recommendations regarding the DRG system. As part
of our review and analysis of MedPAC's recommendations, we will
consider whether to establish guidelines for making DRG
reclassification decisions.
A patient's diagnosis, procedure, discharge status, and demographic
information is fed into the Medicare claims processing systems and
subjected to a series of automated screens called the Medicare Code
Editor (MCE). The MCE screens are designed to identify cases that
require further review before classification into a DRG.
After patient information is screened through the MCE and any
further development of the claim is conducted, the cases are classified
into the appropriate DRG by the Medicare GROUPER software program. The
GROUPER program was developed as a means of classifying each case into
a DRG on the basis of the diagnosis and procedure codes and, for a
limited number of DRGs, demographic information (that is, sex, age, and
discharge status).
After cases are screened through the MCE and assigned to a DRG by
the GROUPER, the PRICER software calculates a base DRG payment. The
PRICER calculates the payments for each case covered by the IPPS based
on the DRG relative weight and additional factors associated with each
hospital, such as IME and DSH adjustments. These additional factors
increase the payment amount to hospitals above the base DRG payment.
The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and
[[Page 23315]]
Review (MedPAR) file. The data in this file are used to evaluate
possible DRG classification changes and to recalibrate the DRG weights.
However, in the July 30, 1999 IPPS final rule (64 FR 41500), we
discussed a process for considering non-MedPAR data in the
recalibration process. In order for us to consider using particular
non-MedPAR data, we must have sufficient time to evaluate and test the
data. The time necessary to do so depends upon the nature and quality
of the non-MedPAR data submitted. Generally, however, a significant
sample of the non-MedPAR data should be submitted by mid-October for
consideration in conjunction with the next year's proposed rule. This
allows us time to test the data and make a preliminary assessment as to
the feasibility of using the data. Subsequently, a complete database
should be submitted by early December for consideration in conjunction
with the next year's proposed rule.
Many of the changes to the DRG classifications are the result of
specific issues brought to our attention by interested parties. We
encourage individuals with concerns about DRG classifications to bring
those concerns to our attention in a timely manner so they can be
carefully considered for possible inclusion in the next proposed rule
and if included, may be subjected to public review and comment.
Therefore, similar to the timetable for interested parties to submit
non-MedPAR data for consideration in the DRG recalibration process,
concerns about DRG classification issues should be brought to our
attention no later than early December in order to be considered and
possibly included in the next annual proposed rule updating the IPPS.
The changes we are proposing to the DRG classification system for
FY 2006 for the FY 2006 GROUPER, version 23.0 and to the methodology
used to recalibrate the DRG weights are set forth below. Unless
otherwise noted in this proposed rule, our DRG analysis is based on
data from the December 2004 update of the FY 2004 MedPAR file, which
contains hospital bills received through December 31, 2004 for
discharges in FY 2004.
2. Pre-MDC: Intestinal Transplantation
In the FY 2005 IPPS final rule (69 FR 48976), we moved intestinal
transplantation cases that were assigned to ICD-9-CM procedure code
46.97 (Transplant of intestine) out of DRG 148 (Major Small and Large
Bowel Procedures with CC) and DRG 149 (Major Small and Large Bowel
Procedures Without CC) and into DRG 480 (Liver Transplant). We also
changed the title for DRG 480 to ``Liver Transplant and/or Intestinal
Transplant.'' We moved these cases out of DRGs 148 and 149 because our
analysis demonstrated that the average charges for intestinal
transplants are significantly higher than the average charges for other
cases in these DRGs. We stated at that time that we would continue to
monitor these cases.
Based on our review of the FY 2004 MedPAR data, we found 959 cases
assigned to DRG 480 with overall average charges of approximately
$165,622. There were only three cases involving an intestinal
transplant alone and one case in which both an intestinal transplant
and a liver transplant were performed. The average charges for the
intestinal transplant cases ($138,922) were comparable to the average
charges for the liver transplant cases ($165,314), while the remaining
combination of an intestinal transplant and a liver transplant case had
much higher charges ($539,841), and would be paid as an outlier case.
Therefore, we are not proposing any DRG modification for intestinal
transplantation cases at this time.
We note that an institution that performs intestinal
transplantation, in correspondence to us written following the
publication of the FY 2005 IPPS final rule, agreed with our decision to
move cases assigned to code 46.97 to DRG 480.
3. MDC 1 (Diseases and Disorders of the Nervous System)
a. Strokes
In 1996, the Food and Drug Administration (FDA) approved the use of
tissue plasminogen activator (tPA), one type of thrombolytic agent that
dissolves blood clots. In 1998, the ICD-9-CM Coordination and
Maintenance Committee created code 99.10 (Injection or infusion of
thrombolytic agent) in order to be able to uniquely identify the
administration of thrombolytic agents. Studies have shown that tPA can
be effective in reducing the amount of damage the brain sustains during
an ischemic stroke, which is caused by blood clots that block blood
flow to the brain. The use of tPA is approved for patients who have
blood clots in the brain, but not for patients who have a bleeding or
hemorrhagic stroke. Thrombolytic therapy has been shown to be most
effective when used within the first 3 hours after the onset of a
stroke, and it is contraindicated in hemorrhagic stroke. The presence
or absence of code 99.10 does not currently influence DRG assignment.
Since code 99.10 became effective, we have been monitoring the DRGs and
cases in which this code can be found, particularly with respect to
cardiac and stroke DRGs.
Last year, we met with representatives from several hospital stroke
centers who recommended modification of the existing stroke DRGs 14
(Intracranial Hemorrhage or Cerebral Infarction) and 15 (Nonspecific
CVA and Precerebral Occlusion Without Infarction) by using the
administration of tPA as a proxy to identify patients who have severe
strokes. The representatives stated that using tPA as a proxy for the
more severely ill stroke patient would recognize the higher charges
these cases generate because of their higher hospital resource
utilization.
The stroke representatives made two suggestions concerning DRGs 14
and 15. First, they proposed modifying DRG 14 by renaming it ``Ischemic
Stroke Treatment with a Reperfusion Agent,'' and including only those
cases containing code 99.10. The remainder of stroke cases where the
patient was not treated with a reperfusion agent would be included in
DRG 15, which would be renamed ``Hemorrhagic Stroke or Ischemic Stroke
without a Reperfusion Agent.'' Hemorrhagic stroke cases now found in
DRG 14 that are not treated with a reperfusion agent would migrate to
DRG 15.
The second suggestion was to leave DRGs 14 and 15 as they currently
exist, and create a new DRG, with a recommended title ``Ischemic Stroke
Treatment with a Reperfusion Agent.'' This suggested DRG would only
include strokes caused by clots, not by hemorrhages, and would include
the administration of tPA, identified by procedure code 99.10.
We have examined the MedPAR data for the cases in DRGs 14 and 15,
and have divided the cases based on the presence of a principal
diagnosis of hemorrhage or occlusive ischemia, and the presence of
procedure code 99.10. The following table displays the results:
[[Page 23316]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.002
The above table shows that the average standardized charges for
cases treated with a reperfusion agent are more than $16,000 and
$10,000 higher than all other cases in DRGs 14 and 15, respectively.
While these data suggest that patients treated with a reperfusion agent
are more expensive than all other stroke patients, this conclusion is
based on a small number of cases. At this time, we are not proposing a
change to the stroke DRGs because of this concern. However, we believe
it is possible that more patients are being treated with a reperfusion
agent than indicated by our data because the presence of code 99.10
does not affect DRG assignment and may be underreported.
We invite public comment on the changes to DRGs 14 and 15 suggested
by the hospital representatives. In addition, we are interested in
public comment on the number of patients currently being treated with a
reperfusion agent as well as the potential costs of these patients
relative to others with strokes that are also included in DRGs 14 and
15.
b. Unruptured Cerebral Aneurysms
In the FY 2004 IPPS final rule (68 FR 45353), we created DRG 528
(Intracranial Vascular Procedures With a Principal Diagnosis of
Hemorrhage) in MDC 1. We received a comment at that time that suggested
we create another DRG for intracranial vascular procedures for
unruptured cerebral aneurysms. For the FY 2004 IPPS final rule (68 FR
45353) and the FY 2005 IPPS final rule (69 FR 48957), we evaluated the
data for cases in the MedPAR file involving unruptured cerebral
aneurysms assigned to DRG 1 (Craniotomy Age >17 With CC) and DRG 2
(Craniotomy Age >17 Without CC) and concluded that the average charges
were consistent with those for other cases found in DRGs 1 and 2.
Therefore, we did not propose a change to the DRG assignment for
unruptured cerebral aneurysms.
We have reviewed the latest data for unruptured cerebral aneurysms
cases. In our analysis of the FY 2004 MedPAR data, we found 1,136
unruptured cerebral aneurysm cases assigned to DRG 1 and 964 unruptured
cerebral aneurysm cases assigned to DRG 2. Although the average charges
for the unruptured cerebral aneurysm cases in DRG 1 ($53,455) and DRG 2
($34,028) were slightly higher than the average charges for all cases
in DRG 1 ($51,466) and DRG 2 ($30,346), we do not believe these
differences are significant enough to warrant a change in these two
DRGs at this time. Therefore, we are not proposing a change in the
structure of these DRGs relating to unruptured cerebral aneurysm cases
for FY 2006.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Automatic Implantable Cardioverter/Defibrillator
As part of our annual review of DRGs, for FY 2006, we performed a
review of cases in the FY 2004 MedPAR file involving the implantation
of a defibrillator in the following DRGs:
DRG 515 (Cardiac Defibrillator Implant Without Cardiac
Catheterization).
DRG 535 (Cardiac Defibrillator Implant With Cardiac Catheterization
With Acute Myocardial Infarction, Heart Failure, or Shock).
DRG 536 (Cardiac Defibrillator Implant With Cardiac Catheterization
Without Acute Myocardial Infarction, Heart Failure, or Shock).
While conducting our review, we noted that there had been
considerable comments from hospital coders on code 37.26 (Cardiac
electrophysiologic stimulation and recording studies (EPS)), which is
included in these DRGs. These comments from hospital coders were
directed at both CMS and the American Hospital Association. The
procedure codes for these three DRGs describe the procedures that are
considered to be a cardiac catheterization. Code 37.26 is classified as
a cardiac catheterization within these DRGs. Therefore, the submission
of code
[[Page 23317]]
37.26 affects the DRG assignment for defibrillator cases and leads to
the assignment of DRGs 535 or 536. When a cardiac catheterization is
performed, the case is assigned to DRGs 535 or 536, depending on
whether or not the patient also had an acute myocardial infarction,
heart failure, or shock. The following chart shows the number of cases
in each DRG, along with their average length of stay and average
charges, found in the data:
[GRAPHIC] [TIFF OMITTED] TP04MY05.003
We have received a number of questions from hospital coders
regarding the correct use of code 37.26. There is considerable
confusion about whether or not code 37.26 should be reported when the
procedure is performed as part of the defibrillator implantation.
Currently, the ICD-9-CM instructs the coder not to report code 37.26
when a defibrillator is inserted. There is an inclusion term under the
defibrillator code 37.94 (Implantation or replacement of automatic
cardioverter/defibrillator, total system [AICD]) which states that EPS
is included in code 37.94. We discussed modifying this instruction at
the October 7-8, 2004 meeting of the ICD-9-CM Coordination and
Maintenance Committee. We received a number of comments opposing a
modification to the use of code 37.26 to also allow it to be reported
with an AICD insertion. A report of this meeting can be found on the
Web site: http://www.cms.hhs.gov/paymentsystem/icd9.
We performed an analysis of cases within DRGs 535 and 536 with
cardiac catheterization and with and without code 37.26 and with code
37.26 only reported without cardiac catheterization and found the
following:
[GRAPHIC] [TIFF OMITTED] TP04MY05.004
The data show that when code 37.26 is the only procedure reported
from the list of cardiac catheterizations, the average charges and the
average length of stay are considerably lower. For example, the average
standardized charges for a defibrillator implant with only an EPS are
$85,390.88 in DRG 536, while the average standardized charges for DRG
536 with a cardiac catheterization, but not an EPS, are $110,493.86.
The average standardized charges for all cases in DRG 536 are
$94,453.62. The data show similar findings for DRG 535, with lower
lengths of stay and average charges when the only code reported from
the cardiac catheterization list is an EPS. When we also consider that
there may be some coding problems in the use of code 37.26, we believe
it is appropriate to propose a modification to these DRGs.
Data reflected in the chart above show that the average
standardized charges for DRG 515 were $83,659.76. These average charges
are closer to those in DRG 536 with code 37.26 and without any other
cardiac catheterization code reported. While the cases in DRG 535 with
code 37.26 and without a cardiac catheterization have higher average
charges than the average charges for cases in DRG 515, these cases have
much lower average charges than the average charges for overall cases
in DRG 535. For these reasons, we are proposing to remove code 37.26
from the list of cardiac catheterizations for DRGs 535 and 536. If a
defibrillator is implanted and an EPS is performed with no other type
of cardiac catheterization, the case would be assigned to DRG 515.
CMS issued a National Coverage Determination for implantable
cardioverter defibrillators, effective January 27, 2005, that expands
coverage and requires, in certain cases, that patient data be reported
when the defibrillator is implanted for the clinical indication of
primary prevention of sudden cardiac death. The submission of data on
patients receiving an implantable cardioverter defibrillator for
primary prevention to a data collection system is needed for the
determination that the implantable cardioverter
[[Page 23318]]
defibrillator is reasonable and necessary and for quality improvement.
These data will be made available in some form to providers and
practitioners to inform their decisions, monitor performance quality,
and benchmark and identify best practices. We made a temporary registry
available for use when the policy became effective and used the Quality
Net Exchange for data submission because Medicare-participating
hospitals already use the Exchange to report data.
We intend to transition from the temporary registry using the
Quality Net Exchange to a more sophisticated follow-on registry that
will have the ability to collect longitudinal data. Some providers have
suggested that CMS increase reimbursement for implantable cardioverter
defibrillators to compensate the provider for reporting data. ICD data
reporting includes elements of patient demographics, clinical
characteristics and indications, medications, provider information, and
complications. Since these data elements are commonly found in patient
medical records, it is CMS' expectation that these data are readily
available to the individuals abstracting and reporting data. Therefore,
we believe that increased reimbursement is not needed at this time.
b. Coronary Artery Stents
In the FY 2005 IPPS final rule (69 FR 48971 through 48974), we
addressed two comments from industry representatives about the DRG
assignments for coronary artery stents. These commenters had expressed
concern about whether the reimbursement for stents is adequate,
especially for insertion of multiple stents. They also expressed
concern about whether the current DRG structure represents the most
clinically coherent classification of stent cases.
The current DRG structure incorporates stent cases into the
following two pairs of DRGs, depending on whether bare metal or drug-
eluting stents are used and whether acute myocardial infarction (AMI)
is present:
DRG 516 (Percutaneous Cardiovascular Procedures with AMI).
DRG 517 (Percutaneous Cardiovascular Procedures with
Nondrug-Eluting Stent without AMI).
DRG 526 (Percutaneous Cardiovascular Procedures with Drug-
Eluting Stent with AMI).
DRG 527 (Percutaneous Cardiovascular Procedures with Drug-
Eluting Stent without AMI).
The commenters presented two recommendations for refinement and
restructuring of the current coronary stent DRGs. One of the
recommendations involved restructuring these DRGs to create two
additional stent DRGs that are closely patterned after the existing
pairs, and would reflect insertion of multiple stents with and without
AMI. The commenters recommended incorporating either stenting code
36.06 (Insertion of nondrug-eluting coronary artery stent(s)) or code
36.07 (Insertion of drug-eluting coronary artery stent(s)) when they
are reported along with code 36.05 (Multiple vessel percutaneous
transluminal coronary angioplasty [PTCA] or coronary atherectomy
performed during the same operation, with or without mention of
thrombolytic agent). The commenter's first concern was that hospitals
may be steering patients toward coronary artery bypass graft surgery in
place of stenting in order to avoid significant financial losses due to
what it considered the inadequate reimbursement for inserting multiple
stents.
In our response to comments in the FY 2005 IPPS final rule, we
indicated that it was premature to act on this recommendation because
the current coding structure for coronary artery stents cannot
distinguish cases in which multiple stents are inserted from those in
which only a single stent is inserted. Current codes are able to
identify performance of PTCA in more than one vessel by use of code
36.05. However, while this code indicates that PTCA was performed in
more than one vessel, its use does not reflect the exact number of
procedures performed or the exact number of vessels treated. Similarly,
when codes 36.06 and 36.07 are used, they document the insertion of at
least one stent. However, these stenting codes do not identify how many
stents were inserted in a procedure, nor distinguish insertion of a
single stent from insertion of multiple stents. Even the use of one of
the stenting codes in conjunction with multiple-PTCA code 36.05 does
not distinguish insertion of a single stent from multiple stents. The
use of code 36.05 in conjunction with code 36.06 or code 36.07
indicates only performance of PTCA in more than one vessel, along with
insertion of at least one stent. The precise numbers of PTCA-treated
vessels, the number of vessels into which stents were inserted, and the
total number of stents inserted in all treated vessels cannot be
determined. Therefore, the capabilities of the current coding structure
do not permit the distinction between single and multiple vessel
stenting that would be required under the recommended restructuring of
the coronary stent DRGs.
We agree that the DRG classification of cases involving coronary
stents must be clinically coherent and provide for adequate
reimbursement, including those cases requiring multiple stents. For
this reason, we created four new ICD-9-CM codes identifying multiple
stent insertion (codes 00.45, 00.46, 00.47, and 00.48) and four new
codes identifying multiple vessel treatment (codes 00.40, 00.41, 00.42,
and 00.43) at the October 7, 2004 ICD-9-CM Coordination and Maintenance
Committee Meeting. These eight new codes can be found in Table 6B of
this proposed rule. We have worked closely with the coronary stent
industry and the clinical community to identify the most logical code
structure to identify new codes for both multiple vessel and multiple
stent use. Effective October 1, 2005, code 36.05 will be deleted and
the eight new codes will be used in its place. Coders are encouraged to
use as many codes as necessary to describe each case, using one code to
describe the angioplasty or atherectomy, and one code each for the
number of vessels treated and the number of stents inserted. Coders are
encouraged to record codes accurately, as these data will potentially
be the basis for future DRG restructuring. While we agree that use of
multiple vessel and stent codes will provide useful information in the
future on hospital costs associated with percutaneous coronary
procedures, we believe it remains premature to proceed with a
restructuring of the current coronary stent DRGs on the basis of the
number of vessels treated or the number of stents inserted, or both, in
the absence of data reflecting use of this new coding structure.
The commenter's second recommendation was that we distinguish
``complex'' from ``noncomplex'' cases in the stent DRGs by expanding
the higher weighted DRGs (516 and 526) to include conditions other than
AMI. The commenter recommended recognizing certain comorbid and
complicating conditions, including hypertensive renal failure,
congestive heart failure, diabetes, arteriosclerotic cardiovascular
disease, cerebrovascular disease, and certain procedures such as
multiple vessel angioplasty or atherectomy (as evidenced by the
presence of procedure code 36.05), as indicators of complex cases for
this purpose. Specifically, the commenters recommended replacing the
current structure with the following four DRGs:
Recommended restructured DRG 516 (Complex percutaneous
[[Page 23319]]
cardiovascular procedures with non-drug-eluting stents).
Recommended restructured DRG 517 (Noncomplex percutaneous
cardiovascular procedures with non-drug-eluting stents).
Recommended restructured DRG 526 (Complex percutaneous
cardiovascular procedures with drug-eluting stents).
Recommended restructured DRG 527 (Noncomplex percutaneous
cardiovascular procedures with drug-eluting stents).
The commenter argued that this structure would provide an
improvement in both clinical and resource coherence over the current
structure that classifies cases according to the type of stent inserted
and the presence or absence of AMI alone, without considering other
complicating conditions. The commenter also presented an analysis,
based on previous MedPAR data, that evaluated charges and lengths of
stay for cases with expected high resource use and reclassified cases
into its recommended new structure of paired ``complex'' and
``noncomplex'' DRGs. The commenter's analysis showed some evidence of
clinical and resource coherence in the recommended DRG structure.
However, we did not adopt the proposal in the FY 2005 IPPS final rule.
First, the data presented by the commenter still represented
preliminary experience under a relatively new DRG structure. Second,
the analysis did not reveal significant gains in resource coherence
compared to existing DRGs for stenting cases. Therefore, we were
reluctant to adopt this approach because of comments and concern about
whether the overall level of payment in the coronary stent DRGs was
adequate. However, we indicated that this issue deserved further study
and consideration, and that we would conduct an analysis of this
recommendation and other approaches to restructuring these DRGs with
updated data in the FY 2006 proposed rule.
This year, we have analyzed the MedPAR data to determine the impact
of certain secondary diagnoses or complicating conditions on the four
DRGs cited above. Specifically, we examined the data in DRGs 516, 517,
526, and 527, based on the presence of coronary stents (codes 36.06 and
36.07) and the following additional diagnoses:
Congestive heart failure (represented by codes 398.91
(Rheumatic heart failure (congestive)), 402.01 (Hypertensive heart
disease, malignant, with heart failure), 402.11, (Hypertensive heart
disease, benign, with heart failure), 402.91 (Hypertensive heart
disease, unspecified, with heart failure), 404.01 (Hypertensive heart
and renal disease, malignant, with heart failure), 404.03 (Hypertensive
heart and renal disease, malignant, with heart failure and renal
failure), 404.11 (Hypertensive heart and renal disease, benign, with
heart failure), 404.13 (Hypertensive heart and renal disease, benign,
with heart failure and renal failure), 404.91 (Hypertensive heart and
renal disease, unspecified, with heart failure), 404.93 (Hypertensive
heart and renal disease, unspecified, with heart failure and renal
failure), 428.0 (Congestive heart failure, unspecified), and 428.1
(Left heart failure)).
Arteriosclerotic cardiovascular disease (represented by
code 429.2 (Cardiovascular disease, unspecified)).
Cerebrovascular disease (represented by codes 430.0
(Subarachnoid hemorrhage), 431.0 (Intracerebral hemorrhage), 432.0
(Nontraumatic extradural hemorrhage), 432.1, Subdural hemorrhage,
432.9, (Unspecified intracranial hemorrhage), 433.01 (Occlusion and
stenosis of basilar artery, with cerebral infarction), 433.11
(Occlusion and stenosis of carotid artery, with cerebral infarction),
433.21 (Occlusion and stenosis of vertebral artery, with cerebral
infarction), 433.31 (Occlusion and stenosis of multiple and bilateral
precerebral arteries, with cerebral infarction), 433.81 (Occlusion and
stenosis of other specified precerebral artery, with cerebral
infarction), 434.01 (Cerebral thrombosis with cerebral infarction),
434.11 (Cerebral embolism with cerebral infarction), 434.91 (Cerebral
artery occlusion with cerebral infarction, unspecified), 436.0 (Acute,
but ill-defined, cerebrovascular disease)).
Secondary diagnosis of acute myocardial infarction
(represented by codes 410.01 (Acute myocardial infarction of
anterolateral wall, initial episode of care), 410.11 (Acute myocardial
infarction of other anterior wall, initial episode of care), 410.21
(Acute myocardial infarction of inferolateral wall, initial episode of
care), 410.31 (Acute myocardial infarction of inferoposterior wall,
initial episode of care), 410.41 (Acute myocardial infarction of other
inferior wall, initial episode of care), 410.51 (Acute myocardial
infarction of other lateral wall, initial episode of care), 410.61
(True posterior wall infarction, initial episode of care), 410.71
(Subendocardial infarction, initial episode of care), 410.81 (Acute
myocardial infarction of other specified sites, initial episode of
care), 410.91 (Acute myocardial infarction of unspecified site, initial
episode of care)).
Renal failure (represented by codes 403.01 (Hypertensive
renal disease, malignant, with renal failure), 403.11 (Hypertensive
renal disease, benign, with renal failure), 403.91 (Hypertensive renal
disease, unspecified, with renal failure), 585.0 (Chronic renal
failure), V42.0 (Organ or tissue replaced by transplant, kidney), V45.1
(Renal dialysis status), V56.0 (Extracorporeal dialysis), V56.1
(Fitting and adjustment of extracorporeal dialysis catheter), V56.2
(Fitting and adjustment of peritoneal dialysis catheter)). Any renal
failure with congestive heart failure will be captured in the 404.xx
codes listed above.
We reviewed the cases in the four coronary stent DRGs and found
that most of the additional or ``complicated'' cases did, in fact, have
higher average charges in most instances. However, these results could
potentially be duplicated for many DRGs, or sets of DRGs, within the
PPS structure. That is, cases with selected complicating factors will
tend to have higher average lengths of stay and average charges than
cases without those complicating factors. Since cases with the selected
complicating factors necessarily contain sicker patients, longer
lengths of stay and higher average charges are to be expected. For
example, cases in which patients with a cardiac condition also have
renal failure are quite likely to consume higher resources than
patients only with a cardiac condition. In addition, selectively
recognizing the recommended secondary diagnoses or complicating
conditions raises some issues related to the logic and structural
integrity of the DRG system. Generally, we have taken into account the
higher costs of cases with complications by maintaining a general list
of comorbidities and complications (the CC) list), and, where
appropriate, distinguishing pairs of DRGs by ``with and without CCs.''
(This system also specifies exclusions from each pair, to account for
cases where a condition on the CC list is an expected and normal
constituent of the diagnoses reflected in the paired DRGs.) In order to
maintain the basic DRG body-system structure, we have not employed
special lists of procedures and diagnoses from one MDC to make
determinations about the structure of DRGs in another MDC. The
recommended restructuring of the coronary stent DRGs is inconsistent
with this principle and may create a new precedent of selecting
specific comorbidities and complications to restructure DRGs. For
example, the
[[Page 23320]]
presence of code 403.11 (Hypertensive renal disease, malignant, with
renal failure) may distinguish cases with higher average charges, but
the same argument could be raised for many other procedures across
other MDCs.
Rather than establishing such a precedent, we are proposing to
restructure the coronary stent DRGs on the basis of the standard CC
list to differentiate cases that require greater resources. We believe
this list to be more inclusive of true comorbid or complicating
conditions than selection of specific secondary diagnosis codes.
Therefore, restructuring these DRGs on this basis would result in a
logical arrangement of cases with regard to both clinical coherence and
resource consumption. We have compared the existing CC list with the
list of the codes recommended by the commenter as secondary diagnoses.
All of the recommended codes already appear on the CC list except for
codes 429.2, 432.9, V56.1, and V56.2. Code 429.2 represents a very
vague diagnosis (arteriosclerotic cardiovascular disease (ASCVD)). Code
432.9 represents a nonspecific principal diagnosis that is rejected by
the MCE when reported as the principal diagnosis. Codes V56.1 and V56.2
describe conditions relating to dialysis for renal failure. Therefore,
we believe that our proposal to utilize the existing CC list would
encompass most of the cases on the recommended list, as well as other
cases with additional CCs requiring additional resources. We have
examined the MedPAR data for the cases in the coronary stent DRGs,
distinguishing cases that include CCs and those that do not. The
following table displays the results:
[GRAPHIC] [TIFF OMITTED] TP04MY05.005
The data show a clear differentiation in average charges between
the cases in DRG 516 and 526 ``with CC'' and those ``without CC.''
Therefore, the data suggest that a ``with and without CC'' split in DRG
516 and 526 is warranted. At the same time, the data do not show such a
clear differentiation, in either average charges or lengths of stay,
among the cases in DRGs 517 and 527.
Therefore, we are proposing to delete DRGs 516 and 526, and to
substitute four new DRGs in their place. These new DRGs would be
patterned after existing DRGs 516 and 526, except that they would be
split based on the presence or absence of a secondary diagnosis on the
existing CC list. Specifically, we are proposing to create DRG 547
(Percutaneous Cardiovascular Procedure with AMI with CC), DRG 548
(Percutaneous Cardiovascular Procedure with AMI without CC), DRG 549
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with AMI
with CC), and DRG 550 (Percutaneous Cardiovascular Procedure with Drug-
Eluting Stent with AMI without CC). As we noted above, the MedPAR data
do not support restructuring DRGs 517 and 527 based on the presence or
absence of a CC. Therefore, we are proposing to retain these two DRGs
in their current forms. We believe this revised structure will result
in a more inclusive and comprehensive array of cases within MDC 5
without selectively recognizing certain secondary diagnoses as
``complex.''
While we are proposing some restructuring of the coronary stent
DRGs for FY 2006, it is important to note that we will continue to
monitor and analyze clinical and resource trends in this area. For
example, we have found indications in the current data that treatment
may be moving toward use of drug-eluting stents, and away from use of
bare metal stents. Specifically, cases in DRGs 516 and 517, which
utilize bare metal stents, comprise only 44.4 percent, or less than
half, of the cases in the four coronary stent DRGs in the MedPAR data
we analyzed. As use of drug-eluting stents becomes the standard of
treatment, we may consider over time whether to dispense with the
distinction between these stents and the older bare metal stent
technology in the structure of the coronary stent DRGs. In addition, we
will continue to consider whether the structure of these DRGs ought to
reflect differences in the number of vessels treated or the number of
stents inserted, or both. As we discussed above, a new coding structure
capable of identifying multiple vessel treatment and the insertion of
multiple stents will go into effect on October 1, 2005. It remains
premature to restructure the coronary stent DRGs on the basis of the
number of vessels treated or the number of stents inserted, or both,
until data reflecting the use of these new codes become available.
However, we will analyze those data when they become available in order
to determine whether a restructuring based on multiple vessel treatment
or insertion of multiple stents, or both, is warranted. Our proposal to
restructure two of the current coronary stent DRGs into paired ``with
and without CC'' DRGs for FY 2006 does not preclude proposals in
subsequent years to restructure the coronary stent DRGs in one or both
of these ways.
[[Page 23321]]
c. Insertion of Left Atrial Appendage Device
Atrial fibrillation is a common heart rhythm disorder that can lead
to a cardiovascular blood clot formation leading to increased risk of
stroke. According to product literature, nearly all strokes are from
embolic clots arising in the left atrial appendage of the heart: an
appendage for which there is no useful function. Standard therapy uses
anticoagulation drugs. However, these drugs may be contraindicated in
certain patients and may cause complications such as bleeding. The
underlying concept behind the left atrial appendage device is to block
off the left atrial appendage, so that the blood clots formed therein
cannot travel to other sites in the vascular system. The device is
implanted using a percutaneous catheter procedure under fluoroscopy
through the femoral vein. Implantation is performed in a hospital
catheterization laboratory using standard transseptal technique, with
the patient generally under local anesthesia. The procedure takes
approximately 1 hour, and most patients stay overnight in the hospital.
In the FY 2005 IPPS final rule (69 FR 48978, August 11, 2004), we
discussed the DRG assignment of new ICD-9-CM procedure code 37.90
(Insertion of left atrial appendage device) for clinical trials,
effective for discharges occurring on or after October 1, 2004, to DRG
518 (Percutaneous Cardiovascular Procedure without Coronary Artery
Stent or Acute Myocardial Infarction)). In that final rule, we
addressed the DRG assignment of procedure code 37.90 in response to a
comment from a manufacturer who suggested that placement of the code in
DRG 108 (Other Cardiothoracic Procedures) was more representative of
the complexity of the procedure than placement in DRG 518. The
manufacturer indicated that the suggested placement of procedure code
37.90 in DRG 108 was justified because another percutaneous procedure,
described by ICD-9-CM procedure code 35.52 (Repair of atrial septal
defect with prosthesis, closed technique), was assigned to DRG 108. As
we indicated in the FY 2005 final rule (69 FR 48978), this comment
prompted us to examine data in the FY 2003 MedPAR file for cases of
code 35.52 assigned to DRG 108 and DRG 518 in comparison to all cases
assigned to DRG 108. We found the following:
[GRAPHIC] [TIFF OMITTED] TP04MY05.006
Therefore, we concluded that procedure code 35.52 showed a decided
similarity to the cases found in DRG 518, not DRG 108. At that time, we
determined that we would analyze the cases for both clinical coherence
and charge data as part of the IPPS FY 2006 process of identifying the
most appropriate DRG assignment for procedure code 35.52.
We have now examined data from the FY 2004 MedPAR file and found
results for cases assigned to DRG 108 and DRG 518 that are similar to
last year's findings as indicated in the chart below:
[GRAPHIC] [TIFF OMITTED] TP04MY05.007
From this comparison, we found that when an atrial septal defect is
percutaneously repaired, and procedure code 35.52 is the only code
reported in DRG 108, there is a significant discrepancy in both the
average charges and the average length of stay between the cases with
procedure code 35.52 reported in DRG 108 and the total cases in DRG
108. The total cases in DRG 108 have average charges of $51,744 greater
than the 872 cases in DRG 108 reporting procedure code 35.52 as the
only procedure. The total cases in DRG 108 also have an average length
of stay of 7.39 days greater than the average length of stay for cases
in DRG 108 with procedure code 35.52 reported. In comparison, the total
cases in DRG 518 have average charges of only $1,988 lower than the
cases in DRG 108 with only procedure code 35.52 reported. In addition,
the length of stay in total cases in DRG 518 is more closely related to
cases in DRG 108 with only procedure code 35.52 reported.
Based on our analysis of these data, we are proposing to move
procedure code 35.52 out of DRG 108 and place it in DRG 518. We believe
that this proposal would result in a more coherent group of cases in
DRG 518 that reflect all percutaneous procedures.
d. External Heart Assist System Implant
In the August 1, 2002, final rule (67 FR 49989), we attempted to
clinically and financially align ventricular assist device (VAD)
procedures by creating DRG 525 (Heart Assist System Implant). We also
noted that cases in which a heart transplant also occurred during the
same hospitalization episode would continue to be assigned to DRG 103
(Heart Transplant).
After further data review during the next 2 years, we decided to
realign the
[[Page 23322]]
DRGs containing VAD codes for FY 2005. In the August 11, 2004 final
rule (69 FR 48927), we announced changes to DRG 103, DRG 104 (Cardiac
Valve and Other Major Cardiothoracic Procedure with Cardiac
Catheterization), DRG 105 (Cardiac Valve and Other Major Cardiothoracic
Procedures Without Cardiac Catheterization), and DRG 525.
In summary, these changes included--
Moving code 37.66 (Insertion of implantable heart assist
system) out of DRG 525 and into DRG 103.
Renaming DRG 525 as ``Other Heart Assist System Implant.''
Moving code 37.62 (Insertion of non-implantable heart
assist system) out of DRGs 104 and 105 and back into DRG 525.
DRG 525 currently consists of any principal diagnosis in MDC 5,
plus the following surgical procedure codes:
37.52, Implantation of total replacement heart system *.
37.53, Replacement or repair of thoracic unit of total
replacement heart system *.
37.54, Replacement or repair of other implantable
component of total replacement heart system *.
37.62, Insertion of non-implantable heart assist system.
37.63, Repair of heart assist system.
37.65, Implant of external heart assist system.
* These codes represent noncovered services for Medicare
beneficiaries. However, it is our longstanding practice to assign
every code in the ICD-9-CM classification to a DRG. Therefore, they
have been assigned to DRG 525.
Since that decision, we have been encouraged by a manufacturer to
reevaluate DRG 525 for FY 2006. The manufacturer requested that we
again review the data surrounding cases reporting code 37.65 and has
suggested moving these cases into DRG 103. The manufacturer pointed out
the following: Code 37.65 describes the implantation of an external
heart assist system and is currently approved by the FDA as a bridge-
to-recovery device. From the standpoint of clinical status, the
patients in DRG 103 and receiving an external heart assist system are
similar because their native hearts cannot support circulation, and
absent a heart transplant, a mechanical pump is needed for patient
survival. The surgical procedures for implantation of both an internal
VAD and an external VAD are very similar. However, the external heart
assist system (code 37.65) is a less expensive device than the
implantable heart assist system (code 37.66). The manufacturer
suggested that the payment differential between DRGs 103 and 525 is an
incentive to choose the higher paying device, and asserted that only a
subset of patients receiving an implantable heart assist system are
best served by this device. The manufacturer also suggested that the
initial use of the least expensive therapeutically appropriate device
yields both the best clinical outcomes and the lowest total system
costs.
We note that, under the DRG system, our intent is to create
payments that are reflective of the average resources required to treat
a particular case. Our goal is that physicians and hospitals should
make treatment decisions based on the clinical needs of the patient and
not financial incentives.
When we reviewed the FY 2004 MedPAR data, we were able to
demonstrate the following comparisons:
[GRAPHIC] [TIFF OMITTED] TP04MY05.008
The above table shows that the 37.8 percent of cases in DRG 525
that reported code 37.65 have average charges that are nearly $33,000
higher than the average charges for all cases in the DRG. However, the
average charges for the subset of cases with code 37.65 in DRG 525
($206,497) are more than $107,086 lower than the average charges for
all cases in DRG 103 ($313,583). Furthermore, the average length of
stay for the subset of patients in DRG 525 receiving an external heart
assist system was 9.26 days compared to 37.5 days for the 633 cases in
DRG 103.
We note that the analysis above presents the difference in average
charges, not costs. Because hospitals' charges are higher than costs,
the difference in hospital costs will be less than the figures shown
here. Moving cases containing code 37.65 from DRG 525 to DRG 103 would
have two consequences. The cases in DRG 103 reporting code 37.65 would
be appreciably overreimbursed, which would be inconsistent with our
goal of coherent reimbursement structure within the DRGs. In addition,
the relative weight of DRG 103 would decrease by moving the less
resource-intensive external heart procedures into the same DRG with the
more expensive heart transplant cases. The net effect would be an
underpayment for heart transplant cases. Alternatively, we also
reconsidered our position on moving the insertion of an implantable
heart assist system (code 37.66) back into
[[Page 23323]]
DRG 525. However, as shown in the FY 2005 IPPS final rule (69 FR
48929), the resource costs associated with caring for a patient
receiving an implantable heart assist system are far more similar to
those cases receiving a heart transplant in DRG 103 than they are to
cases in DRG 525. For these reasons, we are not proposing to make any
changes to the structure of either DRG 103 or DRG 525 in this proposed
rule.
e. Carotid Artery Stent
Stroke is the third leading cause of death in the United States and
the leading cause of serious, long-term disability. Approximately 70
percent of all strokes occur in people age 65 and older. The carotid
artery, located in the neck, is the principal artery supplying the head
and neck with blood. Accumulation of plaque in the carotid artery can
lead to stroke either by decreasing the blood flow to the brain or by
having plaque break free and lodge in the brain or in other arteries to
the head. The percutaneous transluminal angioplasty (PTA) procedure
involves inflating a balloon-like device in the narrowed section of the
carotid artery to reopen the vessel. A carotid stent is then deployed
in the artery to prevent the vessel from closing or restenosing. A
distal filter device (embolic protection device) may also be present,
which is intended to prevent pieces of plaque from entering the
bloodstream.
Effective July 1, 2001, Medicare covers PTA of the carotid artery
concurrent with carotid stent placement when furnished in accordance
with the FDA-approved protocols governing Category B Investigational
Device Exemption (IDE) clinical trials. PTA of the carotid artery, when
provided solely for the purpose of carotid artery dilation concurrent
with carotid stent placement, is considered to be a reasonable and
necessary service only when provided in the context of such clinical
trials and, therefore, is considered a covered service for the purposes
of these trials. Performance of PTA in the carotid artery when used to
treat obstructive lesions outside of approved protocols governing
Category B IDE clinical trials remains a noncovered service.
At the April 1, 2004 ICD-9-CM Coordination and Maintenance
Committee meeting, we discussed creation of a new code or codes to
identify carotid artery stenting, along with a concomitant percutaneous
angioplasty or atherectomy (PTA) code for delivery of the stent(s).
This subject was addressed in response to the need to identify carotid
artery stenting for use in clinical trials in the upcoming fiscal year.
Public comment confirmed the need for specific codes for this
procedure. We established codes for carotid artery stenting procedures
effective October 1, 2004, for patients who are enrolled in an FDA-
approved clinical trial and are using on-label FDA approved stents and
embolic protection devices.
New procedure codes 00.61 (Percutaneous angioplasty or atherectomy
of precerebral (extracranial vessel(s)) and 00.63 (Percutaneous
insertion of carotid artery stent(s)) were published in Table 6B, New
Procedure Codes in the FY 2005 IPPS final rule (69 FR 49624).
Procedure code 00.61 was assigned to four MDCs and seven DRGs. The
most likely scenario is that in which cases are assigned to MDC 1
(Diseases and Disorders of the Nervous System in DRGs 533 (Extracranial
Procedures with CC) and 534 (Extracranial Procedures without CC). Cases
may also be assigned to MDC 5 (Diseases and Disorders of the
Circulatory System), MDC 21 (Injuries, Poisoning, and Toxic Effects of
Drugs), and MDC 24 (Multiple Significant Trauma). Other less likely DRG
assignments can be found in Table 6B in the Addendum to the FY 2005
IPPS final rule (69 FR 49624).
In the FY 2005 final rule, we indicated that we would continue to
monitor DRGs 533 and 534 and procedure code 00.61 in combination with
procedure code 00.63 in upcoming annual DRG reviews. For this proposed
rule, we are using proxy codes to evaluate the costs and DRG
assignments for carotid artery stenting because codes 00.61 and 00.63
were only approved for use beginning October 1, 2004, and because
MedPAR data for this period are not yet available. We used procedure
code 39.50 (Angioplasty or atherectomy of other noncoronary vessel(s))
in combination with procedure code 39.90 (Insertion of nondrug-eluting
peripheral vessel stent(s)) in DRGs 533 and 534 as the proxy codes for
coronary artery stenting. For this evaluation, we used principal
diagnosis code 433.10 (Occlusion and stenosis of carotid artery,
without mention of cerebral infarction) because this diagnosis most
closely reflects the clinical trial criteria.
The following chart shows our findings:
[GRAPHIC] [TIFF OMITTED] TP04MY05.009
The patients receiving a carotid stent (codes 39.50 and 39.90)
represented 3.5 percent of all cases in DRG 534. On average, patients
receiving a carotid stent had slightly shorter average lengths of stay
than other patients in DRGs 533 and 534. While the average charges for
patients receiving a carotid artery stent were higher than for other
patients in DRG 534, in our view, the small number of cases and the
magnitude of the difference in average charges are not sufficient to
justify a change in the DRGs.
Because we have a paucity of data for the carotid stent device and
its insertion, and no data utilizing procedure codes 00.61 and 00.63 in
a clinical trial setting, we believe it is premature to revise the DRG
structure at this time. We expect to revisit this analysis once data
become available on the new codes for carotid artery stents.
[[Page 23324]]
f. Extracorporeal Membrane Oxygenation (ECMO)
Extracorporeal membrane oxygenation (ECMO) is a procedure to create
a closed chest, heart-lung bypass system by insertion of vascular
catheters. Patients receiving this procedure require mechanical
ventilation. ECMO is performed for a small number of severely ill
patients who are at high risk of dying without this procedure. Most
often it is done for neonates with persistent pulmonary hypertension
and respiratory failure for whom other treatments have failed, certain
severely ill neonates receiving major cardiac procedures or
diaphragmatic hernia repair, and certain older children and adults,
most of whom are receiving major cardiac procedures.
We received several letters from institutions that perform ECMO.
The commenters stated that, in the CMS GROUPER logic, this procedure
has little or no impact on the DRG assignment in the newborn,
pediatric, and adult population. According to these letters, patients
receiving ECMO are highly resource intensive and should have a unique
DRG that reflects the costs of these resources. The commenters
recommended the creation of a new DRG for ECMO with a DRG weight equal
to or greater than the DRG weight for tracheostomy.
ECMO is assigned to procedure code 39.65 (Extracorporeal membrane
oxygenation). This code is classified as an O.R. procedure and is
assigned to DRG 104 (Cardiac Valve and Other Major Cardiothoracic
Procedure With Cardiac Catheterization) and DRG 105 (Cardiac Valve and
Other Major Cardiothoracic Procedure Without Cardiac Catheterization).
When ECMO is performed with other O.R. procedures, the case is assigned
to the higher weighted DRG. For example, when ECMO and a tracheostomy
are performed during the same admission, the case would be assigned to
DRG 541 (Tracheostomy with Mechanical Ventilation 96+ Hours or
Principal Diagnosis Except Face, Mouth, and Neck Diagnoses With Major
O.R.).
We note that the primary focus of updates to the Medicare DRG
classification system is changes relating to the Medicare patient
population, not the pediatric patient population. Because ECMO is
primarily a pediatric procedure and rarely performed in an adult
population, we have few cases in our data to use to evaluate resource
costs. We are aware that other insurers sometimes use Medicare's rates
to make payments. We advise private insurers to make appropriate
modifications to our payment system when it is being used for children
or other patients who are not generally found in the Medicare
population.
To evaluate the appropriateness of payment under the current DRG
assignment, we have reviewed the FY 2004 MedPAR data and found 78 ECMO
cases in 13 DRGs. The following table illustrates the results of our
findings:
[GRAPHIC] [TIFF OMITTED] TP04MY05.010
The average charges for all ECMO cases were approximately $258,821,
and the average length of stay was approximately 20.7 days. The average
charges for the ECMO cases are closer to the average charges for DRG
541 ($273,656) than to the average charges of DRG 104 ($147,766) and
DRG 105 ($131,700). Of the 78 ECMO cases, 14 cases are already assigned
to DRG 541. We believe that the data indicate that DRG 541 would be a
more appropriate DRG assignment for cases where ECMO is performed. We
further note that under the All Payer DRG System used in New York
State, cases involving ECMO are assigned to the tracheostomy DRG. Thus,
the assignment of ECMO cases to the tracheostomy DRG for Medicare would
be similar to how these cases are grouped in another DRG system. For
these reasons, we are proposing to reassign ECMO cases reporting code
39.65 to DRG 541. We are also proposing to change the title of DRG 541
to: ``ECMO or Tracheostomy With Mechanical Ventilation 96+ Hours or
Principal Diagnosis Except Face, Mouth and Neck Diagnoses With Major
O.R.''
5. MDC 6 (Diseases and Disorders of the Digestive System): Artificial
Anal Sphincter
In the FY 2003 IPPS final rule (67 FR 50242), we created two new
codes for procedures involving an artificial anal sphincter, effective
for discharges occurring on or after October 1, 2002: code 49.75
(Implantation or revision of artificial anal sphincter) is used to
identify cases involving implantation or revision of an artificial anal
sphincter and code 49.76 (Removal of artificial anal sphincter) is used
to identify cases involving the removal of the device. In Table 6B of
that final rule, we assigned both codes to one of four MDCs, based on
principal diagnosis, and one of six DRGs within those MDCs: MDC 6
(Diseases and Disorders of the Digestive System), DRGs 157 and 158
(Anal and Stomal Procedures With and Without CC, respectively); MDC 9
(Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast),
DRG 267 (Perianal and Pilonidal Procedures); MDC 21 (Injuries,
Poisonings, and Toxic Effects of Drugs), DRGs 442 and 443 (Other O.R.
Procedures for Injuries With and without CC, respectively); and MDC 24
(Multiple Significant Trauma), DRG 486 (Other O.R. Procedures for
Multiple Significant Trauma).
In the FY 2004 IPPS final rule (68 FR 45372), we discussed the
assignment of these codes in response to a request we had received to
consider reassignment of these two codes to different MDCs and DRGs.
The requester believed that the average charges ($44,000) for these
codes warranted reassignment. In the FY 2004 IPPS final rule, we stated
that we did not have sufficient MedPAR data available on the reporting
of codes 49.75 and 49.76 to make a determination on
[[Page 23325]]
DRG reassignment of these codes. We agreed that, if warranted, we would
give further consideration to the DRG assignments of these codes
because it is our customary practice to review DRG assignment(s) for
newly created codes to determine clinical coherence and similar
resource consumption after we have had the opportunity to collect
MedPAR data on utilization, average lengths of stay, average charges,
and distribution throughout the system. In the FY 2005 IPPS final rule,
we reviewed the FY 2003 MedPAR data for the presence of codes 49.75 and
49.76 and determined that these procedures were not a clinical match
with the other procedures in DRGs 157 and 158. Therefore, for FY 2005,
we moved procedure codes 49.75 and 49.76 out of DRGs 157 and 158 and
into DRGs 146 and 147 (Rectal Resection With and Without CC,
respectively). This change had the effect of doubling the payment for
the cases with procedure codes 49.75 and 49.76 assigned to DRGs 146 and
147 based on increases in the relative weights. One commenter had
suggested that we create a new DRG for ``Complex Anal/Rectal Procedure
with Implant.'' However, we noted that the DRG structure is a system of
averages and is based on groups of patients with similar
characteristics. At that time, we indicated that we would continue to
monitor procedure codes 49.75 and 49.76 and the DRGs to which they are
assigned.
For this FY 2006 proposed rule, we reviewed the FY 2004 MedPAR data
for the presence of codes 49.75 and 49.76. We found that these two
procedures are still of low incidence. Among the six possible DRG
assignments, we found a total of 18 cases reported with codes 49.75 and
49.76 for the implant, revision, or removal of the artificial anal
sphincter. We found 13 of these cases in DRGs 146 and 147 (compared to
12,558 total cases in these DRGs), and the remaining 5 cases in DRGs
442 and 443 (compared to 19,701 total cases in these DRGs).
We believe the number of cases with codes 49.75 and 49.76 in these
DRGs is too low to provide meaningful data of statistical significance.
Therefore, we are not proposing any further changes to the DRGs for
these procedures at this time. Neither are we proposing to change the
structure of DRGs 146 or 147 at this time.
6. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. Hip and Knee Replacements
Orthopedic surgeons representing the American Association of
Orthopaedic Surgeons (AAOS) requested that we subdivide DRG 209 (Major
Joint and Limb Reattachment Procedures of Lower Extremity) in MDC 8 by
creating a new DRG for revision of lower joint procedures. The AAOS
made a presentation at the October 7-8, 2004 meeting of the ICD-9-CM
Coordination and Maintenance Committee meeting. A summary report of
this meeting can be found at the CMS Web site: http://www.cms.hhs.gov/paymentsystems/icd9/. We also received written comments on this
request.
The AAOS surgeons stated that cases involving patients who require
a revision of a prior replacement of a knee or hip require
significantly more resources than cases in which patients receive an
initial joint replacement. They pointed out that total joint
replacement is one of the most commonly performed and successful
operations in orthopedic surgery. The surgeons mentioned that, in 2002,
over 300,000 hip replacement and 350,000 knee replacement procedures
were performed in the United States. They also pointed out that these
procedures are a frequent reason for Medicare hospitalization. The
surgeons stated that total joint replacements have been shown to be
highly cost-effective procedures, resulting in dramatic improvements in
quality of life for patients suffering from disabling arthritic
conditions involving the hip or knee. In addition, they reported that
the medical literature indicates success rates of greater than 90
percent for implant survivorship, reduction in pain, and improvement in
function at a 10-year to 15-year followup. However, despite these
excellent results with primary total joint replacement, factors related
to implant longevity and evolving patient demographics have led to an
increase in the volume of revision total joint procedures performed in
the United States over the past decade.
Total hip replacement is an operation that is intended to reduce
pain and restore function in the hip joint by replacing the arthritic
hip joint with a prosthetic ball and socket joint. The prosthetic hip
joint consists of a metal alloy femoral component with a modular
femoral head made of either metal or ceramic (the ``ball'') that
articulates with a metal acetabular component with a modular liner made
of either metal, ceramic, or high-density polyethylene (the
``socket'').
The AAOS surgeons stated that in a normal knee, four ligaments help
hold the bones in place so that the joint works properly. When a knee
becomes arthritic, these ligaments can become scarred or damaged.
During knee replacement surgery, some of these ligaments, as well as
the joint surfaces, are substituted or replaced by the new artificial
prostheses. Two types of fixation are used to hold the prostheses in
place. Cemented designs use polymethyl methacrylate to hold the
prostheses in place. Cementless designs rely on bone growing into the
surface of the implant for fixation.
The surgeons stated that all hip and knee replacements have an
articular bearing surface that is subject to wear (the acetabular
bearing surface in the hip and the tibial bearing surface in the knee).
Traditionally, these bearing surfaces have been made of metal-on-metal
or metal-on-polyethylene, although newer materials (both metals and
ceramics) have been used more recently. Earlier hip and knee implant
designs had nonmodular bearing surfaces, but later designs included
modular articular bearing surfaces to reduce inventory and potentially
simplify revision surgery. Wear of the articular bearing surface occurs
over time and has been found to be related to many factors, including
the age and activity level of the patient. In some cases, wear of the
articular bearing surface can produce significant debris particles that
can cause peri-prosthetic bone resorption (also known and osteolysis)
and mechanical loosening of the prosthesis. Wear of the bearing surface
can also lead to instability or prosthetic dislocation, or both, and is
a common cause of revision hip or knee replacement surgery.
Depending on the cause of failure of the hip replacement, the type
of implants used in the previous surgery, the amount and quality of the
patient's remaining bone stock, and factors related to the patient's
overall health and anatomy, revision hip replacement surgery can be
relatively straightforward or extremely complex. Revision hip
replacement can involve replacing any part or all of the implant,
including the femoral or acetabular components, and the bearing surface
(the femoral head and acetabular liner), and may involve major
reconstruction of the bones and soft tissues around the hip. All of
these procedures differ significantly in their clinical indications,
outcomes, and resource intensity.
The AAOS surgeons provided the following summary of the types of
[[Page 23326]]
revision knee replacement procedures: Among revision knee replacement
procedures, patients who underwent complete revision of all components
had longer operative times, higher complication rates, longer lengths
of stay, and significantly higher resource utilization, according to
studies conducted by the AAOS. Revision of the isolated modular tibial
insert component was the next most resource-intensive procedure, and
primary total knee replacement was the least resource-intensive of all
the procedures studied.
Isolated Modular Tibial Insert Exchange. Isolated removal
and exchange of the modular tibial bearing surface involves replacing
the modular polyethylene bearing surface without removing the femoral,
tibial, or patellar components of the prosthetic joint. Common
indications for this procedure include wear of the polyethylene bearing
surface or instability (for example, looseness) of the prosthetic knee
joint. Patient recovery times are much shorter with this procedure than
with removal and exchange of either the tibial, femoral, or patellar
components.
Revision of the Tibial Component. Revision of the tibial
component involves removal and exchange of the entire tibial component,
including both the metal base plate and the modular polyethylene
bearing surface. Common indications for tibial component revision are
wear of the modular bearing surface, aseptic loosening (often
associated with osteolysis), or infection. Depending on the amount of
associated bone loss and the integrity of the ligaments around the
knee, tibial component revision may require the use of specialized
implants with stems that extend into the tibial canal and/or the use of
metal augments or bone graft to fill bony defects.
Revision of the Femoral Component. Revision of the femoral
component involves removal and exchange of the metal implant that
covers the end of the thigh-bone (the distal femur). Common indications
for femoral component revision are aseptic loosening with or without
associated osteolysis/bone loss, or infection. Similar to tibial
revision, femoral component revision that is associated with extensive
bone loss often involves the use of specialized implants with stems
that extend into the femoral canal and/or the use of metal augments or
bone graft to fill bony defects.
Revision of the Patellar Component. Complications related
to the patella-femoral joint are one of the most common indications for
revision knee replacement surgery. Early patellar implant designs had a
metal backing covered by high-density polyethylene; these implants were
associated with a high rate of failure due to fracture of the
relatively thin polyethylene bearing surface. Other common reasons for
isolated patellar component revision include poor tracking of the
patella in the femoral groove leading to wear and breakage of the
implant, fracture of the patella with or without loosening of the
patellar implant, rupture of the quadriceps or patellar tendon, and
infection.
Revision of All Components (Tibial, Femoral, and
Patellar). The most common type of revision knee replacement procedure
is a complete total knee revision. A complete revision of all implants
is more common in knee replacements than hip replacements because the
components of an artificial knee are not compatible across vendors or
types of prostheses. Therefore, even if only one of the implants is
loose or broken, a complete revision of all components is often
required in order to ensure that the implants are compatible. Complete
total knee revision often involves extensive surgical approaches,
including osteotomizing (for example, cutting) the tibia bone in order
to adequately expose the knee joint and gain access to the implants.
These procedures often involve extensive bone loss, requiring
reconstruction with specialized implants with long stems and metal
augments or bone graft to fill bony defects. Depending on the status of
the ligaments in the knee, complete total knee revision at times
requires implantation of a highly constrained or ``hinged'' knee
replacement in order to ensure stability of the knee joint.
Reimplantation from previous resection or cement spacer.
In cases of deep infection of a prosthetic knee, removal of the
implants with implantation of an antibiotic-impregnated cement spacer,
followed by 6 weeks of intravenous antibiotics is often required in
order to clear the infection. Revision knee replacement from an
antibiotic impregnated cement spacer often involves complex bony
reconstruction due to extensive bone loss that occurs as a result of
the infection and removal of the often well-fixed implants. As noted
above, the clinical outcomes following revision from a spacer are often
poor due to limited functional capacity while the spacer is in place,
prolonged periods of protected weight bearing (following reconstruction
of extensive bony defects), and the possibility of chronic infection.
The surgeons stated that the current ICD-9-CM codes did not
adequately capture the complex nature of revisions of hip and knee
replacements. Currently, code 81.53 (Revision of hip replacement)
captures all ``partial'' and ``total'' revision hip replacement
procedures. Code 81.55 (Revision of knee replacement) captures all
revision knee replacement procedures. These two codes currently capture
a wide variety of procedures that differ in their clinical indications,
resource intensity, and clinical outcomes.
An AAOS representative made a presentation at the October 7-8, 2004
ICD-9-CM Coordination and Maintenance Committee. Based on the comments
received at the October 7-8, 2004 meeting and subsequent written
comments, new ICD-9-CM procedure codes were developed to better capture
the variety of ways that revision of hip and knee replacements can be
performed: codes 00.70 through 00.73 and code 81.53 for revisions of
hip replacements and codes 00.80 through 00.84 and code 81.55 for
revisions of knee replacements. These new and revised procedure codes,
which will be effective on October 1, 2005, can be found in Table 6B
and Table 6F of this proposed rule. The commenters stated that claims
data using these new and specific codes should provide improved data on
these procedures for future DRG modifications.
However, the commenters requested that CMS consider DRG
modifications based on current data using the existing revision codes.
The commenters reported on a recently completed study comparing
detailed hospital resource utilization and clinical characteristics in
over 10,000 primary and revision hip and knee replacement procedures at
3 high volume institutions: The Massachusetts General Hospital, the
Mayo Clinic, and the University of California at San Francisco. The
purpose of this study was to evaluate differences in clinical outcomes
and resource utilization among patients who underwent different types
of primary and revision hip or knee replacement procedures. The study
found significant differences in operative time, complication rates,
hospital length of stay, discharge disposition, and resource
utilization among patients who underwent different types of revision
hip or knee replacement procedures.
Among revision hip replacement procedures, patients who underwent
both femoral and acetabular component revision had longer operative
times, higher complication rates, longer lengths of stay, significantly
higher resource utilization, and were more likely to be discharged to a
subacute care facility. Isolated femoral
[[Page 23327]]
component revision was the next most resource-intensive procedure,
followed by isolated acetabular revision. Primary hip replacement was
the least resource intensive of all the procedures studied. Similarly,
among revision knee replacement procedures, patients who underwent
complete revision of all components had longer operative times, higher
complication rates, longer lengths of stay, and significantly higher
resource utilization. Revision of one component was the next most
resource-intensive procedure. Primary total knee replacement was the
least resource intensive of all the procedures studied.
In addition, the commenters indicated that the data showed that
extensive bone loss around the implants and the presence of a peri-
prosthetic fracture were the most significant predictors of higher
resource utilization among all revision hip and knee replacement
procedures, even when controlling for other significant patient and
procedural characteristics.
For this proposed rule, we examined data in the FY 2004 MedPAR file
on the current hip replacement procedures (codes 81.51, 81.52, 81.53)
as well as the replacements and revisions of knee replacement
procedures (codes 81.54 and 81.55) in DRG 209. We found that revisions
were significantly more resource intensive than the original hip and
knee replacements. We found average charges for revisions of hip and
knee replacements were approximately $7,000 higher than average charges
for the original joint replacements, as shown in the following charts.
The average charges for revisions of hip replacements were 21 percent
higher than the average charges for initial hip replacements. The
average charges for revisions of knee replacements were 25 percent
higher than for initial knee replacements.
[GRAPHIC] [TIFF OMITTED] TP04MY05.011
We note that there were no cases in DRG 209 for reattachment of the
foot, lower leg, or thigh (codes 84.29, 84.27, and 84.28).
To address the higher resource costs associated with hip and knee
revisions relative to the initial joint replacement procedure, we are
proposing to delete DRG 209, create a proposed new DRG 544 (Major Joint
Replacement or Reattachment of Lower Extremity), and create a proposed
new DRG 545 (Revision of Hip or Knee Replacement).
We are proposing to assign the following codes to the new proposed
DRG 544:
81.51, Total hip replacement.
81.52, Partial hip replacement.
81.54, Total knee replacement.
81.56, Total ankle replacement.
84.26, Foot reattachment.
84.27, Lower leg/ankle reattach.
84.28, Thigh reattachment.
We are proposing to assign the following codes to the proposed new
DRG 545:
00.70, Revision of hip replacement, both acetabular and
femoral components.
00.71, Revision of hip replacement, acetabular component.
00.72, Revision of hip replacement, femoral component.
00.73, Revision of hip replacement, acetabular liner and/
or femoral head only.
00.80, Revision of knee replacement, total (all
components).
00.81, Revision of knee replacement, tibial component.
00.82, Revision of knee replacement, femoral component.
00.83, Revision of knee replacement, patellar component.
00.84, Revision of knee replacement, tibial insert
(liner).
81.53, Revision of hip replacement, not otherwise
specified.
81.55, Revision of knee replacement, not otherwise
specified.
We agree with the commenters and the AAOS that the creation of a
new DRG for revisions of hip and knee replacements should resolve
payment issues for hospitals that perform the more difficult revisions
of joint replacements. In addition, as stated earlier, we have worked
with the orthopedic community to develop new procedure codes that
better capture data on the types of revisions of hip and knee
replacements. These new codes will be implemented on October 1, 2005.
Once we receive claims data using these new codes, we will review data
to determine if additional DRG modifications are needed. This effort
may include assigning some of the revision codes, such as 00.83 and
00.84 to a separate DRG. As stated earlier, the AAOS has found that
some of the procedures may not be as resource intensive. Therefore, the
AAOS has requested that CMS closely examine data from the use of the
new codes and consider future revisions.
b. Kyphoplasty
In the FY 2005 IPPS final rule (69 FR 48938), we discussed the
creation of new codes for vertebroplasty (81.65) and kyphoplasty
(81.66), which went into effect on October 1, 2004. Prior to October 1,
2004, both of these surgical procedures were assigned to code 78.49
(Other repair or plastic operation on bone). For FY 2005, we assigned
these codes to DRGs 233 and 234 (Other Musculoskeletal System and
Connective Tissue O.R. Procedure With and Without CC, respectively) in
MDC 8 (Table 6B of the FY 2005 final rule). (In the FY 2005 IPPS final
rule (69 FR 48938), we indicated that new codes 81.65 and 81.66 were
assigned to DRGs 223 and 234. We made a typographical error when
indicating that these codes were assigned to DRG 223. Codes 81.65 and
81.66 have been assigned to DRGs
[[Page 23328]]
233 and 234.) Last year, we received comments opposing the assignment
of code 81.66 to DRGs 233 and 234. The commenters supported the
creation of the codes for kyphoplasty and vertebroplasty but
recommended that code 81.66 be assigned to DRGs 497 and 498 (Spinal
Fusion Except Cervical With and Without CC, respectively). The
commenters stated that kyphoplasty requires special inflatable bone
tamps and bone cement and is a significantly more resource intensive
procedure than vertebroplasty. The commenters further stated that,
while kyphoplasty involves internal fixation of the spinal fracture and
restoration of vertebral heights, vertebroplasty involves only
fixation. The commenters indicated that hospital costs for kyphoplasty
procedures are more similar to resources used in a spinal fusion.
We stated in the FY 2005 IPPS final rule that we did not have data
in the MedPAR file on kyphoplasty and vertebroplasty. Prior to October
1, 2004, both procedures were assigned in code 78.49, which was
assigned to DRGs 233 and 234 in MDC 8. We stated that we would continue
to review this area as part of our annual review of MedPAR data. While
we do not have separate data for kyphoplasty because code 81.66 was not
established until October 1, 2004, for this proposed rule, we did
examine data on code 78.49, which includes both kyphoplasty and
vertebroplasty procedures reported in DRGs 233 and 234. The following
chart illustrates our findings:
[GRAPHIC] [TIFF OMITTED] TP04MY05.012
We do not believe these data findings support moving cases
represented by code 78.49 out of DRGs 233 and 234. While we cannot
distinguish cases that are kyphoplasty from cases that are
vertebroplasty, cases represented by code 78.49 have lower charges than
do other cases within DRGs 233 and 234. Therefore, we are not proposing
to change the DRG assignment of code 81.66 to DRGs 233 and 234 at this
time. However, once specific charge data are available, we will
consider whether further changes are warranted.
c. Multiple Level Spinal Fusion
On October 1, 2003, the following ICD-9-CM codes were created to
identify the number of levels of vertebra fused during a spinal fusion
procedure:
81.62, Fusion or refusion of 2-3 vertebrae.
81.63, Fusion or refusion of 4-8 vertebrae.
81.64, Fusion or refusion of 9 or more vertebrae.
Prior to the creation of these codes, we received a comment
recommending the establishment of new DRGs that would be differentiated
based on the number of vertebrae fused. In the FY 2005 IPPS final rule
(69 FR 48936), we stated that we did not yet have any reported cases
utilizing these multiple level spinal fusion codes. We stated that we
would wait until sufficient data were available prior to making a final
determination on whether to create separate DRGs based on the number of
vertebrae fused. We also stated that spinal fusion surgery was an area
undergoing rapid changes.
Effective October 1, 2004, we created a series of codes that
describe a new type of spinal surgery, spinal disc replacement. Our
medical advisors describe these procedures as a more conservative
approach for back pain than the spinal fusion surgical procedure. These
codes are as follows:
84.60, Insertion of spinal disc prosthesis, not otherwise
specified.
84.61, Insertion of partial spinal disc prosthesis,
cervical.
84.62, Insertion of total spinal disc prosthesis,
cervical.
84.63, Insertion of spinal disc prosthesis, thoracic.
84.64, Insertion of partial spinal disc prosthesis,
lumbosacral.
84.65, Insertion of total spinal disc prosthesis,
lumbosacral.
84.66, Revision or replacement of artificial spinal disc
prosthesis, cervical.
84.67, Revision or replacement of artificial spinal disc
prosthesis, thoracic.
84.68, Revision or replacement of artificial spinal disc
prosthesis, lumbosacral.
84.69, Revision or replacement of artificial spinal disc
prosthesis, not otherwise specified.
We also created the following two codes effective October 1, 2004,
for these new types of spinal surgery that are also a more conservative
approach to back pain than is spinal fusion:
81.65 Vertebroplasty.
81.66 Kyphoplasty.
We do not yet have data in the MedPAR file on these new types of
procedures. Therefore, we cannot yet determine what effect these new
types of procedures will have on the frequency of spinal fusion
procedures.
However, we do have data in the MedPAR file on multiple level
spinal procedures for analysis for this year's proposed rule. We
examined data in the FY 2004 MedPAR file on spinal fusion cases in the
following DRGs:
DRG 496 (Combined Anterior/Posterior Spinal Fusion).
DRG 497 (Spinal Fusion Except Cervical With CC).
DRG 498 (Spinal Fusion Except Cervical Without CC).
DRG 519 (Cervical Spinal Fusion With CC).
DRG 520 (Cervical Spinal Fusion Without CC).
Multiple level spinal fusion is captured by code 81.63 (Fusion or
refusion of 4-8 vertebrae) and code 81.64 (Fusion or refusion of 9 or
more vertebrae). Code 81.62 includes the fusion of 2-3 vertebrae and is
not considered a multiple level spinal fusion. Orthopedic surgeons
stated at the October 7-8, 2004 ICD-9-CM Coordination and Maintenance
Committee meeting that the most simple and common type of spinal fusion
involves fusing either 2 or 3 vertebrae. These surgeons stated that
there was not
[[Page 23329]]
a significant difference in resource utilization for cases involving
the fusion of 2 versus 3 vertebrae. For this reason, the orthopedic
surgeons recommended that fusion of 2 and 3 vertebrae be grouped into
one ICD-9-CM code.
We reviewed the Medicare charge data to determine whether the
number of vertebrae fused or specific diagnoses have an effect on
average length of stay and resource use for a patient. We found that,
while fusing 4 or more levels of the spine results in a small increase
in the average length of stay and a somewhat larger increase in average
charges for spinal fusion patients, an even greater impact was made by
the presence of a principal diagnosis of curvature of the spine or
malignancy. The following list of diagnoses describes conditions that
have a significant impact on resource use for spinal fusion patients:
170.2, Malignant neoplasm of vertebral column, excluding
sacrum and coccyx.
198.5, Secondary malignant neoplasm of bone and bone
marrow.
732.0, Juvenile osteochondrosis of spine.
733.13, Pathologic fracture of vertebrae.
737.0, Adolescent postural kyphosis.
737.10, Kyphosis (acquired) (postural).
737.11, Kyphosis due to radiation.
737.12, Kyphosis, postlaminectomy.
737.19, Kyphosis (acquired), other.
737.20, Lordosis (acquired) (postural).
737.21, Lordosis, postlaminectomy
737.22, Other postsurgical lordosis.
737.29, Lordosis (acquired), other.
737.30, Scoliosis [and kyphoscoliosis], idiopathic.
737.31, Resolving infantile idiopathic scoliosis.
737.32, Progressive infantile idiopathic scoliosis.
737.33, Scoliosis due to radiation.
737.34, Thoracogenic scoliosis.
737.39, Other kyphoscoliosis and scoliosis.
737.40, Curvature of spine, unspecified.
737.41, Curvature of spine associated with other
conditions, kyphosis.
737.42, Curvature of spine associated with other
conditions, lordosis.
737.43, Curvature of spine associated with other
conditions, scoliosis.
737.8, Other curvatures of spine.
737.9, Unspecified curvature of spine.
754.2, Congenital scoliosis.
756.51, Osteogenesis imperfecta.
The majority of fusion patients with these diagnoses were in DRGs
497 and 498. The chart below reflects our findings. We also include in
the chart statistics for cases in DRGs 497 and 498 with spinal fusion
of 4 or more vertebrae and cases with a principal diagnosis of
curvature of the spine or bone malignancy.
[GRAPHIC] [TIFF OMITTED] TP04MY05.013
Thus, these diagnoses result in a significant increase in resource
use. While the fusing of 4 or more vertebrae resulted in average
charges of $77,352, the impact of a principal diagnosis of curvature of
the spine or bone malignancy was substantially greater with average
charges of $95,315.
Based on this analysis, we are proposing to create a new DRG for
noncervical spinal fusions with a principal diagnosis of curvature of
the spine and malignancies. The proposed new DRG would be: proposed new
DRG 546 (Spinal Fusions Except Cervical With Principal Diagnosis of
Curvature of the Spine or Malignancy). Cases included in this proposed
new DRG would include all noncervical spinal fusions previously
assigned to DRGs 497 and 498 that have a principal diagnosis of
curvature of the spine or malignancy and would include the following
codes listed above: 170.2, 198.5, 732.0, 733.13, 737.0, 737.10, 737.11,
737.12, 737.19, 737.20, 737.21, 737.22, 737.29, 737.30, 737.31, 737.32,
737.33, 737.34, 737.39, 737.40, 737.41, 737.42, 737.43, 737.8, 737.9,
754.2, and 756.51. The proposed DRG 546 would not include cases
currently assigned to DRGs 496, 519, or 520 that have a principal
diagnosis of curvature of the spine or malignancy. The structure of
DRGs 496, 519, and 520 would remain the same.
As part of our meeting with the AAOS on DRG 209 in February 2005
(discussed under section II.B.6.a. of this preamble), the AAOS offered
to work with CMS to analyze clinical issues and make revisions to the
spinal fusion DRGs (DRGs 496 through 498 and 519 and 520). At this
time, we are limiting our proposed changes to the spinal fusion DRGs
for FY 2006 to the creation of the proposed DRG 546 discussed above.
However, we look forward to working with the AAOS to obtain its
clinical recommendations concerning our proposed changes and potential
additional modifications to the spinal fusion DRGs. We are also
soliciting comments from the public on our proposed changes and how to
incorporate new types of spinal procedures such as kyphoplasty and
spinal disc prostheses into the spinal fusion DRGs.
7. MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified
Sites)): Severe Sepsis
As we did for FY 2005, we received a request to consider the
creation of a separate DRG for the diagnosis of severe sepsis for FY
2006. Severe sepsis is described by ICD-9-CM code 995.92 (Systemic
inflammatory response syndrome due to infection with organ
dysfunction). Patients admitted with sepsis currently are assigned to
DRG 416 (Septicemia Age > 17) and DRG 417
[[Page 23330]]
(Septicemia Age 0-17) in MDC 18 (Infectious and Parasitic Diseases,
Systemic or Unspecified Sites). The commenter requested that all cases
in which severe sepsis is present on admission, as well as those cases
in which it develops after admission (which are currently classified
elsewhere), be included in this new DRG. We addressed this issue in the
FY 2005 IPPS final rule (69 FR 48975). As indicated last year, we do
not feel the current clinical definition of severe sepsis is specific
enough to identify a meaningful cohort of patients in terms of clinical
coherence and resource utilization to warrant a separate DRG. Sepsis is
found across hundreds of medical and surgical DRGs, and the term
``organ dysfunction'' implicates numerous currently existing diagnosis
codes. While we recognize that Medicare beneficiaries with severe
sepsis are quite ill and require extensive hospital resources, we do
not believe that they can be identified adequately to justify removing
them from all of the other DRGs in which they appear. We are not
proposing a new DRG for severe sepsis at this time.
8. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental
Disorders): Drug-Induced Dementia
In the FY 2005 IPPS final rule (69 FR 48939, August 11, 2004), we
discussed a request that CMS modify DRGs 521 through 523 by removing
the principal diagnosis code 292.82 (Drug-induced dementia) from these
alcohol and drug abuse DRGs. These DRGs are as follows:
DRG 521 (Alcohol/Drug Abuse or Dependence With CC).
DRG 522 (Alcohol/Drug Abuse or Dependence With
Rehabilitation Therapy Without CC).
DRG 523 (Alcohol/Drug Abuse or Dependence Without
Rehabilitation Therapy Without CC).
The commenter indicated that a patient who has a drug-induced
dementia should not be classified to an alcohol/drug DRG. However, the
commenter did not propose a new DRG assignment for code 292.82. Our
medical advisors evaluated the request and determined that the most
appropriate DRG classification for a patient with drug-induced dementia
was within MDC 20. The medical advisors indicated that because the
dementia is drug induced, it is appropriately classified to DRGs 521
through 523 in MDC 20. Therefore, we did not propose a new DRG
classification for the principal diagnosis code 292.82.
In the FY 2005 IPPS final rule, we addressed a comment from an
organization representing hospital coders that disagreed with our
decision to keep code 292.82 in DRGs 521 through 523. The commenter
stated that DRGs 521 through 523 are described as alcohol/drug abuse
and dependence DRGs, and that drug-induced dementia can be caused by an
adverse effect of a prescribed medication or a poisoning. The commenter
did not believe that assignment to DRGs 521 through 523 was appropriate
if the drug-induced dementia is due to one of these events and the
patient is not alcohol or drug dependent. The commenter recommended
that admissions for drug-induced dementia be classified to DRGs 521
through 523 only if there is a secondary diagnosis indicating alcohol/
drug abuse or dependence.
The commenter recommended that drug-induced dementia that is due to
the adverse effect of a drug or poisoning be classified to the same
DRGs as other types of dementia, such as DRG 429 (Organic Disturbances
and Mental Retardation). The commenter believed that when drug-induced
dementia is caused by a poisoning, either accidental or intentional,
the appropriate poisoning code would be sequenced as the principal
diagnosis and, therefore, these cases would likely already be assigned
to DRGs 449 and 450 (Poisoning and Toxic Effects of Drugs, Age Greater
than 17, With and Without CC, respectively) and DRG 451 (Poisoning and
Toxic Effects of Drugs, Age 0-17). The commenter stated that these
would be the appropriate DRG assignments for drug-induced dementia due
to a poisoning. We received a similar comment from a hospital
organization.
In the FY 2005 IPPS final rule, we acknowledged that the commenters
raised additional issues surrounding the DRG assignment for code 292.82
that should be considered. The commenters provided alternatives for DRG
assignment based on sequencing of the principal diagnosis and reporting
of additional secondary diagnoses. We recognized that patients may
develop drug-induced dementia from drugs that are prescribed, as well
as from drugs that are not prescribed. However, because dementia
develops as a result of use of a drug, we believed the current DRG
assignment to DRGs 521 through 523 remained appropriate. Some
commenters have agreed with the current DRG assignment of code 292.82
since the dementia was caused by use of a drug. We agree that if either
accidental or intentional poisoning caused the drug-induced dementia,
the appropriate poisoning code should be sequenced as the principal
diagnosis. As one commenter stated, these cases would be assigned to
DRGs 449 through 451. We encouraged hospitals to examine the coding for
these types of cases to determine if there were any coding or
sequencing errors. As suggested by the commenter, if code 292.82 were
reported as a secondary diagnosis and not a principal diagnosis in
cases of poisoning or adverse drug reactions, the number of cases on
DRGs 521 through 523 would decline.
In the FY 2005 IPPS final rule, we agreed to analyze this area for
FY 2006 and to look at the alternative DRG assignments suggested by the
commenters. For this proposed rule, we examined data from the FY 2004
MedPAR file on cases in DRGs 521 through 523 with a principal diagnosis
of code 292.82. We found that there were only 134 cases reported with
the principal diagnosis code 292.82 in DRGs 521 through 523 without a
diagnosis of drug and alcohol abuse. The average standardized charges
for cases with a principal diagnosis of code 292.82 that did not have a
secondary diagnosis of drug/alcohol abuse or dependence were
$12,244.35, compared to the average standardized charges for all cases
in DRG 521, which were $10,543.69. There were no cases in DRG 522 with
a principal diagnosis of code 292.82. We found only 24 cases in DRG 523
with a principal diagnosis of code 292.82. Given the small number of
cases in DRG 522 and 523, and the similarity in average standardized
charges between those cases in DRG 521 with a principal diagnosis of
code 292.82 and without a secondary diagnosis of drug/alcohol abuse or
dependence to the overall average for all cases in the DRG, we do not
believe the data suggest that a modification to DRGs 521 through 523 is
warranted. Therefore, we are not proposing changes to the current
structure of DRGs 521 through 523 for FY 2006.
9. Medicare Code Editor (MCE) Changes
(If you choose to comment on issues in this section, please include
the caption ``Medicare Code Editor'' at the beginning of your comment.)
As explained under section II.B.1. of this preamble, 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),
discharge status, and demographic information go into the Medicare
claims processing systems and are subjected to a series of automated
screens. The MCE screens are designed to identify cases that require
further review before classification into a DRG.
[[Page 23331]]
a. Newborn Age Edit
In the past, we have discussed and received comments concerning
revision of the pediatric portions of the Medicare IPPS DRG
classification system, that is, MDC 15 (Newborns and Other Neonates
With Conditions Originating in the Perinatal Period). Most recently, we
addressed these comments in both the FY 2005 proposed rule (69 FR
28210) and the FY 2005 IPPS final rule (69 FR 48938). In those rules,
we indicated that we would be responsive to specific requests for
updating MDC 15 on a limited, case-by-case basis.
We have recently received a request through the Open Door Forum to
revise the MCE ``newborn age edit'' by removing over 100 codes located
in Chapter 15 of ICD-9-CM that are identified as ``newborn'' codes.
This request was made because these codes usually cause an edit or
denial to be triggered when they are used on children greater than 1
year of age. However, the underlying issue with these particular edits
is that other payers have adopted the CMS Medicare Code Editor in a
wholesale manner, instead of adapting it for use in their own patient
populations.
We acknowledge that Medicare DRGs are sometimes used to classify
other patient groups. However, CMS' primary focus of updates to the
Medicare DRG classification system is on changes relating to the
Medicare patient population, not the pediatric or neonatal patient
populations.
There are practical considerations regarding the assumption of a
larger role for the Medicare DRG in the pediatric or neonatal areas,
given the difference between the Medicare population and that of
newborns and children. There are also challenges surrounding the
development of DRG classification systems and applications appropriate
to children. We do not have the clinical expertise to make decisions
about these patients, and must rely on outside clinicians for advice.
In addition, because newborns and other children are generally not
eligible for Medicare, we must rely on outside data to make decisions.
We recognize that there are evolving alternative classification systems
for children and encourage payers to use the CMS MCE as a template
while making modifications appropriate for pediatric patients.
Therefore, we would encourage those non-Medicare systems needing a
more comprehensive pediatric system of edits to update their systems by
choosing from other existing systems or programs that are currently in
use. Because of our reluctance to assume expertise in the pediatric
arena, we are not proposing to make the commenter's suggested changes
to the MCE ``newborn age edit'' for FY 2006.
b. Newborn Diagnoses Edit
Last year, in our changes to the MCE, we inadvertently added code
796.6 (Abnormal findings on neonatal screening) to both the MCE edit
for ``Maternity Diagnoses--age 12 through 55'', and the MCE edit for
``Diagnoses Allowed for Females Only''. We are proposing to remove code
796.6 from these two edits and add it to the ``Newborn Diagnoses''
edit.
c. Diagnoses Allowed for ``Males Only'' Edit
We have received a request to remove two codes from the ``Diagnoses
Allowed for Males Only'' edit, related to androgen insensitivity
syndrome (AIS). AIS is a new term for testicular feminization. Code
257.8 (Other testicular dysfunction) is used to describe individuals
who, despite having XY chromosomes, develop as females with normal
female genitalia and mammary glands. Testicles are present in the same
general area as the ovaries, but are undescended and are at risk for
development of testicular cancer, so are generally surgically removed.
These individuals have been raised as females, and would continue to be
considered female, despite their XY chromosome makeup. Therefore, as
AIS is coded to 257.8, and has posed a problem associated with the
gender edit, we are proposing to remove this code from the ``Males
Only'' edit in the MCE.
A similar clinical scenario can occur with certain disorders that
cause a defective biosynthesis of testicular androgen. This disorder is
included in code 257.2 (Other testicular hypofunction). Therefore, we
also are proposing to remove code 257.2 from the ``Male Only'' gender
edit in the MCE.
d. Tobacco Use Disorder Edit
We have become aware of the possible need to add code 305.1
(Tobacco use disorder) to the MCE in order to make admissions for
tobacco use disorder a noncovered Medicare service when code 305.1 is
reported as the principal diagnosis. On March 22, 2005, CMS published a
final decision memorandum and related national coverage determination
(NCD) on smoking cessation counseling services on its Web site: (http://www.cms.hhs.gov/coverage/ coverage/). Among other things, this NCD provides
that: ``Inpatient hospital stays with the principal diagnosis of 305.1,
Tobacco Use Disorder, are not reasonable and necessary for the
effective delivery of tobacco cessation counseling services. Therefore,
we will not cover tobacco cessation services if tobacco cessation is
the primary reason for the patient's hospital stay.'' Therefore, in
order to maintain internal consistency with CMS programs and decisions,
we are proposing to add code 305.1 to the MCE edit ``Questionable
Admission-Principal Diagnosis Only'' in order to make tobacco use
disorder a noncovered admission.
e. Noncovered Procedure Edit
Effective October 1, 2004, CMS adopted the use of code 00.61
(Percutaneous angioplasty or atherectomey of precerebral (extracranial)
vessel(s) (PTA)) and code 00.63 (Percutaneous insertion of carotid
artery stent(s). Both codes are to be recorded to indicate the
insertion of a carotid artery stent or stents. At the time of the
creation of the codes, the coverage indication for carotid artery
stenting was only for patients in a clinical trial setting, and
diagnostic code V70.7 (Examination of participation in a clinical
trial) was required for payment of these cases. However, effective
October 12, 2004, Medicare covers PTA of the carotid artery concurrent
with the placement of an FDA-approved carotid stent for an FDA-approved
indication when furnished in accordance with FDA-approved protocols
governing post-approval studies. Therefore, as the coverage indication
has changed, we are proposing to remove codes 00.61, 00.63, and V70.7
from the MCE noncovered procedure edit.
10. Surgical Hierarchies
(If you choose to comment on issues in this section, please include
the caption ``Surgical Hierarchy'' at the beginning of your comment.)
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different 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 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 DRG associated with the most resource-
intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of DRG reclassification and recalibrations, we
reviewed the surgical
[[Page 23332]]
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 DRGs. For example,
in MDC 11, the surgical class ``kidney transplant'' consists of a
single DRG (DRG 302) and the class ``kidney, ureter and major bladder
procedures'' consists of three DRGs (DRGs 303, 304, and 305).
Consequently, in many cases, the surgical hierarchy has an impact on
more than one DRG. The methodology for determining the most resource-
intensive surgical class involves weighting the average resources for
each DRG by frequency to determine the weighted average resources for
each surgical class. For example, assume surgical class A includes DRGs
1 and 2 and surgical class B includes DRGs 3, 4, and 5. Assume also
that the average charge of DRG 1 is higher than that of DRG 3, but the
average charges of DRGs 4 and 5 are higher than the average charge of
DRG 2. To determine whether surgical class A should be higher or lower
than surgical class B in the surgical hierarchy, we would weight the
average charge of each DRG in the class by frequency (that is, by the
number of cases in the DRG) to determine average resource consumption
for the surgical class. The surgical classes would then be ordered from
the class with the highest average resource utilization to that with
the lowest, with the exception of ``other O.R. procedures'' as
discussed below.
This methodology may occasionally result in assignment of a case
involving multiple procedures to the lower-weighted 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 charge is
ordered above a surgical class with a higher average charge. 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 charge for the DRG or DRGs in
that surgical class may be higher than that for other surgical classes
in the MDC. The ``other O.R. procedures'' class is a group of
procedures that are only infrequently related to the diagnoses in the
MDC, but are still occasionally performed on patients in the MDC with
these diagnoses. Therefore, assignment to these surgical classes should
only occur if no other surgical class more closely related to the
diagnoses in the MDC is appropriate.
A second example occurs when the difference between the average
charges 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 charges are likely to shift such that the higher-
ordered surgical class has a lower average charge than the class
ordered below it.
Based on the preliminary recalibration of the DRGs, we are
proposing to revise the surgical hierarchy for MDC 5 (Diseases and
Disorders of the Circulatory System) and MDC 8 (Diseases and Disorders
of the Musculoskeletal System and Connective Tissue) as follows:
In MDC 5, we are proposing to reorder--
DRG 116 (Other Permanent Cardiac Pacemaker Implant) above
DRG 549 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent
With AMI With CC).
DRG 549 above DRG 550 (Percutaneous Cardiovascular
Procedure With Drug-Eluting Stent With AMI Without CC).
DRG 550 above DRG 547 (Percutaneous Cardiovascular
Procedure With AMI With CC).
DRG 547 above DRG 548 (Percutaneous Cardiovascular
Procedure With AMI Without CC).
DRG 548 above DRG 527 (Percutaneous Cardiovascular
Procedure With Drug-Eluting Stent Without AMI).
DRG 527 above DRG 517 (Percutaneous Cardiovascular
Procedure With Non-Drug Eluting Stent Without AMI).
DRG 517 above DRG 518 (Percutaneous Cardiovascular
Procedure Without Coronary Artery Stent or AMI).
DRG 518 above DRGs 478 and 479 (Other Vascular Procedures
With and Without CC, respectively).
In MDC 8, we are proposing to reorder--
DRG 496 (Combined Anterior/Posterior Spinal Fusion) above
DRG 546 (Spinal Fusion Except Cervical With Principal Diagnosis of
Curvature of the Spine or Malignancy).
DRG 546 above DRGs 497 and 498 (Spinal Fusion Except
Cervical With and Without CC, respectively).
DRG 217 (Wound Debridement and Skin Graft Except Hand, For
Musculoskeletal and Connective Tissue Disease) above DRG 545 (Revision
of Hip or Knee Replacement).
DRG 545 above DRG 544 (Major Joint Replacement or
Reattachment).
DRG 544 above DRGs 519 and 520 (Cervical Spinal Fusion
With and Without CC, respectively).
11. Refinement of Complications and Comorbidities (CC) List
(If you choose to comment on issues in this section, please include
the caption ``CC List'' at the beginning of your comment.)
a. Background
As indicated earlier in this preamble, under the IPPS DRG
classification system, we have developed a standard list of diagnoses
that are considered complications or comorbidities (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.
b. Comprehensive Review of the CC List
In previous years, we have made changes to the standard list of
CCs, either by adding new CCs or deleting CCs already on the list, but
we have never conducted a comprehensive review of the list. There are
currently 3,285 diagnosis codes on the CC list. There are 121-paired
DRGs that are split on the presence or absence of a CC.
We have reviewed these paired DRGs and found that the majority of
cases that are assigned to DRGs that have a CC split fall into the DRG
with CC. While this fact is not new, we have found that a much higher
proportion of cases are being grouped to the DRG with a CC than had
occurred in the past. In our review of the DRGs included in Table 7b of
the September 1, 1987 Federal Register rule (52 FR 33125), we found the
following percentages of cases assigned a CC in those DRGs that had a
CC split (DRG Definitions Manual, GROUPER Version 5.0 (1986 data)):
Cases with CC: 61.9 percent.
Cases without CC: 38.1 percent.
When we compared the above DRG 1986 data to the DRG 2004 data that
were included in the DRGs Definitions Manual, GROUPER Version 22.0, we
found the following:
Cases with CC: 79.9 percent.
[[Page 23333]]
Cases without CC: 20.1 percent.
(We used DRGs Definitions Manual, GROUPER Version 5.0, for this
analysis because prior versions of the DRGs Definitions Manual used age
as a surrogate for a CC and the split was ``CC and/or age greater than
69''.)
The vast majority of patients being treated in inpatient settings
have a CC as currently defined, and we believe that it is possible that
the CC distinction has lost much of its ability to differentiate the
resource needs of patients. The original definition used to develop the
CC list (the presence of a CC would be expected to extend the length of
stay of at least 75 percent of the patients who had the CC by at least
one day) was used beginning in 1981 and has been part of the IPPS since
its inception in 1983. There has been no substantive review of the CC
list since its original development. In reviewing this issue, our
clinical experts found several diseases that appear to be obvious
candidates to be on the CC list, but currently are not:
[GRAPHIC] [TIFF OMITTED] TP04MY05.014
Conversely, our medical experts believe the following conditions
are examples of common conditions that are on the CC list, but are not
likely to lead to higher treatment costs when present as a secondary
diagnosis:
[GRAPHIC] [TIFF OMITTED] TP04MY05.015
We note that the above conditions are examples only of why we
believe the CC list needs a comprehensive review. In addition to this
review, we note that these conditions may be treated differently under
several DRG systems currently in use. For instance, ICD-9-CM code
414.12 (Dissection of coronary artery) is listed as a ``Major CC''
under the All Patient (AP) DRGs, GROUPER Version 21.0 and an
``Extreme'' CC under the All Patient Refined (APR) DRGs, GROUPER
Version 20.0, but is not listed as a CC at all in GROUPER Version 22.0
of the DRGs Definitions Manual used by Medicare. Similarly, ICD-9-CM
code 424.0 (Mitral valve disorder) is a CC under GROUPER Version 22.0
of the DRGs Definitions Manual for Medicare's DRG system, a minor CC
under the GROUPER Version 20.0 of the APR-DRGs, and not a CC at all
under GROUPER Version 21.0 of the AP-DRGs.
Given the long period of time that has elapsed since the original
CC list was developed, the incremental nature of changes to it, and
changes in the way inpatient care is delivered, we are planning a
comprehensive and systematic review of the CC list for the IPPS rule
for FY 2007. As part of this process, we plan to consider revising the
standard for determining when a condition is a CC. For instance, we may
use an alternative to classifying a condition as a CC based on how it
affects the length of stay of a case. Similar to other aspects of the
DRG system, we may consider the effect of a specific secondary
diagnosis on the charges or costs of a case to evaluate whether to
include the condition on the CC list. Using a statistical algorithm, we
may classify each diagnosis based on its effect on hospital charges (or
costs) relative to other cases when present as a secondary diagnosis to
obtain better information on when a particular condition is likely to
increase hospital costs. For example, Code 293.84 (Anxiety disorder in
conditions classified elsewhere), which is currently listed as a CC,
might be removed from the CC list if analysis of the data do not
support the fact that it represents a significant increase in resource
utilization, and a code such as 359.4 (Toxic myopathy), which is
currently not listed as a CC, could be added to the CC list if the data
support it. In addition to using hospital charge data as a basis for a
review, we would expect to supplement the process with review by our
medical experts. Further, we may also consider doing a comparison of
the Medicare DRG CC list with other DRG systems such as the AP-DRGs and
the APR-DRGs to determine how the same secondary diagnoses are treated
under these systems.
[[Page 23334]]
By performing a comprehensive review of the CC list, we expect to
revise the DRG classification system to better reflect resource
utilization and remove conditions from the CC list that only have a
marginal impact on a hospital's costs. We believe that a comprehensive
review of the CC list would be consistent with MedPAC's recommendation
that we improve the DRG system to better recognize severity. We will
provide more detail about how we expect to undertake this analysis in
the future, and any changes to the CC list will only be adopted after a
notice and comment rulemaking that fully explains the methodology we
plan to use in conducting this review. We encourage comment at this
time regarding possible ways that more meaningful indicators of
clinical severity and their implications for resource use can be
incorporated into our comprehensive review and possible restructuring
of the CC list.
c. CC Exclusions List for FY 2006
In the September 1, 1987 final notice (52 FR 33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered valid CCs in combination with a particular principal
diagnosis. We created the CC Exclusions List for the following reasons:
(1) to preclude coding of CCs for closely related conditions; (2) to
preclude duplicative or inconsistent coding from being treated as CCs;
and (3) to ensure that cases are appropriately classified between the
complicated and uncomplicated DRGs in a pair. As we indicated above, we
developed this list of diagnoses, using physician panels, to include
those diagnoses that, when present as a secondary condition, would be
considered a substantial complication or comorbidity. In previous
years, we have made changes to the list of CCs, either by adding new
CCs or deleting CCs already on the list. At this time, we are not
proposing to delete any of the diagnosis codes on the CC list for FY
2006.
In the May 19, 1987 proposed notice (52 FR 18877) and the September
1, 1987 final notice (52 FR 33154), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another.
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for the same condition should not be considered
CCs for one another.
Codes for the same condition that cannot coexist, such as
partial/total, unilateral/bilateral, obstructed/unobstructed, and
benign/malignant, should not be considered CCs for one another.
Codes for the same condition in anatomically proximal
sites should not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. We have continued to review the remaining
CCs to identify additional exclusions and to remove diagnoses from the
master list that have been shown not to meet the definition of a CC.\1\
---------------------------------------------------------------------------
\1\ See the FY 1989 final rule (53 FR 38485) [September 30,
1988] for the revision made for the discharges occurring in FY 1989;
the FY 1990 final rule (54 FR 36552) [September 1, 1989] for the FY
1990 revision; the FY 1991 final rule (55 FR 36126) [September 4,
1990] for the FY 1991 revision; the FY 1992 final rule (56 FR 43209)
[August 30, 1991] for the FY 1992 revision; the FY 1993 final rule
(57 FR 39753) [September 1, 1992] for the FY 1993 revision; the FY
1994 final rule (58 FR 46278) [September 1, 1993] for the FY 1994
revisions; the FY 1995 final rule (59 FR 45334) [September 1, 1994]
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782)
[September 1, 1995] for the FY 1996 revisions; the FY 1997 final
rule (61 FR 46171) [August 30, 1996] for the FY 1997 revisions; the
FY 1998 final rule (62 FR 45966) [August 29, 1997] for the FY 1998
revisions; the FY 1999 final rule (63 FR 40954) [July 31, 1998] for
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064) [August
1, 2000] for the FY 2001 revisions; the FY 2002 final rule (66 FR
39851) [August 1, 2001] for the FY 2002 revisions; the FY 2003 final
rule (67 FR 49998) [August 1, 2002] for the FY 2003 revisions; the
FY 2004 final rule (68 FR 45364) [August 1, 2003] for the FY 2004
revisions; and the FY 2005 final rule (69 FR 49848) [August 11,
2004] for the FY 2005 revisions. In the FY 2000 final rule (64 FR
41490) [July 30, 1999], we did not modify the CC Exclusions List
because we did not make any changes to the ICD-9-CM codes for FY
2000.
---------------------------------------------------------------------------
We are proposing a limited revision of the CC Exclusions List to
take into account the proposed changes that will be made in the ICD-9-
CM diagnosis coding system effective October 1, 2004. (See section
II.B.13. of this preamble for a discussion of ICD-9-CM changes.) We are
proposing these changes in accordance with the principles established
when we created the CC Exclusions List in 1987.
Tables 6G and 6H in the Addendum to this proposed rule contain the
revisions to the CC Exclusions List that would be effective for
discharges occurring on or after October 1, 2005. Each table shows the
principal diagnoses with changes to the excluded CCs. Each of these
principal diagnoses is shown with an asterisk, and the additions or
deletions to the CC Exclusions List are provided in an indented column
immediately following the affected principal diagnosis.
CCs that are added to the list are in Table 6G--Additions to the CC
Exclusions List. Beginning with discharges on or after October 1, 2005,
the indented diagnoses would not be recognized by the GROUPER as valid
CCs for the asterisked principal diagnosis.
CCs that are deleted from the list are in Table 6H--Deletions from
the CC Exclusions List. Beginning with discharges on or after October
1, 2005, the indented diagnoses would be recognized by the GROUPER as
valid CCs for the asterisked principal diagnosis.
Copies of the original CC Exclusions List applicable to FY 1988 can
be obtained from the National Technical Information Service (NTIS) of
the Department of Commerce. It is available in hard copy for $152.50
plus shipping and handling. A request for the FY 1988 CC Exclusions
List (which should include the identification accession number (PB) 88-
133970) should be made to the following address: National Technical
Information Service, United States Department of Commerce, 5285 Port
Royal Road, Springfield, VA 22161; or by calling (800) 553-6847.
Users should be aware of the fact that all revisions to the CC
Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996,
1997, 1998, 1999, 2001, 2002, 2003, 2004, and 2005) and those in Tables
6G and 6H of this proposed rule for FY 2006 must be incorporated into
the list purchased from NTIS in order to obtain the CC Exclusions List
applicable for discharges occurring on or after October 1, 2005. (Note:
There was no CC Exclusions List in FY 2000 because we did not make
changes to the ICD-9-CM codes for FY 2000.)
Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with CMS, is
responsible for updating and maintaining the GROUPER program. The
current DRG Definitions Manual, Version 22.0, is available for $225.00,
which includes $15.00 for shipping and handling. Version 23.0 of this
manual, which will include the final FY 2006 DRG changes, will be
available for $225.00. These manuals may be obtained by writing 3M/HIS
at the following address: 100 Barnes Road, Wallingford, CT 06492; or by
calling (203) 949-0303. Please specify the revision or revisions
requested.
[[Page 23335]]
12. Review of Procedure Codes in DRGs 468, 476, and 477
(If you choose to comment on issues in this section, please include
the caption ``DRGs 468, 476, and 477'' at the beginning of your
comment.)
Each year, we review cases assigned to DRG 468 (Extensive O.R.
Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic O.R.
Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive
O.R. Procedure Unrelated to Principal Diagnosis) to determine whether
it would be appropriate to change the procedures assigned among these
DRGs.
DRGs 468, 476, and 477 are reserved for those cases in which none
of the O.R. procedures performed are related to the principal
diagnosis. These DRGs are intended to capture atypical cases, that is,
those cases not occurring with sufficient frequency to represent a
distinct, recognizable clinical group. DRG 476 is assigned to those
discharges in which one or more of the following prostatic procedures
are performed and are unrelated to the principal diagnosis:
60.0, Incision of prostate.
60.12, Open biopsy of prostate.
60.15, Biopsy of periprostatic tissue.
60.18, Other diagnostic procedures on prostate and
periprostatic tissue.
60.21, Transurethral prostatectomy.
60.29, Other transurethral prostatectomy.
60.61, Local excision of lesion of prostate.
60.69, Prostatectomy, not elsewhere classified.
60.81, Incision of periprostatic tissue.
60.82, Excision of periprostatic tissue.
60.93, Repair of prostate.
60.94, Control of (postoperative) hemorrhage of prostate.
60.95, Transurethral balloon dilation of the prostatic
urethra.
60.96, Transurethral destruction of prostate tissue by
microwave thermotherapy.
60.97, Other transurethral destruction of prostate tissue
by other thermotherapy.
60.99, Other operations on prostate.
All remaining O.R. procedures are assigned to DRGs 468 and 477,
with DRG 477 assigned to those discharges in which the only procedures
performed are nonextensive procedures that are unrelated to the
principal diagnosis.\2\
---------------------------------------------------------------------------
\2\ The original list of the ICD-9-CM procedure codes for the
procedures we consider nonextensive procedures, if performed with an
unrelated principal diagnosis, was published in Table 6C in section
IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part
of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56
FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final
rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY
1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173),
and the FY 1998 final rule (62 FR 45981), we moved several other
procedures from DRG 468 to DRG 477, and some procedures from DRG 477
to DRG 468. No procedures were moved in FY 1999, as noted in the
final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65
FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule
(67 FR 49999) we did not move any procedures from DRG 477. However,
we did move procedure codes from DRG 468 and placed them in more
clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365),
we moved several procedures from DRG 468 to DRGs 476 and 477 because
the procedures are nonextensive. In the FY 2005 final rule (69 FR
48950), we moved one procedure from DRG 468 to 477. In addition, we
added several existing procedures to DRGs 476 and 477.
---------------------------------------------------------------------------
a. Moving Procedure Codes From DRG 468 or DRG 477 to MDCs
We annually conduct a review of procedures producing assignment to
DRG 468 or DRG 477 on the basis of volume, by procedure, to see if it
would be appropriate to move procedure codes out of these DRGs into one
of the surgical DRGs for the MDC into which the principal diagnosis
falls. The data are arrayed 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 DRGs for the MDC in which the diagnosis falls.
Based on this year's review, we did not identify any procedures in DRGs
468 or 477 that should be removed to one of the surgical DRGs.
Therefore, in this proposed rule, we are not proposing any changes for
FY 2006.
b. Reassignment of Procedures Among DRGs 468, 476, and 477
We also annually review the list of ICD-9-CM procedures that, when
in combination with their principal diagnosis code, result in
assignment to DRGs 468, 476, and 477, to ascertain if any of those
procedures should be reassigned from one of these three DRGs to another
of the three DRGs based on average charges and the length of stay. We
look at the data for trends such as shifts in treatment practice or
reporting practice that would make the resulting DRG assignment
illogical. If we find these shifts, we would propose to move cases to
keep the 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.
It has come to our attention that procedure code 26.12 (Open biopsy
of salivary gland or duct) is assigned to DRG 468 (Extensive O.R.
Procedure Unrelated to Principal Diagnosis). We believe this to be an
error, as code 26.31 (Partial sialoadenectomy), which is a more
extensive procedure than code 26.12, is assigned to DRG 477. Therefore,
we are proposing to correct this error by moving code 26.12 out of DRG
468 and reassigning it to DRG 477.
We are not proposing to move any procedure codes from DRG 476 to
DRGs 468 or 477, or from DRG 477 to DRGs 468 or 476.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on our review this year, we are not proposing to add any
diagnosis codes to MDCs.
13. Changes to the ICD-9-CM Coding System
As described in section II.B.1. of this preamble, the ICD-9-CM is a
coding system used for the reporting of diagnoses and procedures
performed on a patient. In September 1985, the ICD-9-CM Coordination
and Maintenance Committee was formed. This is a Federal
interdepartmental committee, co-chaired by the National Center for
Health Statistics (NCHS) and CMS, charged with maintaining and updating
the ICD-9-CM system. The Committee is jointly responsible for approving
coding changes, and developing errata, addenda, and other modifications
to the ICD-9-CM to reflect newly developed procedures and technologies
and newly identified diseases. The Committee is also responsible for
promoting the use of Federal and non-Federal educational programs and
other communication techniques with a view toward standardizing coding
applications and upgrading the quality of the classification system.
The Official Version of the ICD-9-CM contains the list of valid
diagnosis and procedure codes. (The Official Version of the ICD-9-CM is
available from the Government Printing Office on CD-ROM for $25.00 by
calling (202) 512-1800.) The Official Version of the ICD-9-CM is no
longer available in printed manual form from the Federal Government; it
is only available on CD-ROM. Users who need a paper version are
referred to one of the many products available from publishing houses.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
CMS has lead
[[Page 23336]]
responsibility for the ICD-9-CM procedure codes included in the Tabular
List and Alphabetic Index for Procedures.
The Committee encourages participation in the above process by
health-related organizations. In this regard, the Committee holds
public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding field, such
as the American Health Information Management Association (AHIMA), the
American Hospital Association (AHA), and various physician specialty
groups, as well as individual physicians, medical record
administrators, 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 2006 at a public meeting held on October 7-8,
2004, and finalized the coding changes after consideration of comments
received at the meetings and in writing by January 12, 2005. Those
coding changes are announced in Tables 6A through 6F of the Addendum to
this proposed rule. The Committee held its 2005 meeting on March 31-
April l, 2005. Proposed new codes for which there was a consensus of
public support and for which complete tabular and indexing charges can
be made by May 2005 will be included in the October 1, 2005 update to
ICD-9-CM. These additional codes will be included in Tables 6A through
6F of the final rule.
Copies of the minutes of the procedure codes discussions at the
Committee's October 7-8, 2004 meeting can be obtained from the CMS Web
site: http://www.cms.hhs.gov/paymentsystems/icd9/. The minutes of the
diagnoses codes discussions at the October 7-8, 2004 meeting are found
at: http://www.cdc.gov/nchs/icd9.htm. Paper copies of these minutes are
no longer available and the mailing list has been discontinued. 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, Co-Chairperson, ICD-9-CM
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo
Road, Hyattsville, MD 20782. Comments may be sent by e-mail to:
[email protected].
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination
and Maintenance Committee, CMS, Center for Medicare Management,
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06,
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent
by e-mail to: [email protected].
The ICD-9-CM code changes that have been approved will become
effective October 1, 2005. The new ICD-9-CM codes are listed, along
with their DRG classifications, in Tables 6A and 6B (New Diagnosis
Codes and New Procedure Codes, respectively) in the Addendum to this
proposed rule. As we stated above, the code numbers and their titles
were presented for public comment at the ICD-9-CM Coordination and
Maintenance Committee meetings. Both oral and written comments were
considered before the codes were approved. In this proposed rule, we
are only soliciting comments on the proposed classification of these
new codes.
For codes that have been replaced by new or expanded codes, the
corresponding new or expanded diagnosis codes are included in Table 6A.
New procedure codes are shown in Table 6B. Diagnosis codes that have
been replaced by expanded codes or other codes or have been deleted are
in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes
will not be recognized by the GROUPER beginning with discharges
occurring on or after October 1, 2005. Table 6D contains invalid
procedure codes. These invalid procedure codes will not be recognized
by the GROUPER beginning with discharges occurring on or after October
1, 2005. Revisions to diagnosis code titles are in Table 6E (Revised
Diagnosis Code Titles), which also includes the DRG assignments for
these revised codes. Table 6F includes revised procedure code titles
for FY 2006.
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 April meeting as part of the
code revisions effective the following October. As stated previously,
ICD-9-CM codes discussed at the March 31-April 1, 2005 Committee
meeting that receive consensus and that can be finalized by May 2005
will be included in Tables 6A through 6F of the final rule.
Section 503(a) of Pub. L. 108-173 included a requirement for
updating ICD-9-CM codes twice a year instead of a single update on
October 1 of each year. This requirement was included as part of the
amendments to the Act relating to recognition of new technology under
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by
adding a clause (vii) which states that the ``Secretary shall provide
for the addition of new diagnosis and procedure codes in April 1 of
each year, but the addition of such codes shall not require the
Secretary to adjust the payment (or diagnosis-related group
classification) * * * until the fiscal year that begins after such
date.'' This requirement improves the recognition of new technologies
under the IPPS system by providing information on these new
technologies at an earlier date. Data will be available 6 months
earlier than would be possible with updates occurring only once a year
on October 1.
While section 503(a) 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 capture the new codes.
Hospitals also have to obtain the new code books and encoder updates,
and make other system changes in order to capture and report the new
codes.
The ICD-9-CM Coordination and Maintenance Committee holds its
meetings in the Spring and Fall, usually in April and September, in
order to update the codes and the applicable payment and reporting
systems by October 1 of each year. Items are placed on the agenda for
the ICD-9-CM Coordination and Maintenance Committee meeting if the
request is received at least 2 months prior to the meeting. This
requirement allows time for staff to review and research the coding
issues and prepare material for discussion at the meeting. It also
allows time for the topic to be publicized in meeting announcements in
the Federal Register as well as on the CMS Web site. The public decides
whether or not to attend the meeting based on the topics listed on the
agenda. Final decisions on code title revisions are currently made by
March 1 so that these titles can be included in the IPPS proposed rule.
A
[[Page 23337]]
complete addendum describing details of all changes to ICD-9-CM, both
tabular and index, are publicized on CMS and NCHS Web pages 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, 2003 ICD-9-CM Coordination and Maintenance
Committee minutes. The public agreed that there was a need to hold the
fall meetings earlier, in September or October, in order to meet the
new implementation dates. The public provided comment that additional
time would be needed to update hospital systems and obtain new code
books and coding software. There was considerable concern expressed
about the impact this new April update would have on providers.
In the FY 2005 IPPS final rule, we implemented section 503(a) by
developing a mechanism for approving, in time for the April update,
diagnoses and procedure code revisions needed to describe new
technologies and medical services for purposes of the new technology
add-on payment process. We also established the following process for
making these determinations. Topics considered during the Fall ICD-9-CM
Coordination and Maintenance Committee meeting are considered for an
April 1 update if a strong and convincing case is made by the requester
at the Committee's public meeting. The request must identify the reason
why a new code is needed in April for purposes of the new technology
process. The participants at the meeting and those reviewing the
Committee meeting summary report are provided the opportunity to
comment on this expedited request. All other topics are considered for
the October 1 update. Participants at the Committee meeting are
encouraged to comment on all such requests. There were no requests for
an expedited April l, 2005 implementation of an ICD-9-CM code at the
October 7-8, 2004 Committee meeting. Therefore, there were no new ICD-
9-CM codes implemented on April 1, 2005.
We believe that this process captures the intent of section 503(a).
This requirement was included in the provision revising the standards
and process for recognizing new technology under the IPPS. In addition,
the need for approval of new codes outside the existing cycle (October
1) arises most frequently and most acutely where the new codes will
capture new technologies that are (or will be) under consideration for
new technology add-on payments. Thus, we believe this provision was
intended to expedite data collection through the assignment of new ICD-
9-CM codes for new technologies seeking higher payments.
Current addendum and code title information is published on the CMS
Web page at: http://www.cms.hhs.gov/paymentsystems/icd9. Summary tables
showing new, revised, and deleted code titles are also posted on the
following CMS Web page: http://www.cms.hhs.gov/medlearn/icd9code.asp.
Information on ICD-9-CM diagnosis codes, along with the Official ICD-9-
CM Coding Guidelines, can be found on the Wep page at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised, and deleted
ICD-9-CM codes is also provided to the AHA for publication in the
Coding Clinic for ICD-9-CM. AHA also distributes information to
publishers and software vendors.
CMS also sends copies of all ICD-9-CM coding changes to its
contractors for use in updating their systems and providing education
to providers.
These same means of disseminating information on new, revised, and
deleted ICD-9-CM codes will be used to notify providers, publishers,
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. Currently, code titles are also
published in the IPPS proposed and final rules. The code titles are
adopted as part of the ICD-9-CM Coordination and Maintenance Committee
process. The code titles are not subject to comment in the proposed or
final rules. We will continue to publish the October code updates in
this manner within the IPPS proposed and final rules. For codes that
are implemented in April, we will assign the new procedure code to the
same DRG in which its predecessor code was assigned so there will be no
DRG impact as far as DRG assignment. This mapping was specified by Pub.
L. 108-173. Any midyear coding updates will be available through the
websites indicated above and through the Coding Clinic for ICD-9-CM.
Publishers and software vendors currently obtain code changes through
these sources in order to update their code books and software systems.
We will strive to have the April 1 updates available through these
websites 5 months prior to implementation (that is, early November of
the previous year), as is the case for the October 1 updates. Codebook
publishers are evaluating how they will provide any code updates to
their subscribers. Some publishers may decide to publish mid-year book
updates. Others may decide to sell an addendum that lists the changes
to the October 1 code book. Coding personnel should contact publishers
to determine how they will update their books. CMS and its contractors
will also consider developing provider education articles concerning
this change to the effective date of certain ICD-9-CM codes.
14. Other Issues: Acute Intermittent Porphyria
Acute intermittent porphyria is a rare metabolic disorder. The
condition is described by code 277.1 (Disorders of porphyrin
metabolism). Code 277.1 is assigned to DRG 299 (Inborn Errors of
Metabolism) under MDC 10 (Endocrine, Nutritional, and Metabolic
Diseases and Disorders).
In the FY 2005 final rule (69 FR 48981), we discussed the DRG
assignment of acute intermittent porphyria. This discussion was a
result of correspondence that we received during the comment period for
the FY 2005 proposed rule in which the commenter suggested that
Medicare hospitalization payments do not accurately reflect the cost of
treatment. At that time, we indicated that we would take this comment
into consideration when we analyzed the MedPAR data for this proposed
rule for FY 2006.
Our review of the most recent MedPAR data shows a total of 1,370
cases overall in DRG 299, of which 471 had a principal diagnosis coded
as 277.1. The average length of stay for all cases in DRG 299 was 5.17
days, while the average length of stay for porphyria cases with code
277.1 was 6.0 days. The average charges for all cases in DRG 299 were
$15,891, while the average changes for porphyria cases with code 277.1
were $21,920. Based on our analysis of these data, we do not believe
that there is a sufficient difference between the average charges and
average length of stay for these cases to justify a change to the DRG
assignment for treating this condition.
C. Proposed Recalibration of DRG Weights
(If you choose to comment on issues in this section, please include
the caption ``DRG Weights'' at the beginning of your comment.)
We are proposing to use the same basic methodology for the FY 2006
recalibration as we did for FY 2005 (FY 2005 IPPS final rule (69 FR
48981)). That is, we have recalibrated the DRG weights based on charge
data for
[[Page 23338]]
Medicare discharges using the most current charge information available
(the FY 2004 MedPAR file).
The MedPAR file is based on fully coded diagnostic and procedure
data for all Medicare inpatient hospital bills. The FY 2004 MedPAR data
used in this final rule include discharges occurring between October 1,
2003 and September 30, 2004, based on bills received by CMS through
December 31, 2004, from all hospitals subject to the IPPS and short-
term acute care hospitals in Maryland (which are under a waiver from
the IPPS under section 1814(b)(3) of the Act). The FY 2004 MedPAR file
includes data for approximately 11,910,025 Medicare discharges.
Discharges for Medicare beneficiaries enrolled in a Medicare+Choice
managed care plan are excluded from this analysis. The data excludes
CAHs, including hospitals that subsequently became CAHs after the
period from which the data were taken.
The proposed methodology used to calculate the DRG relative weights
from the FY 2004 MedPAR file is as follows:
To the extent possible, all the claims were regrouped
using the DRG classification revisions discussed in section II.B. of
this preamble.
The transplant cases that were used to establish the
relative weight for heart and heart-lung, liver, and lung transplants
(DRGs 103, 480, and 495) were limited to those Medicare-approved
transplant centers that have cases in the FY 2004 MedPAR file.
(Medicare coverage for heart, heart-lung, liver, 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 charge for the DRG and before
eliminating statistical outliers.
Charges were standardized to remove the effects of
differences in area wage levels, indirect medical education and
disproportionate share payments, and, for hospitals in Alaska and
Hawaii, the applicable cost-of-living adjustment.
The average standardized charge per DRG was calculated by
summing the standardized charges for all cases in the DRG and dividing
that amount by the number of cases classified in the DRG. A transfer
case is counted as a fraction of a case based on the ratio of its
transfer payment under the per diem payment methodology to the full DRG
payment for nontransfer cases. That is, a transfer case receiving
payment under the transfer methodology equal to half of what the case
would receive as a nontransfer would be counted as 0.5 of a total case.
Statistical outliers were eliminated by removing all cases
that are beyond 3.0 standard deviations from the mean of the log
distribution of both the charges per case and the charges per day for
each DRG.
The average charge for each DRG was then recomputed
(excluding the statistical outliers) and divided by the national
average standardized charge per case to determine the relative weight.
The proposed new weights are normalized by an adjustment factor of
1.47263 so that the average case weight after recalibration is equal to
the average case weight before recalibration. This proposed adjustment
is intended to ensure that recalibration by itself neither increases
nor decreases total payments under the IPPS.
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. We used that same case threshold in
recalibrating the proposed DRG weights for FY 2006. Using the FY 2004
MedPAR data set, there are 41 DRGs that contain fewer than 10 cases. We
are proposing to compute the weights for these low-volume DRGs by
adjusting the FY 2005 weights of these DRGs by the percentage change in
the average weight of the cases in the other DRGs.
Section 1886(d)(4)(C)(iii) of the Act requires that, beginning with
FY 1991, reclassification and recalibration changes be made in a manner
that assures that the aggregate payments are neither greater than nor
less than the aggregate payments that would have been made without the
changes. Although normalization is intended to achieve this effect,
equating the average case weight after recalibration to the average
case weight before recalibration does not necessarily achieve budget
neutrality with respect to aggregate payments to hospitals because
payments to hospitals are affected by factors other than average case
weight. Therefore, as we have done in past years and as discussed in
section II.A.4.a. of the Addendum to this proposed rule, we are making
a budget neutrality adjustment to ensure that the requirement of
section 1886(d)(4)(C)(iii) of the Act is met.
D. Proposed LTC-DRG Reclassifications and Relative Weights for LTCHs
for FY 2006
(If you choose to comment on issues in this section, please include
the caption ``LTC-DRGs'' at the beginning of your comment.)
1. Background
In the June 6, 2003 LTCH PPS final rule (68 FR 34122), we changed
the LTCH PPS annual payment rate update cycle to be effective July 1
through June 30 instead of October 1 through September 30. In addition,
because the patient classification system utilized under the LTCH PPS
is based directly on the DRGs used under the IPPS for acute care
hospitals, in that same final rule, we explained that the annual update
of the long-term care diagnosis-related group (LTC-DRG) classifications
and relative weights will continue to remain linked to the annual
reclassification and recalibration of the CMS-DRGs used under the IPPS.
In that same final rule, we specified that we will continue to update
the LTC-DRG classifications and relative weights to be effective for
discharges occurring on or after October 1 through September 30 each
year. Furthermore, we stated that we will publish the annual update of
the LTC-DRGs in the proposed and final rules for the IPPS.
In the past, the annual update to the IPPS DRGs has been based on
the annual revisions to the ICD-9-CM codes and was effective each
October 1. As discussed in the FY 2005 IPPS final rule (69 FR 48954
through 48957) and in the February 3, 2005 LTCH PPS proposed rule (70
FR 5729 through 5733), with the implementation of section 503 (a) of
Pub. L. 108-173, there is the possibility that one feature of the
GROUPER software program may be updated twice during a Federal fiscal
year (October 1 and April 1) as required by the statute for the IPPS.
Specifically, ICD-9-CM diagnosis and procedure codes for new medical
technology may be created and added to existing DRGs in the middle of
the Federal fiscal year on April 1. This policy change will have no
effect, however, on the LTC-DRG relative weights which will continue to
be updated only once a year (October 1), nor will there be any impact
on Medicare payments under the LTCH PPS. The use of the ICD-9-CM code
set is also compliant with the current requirements of the Transactions
and Code Sets Standards regulations at 45 CFR Parts 160 and 162,
promulgated in accordance with the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), Pub. L. 104-191.
[[Page 23339]]
In the health care industry, historically annual changes to the
ICD-9-CM codes were effective for discharges occurring on or after
October 1 each year. Thus, the manual and electronic versions of the
GROUPER software, which are based on the ICD-9-CM codes, were also
revised annually and effective for discharges occurring on or after
October 1 each year. As noted above, the patient classification system
used under the LTCH PPS (LTC-DRGs) is based on the patient
classification system used under the IPPS (CMS-DRGs), which
historically had been updated annually and effective for discharges
occurring on or after October 1 through September 30 each year. As
mentioned above, the ICD-9-CM coding update process has been revised,
as discussed in greater detail in the FY 2005 IPPS final rule (69 FR
48954 through 48957). Specifically, section 503(a) of Pub. L. 108-173
includes a requirement for updating ICD-9-CM codes as often as twice a
year instead of the current process of annual updates on October 1 of
each year. This requirement is included as part of the amendments to
the Act relating to recognition of new medical technology under the
IPPS. Section 503(a) of Pub L. 108-173 amended section 1886(d)(5)(K) of
the Act by adding a new clause (vii) which states that ``the Secretary
shall provide for the addition of new diagnosis and procedure codes in
[sic] April 1 of each year, but the addition of such codes shall not
require the Secretary to adjust the payment (or diagnosis-related group
classification) * * * until the fiscal year that begins after such
date.'' This requirement will improve the recognition of new
technologies under the IPPS by accounting for those ICD-9-CM codes in
the MedPAR claims data at an earlier date. Despite the fact that
aspects of the GROUPER software may be updated to recognize any new
technology ICD-9-CM codes, as discussed in the February 3, 2005 LTCH
PPS proposed rule (70 FR 5730 through 5733), there will be no impact on
either LTC-DRG assignments or payments under the LTCH PPS at that time.
That is, changes to the LTC-DRGs (such as the creation or deletion of
LTC-DRGs) and the relative weights will continue to be updated in the
manner and timing (October 1) as they are now.
As noted above and as described in the February 3, 2005 LTCH PPS
proposed rule (70 FR 5730), updates to the GROUPER for both the IPPS
and the LTCH PPS (with respect to relative weights and the creation or
deletion of DRGs) are made in the annual IPPS proposed and final rules
and are effective each October 1. We explained in the FY 2005 IPPS
final rule (69 FR 48955 and 48956), that since we do not publish a
midyear IPPS rule, April 1 code updates discussed above will not be
published in a midyear IPPS rule. Rather, we will assign any new
diagnostic or procedure codes to the same DRG in which its predecessor
code was assigned, so that there will be no impact on the DRG
assignments. Any proposed coding updates will be available through the
websites indicated in the same rule and provided above in section II.B.
of this preamble and through the Coding Clinic for ICD-9-CM. Publishers
and software vendors currently obtain code changes through these
sources in order to update their code books and software system. If new
codes are implemented on April 1, revised code books and software
systems, including the GROUPER software program, will be necessary
because we must use current ICD-9-CM codes. Therefore, for purposes of
the LTCH PPS, since each ICD-9-CM code must be included in the GROUPER
algorithm to classify each case into a LTC-DRG, the GROUPER software
program used under the LTCH PPS would need to be revised to accommodate
any new codes.
As we discussed in the FY 2005 IPPS final rule (69 FR 48956), in
implementing section 503(a) of Pub. L. 108-173, there will only be an
April 1 update if new technology codes are requested and approved. It
should be noted that any new codes created for April 1 implementation
will be limited to those diagnosis and procedure code revisions
primarily needed to describe new technologies and medical services.
However, we reiterate that the process of discussing updates to the
ICD-9-CM has been an open process through the ICD-9-CM C&M Committee
since 1995. Requestors will be given the opportunity to present the
merits of their proposed new code and make a clear and convincing case
for the need to update ICD-9-CM codes for purposes of the IPPS new
technology add-on payment process through an April 1 update.
In addition, in the FY 2005 IPPS final rule (69 FR 48956), we
stated that at the October 2004 ICD-9-CM Coordination and Maintenance
Committee meeting, no new codes were proposed for an April 1, 2005
implementation, and the next update to the ICD-9-CM coding system would
not occur until October 1, 2005 (FY 2006). Presently, as there were no
coding changes suggested for an April 1, 2005 update, the ICD-9-CM
coding set implemented on October 1, 2004 will continue through
September 30, 2005 (FY 2005). The proposed update to the ICD-9-CM
coding system for FY 2006 is discussed above in section II.B. of this
preamble.
In this proposed rule, we are proposing revisions to the LTC-DRG
classifications and relative weights and, to the extent that they are
finalized, we will publish them in the corresponding IPPS final rule,
to be effective October 1, 2005 through September 30, 2006 (FY 2006),
using the latest available data. The proposed LTC-DRGs and relative
weights for FY 2006 in this proposed rule are based on the proposed
IPPS DRGs (GROUPER Version 23.0) discussed in section II. of this
proposed rule.
2. Proposed Changes in the LTC-DRG Classifications
a. Background
Section 123 of Pub. L. 106-113 specifically requires that the PPS
for LTCHs be a per discharge system with a DRG-based patient
classification system reflecting the differences in patient resources
and costs in LTCHs while maintaining budget neutrality. Section
307(b)(1) of Pub. L. 106-554 modified the requirements of section 123
of Pub. L. 106-113 by specifically requiring that the Secretary examine
``the feasibility and the impact of basing payment under such a system
[the LTCH PPS] on the use of existing (or refined) hospital diagnosis-
related groups (DRGs) that have been modified to account for different
resource use of long-term care hospital patients as well as the use of
the most recently available hospital discharge data.''
In accordance with section 307(b)(1) of Pub. L. 106-554 and Sec.
412.515 of our existing regulations, the LTCH PPS uses information from
LTCH patient records to classify patient cases into distinct LTC-DRGs
based on clinical characteristics and expected resource needs. The LTC-
DRGs used as the patient classification component of the LTCH PPS
correspond to the DRGs under the IPPS for acute care hospitals. Thus,
in this proposed rule, we are proposing to use the IPPS GROUPER Version
23.0 for FY 2006 to process LTCH PPS claims for LTCH occurring from
October 1, 2005 through September 30, 2006. The proposed changes to the
CMS DRG classification system used under the IPPS for FY 2006 (GROUPER
Version 23.0) are discussed in section II.B. of the preamble to this
proposed rule.
Under the LTCH PPS, we determine relative weights for each of the
CMS DRGs to account for the difference in resource use by patients
exhibiting the
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case complexity and multiple medical problems characteristic of LTCH
patients. In a departure from the IPPS, as we discussed in the August
30, 2002 LTCH PPS final rule (67 FR 55985), which implemented the LTCH
PPS, and the FY 2004 IPPS final rule (68 FR 45374), we use low-volume
quintiles in determining the LTC-DRG weights for LTC-DRGs with less
than 25 LTCH cases, because LTCHs do not typically treat the full range
of diagnoses as do acute care hospitals. Specifically, we group those
low-volume LTC-DRGs (LTC-DRGs with fewer than 25 cases) into 5
quintiles based on average charge per discharge. (A listing of the
composition of low-volume quintiles for the FY 2005 LTC-DRGs (based on
FY 2003 MedPAR data) appears in section II.D.3. of the FY 2005 IPPS
final rule (69 FR 48985 through 48989).) We also adjust for cases in
which the stay at the LTCH is less than or equal to five-sixths of the
geometric average length of stay; that is, short-stay outlier cases
(Sec. 412.529), as discussed below in section II.D.4. of this
preamble.
b. Patient Classifications into DRGs
Generally, under the LTCH PPS, Medicare payment is made at a
predetermined specific rate for each discharge; that is, payment varies
by the LTC-DRG to which a beneficiary's stay is assigned. Similar to
case classification for acute care hospitals under the IPPS (see
section II.B. of this preamble), cases are classified into LTC-DRGs for
payment under the LTCH PPS based on the principal diagnosis, up to
eight additional diagnoses, and up to six procedures performed during
the stay, as well as age, sex, and discharge status of the patient. The
diagnosis and procedure information is reported by the hospital using
codes from the ICD-9-CM.
As discussed in section II.B. of this preamble, the CMS 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). Accordingly, the
principal diagnosis determines MDC assignment. Within most MDCs, cases
are then divided into surgical DRGs and medical DRGs. Some surgical and
medical DRGs are further differentiated based on the presence or
absence of CCs. (See section II.B. of this preamble for further
discussion of surgical DRGs and medical DRGs.)
Because the assignment of a case to a particular LTC-DRG will help
determine the amount that is paid for the case, it is important that
the coding is accurate. As used under the IPPS, classifications and
terminology used under the LTCH PPS are consistent with the ICD-9-CM
and the Uniform Hospital Discharge Data Set (UHDDS), as recommended to
the Secretary by the National Committee on Vital and Health Statistics
(``Uniform Hospital Discharge Data: Minimum Data Set, National Center
for Health Statistics, April 1980'') and as revised in 1984 by the
Health Information Policy Council (HIPC) of the U.S. Department of
Health and Human Services. We point out again that the ICD-9-CM coding
terminology and the definitions of principal and other diagnoses of the
UHDDS are consistent with the requirements of the Transactions and Code
Sets Standards under HIPAA (45 CFR Parts 160 and 162).
The emphasis on the need for proper coding cannot be overstated.
Inappropriate coding of cases can adversely affect the uniformity of
cases in each LTC-DRG and produce inappropriate weighting factors at
recalibration and result in inappropriate payments under the LTCH PPS.
LTCHs are to follow the same coding guidelines used by the acute care
hospitals to ensure accuracy and consistency in coding practices. There
will be only one LTC-DRG assigned per long-term care hospitalization;
it will be assigned at the discharge. Therefore, it is mandatory that
the coders continue to report the same principal diagnosis on all
claims and include all diagnostic codes that coexist at the time of
admission, that are subsequently developed, or that affect the
treatment received. Similarly, all procedures performed during that
stay are to be reported on each claim.
Upon the discharge of the patient from a LTCH, the LTCH must assign
appropriate diagnosis and procedure codes from the ICD-9-CM. Completed
claim forms are to be submitted electronically to the LTCH's Medicare
fiscal intermediary. Medicare fiscal intermediaries enter the clinical
and demographic information 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 an
LTC-DRG can be made.
After screening through the MCE, each LTCH claim will be classified
into the appropriate LTC-DRG by the Medicare LTCH GROUPER. The LTCH
GROUPER is specialized computer software based on the same GROUPER used
under the IPPS. After the LTC-DRG is assigned, the Medicare fiscal
intermediary determines the prospective payment by using the Medicare
LTCH PPS PRICER program, which accounts for LTCH hospital-specific
adjustments. As provided for under the IPPS, we provide an opportunity
for the LTCH to review the LTC-DRG assignments made by the fiscal
intermediary and to submit additional information within a specified
timeframe (Sec. 412.513(c)).
The GROUPER is used both to classify past cases in order to measure
relative hospital resource consumption to establish the LTC-DRG weights
and to classify current cases for purposes of determining payment. The
records for all Medicare hospital inpatient discharges are maintained
in the MedPAR file. The data in this file are used to evaluate possible
DRG classification changes and to recalibrate the DRG weights during
our annual update (as discussed in section II. of this preamble). The
LTC-DRG relative weights are based on data for the population of LTCH
discharges, reflecting the fact that LTCH patients represent a
different patient mix than patients in short-term acute care hospitals.
3. Development of the Proposed FY 2006 LTC-DRG Relative Weights
a. General Overview of Development of the LTC-DRG Relative Weights
As we stated in the August 30, 2002 LTCH PPS final rule (67 FR
55981), 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
care to Medicare patients. The system must be able to account
adequately for each LTCH's case-mix in order to ensure both fair
distribution of Medicare payments and access to adequate care for those
Medicare patients whose care is more costly. To accomplish these goals,
we adjust the LTCH PPS standard Federal prospective payment system rate
by the applicable LTC-DRG relative weight in determining payment to
LTCHs for each case. Under the LTCH PPS, relative weights for each LTC-
DRG are a primary element used to account for the variations in cost
per discharge and resource utilization among the payment groups (Sec.
412.515). To ensure that Medicare patients classified to each LTC-DRG
have access to an appropriate level of services and to encourage
efficiency, we calculate a relative weight for each LTC-DRG that
represents the resources needed by an average inpatient LTCH case in
that LTC-DRG. For example, cases in an LTC-DRG with a relative weight
of 2 will, on average, cost twice as much as cases in an LTC-DRG with a
weight of 1.
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b. Data
To calculate the proposed LTC-DRG relative weights for FY 2006 in
this proposed rule, we obtained total Medicare allowable charges from
FY 2004 Medicare hospital bill data from the December 2004 update of
the MedPAR file, and we used the proposed Version 23.0 of the CMS
GROUPER for IPPS (as discussed in section II.B. of this preamble) to
classify cases. Consistent with the methodology under the IPPS, we are
proposing to recalculate the FY 2006 LTC-DRG relative weights based on
the best available data for this proposed rule.
As we discussed in the FY 2005 IPPS final rule (69 FR 48984), we
have excluded the data from LTCHs that are all-inclusive rate providers
and LTCHs that are reimbursed in accordance with demonstration projects
authorized under section 402(a) of Pub. L. 90-248 (42 U.S.C. 1395b-1)
or section 222(a) of Pub. L. 92-603 (42 U.S.C. 1395b-1). Therefore, in
the development of the proposed FY 2006 LTC-DRG relative weights, we
have excluded the data of the 19 all-inclusive rate providers and the 3
LTCHs that are paid in accordance with demonstration projects that had
claims in the FY 2003 MedPAR file.
In the FY 2005 IPPS final rule (6 FR 48984), we discussed coding
inaccuracies that were found in the claims data for a large chain of
LTCHs in the FY 2002 MedPAR file, which were used to determine the LTC-
DRG relative weights for FY 2004. As we discussed in the same final
rule, after notifying the large chain of LTCHs whose claims contained
the coding inaccuracies to request that they resubmit those claims with
the correct diagnosis, from an analysis of LTCH claims data from the
December 2003 update of the FY 2003 MedPAR file, it appeared that such
claims data no longer contain coding errors. Therefore, it was not
necessary to correct the FY 2003 MedPAR data for the development of the
FY 2005 LTC-DRGs and relative weights established in the same final
rule.
As stated above, in this proposed rule, we are proposing to use the
December 2004 update of the FY 2004 MedPAR file for the determination
of the proposed FY 2006 LTC-DRG relative weights as these are the best
available data. Based on an analysis of LTCH claims data from the
December 2004 update of the FY 2004 MedPAR file, it appears that such
claims data do not contain coding inaccuracies found previously in LTCH
claims data. Therefore, it was not necessary to correct the FY 2004
MedPAR data for the development of the proposed FY 2006 LTC-DRGs and
relative weights presented in this proposed rule.
c. Hospital-Specific Relative Value Methodology
By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients and rehabilitation and wound care. Some
case types (DRGs) may be treated, to a large extent, in hospitals that
have, from a perspective of charges, relatively high (or low) charges.
This nonarbitrary distribution of cases with relatively high (or low)
charges in specific 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, we use a hospital-
specific relative value method to calculate the LTC-DRG relative
weights instead of the methodology used to determine the DRG relative
weights under the IPPS described above in section II.C. of this
preamble. We believe this method will remove this hospital-specific
source of bias in measuring LTCH average charges. Specifically, we
reduce the impact of the variation in charges across providers on any
particular LTC-DRG relative weight by converting each LTCH's charge for
a case to a relative value based on that LTCH's average charge.
Under the hospital-specific relative value method, we standardize
charges for each LTCH by converting its charges for each case to
hospital-specific 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, averages 1.0 for each LTCH). The average relative weight
for a LTCH is its case-mix, so it is reasonable to scale each LTCH's
average relative charge value by its case-mix. In this way, each LTCH's
relative charge value is adjusted by its case-mix to an average that
reflects the complexity of the cases it treats relative to the
complexity of the cases treated by all other LTCHs (the average case-
mix of all LTCHs).
In accordance with the methodology established under Sec. 412.523,
we standardize charges for each case by first dividing the adjusted
charge for the case (adjusted for short-stay outliers under Sec.
412.529 as described in section II.D.4. (step 3) of this preamble) by
the average adjusted charge for all cases at the LTCH in which the case
was treated. Short-stay outliers under Sec. 412.529 are cases with a
length of stay that is less than or equal to five-sixths the average
length of stay of the LTC-DRG. The average adjusted charge reflects the
average intensity of the health care services delivered by a particular
LTCH and the average cost level of that LTCH. The resulting ratio is
multiplied by that LTCH's case-mix index to determine the standardized
charge for the case.
Multiplying by the LTCH's case-mix index accounts for the fact that
the same relative charges are given greater weight in a LTCH with
higher average costs than they would at a LTCH with low average costs
which is needed to adjust each LTCH's relative charge value to reflect
its case-mix relative to the average case-mix for all LTCHs. Because we
standardize charges in this manner, we count charges for a Medicare
patient at a LTCH with high average charges as less resource intensive
than they would be at a LTCH with low average charges. For example, a
$10,000 charge for a case in 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 in a LTCH with the same case-mix, 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.
d. Proposed Low-Volume LTC-DRGs
In order to account for LTC-DRGs with low-volume (that is, with
fewer than 25 LTCH cases), in accordance with the methodology
established in the August 30, 2002 LTCH PPS final rule (67 FR 55984),
we group those low-volume LTC-DRGs into one of five categories
(quintiles) based on average charges, for the purposes of determining
relative weights. For this proposed rule, using LTCH cases from the
December 2004 update of the FY 2004 MedPAR file, we identified 172 LTC-
DRGs that contained between 1 and 24 cases. This list of proposed LTC-
DRGs was then divided into one of the 5 low-volume quintiles, each
containing a minimum of 34 LTC-DRGs (172/5 = 34 with 2 LTC-DRGs as the
remainder). For FY 2006, we are proposing to make an assignment to a
specific low-volume quintile by sorting the low-volume proposed LTC-
DRGs in ascending order by average charge. For this proposed rule, this
results in an assignment to a specific low volume quintile of the
sorted 172 low-volume proposed LTC-DRGs by ascending order by average
charge. Because the number of LTC-DRGs with less than 25 LTCH cases is
not evenly divisible by five, the average charge of the low-volume
proposed LTC-DRG was used to determine which low-
[[Page 23342]]
volume quintile received the additional proposed LTC-DRG. After sorting
the 172 low-volume LTC-DRGs in ascending order, we are proposing that
the first fifth of low-volume LTC-DRGs with the lowest average charge
would be grouped into Quintile 1. The highest average charge cases
would be grouped into Quintile 5. Since the average charge of the
proposed 35th LTC-DRG in the sorted list is closer to the proposed 34th
LTC-DRG's average charge (assigned to Quintile 1) than to the average
charge of the proposed 36th LTC-DRG in the sorted list (to be assigned
to Quintile 2), we are proposing to place it into Quintile 1. This
process was repeated through the remaining low-volume proposed LTC-DRGs
so that 2 proposed low-volume quintiles contain 35 proposed LTC-DRGs
and 3 proposed low-volume quintiles contain 34 proposed LTC-DRGs.
In order to determine the proposed relative weights for the
proposed LTC-DRGs with low volume for FY 2006, in accordance with the
methodology established in the August 30, 2002 LTCH PPS final rule (67
FR 55984), we are proposing to use the proposed five low-volume
quintiles described above. The composition of each of the proposed five
low-volume quintiles shown in the chart below would be used in
determining the proposed LTC-DRG relative weights for FY 2006. We would
determine a proposed relative weight and (geometric) average length of
stay for each of the proposed five low-volume quintiles using the
formula that we apply to the regular proposed LTC-DRGs (25 or more
cases), as described below in section II.D.4. of this preamble. We are
proposing to assign the same relative weight and average length of stay
to each of the proposed LTC-DRGs that make up that proposed low-volume
quintile. We note that, as this system is dynamic, it is possible that
the number and specific type of LTC-DRGs with a low volume of LTCH
cases will vary in the future. We use the best available claims data in
the MedPAR file to identify low-volume LTC-DRGs and to calculate the
relative weights based on our methodology.
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4. Steps for Determining the Proposed FY 2006 LTC-DRG Relative Weights
As we noted previously, the proposed FY 2006 LTC-DRG relative
weights are determined in accordance with the methodology established
in the August 1, 2003 IPPS final rule (68 FR 45367). In summary, LTCH
cases must be grouped in the appropriate LTC-DRG, while taking into
account the low-volume proposed LTC-DRGs as described above, before the
proposed FY 2006 LTC-DRG relative weights can be determined. After
grouping the cases in the appropriate proposed LTC-DRG, we are
proposing to calculate the proposed relative weights for FY 2006 in
this proposed rule by first removing statistical outliers and cases
with a length of stay of 7 days or less, as discussed in greater detail
below. Next, we are proposing to adjust the number of cases in each
proposed LTC-DRG for the effect of short-stay outlier cases under Sec.
412.529, as also discussed in greater detail below. The short-stay
adjusted discharges and corresponding charges are used to calculate
``relative adjusted weights'' in each proposed LTC-DRG using the
hospital-specific relative value method described above.
Below we discuss in detail the steps for calculating the proposed
FY 2006 LTC-DRG relative weights.
Step 1--Remove statistical outliers.
The first step in the calculation of the proposed FY 2006 LTC-DRG
relative weights is to remove statistical outlier cases. We define
statistical outliers as cases that are outside of 3.0 standard
deviations from the mean of the log distribution of both charges per
case and the charges per day for each LTC-DRG. These statistical
outliers are removed prior to calculating the proposed relative
weights. We believe that they may represent aberrations in the data
that distort the measure of average resource use. Including those LTCH
cases in the calculation of the proposed relative weights could result
in an inaccurate proposed relative weight that does not truly reflect
relative resource use among the proposed LTC-DRGs.
Step 2--Remove cases with a length of stay of 7 days or less.
The proposed FY 2006 LTC-DRG relative weights reflect the average
of resources used on representative cases of a specific type.
Generally, cases with a length of stay 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
2006 LTC-DRG relative weights, the value of many proposed 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,
in order to include data from these very short-stays. Thus, in
determining the proposed FY 2006 LTC-DRG relative weights, we remove
LTCH cases with a length of stay of 7 days or less.
Step 3--Adjust charges for the effects of short-stay outliers.
After removing cases with a length of stay of 7 days or less, we
are left with cases that have a length of stay of greater than or equal
to 8 days. The next step in the calculation of the proposed FY 2006
LTC-DRG relative weights is to adjust each LTCH's charges per discharge
for those remaining cases for the effects of short-stay outliers as
defined in Sec. 412.529(a). (However, we note that even if a case was
removed in Step 2 (that is, cases with a length of stay of 7 days or
less), it was paid as a short-stay outlier if its length of stay was
less than or equal to five-sixths of the average length of stay of the
LTC-DRG, in accordance with Sec. 412.529.)
We make this adjustment by counting a short-stay outlier as a
fraction of a discharge based on the ratio of the length of stay of the
case to the average length of stay for the proposed LTC-DRG for
nonshort-stay outlier cases. This has the effect of proportionately
reducing the impact of the lower charges for the short-stay outlier
cases in calculating the average charge for the proposed LTC-DRG. This
process produces the same result as if the actual charges per discharge
of a short-stay outlier case were adjusted to what they would have been
had the patient's length of stay been equal to the average length of
stay of the proposed LTC-DRG.
As we explained in the FY 2005 IPPS final rule (69 FR 48991),
counting short-
[[Page 23347]]
stay outlier cases as full discharges with no adjustment in determining
the proposed LTC-DRG relative weights would lower the proposed LTC-DRG
relative weight for affected proposed LTC-DRGs because the relatively
lower charges of the short-stay outlier cases would bring down the
average charge for all cases within a proposed LTC-DRG. This would
result in an ``underpayment'' to nonshort-stay outlier cases and an
``overpayment'' to short-stay outlier cases. Therefore, in this
proposed rule, we adjust for short-stay outlier cases under Sec.
412.529 in this manner because it results in more appropriate payments
for all LTCH cases.
Step 4--Calculate the Proposed FY 2006 LTC-DRG relative weights on
an iterative basis.
The process of calculating the proposed LTC-DRG relative weights
using the hospital specific relative value methodology is iterative.
First, for each LTCH case, we calculate a hospital-specific relative
charge value by dividing the short-stay outlier adjusted charge per
discharge (see step 3) of the LTCH case (after removing the statistical
outliers (see step 1)) and LTCH cases with a length of stay of 7 days
or less (see step 2) by the average charge per discharge for the LTCH
in which the case occurred. The resulting ratio is then multiplied by
the LTCH's case-mix index to produce an adjusted hospital-specific
relative charge value for the case. An initial case-mix index value of
1.0 is used for each LTCH.
For each proposed LTC-DRG, the proposed FY 2006 LTC-DRG relative
weight is calculated by dividing the average of the adjusted hospital-
specific relative charge values (from above) for the proposed LTC-DRG
by the overall average hospital-specific relative charge value across
all cases for all LTCHs. Using these recalculated proposed LTC-DRG
relative weights, each proposed LTCH's average relative weight for all
of its cases (case-mix) is calculated by dividing the sum of all the
proposed LTCH's LTC-DRG relative weights by its total number of cases.
The LTCHs' hospital-specific relative charge values above are
multiplied by these hospital specific case-mix indexes. These hospital-
specific case-mix adjusted relative charge values are then used to
calculate a new set of proposed LTC-DRG relative weights across all
LTCHs. In this proposed rule, this iterative process is continued until
there is convergence between the weights produced at adjacent steps,
for example, when the maximum difference is less than 0.0001.
Step 5-Adjust the proposed FY 2006 LTC-DRG relative weights to
account for nonmonotonically increasing relative weights.
As explained in section II.B. of this preamble, the proposed FY
2006 CMS DRGs, which the proposed FY 2006 LTC-DRGs are based, contain
``pairs'' that are differentiated based on the presence or absence of
CCs. The proposed LTC-DRGs with CCs are defined by certain secondary
diagnoses not related to or inherently a part of the disease process
identified by the principal diagnosis, but the presence of additional
diagnoses does not automatically generate a CC. As we discussed in the
FY 2005 IPPS final rule (69 FR 48991), the value of monotonically
increasing relative weights rises as the resource use increases (for
example, from uncomplicated to more complicated). The presence of CCs
in a proposed LTC-DRG means that cases classified into a ``without CC''
proposed LTC-DRG are expected to have lower resource use (and lower
costs). In other words, resource use (and costs) are expected to
decrease across ``with CC''/``without CC'' pairs of proposed LTC-DRGs.
For a case to be assigned to a proposed LTC-DRG with CCs, more
coded information is called for (that is, at least one relevant
secondary diagnosis), than for a case to be assigned to a proposed LTC-
DRG ``without CCs'' (which is based on only one principal diagnosis and
no relevant secondary diagnoses). Currently, the LTCH claims data
include both accurately coded cases without complications and cases
that have complications (and cost more), but were not coded completely.
Both types of cases are grouped to a proposed LTC-DRG ``without CCs''
because only one principal diagnosis was coded. Since the LTCH PPS was
only implemented for cost reporting periods beginning on or after
October 1, 2002 (FY 2003) and LTCHs were previously paid under cost-
based reimbursement, which is not based on patient diagnoses, coding by
LTCHs for these cases may not have been as detailed as possible.
Thus, in developing the FY 2003 LTC-DRG relative weights for the
LTCH PPS based on FY 2001 claims data, as we discussed in the August
30, 2002 LTCH PPS final rule (67 FR 55990), we found on occasion that
the data suggested that cases classified to the LTC-DRG ``with CCs'' of
a ``with CC''/``without CC'' pair had a lower average charge than the
corresponding LTC-DRG ``without CCs.'' Similarly, as discussed in the
FY 2005 IPPS final rule (69 FR 48991 through 48992), based on FY 2003
claims data, we also found on occasion that the data suggested that
cases classified to the LTC-DRG ``with CCs'' of a ``with CC''/``without
CC'' pair have a lower average charge than the corresponding LTC-DRG
``without CCs'' for the FY 2005 LTC-DRG relative weights.
We believe this anomaly may be due to coding that may not have
fully reflected all comorbidities that were present. Specifically,
LTCHs may have failed to code relevant secondary diagnoses, which
resulted in cases that actually had CCs being classified into a
``without CC'' LTC-DRG. It would not be appropriate to pay a lower
amount for the ``with CC'' LTC-DRG because, in general, cases
classified into a ``with CC'' LTC-DRG are expected to have higher
resource use (and higher cost) as discussed above. Therefore,
previously when we determined the LTC-DRG relative weights in
accordance with the methodology established in the August 30, 2002 LTCH
PPS final rule (67 FR 55990), we grouped both the cases ``with CCs''
and ``without CCs'' together for the purpose of calculating the LTC-DRG
relative weights for FYs 2003 through 2005. As we stated in that same
final rule, we will continue to employ this methodology to account for
nonmonotonically increasing relative weights until we have adequate
data to calculate appropriate separate weights for these anomalous LTC-
DRG pairs. We expect that, as was the case when we first implemented
the IPPS, this problem will be self-correcting, as LTCHs submit more
completely coded data in the future.
There are three types of ``with CC'' and ``without CC'' pairs that
could be nonmonotonic; that is, where the ``without CC'' proposed LTC-
DRG would have a higher average charge than the ``with CC'' proposed
LTC-DRG. For this proposed rule, using the LTCH cases in the December
2004 update of the FY 2004 MedPAR file (the best available data at this
time), we identified one of the three types of nonmonotonic LTC-DRG
pairs.
The first category of nonmonotonically increasing proposed relative
weights for FY 2006 proposed LTC-DRG pairs ``with and without CCs''
contains zero pairs of proposed LTC-DRGs in which both the proposed
LTC-DRG ``with CCs'' and the proposed LTC-DRG ``without CCs'' had 25 or
more LTCH cases and, therefore, did not fall into one of the 5 low-
volume quintiles. For those nonmonotonic proposed LTC-DRG pairs, we
would combine the LTCH cases and compute a new proposed relative weight
based on the case-weighted average of the combined LTCH cases of the
proposed LTC-DRGs.
[[Page 23348]]
The case-weighted average charge is determined by dividing the total
charges for all LTCH cases by the total number of LTCH cases for the
combined proposed LTC-DRG. This new proposed relative weight would then
be assigned to both of the proposed LTC-DRGs in the pair. In this
proposed rule, for FY 2006, there are no proposed LTC-DRGs that fall
into this category.
The second category of nonmonotonically increasing relative weights
for proposed LTC-DRG pairs ``with and without CCs'' consists of one
pair of proposed LTC-DRGs that has fewer than 25 cases, and each
proposed LTC-DRG would be grouped to different proposed low-volume
quintiles in which the ``without CC'' proposed LTC-DRG is in a higher-
weighted proposed low-volume quintile than the ``with CC'' proposed
LTC-DRG. For those pairs, we would combine the LTCH cases and determine
the case-weighted average charge for all LTCH cases. The case-weighted
average charge is determined by dividing the total charges for all LTCH
cases by the total number of LTCH cases for the combined proposed LTC-
DRG. Based on the case-weighted average LTCH charge, we determine
within which low-volume quintile the ``combined LTC-DRG'' is grouped.
Both proposed LTC-DRGs in the pair are then grouped into the same
proposed low-volume quintile, and thus have the same proposed relative
weight. In this proposed rule, for FY 2006, proposed LTC-DRGs 531 and
532 fall into this category.
The third category of nonmonotonically increasing relative weights
for proposed LTC-DRG pairs ``with and without CCs'' consists of zero
pairs of proposed LTC-DRGs where one of the proposed LTC-DRGs has fewer
than 25 LTCH cases and is grouped to a proposed low-volume quintile and
the other proposed LTC-DRG has 25 or more LTCH cases and has its own
proposed LTC-DRG relative weight, and the proposed LTC-DRG ``without
CCs'' has the higher proposed relative weight. We remove the proposed
low-volume LTC-DRG from the proposed low-volume quintile and combine it
with the other proposed LTC-DRG for the computation of a new proposed
relative weight for each of these proposed LTC-DRGs. This new proposed
relative weight is assigned to both proposed LTC-DRGs, so they each
have the same proposed relative weight. In this proposed rule, for FY
2006, there are no proposed LTC-DRGs that fall into this category.
Step 6-Determine a proposed FY 2006 LTC-DRG relative weight for
proposed LTC-DRGs with no LTCH cases.
As we stated above, we determine the proposed relative weight for
each proposed LTC-DRG using charges reported in the December 2004
update of the FY 2004 MedPAR file. Of the 526 proposed LTC-DRGs for FY
2006, we identified 194 proposed LTC-DRGs for which there were no LTCH
cases in the database. That is, based on data from the FY 2004 MedPAR
file used in this proposed rule, no patients who would have been
classified to those LTC-DRGs were treated in LTCHs during FY 2004 and,
therefore, no charge data were reported for those proposed LTC-DRGs.
Thus, in the process of determining the proposed LTC-DRG relative
weights, we are unable to determine weights for these 194 proposed LTC-
DRGs using the methodology described in steps 1 through 5 above.
However, because patients with a number of the diagnoses under these
proposed LTC-DRGs may be treated at LTCHs beginning in FY 2006, we
assign proposed relative weights to each of the 194 ``no volume''
proposed LTC-DRGs based on clinical similarity and relative costliness
to one of the remaining 332 (156--194 = 332) proposed LTC-DRGs for
which we are able to determine proposed relative weights, based on FY
2004 claims data.
As there are currently no LTCH cases in these ``no volume''
proposed LTC-DRGs, we determine proposed relative weights for the 194
proposed LTC-DRGs with no LTCH cases in the FY 2004 MedPAR file used in
this proposed rule by grouping them to the appropriate proposed low-
volume quintile. This methodology is consistent with our methodology
used in determining proposed relative weights to account for the
proposed low-volume LTC-DRGs described above.
Our methodology for determining proposed relative weights for the
proposed ``no volume'' LTC-DRGs is as follows: We crosswalk the
proposed no volume LTC-DRGs by matching them to other similar proposed
LTC-DRGs for which there were LTCH cases in the FY 2004 MedPAR file
based on clinical similarity and intensity of use of resources as
determined by care provided during the period of time surrounding
surgery, surgical approach (if applicable), length of time of surgical
procedure, post-operative care, and length of stay. We assign the
proposed relative weight for the applicable proposed low-volume
quintile to the proposed no volume LTC-DRG if the proposed LTC-DRG to
which it is crosswalked is grouped to one of the proposed low-volume
quintiles. If the proposed LTC-DRG to which the proposed no volume LTC-
DRG is crosswalked is not one of the proposed LTC-DRGs to be grouped to
one of the proposed low-volume quintiles, we compare the proposed
relative weight of the proposed LTC-DRG to which the proposed no volume
LTC-DRG is crosswalked to the proposed relative weights of each of the
five quintiles and we assign the proposed no volume LTC-DRG the
proposed relative weight of the proposed low-volume quintile with the
closest weight. For this proposed rule, a list of the proposed no
volume FY 2006 LTC-DRGs and the proposed FY 2006 LTC-DRG to which it is
crosswalked in order to determine the appropriate proposed low-volume
quintile for the assignment of a relative weight for FY 2006 is shown
in the chart below.
[[Page 23349]]
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[[Page 23351]]
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[[Page 23352]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.024
[[Page 23353]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.025
To illustrate this methodology for determining the proposed
relative weights for the 194 proposed LTC-DRGs with no LTCH cases, we
are providing the following examples, which refer to the proposed no
volume LTC-DRGs crosswalk information for FY 2006 provided in the chart
above.
Example 1:
There were no cases in the FY 2004 MedPAR file used for this
proposed rule for proposed LTC-DRG 163 (Hernia Procedures Age 0-17).
Since the procedure is similar in resource use and the length and
complexity of the procedures and the length of stay are similar, we
determined that proposed LTC-DRG 178 (Uncomplicated Peptic Ulcer
Without CC), which is assigned to proposed low-volume Quintile 3 for
the purpose of determining the proposed FY 2006 relative weights, would
display similar clinical and resource use. Therefore, we assign the
same proposed relative weight of proposed LTC-DRG 178 of 0.7586
(proposed Quintile 3) for FY 2006 (Table 11 in the Addendum to this
proposed rule) to proposed LTC-DRG 163.
Example 2:
There were no LTCH cases in the FY 2004 MedPAR file used in this
proposed rule for proposed LTC-DRG 91 (Simple Pneumonia and Pleurisy
Age 0-17). Since the severity of illness in patients with bronchitis
and asthma is similar in patients regardless of age, we determined that
proposed LTC-DRG 90 (Simple Pneumonia and Pleurisy Age >17 Without CC)
would display similar clinical and resource use characteristics and
have a similar length of stay to proposed LTC-DRG 91. There were over
25 cases in proposed LTC-DRG 90. Therefore, it would not be assigned to
a low-volume quintile for the purpose of determining the proposed LTC-
DRG relative weights. However, under our established methodology,
proposed LTC-DRG 91, with no LTCH cases, would need to be grouped to a
proposed low-volume quintile. We determined that the proposed low-
volume quintile with the closest weight to proposed LTC-DRG 90 (0.5004)
(refer to Table 11 in the Addendum to this proposed rule) would be
proposed low-volume Quintile 1 (0. 4502) (refer to Table 11 in the
Addendum to this proposed rule). Therefore, we assign proposed LTC-DRG
91 a proposed relative weight of 0.4502 for FY 2006.
Furthermore, we are proposing LTC-DRG relative weights of 0.0000
for heart, kidney, liver, lung, pancreas, and simultaneous pancreas/
kidney transplants (LTC-DRGs 103, 302, 480, 495, 512, and 513,
respectively) for FY 2006 because Medicare will only cover these
procedures if they are performed at a hospital that has been certified
for the specific procedures by Medicare and presently no LTCH has been
so certified.
Based on our research, we found that most LTCHs only perform minor
surgeries, such as minor small and large bowel procedures, to the
extent any surgeries are performed at all. Given the extensive criteria
that must be met to become certified as a transplant center for
Medicare, we believe it is unlikely that any LTCHs would become
certified as a transplant center. In fact, in the nearly 20 years since
the implementation of the IPPS, there has never been a LTCH that even
expressed an interest in becoming a transplant center.
However, if in the future a LTCH applies for certification as a
Medicare-approved transplant center, we believe that the application
and approval procedure would allow sufficient time for us to determine
appropriate weights for the LTC-DRGs affected. At the present time, we
would only include these six transplant LTC-DRGs in the GROUPER program
for administrative purposes. Because we use the same GROUPER program
for LTCHs as is used under the IPPS, removing these LTC-DRGs would be
administratively burdensome.
Again, we note that as this system is dynamic, it is entirely
possible that the number of proposed LTC-DRGs with a zero volume of
LTCH cases based on the system will vary in the future. We used the
best most recent available claims data in the MedPAR file to identify
zero volume LTC-DRGs and to determine the proposed relative weights in
this proposed rule.
Table 11 in the Addendum to this proposed rule lists the proposed
LTC-DRGs and their respective proposed relative weights, geometric mean
length of stay, and five-sixths of the geometric mean length of stay
(to assist in the determination of short-stay outlier payments under
Sec. 412.529) for FY 2006.
E. Proposed Add-On Payments for New Services and Technologies
(If you choose to comment on issues in this section, please include
the caption ``New Technology Applications'' at the beginning of your
comment.)
[[Page 23354]]
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 under the IPPS. Section 1886(d)(5)(K)(vi) of the Act
specifies that a medical service or technology will be considered new
if it meets criteria established by the Secretary after notice and
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act
specifies that the process must apply to a new medical service or
technology 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.''
The regulations implementing this provision establish three
criteria for new medical services and techniques to receive an
additional payment. First, Sec. 412.87(b)(2) defines when a specific
medical service or technology will be considered new for purposes of
new medical service or technology add-on payments. The statutory
provision contemplated the special payment treatment for new medical
services or technologies until such time as data are available to
reflect the cost of the technology in the DRG weights through
recalibration. There is a lag of 2 to 3 years from the point a new
medical service or technology is first introduced on the market and
when data reflecting the use of the medical service or technology are
used to calculate the DRG weights. For example, data from discharges
occurring during FY 2004 are used to calculate the proposed FY 2006 DRG
weights in this proposed rule. Section 412.87(b)(2) provides that a
``medical service or technology may be considered new within 2 or 3
years after the point at which data begin to become available
reflecting the ICD-9-CM code assigned to the new medical service or
technology (depending on when a new code is assigned and data on the
new medical service or technology become available for DRG
recalibration). After CMS has recalibrated the DRGs, based on available
data, to reflect the costs of an otherwise new medical service or
technology, the medical service or technology will no longer be
considered `new' under the criterion for this section.''
The 2-year to 3-year period during which a technology or medical
service can be considered new would ordinarily begin with FDA approval,
unless there was some documented delay in bringing the product onto the
market after that approval (for instance, component production or drug
production had been postponed until FDA approval due to shelf life
concerns or manufacturing issues). After the DRGs have been
recalibrated to reflect the costs of an otherwise new medical service
or technology, the special add-on payment for new medical services or
technology ceases (Sec. 412.87(b)(2)). For example, an approved new
technology that received FDA approval in October 2004 and entered the
market at that time may be eligible to receive add-on payments as a new
technology until FY 2007 (discharges occurring before October 1, 2006),
when data reflecting the costs of the technology would be used to
recalibrate the DRG weights. Because the FY 2007 DRG weights will be
calculated using FY 2005 MedPAR data, the costs of such a new
technology would likely be reflected in the FY 2007 DRG weights.
Section 412.87(b)(3) further provides that, to receive special
payment treatment, new medical services or technologies must be
inadequately paid otherwise under the DRG system. To assess whether
technologies would be inadequately paid under the DRGs, we establish
thresholds to evaluate applicants for new technology add-on payments.
In the FY 2004 IPPS final rule (68 FR 45385), we established the
threshold at the geometric mean standardized charge for all cases in
the DRG plus 75 percent of 1 standard deviation above the geometric
mean standardized charge (based on the logarithmic values of the
charges and transformed back to charges) for all cases in the DRG to
which the new medical service or technology is assigned (or the case-
weighted average of all relevant DRGs, if the new medical service or
technology occurs in many different DRGs). Table 10 in the Addendum to
the FY 2004 IPPS final rule (68 FR 45648) listed the qualifying
threshold by DRG, based on the discharge data that we used to calculate
the FY 2004 DRG weights.
However, section 503(b)(1) of Pub. L. 108-173 amended section
1886(d)(5)(K)(ii)(I) of the Act to provide for ``applying a threshold*
* *that is the lesser of 75 percent of the standardized amount
(increased to reflect the difference between cost and charges) or 75
percent of 1 standard deviation for the diagnosis-related group
involved.'' The provisions of section 503(b)(1) apply to classification
for fiscal years beginning with FY 2005. We updated Table 10 from the
October 6, 2003 Federal Register correction document, which contains
the thresholds that we used to evaluate applications for new service or
technology add-on payments for FY 2005, using the section 503(b)(1)
measures stated above, and posted these new thresholds on our Web site
at: http://www.cms.hhs.gov/providers/hipps/newtech.asp. In the FY 2005
IPPS final rule (in Table 10 of the Addendum), we included the final
thresholds that are being used to evaluate applicants for new
technology add-on payments for FY 2006. (Refer to section IV.D. of the
preamble to the FY 2005 IPPS final rule (69 FR 49084) for a discussion
of a revision of the regulations to incorporate the change made by
section 503(b)(1) of Pub. L. 108-173.)
Section 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 in medical technology 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. (See the September 7, 2001 final rule (66 FR 46902) for a
complete discussion of this criterion.)
The new medical service or technology add-on payment policy
provides additional payments for cases with high costs involving
eligible new medical services or technologies while preserving some of
the incentives under the average-based payment system. The payment
mechanism is based on the cost to hospitals for the new medical service
or technology. Under Sec. 412.88, Medicare pays a marginal cost factor
of 50 percent for the costs of a new medical service or technology in
excess of the full DRG payment. If the actual costs of a new medical
service or technology case exceed the DRG payment by more than the 50-
percent marginal cost factor of the new medical service or technology,
Medicare payment is limited to the DRG payment plus 50 percent of the
estimated costs of the new technology.
The report language accompanying section 533 of Pub. L. 106-554
indicated Congressional intent that the Secretary implement the new
mechanism on a budget neutral basis (H.R. Conf. Rep. No. 106-1033,
106th Cong., 2nd Sess. at 897 (2000)). Section 1886(d)(4)(C)(iii) of
the Act requires that the adjustments to annual DRG classifications and
relative weights must be made in a manner that ensures that aggregate
payments to hospitals are not affected. Therefore, in
[[Page 23355]]
the past, we accounted for projected payments under the new medical
service and technology provision during the upcoming fiscal year at the
same time we estimated the payment effect of changes to the DRG
classifications and recalibration. The impact of additional payments
under this provision was then included in the budget neutrality factor,
which was applied to the standardized amounts and the hospital-specific
amounts.
Section 503(d)(2) of Pub. L. 108-173 amended section
1886(d)(5)(K)(ii)(III) of the Act to provide that there shall be no
reduction or adjustment in aggregate payments under the IPPS due to
add-on payments for new medical services and technologies. Therefore,
add-on payments for new medical services or technologies for FY 2005
and later years will not be budget neutral.
Applicants for add-on payments for new medical services or
technologies for FY 2007 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 the medical service or technology meets the high-cost
threshold, no later than October 15, 2005. Applicants must submit a
complete database no later than December 30, 2005. Complete application
information, along with final deadlines for submitting a full
application, will be available after publication of the FY 2006 final
rule at our Web site: http://www.cms.hhs.gov/providers/hipps/default.asp. To allow interested parties to identify the new medical
services or technologies under review before the publication of the
proposed rule for FY 2007, the website will also list the tracking
forms completed by each applicant.
2. Public Input Before Publication of This Notice of Proposed
Rulemaking on Add-On Payments
Section 503(b)(2) of Pub. L. 108-173 amended section 1886(d)(5)(K)
of the Act by adding a clause (viii) to provide for a mechanism for
public input before publication of a notice of proposed rulemaking
regarding whether a medical service or technology represents a
substantial improvement or advancement. The revised 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 an application for add-on payments is
pending.
Accept comments, recommendations, and data from the public
regarding whether a service or technology represents a substantial
improvement.
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 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 2006
before publication of this proposed rule, we published a notice in the
Federal Register on December 30, 2004 (69 FR 78466) and held a town
hall meeting at the CMS Headquarters Office in Baltimore, MD, on
February 23, 2005. In the announcement notice for the meeting, we
stated that the opinions and alternatives provided during the meeting
would assist us in our evaluations of applications by allowing public
discussions of the substantial clinical improvement criteria for each
of the FY 2006 new medical service and technology add-on payment
applications before the publication of this FY 2006 IPPS proposed rule.
Approximately 45 participants registered and attended in person,
while additional participants listened over an open telephone line. The
participants focused on presenting data on the substantial clinical
improvement aspect of their products, as well as the need for
additional payments to ensure access to Medicare beneficiaries. In
addition, we received written comments regarding the substantial
clinical improvement criterion for the applicants. We have considered
these comments in our evaluation of each new application for FY 2006 in
this proposed rule. We have summarized these comments or, if
applicable, indicated that no comments were received, at the end of the
discussion of the individual applications.
Section 503(c) of Pub. L. 108-173 amended section 1886(d)(5)(K) of
the Act by adding a new clause (ix) requiring that, before establishing
any add-on payment for a new medical service or technology, the
Secretary shall seek to identify one or more DRGs associated with the
new technology, based on similar clinical or anatomical characteristics
and the costs of the technology and assign the new technology into a
DRG where the average costs of care most closely approximate the costs
of care using the new technology. No add-on payment shall be made with
respect to such a new technology.
At the time an application for new technology add-on payments is
submitted, the DRGs associated with the new technology are identified.
We only determine that a new technology add-on payment is appropriate
when the reimbursement under these DRGs is not adequate for this new
technology. The criterion for this determination is the cost threshold,
which we discuss below. We discuss the assignments of several new
technologies within the DRG payment system in section II.B. of this
proposed rule.
In this proposed rule, we evaluate whether new technology add-on
payments will continue in FY 2006 for the three technologies that
currently receive such payments. In addition, we present our
evaluations of eight applications for add-on payments in FY 2006. The
eight applications for FY 2006 include two applications for products
that were denied new technology add-on payments for FY 2005.
3. FY 2006 Status of Technology Approved for FY 2005 Add-On Payments
a. INFUSE TM (Bone Morphogenetic Proteins (BMPs) for Spinal
Fusions)
INFUSE TM was approved by FDA for use on July 2, 2002,
and became available on the market immediately thereafter. In the FY
2004 IPPS final rule (68 FR 45388), we approved INFUSE TM
for add-on payments under Sec. 412.88, effective for FY 2004. This
approval was on the basis of using INFUSE TM for single-
level, lumbar spinal fusion, consistent with the FDA's approval and the
data presented to us by the applicant. Therefore, we limited the add-on
payment to cases using this technology for anterior lumbar fusions in
DRGs 497 (Spinal Fusion Except Cervical With CC) and 498 (Spinal Fusion
Except Cervical Without CC). Cases involving INFUSE TM that
are eligible for the new technology add-on payment are identified by
assignment to DRGs 497 and 498 as a lumbar spinal fusion, with the
combination of ICD-9-CM procedure codes 84.51 (Insertion of
[[Page 23356]]
interbody spinal fusion device) and 84.52 (Insertion of recombinant
bone morphogenetic protein).
The FDA approved INFUSE TM for use on July 2, 2002. For
FY 2005, INFUSE TM was still within the 2-year to 3-year
period during which a technology can be considered new under the
regulations. Therefore, in the FY 2005 IPPS final rule (69 FR 49007
through 49009), we continued add-on payments for FY 2005 for cases
receiving INFUSE TM for spinal fusions in DRGs 497 (Spinal
Fusion Except Cervical With CC) and 498 (Spinal Fusion Except Cervical
Without CC).
As we discussed in the September 7, 2001 final rule (66 FR 46915),
an approval of a new technology for special payment should extend to
all technologies that are substantially similar. Otherwise, our payment
policy would bestow an advantage to the first applicant to receive
approval for a particular new technology. In last year's final rule (69
FR 49008), we discussed another product, called OP-1 Putty,
manufactured by Stryker Biotech, that promotes natural bone growth by
using a closely related bone morphogenetic protein called rhBMP-7.
(INFUSE TM is rhBMP-2.) We also stated in last year's final
rule that we had determined that the costs associated with the OP-1
Putty are similar to those associated with INFUSE TM.
Because the OP-1 Putty became available on the market in May 2004 (when
it received FDA approval for spinal fusions) for similar spinal fusion
procedures and because this product also eliminates the need for the
autograft bone surgery, we extended new technology add-on payments to
this technology as well for FY 2005.
As noted above, the period for which technologies are eligible to
receive new technology add-on payments is 2 to 3 years after the
product becomes available on the market and data reflecting the cost of
the technology are reflected in the DRG weights. The FDA approved
INFUSE TM bone graft on July 2, 2002. Therefore, data
reflecting the cost of the technology are now reflected in the DRG
weights. In addition, by the end of FY 2005, the add-on payment will
have been made for 2 years. Therefore, we are proposing to discontinue
new technology add-on payment for INFUSE TM for FY 2006.
Because we apply the same policies in making new technology payment for
OP-1 Putty as we do for INFUSE TM, we are proposing to
discontinue new technology add-on payment for OP-1 Putty as well for FY
2006.
b. InSync[supreg] Defibrillator System (Cardiac Resynchronization
Therapy With Defibrillation (CRT-D))
Cardiac Resynchronization Therapy (CRT), also known as bi-
ventricular pacing, is a therapy for chronic heart failure. A CRT
implantable system provides electrical stimulation to the right atrium,
right ventricle, and left ventricle to coordinate or resynchronize
ventricular contractions and improve cardiac output.
In the FY 2005 IPPS final rule (69 FR 49016), we determined that
cardiac resynchronization therapy with defibrillator (CRT-D) was
eligible for add-on payments in FY 2005. Cases involving CRT-D that are
eligible for new technology add-on payments are identified by either
one of the following two ICD-9-CM procedure codes: 00.51 (Implantation
of Cardiac Resynchronization Defibrillator, Total System (CRT-D)) or
00.54 (Implantation or Replacement of Pulse Generator Device Only (CRT-
D)). InSync[supreg] Defibrillation System received FDA approval on June
26, 2002. However, another manufacturer, Guidant, received FDA approval
for its CRT-D device on May 2, 2002. As we discussed in the September
7, 2001 final rule (66 FR 46915), an approval of a new technology for
special payment should extend to all technologies that are
substantially similar. Otherwise, our payment policy would bestow an
advantage to the first applicant to receive approval for a particular
new technology. We also noted that we would extend new technology add-
on payments for the entire FY 2005 even though the 2-3 year period of
newness ended in May 2005 for CRT-D since predictability is an
important aspect of the prospective payment methodology and, therefore,
we believe it is appropriate to apply a consistent payment methodology
for new technologies throughout the fiscal year (69 FR 49016).
As noted in the FY 2005 IPPS final rule (69 FR 49014), because CRT-
Ds were available upon the initial FDA approval in May 2002, we
considered the technology to be new from this date. As a result, for FY
2006, the CRT-D will be beyond the 2-3 year period during which a
technology can be considered new. Therefore, we are proposing to
discontinue add-on payments for the CRT-D for FY 2006.
c. Kinetra[supreg] Implantable Neurostimulator for Deep Brain
Stimulation
Medtronic, Inc. submitted an application for approval of the
Kinetra[supreg] implantable neurostimulator device for new technology
add-on payments for FY 2005. The Kinetra[supreg] device was approved by
the FDA on December 16, 2003. The Kinetra[supreg] implantable
neurostimulator is designed to deliver electrical stimulation to the
subthalamic nucleus (STN) or internal globus pallidus (GPi) in order to
ameliorate symptoms caused by abnormal neurotransmitter levels that
lead to abnormal cell-to-cell electrical impulses in Parkinson's
Disease and essential tremor. Before the development of
Kinetra[supreg], treating bilateral symptoms of patients with these
disorders required the implantation of two neurostimulators (in the
form of a product called SoletraTM, also manufactured by
Medtronic): one for the right side of the brain (to control symptoms on
the left side of the body), the other for the left side of the brain
(to control symptoms on the right side of the body). Additional
procedures were required to create pockets in the chest cavity to place
the two generators required to run the individual leads. The
Kinetra[supreg] neurostimulator generator, implanted in the pectoral
area, is designed to eliminate the need for two devices by
accommodating two leads that are placed in both the left and right
sides of the brain to deliver the necessary impulses. The manufacturer
argued that the development of a single neurostimulator that treats
bilateral symptoms provides a less invasive treatment option for
patients, and simpler implantation, follow up, and programming
procedures for physicians.
In December 2003, the FDA approved the device. Therefore, for FY
2006, Kinetra[supreg] qualifies under the newness criterion because FDA
approval was within the statutory timeframe of 2 to 3 years and its
costs are not yet reflected in the DRG weights. Because there were no
data available to evaluate costs associated with Kinetra[supreg], in
the FY 2005 IPPS final rule, we conducted the cost analysis using
SoletraTM, the predecessor technology used to treat this
condition, as a proxy for Kinetra[supreg]. The preexisting technology
provided the closest means to track cases that have actually used
similar technology and served to identify the need and use of the new
device. The manufacturer informed us that the cost of the
Kinetra[supreg] device is twice the price of a single
SoletraTM device. Because most patients would receive two
SoletraTM devices if the Kinetra[supreg] device is not
implanted, we believed data regarding the cost of SoletraTM
would give a good measure of the actual costs that would be incurred.
Medtronic submitted data for 104 cases that involved the
SoletraTM device (26 cases in DRG 1 (Craniotomy Age > 17
[[Page 23357]]
With CC), and 78 cases in DRG 2 (Craniotomy Age > 17 Without CC)).
These cases were identified from the FY 2002 MedPAR file using
procedure codes 02.93 (Implantation, intracranial neurostimulator) and
86.09 (Other incision of skin and subcutaneous tissue). In the analysis
presented by the applicant, the mean standardized charges for cases
involving SoletraTM in DRGs 1 and 2 were $69,018 and
$44,779, respectively. The mean standardized charge for these
SoletraTM cases according to Medtronic's data was $50,839.
Last year, we used the same procedure codes to identify 187 cases
involving the SoletraTM device in DRGs 1 and 2 in the FY
2003 MedPAR file. Similar to the Medtronic data, 53 of the cases were
found in DRG 1, and 134 cases were found in DRG 2. The average
standardized charges for these cases in DRGs 1 and 2 were $51,163 and
$44,874, respectively. Therefore, the case-weighted average
standardized charge for cases that included implantation of the
SoletraTM device was $46,656. The new cost thresholds
established under the revised criteria in Pub. L. 108-173 for DRGs 1
and 2 are $43,245 and $30,129, respectively. Accordingly, the case-
weighted threshold to qualify for new technology add-on payment using
the data we identified was determined to be $33,846. Under this
analysis, Kinetra[supreg] met the cost threshold.
We note that an ICD-9-CM code was approved for dual array pulse
generator devices, effective October 1, 2004, for IPPS tracking
purposes. The new ICD-9-CM code that will be assigned to this device is
86.95 (Insertion or replacement of dual array neurostimulator pulse
generator), which includes dual array and dual channel generators for
intracranial, spinal, and peripheral neurostimulators. The code will
not separately identify cases with the Kinetra[supreg] device and will
only be used to distinguish single versus dual channel-pulse generator
devices. Because the code only became effective on October 1, 2004, we
do not have any specific data regarding the costs of cases involving
dual array pulse generator devices.
The manufacturer claimed that Kinetra[supreg] provides a range of
substantial improvements beyond previously available technology. These
include a reduced rate of device-related complications and
hospitalizations or physician visits and less surgical trauma because
only one generator implantation procedure is required. Kinetra[supreg]
has a reed switch disabling function that physicians can use to prevent
inadvertent shutoff of the device, as occurs when accidentally tripped
by electromagnetic inference (caused by common products such as metal
detectors and garage door openers). Kinetra[supreg] also provides
significant patient control, allowing patients to monitor whether the
device is on or off, to monitor battery life, and to fine-tune the
stimulation therapy within clinician-programmed parameters. While
Kinetra[supreg] provides the ability for patients to better control
their symptoms and reduce the complications associated with the
existing technology, it does not eliminate the necessity for two
surgeries. Because the patients who receive the device are often frail,
the implantation generally occurs in two phases: the brain leads are
implanted in one surgery, and the generator is implanted in another
surgery, typically on another day. However, implanting Kinetra[supreg]
does reduce the number of potential surgeries compared to its
predecessor (which requires two surgeries to implant the two single-
lead arrays to the brain and an additional surgery for implantation of
the second generator). Therefore, the Kinetra[supreg] device reduces
the number of surgeries from 3 to 2.
Last year, we solicited comments on (1) the issue of whether the
device is sufficiently different from the previously used technology to
qualify as a substantially improved treatment for the same patient
symptoms; (2) the cost of the device; and (3) the approval of the
device for add-on payment, given the uncertainty over the frequency
with which the patients receiving the device have the generator
implanted in a second hospital stay, and the frequency with which this
implantation occurs in an outpatient setting. In the response, we
received sufficient evidence to demonstrate that Kinetra[supreg] does
represent a substantial clinical improvement over the previous Soletra
TM device. Specifically, the increased patient control,
reduced surgery, fewer complications, and elimination of environmental
interference significantly improve patient outcomes. Therefore, we
approved Kinetra[supreg] for new technology add-on payments for FY
2005.
Cases receiving Kinetra[supreg] for Parkinson's disease or
essential tremor on or after October 1, 2004, are eligible to receive
an add-on payment of up to $8,285, or half the cost of the device,
which is approximately $16,570. These cases are identified by the
presence of procedure codes 02.93 (Implantation or replacement of
intracranial neurostimulator leads) and 86.95 (Insertion or replacement
of dual array neurostimulator pulse generator). If a claim has only the
procedure code identifying the implantation of the intracranial leads,
or if the claim identifies only insertion of the generator, no add-on
payment will be made.
This technology received FDA approval on December 16, 2003, and
remains within the 2 to 3 year period during which it can be considered
new. Therefore, we are proposing to continue add-on payments for
Kinetra[supreg] Inplantable Neurostimulator for deep brain stimulation
for FY 2006.
4. FY 2006 Applications for New Technology Add-On
a. INFUSE TM Bone Graft (Bone Morphogenetic Proteins (BMPs)
for Tibia Fractures)
Bone Morphogenetic Proteins (BMPs) have been shown to have the
capacity to induce new bone formation and, therefore, to enhance the
healing of fractures. Using recombinant techniques, some BMPs (also
referred to as rhBMPs) can be produced in large quantities. This
innovation has cleared the way for the potential use of BMPs in a
variety of clinical applications such as in delayed union and nonunion
of fractured bones and spinal fusions. One such product, rhBMP-2, is
developed as an alternative to bone graft with spinal fusions.
Medtronic Sofamor Danek (Medtronic) resubmitted an application
(previously submitted for consideration for FY 2005) for a new
technology add-on payment in FY 2006 for the use of INFUSE
TM Bone Graft in open tibia fractures. In cases of open
tibia fractures, INFUSE TM is applied using an absorbable
collagen sponge, which is then applied to the fractured bone to promote
new bone formation and improved healing. The manufacturer contends that
patient access to this technology is restricted due to the increased
costs of treating these cases with INFUSE TM. The FDA
approved use of INFUSE TM for open tibia fractures on April
30, 2004.
Medtronic's first application for a new technology add-on payment
for INFUSE TM Bone Graft in open tibia fractures was denied.
As we discussed in the FY 2005 IPPS final rule (69 FR 49010), the FY
2005 application for INFUSE TM for open tibia fractures was
denied because a similar product, OP-1, was approved in 2001 for the
treatment of nonunion of tibia fractures.
Comment: In comments presented at the February 2005 new technology
town hall meeting, Medtronic contended that there was no opportunity
for public
[[Page 23358]]
comment on our decision regarding OP-1 Putty: ``the public had no
opportunity to comment on whether the follow-on products were
`substantially similar' to the primary technologies under
consideration. The absence of such provisions led to unpredictability
and confusion about the new-technology add-on program.''
Response: In the FY 2005 IPPS final rule, we noted that a commenter
brought the existence of the Stryker Biotech OP-1 product to our
attention during the comment period on the IPPS proposed rule for FY
2005. The commenter noted OP-1's clinical similarity to INFUSE
TM and contended that the products should be treated the
same with respect to new technology payments when the product is used
for tibia fractures. At that time, we determined that, despite the
differences in indications under the respective FDA approvals, the two
products were in use for many of the same kinds of cases. Specifically,
clinical studies on the safety of OP-1 included patients with
complicated fractures of the tibia, and those cases were similar to the
cases described in the clinical trials for INFUSE TM for
open tibia fractures. In addition, cases involving the use of OP-1 for
long bone union and open tibia fractures are assigned to the same DRGs
(DRGs 218 and 219 (Lower Extremity Procedures With and Without CC,
respectively)) as cases involving INFUSE TM. Therefore, we
denied new technology add-on payments for INFUSE TM for open
tibia fractures for FY 2005 on the grounds that the technology
involving the use of bone morphogenetic proteins to treat severe long
bone fractures (including open tibia fractures) and recalcitrant long
bone fractures had been in use for more than 3 years.
We note that Medtronic had ample opportunity, prior to the issuance
of the FY 2005 IPPS final rule, to bring to our attention the fact that
there was a similar product on the market that was being used in long
bone fractures. We based our decision for FY 2005 on the record that
was placed at our disposal by the applicant and by commenters during
the comment period. Nevertheless, we have considered the issues raised
by these two products again in the course of evaluating Medtronic's new
application for approval of INFUSE TM for new technology
add-on payments in FY 2006.
As part of its FY 2006 application, Medtronic advanced several
arguments designed to demonstrate that OP-1 and INFUSE TM
are substantially different. The application cites data from several
studies as evidence of the clinical superiority of INFUSE TM
over OP-1. Medtronic presented studies at the February 2005 new
technology town hall meeting to provide evidence that INFUSE
TM is superior to OP-1 in the time it takes for critical-
sized defects to heal and in radiographic assessment, mechanical
testing of the repaired bone, and histology of the union for trial
subjects receiving INFUSE TM compared with OP-1. (Study
subjects were canines whose ulnas had 2.5 cm each of bone removed and
then equal amounts of OP-1 and INFUSE TM were put into the
front legs in a head to head trial.) Medtronic has also argued that
these studies demonstrate that OP-1 has been shown to be less effective
than using the patient's own bone or the current standard of care (nail
fixation with soft tissue medical management). Medtronic argued that
the INFUSE TM product is not only superior to OP-1 for
patients with open tibia fractures, but also that it is superior to any
other treatment for these serious injuries.
Medtronic also pointed out that the FDA approved OP-1 for
Humanitarian Device Exemption (HDE) status, whereas INFUSE
TM received a Pre-Market Approval (PMA). To receive HDE
approval, a product only needs to meet a safety standard, while
standards of both safety and efficacy have to be met for a PMA
approval. Medtronic argued that, because the only point the
manufacturer of OP-1 was able to prove was that it did not harm those
individuals that received it, the efficacy of OP-1 not only has not
been demonstrated for the general population, but also more
specifically, it has not been proven in the Medicare population.
Medtronic presented arguments that INFUSE TM is a superior
product to OP-1 because the INFUSE TM product has
demonstrated safety and efficacy, while the OP-1 product has merely
demonstrated that it is safe to use in humans. Medtronic pointed to the
labeled indications and package inserts provided with the two products,
stating that only INFUSE TM provides a substantial clinical
improvement to patients receiving a BMP product.
We do not believe that the different types of FDA approvals for the
two products are relevant to distinguish between the two products in
determining whether either product should be considered for new
technology add-on payments under the IPPS. Manufacturers seek different
types of FDA approval for many different reasons, including timing, the
availability of adequate studies, the availability of resources to
pursue research studies, and the size of the patient population that
may be affected. The FDA has stated that the HDE approval process was
established to address cases involving devices used in the treatment or
diagnosis of diseases affecting fewer than 4,000 individuals in the
United States per year: ``A device manufacturer's research and
development costs could exceed its market returns for diseases or
conditions affecting small patient populations. FDA, therefore,
developed and published [the regulation establishing the HDE process]
to provide an incentive for the development of devices for use in the
treatment or diagnosis of diseases affecting these populations.''
(http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfHDE/HDEInformation.cfm). The fact that two products received different
types of approval does not demonstrate either that they are
substantially different for purposes of new technology add-on payments,
or that one is new and the other is not. Nor do the different types of
FDA approval imply that one product could meet our substantial clinical
improvement criterion and the other could not. Neither type of FDA
approval requires that products establish substantial clinical
improvement, as is required for approval of new technology add-on
payments. Theoretically, a product that receives an FDA HDE approval
could subsequently meet our substantial clinical improvement criterion,
while a product that receives an FDA PMA approval could fail to do so.
We base our substantial clinical improvement determinations on the
evidence presented in the course of the application process, and not on
the type of FDA approval.
For purposes of determining whether the use of rhBMPs for open
tibia fracture represents a new technology, the crucial consideration
is whether the costs of this technology are represented in the weights
of the relevant DRGs. Cases that involve treatment of non-healed and
acute tibia fractures fall into the same DRGs. We have identified
10,047 cases involving the use of rhBMPs in the FY 2004 MedPAR data
file. This use includes the approved indications for INFUSE
TM in spinal fusions (6,712 cases) and tibia DRGs (77
cases). However, we note that an additional 3,258 cases involving the
off-label use of rhBMPs were found in 47 DRGs in the FY 2004 MedPAR
data. We also note that, in our analysis of the FY 2003 MedPAR data, an
additional 890 cases of off-label use (identified by the presence of
ICD-9-CM code 84.52) were found in 36 DRGs. Therefore, we note
[[Page 23359]]
that the use of rhBMPs, made by Medtronic or otherwise, has penetrated
the cost data that were used to set the FY 2005 and FY 2006 DRG
weights. Whether or not it is possible to differentiate between patient
populations that would be eligible to receive the OP-1 Implant for
nonunions or the INFUSE TM bone graft for open tibia
fractures, the patient populations both fall into the same DRGs. In
addition, we have determined that the costs associated with the two
products are comparable (69 FR 49009). Therefore, because BMP products
have been used in treating both types of fractures included in the same
DRGs since 2001, we continue to believe that the hospital charge data
used in developing the relative weights reflect the costs of these
products.
Comment: In our Federal Register announcement of the February 23,
2005 new technology town hall meeting, held on February 23, 2005, we
solicited comments on the issue of when products should be considered
substantially similar. As a result, Medtronic recommended several
criteria for determining whether two or more products are substantially
similar and requested that we apply these criteria in determining
whether OP-1 and INFUSE TM are similar for new technology
add-on payment purposes. The three criteria recommended by Medtronic
are:
The technologies or services in question use the same, or
a similar, mechanism of action to achieve the therapeutic outcome.
The technologies or services are indicated for use in the
same population for the same condition.
The technologies or services achieve the same level of
substantial improvement.
Medtronic has also argued that, according to its proposed criteria,
OP-1 would fail on two of the three proposed tests for substantial
similarity:
According to Medtronic, the OP-1 implant ``arguably'' uses
the same or a similar mechanism of action to achieve the therapeutic
outcome.
OP-1 and INFUSE TM are indicated for use in
different population and different conditions. According to Medtronic,
INFUSE TM Bone Graft has an indication for acute, open tibia
fractures only, used within 14 days, and is to be used with an
intramedullary (IM) nail as part of the primary procedure. There is no
limitation on the number of patients that can receive the technology.
OP-1 Implant is indicated only for recalcitrant long-bone non-unions
that have failed to heal. The HDE approval also specifies that use of
OP-1 is limited to secondary procedures (as would be expected with
nonunions). The number of patients able to receive the device is
limited to 4,000 patients per year and with oversight from an
Institutional Review Board.
Medtronic argues the products do not achieve the same
level of substantial improvement (as discussed above).
Response: We agree with Medtronic that the first proposed criterion
has some relevance in determining whether products are substantially
similar. In evaluating the application for new technology add-on
payments last year, we made the determination that, while these
products are not identical chemically, the products do use the same
mechanism of action to achieve the therapeutic outcome. However, we do
not agree that the other two criteria recommended by Medtronic are
relevant considerations for this purpose. As we have discussed above,
we believe that whether cases involving different products are assigned
to the same DRGs is a more relevant consideration than whether the
products have the same specific indications. In addition, as we have
already stated, we continue to believe that the hospital charge data
used in developing the relative weights of the relevant DRGs reflect
the costs of these products. Furthermore, we do not necessarily agree
that considerations about the degrees of clinical improvements offered
by different products should enter into decisions about whether
products are new. We have always based our decisions about new
technology add-on payments on a logical sequence of determinations,
moving from the newness criterion to the cost criterion and finally to
the substantial clinical improvement criterion. Specifically, we do not
make determinations about substantial improvement unless a product has
already been determined to be new and to meet the cost criterion.
Therefore, we are reluctant to import substantial clinical improvement
considerations into the logical prior decision about whether
technologies are new. Furthermore, while we may sometimes need to make
separate determinations about whether similar products meet the
substantial clinical improvement criterion, we do not believe that it
would be appropriate to make determinations about whether one product
or another is clinically superior. However, we welcome comments while
we continue to consider these issues.
Comment: Medtronic suggested revisions to the application process
that are designed to assist in identifying substantially similar
products and provide the public with opportunity for comment on
specific instances in which substantial similarity is an issue. The
suggested proposed revisions are:
After receipt of all new applications for a fiscal year,
CMS should publish a Federal Register notice specifically asking
manufacturers to identify if they wish to receive consideration for
products that may be substantially similar to applications received.
Such notice would probably occur in January. Responses would be
required by a date certain in advance of the new technology town hall
meeting, and would include justification of how the products meet the
``substantial similarity'' criteria.
The new technology town hall meeting should include a
discussion of products identified by manufacturers as ``substantially
similar'' to other approved products or pending applications.
CMS should publish initial findings about ``substantial
similarity'' in the proposed hospital inpatient rule, with opportunity
for public comment.
CMS should publish ultimate findings in the inpatient
final rule.
Alternatively, Medtronic suggested that, if a manufacturer
identifies a product that may be substantially similar to a technology
with an approved add-on payment, the manufacturer may choose to submit
an application under the normal deadlines for the add-on payment
program.
Response: We appreciate Medtronic's suggestions for evaluating
similar technologies for new technology add-on payment. We have stated
on several occasions that we wish to avoid creating situations in which
similar products receive different treatment because only one
manufacturer has submitted an application for new technology add-on
payments. As we discussed in the September 7, 2001 Federal Register (66
FR 46915), an approval of a new technology for special payment should
extend to all technologies that are substantially similar. Otherwise,
our payment policy would bestow an advantage to the first applicant to
receive approval for a particular new technology.
In addition, we note that commenters on the FY 2005 proposed rule
placed a great deal of emphasis on the fact that many manufacturers
developing new technologies are not aware of the existence of the add-
on payment provision or lack the resources to apply for add-on payment.
Therefore, commenters on that proposed rule argued that the regulations
we have established are already too stringent and cumbersome,
especially for small manufacturers to access the new
[[Page 23360]]
technology add-on payment process. The proposal by Medtronic would
place further burden on these small manufacturers, both to know that an
application has been made for a similar product and to make
representations on a product that may or may not be on the market.
Therefore, we are reluctant to adopt a process that places the formal
burden on a competitor to seek equal treatment. However, we welcome
comments while we continue to consider these issues.
We note that Medtronic submitted data on 236 cases using INFUSE
TM for open tibia fractures in the FY 2003 MedPAR data file,
as identified by procedure code 79.36 (Reduction, fracture, open,
internal fixation, tibia and fibula) and diagnosis codes of either
823.30 (Fracture of tibia alone, shaft, open) or 823.32 (Fracture of
fibula and tibia, shaft, open). Medtronic also noted that the patients
in clinical trials with malunion fractures (diagnosis code 733.81) or
nonunion fractures (diagnosis code 733.82) would also be likely
candidates to receive INFUSE TM. Based on the data submitted
by the applicant, INFUSE TM would be used primarily in two
different DRGs: 218 and 219 (Lower Extremity and Humerus Procedures
Except Hip, Foot, Femur Age > 17, With and Without CC, respectively).
The analysis performed by the applicant resulted in a case-weighted
cost threshold of $24,461 for these DRGs. The average case-weighted
standardized charge for cases using INFUSE TM in these DRGs
would be $39,537. Therefore, the applicant maintains that INFUSE
TM for open tibia fractures meets the cost criterion.
However, because the costs of INFUSE TM and OP-1 are
already reflected in the relevant DRGs, these products cannot be
considered new. Therefore, we are proposing to deny new technology add-
on payments for INFUSE TM bone graft for open tibia
fractures for FY 2006.
b. AquadexTM System 100 Fluid Removal System (System 100)
CHF Solutions, Inc. resubmitted an application (previously
submitted for consideration for FY 2005) for the approval of the System
100 for new technology add-on payments for FY 2006. The System 100 is
designed to remove excess fluid (primarily excess water) from patients
suffering from severe fluid overload through the process of
ultrafiltration. Fluid retention, sometimes to an extreme degree, is a
common problem for patients with chronic congestive heart failure. This
technology removes excess fluid without causing hemodynamic
instability. It also avoids the inherent nephrotoxicity and
tachyphylaxis associated with aggressive diuretic therapy, the mainstay
of current therapy for fluid overload in congestive heart failure.
The System 100 consists of: (1) An S-100 console; (2) a UF 500
blood circuit; (3) an extended length catheter (ELC); and (4) a
catheter extension tubing. The System 100 is designed to monitor the
extracorporeal blood circuit and to alert the user to abnormal
conditions. Vascular access is established via the peripheral venous
system, and up to 4 liters of excess fluid can be removed in an 8-hour
period.
On June 3, 2002, FDA approved the System 100 for use with
peripheral venous access. On November 20, 2003, FDA approved the System
100 for expanded use with central venous access and catheter extension
use for infusion or withdrawal circuit line with other commercially
applicable venous catheters. According to the applicant, although the
FDA first approved System 100 in June 2002, it was not used by
hospitals until August 2002 because of the substantial amount of time
necessary to market and sell the device to hospitals. The applicant
presented data and evidence demonstrating that the System 100 was not
marketed until August 2002.
We note the applicant submitted an application for FY 2005 and was
denied new technology add-on payments. Our review indicated that the
applicant did not present sufficient objective clinical evidence to
determine that the System 100 meets the substantial clinical
improvement criterion (such as a large prospective, randomized clinical
trial) even though it is indicated for use in patients with congestive
heart failure, a common condition in the Medicare population. However,
for FY 2006, we are proposing to deny System 100 new technology add-on
payments on the basis of our determination that it is no longer new.
Technology is no longer considered new 2 to 3 years after data
reflecting its costs begin to become available. Because data on the
costs of the System 100 first became available in 2002, the costs are
currently reflected in the DRG weights and the device is no longer new.
The applicant also submitted information for the cost and
substantial clinical improvement criteria. As stated last year, it is
important to note at the outset of the cost analysis that the console
is reusable and is, therefore, a capital cost. Only the circuits and
catheters are components that represent operating expenses. Section
1886(d)(5)(K)(i) of the Act requires that the Secretary establish a
mechanism to recognize the costs of new medical services or
technologies under the payment system established under subsection (d)
of section 1886, which establishes the system for paying for the
operating costs of inpatient hospital services. The system of payment
for capital costs is established under section 1886(g) of the Act,
which makes no mention of any add-on payments for a new medical service
or technology. Therefore, it is not appropriate to include capital
costs in the add-on payments for a new medical service or technology
and these costs should also not be considered in evaluating whether a
technology meets the cost criterion. The applicant has applied for add-
on payments for only the circuits and catheter, which represent the
operating expenses of the device. However, as stated in the FY 2005
IPPS final rule, we believe that the catheters cannot be considered new
technology for this device. As a result, we considered only the UF 500
disposable blood circuit as relevant to the evaluation of the cost
criterion.
The applicant submitted data from the FY 2003 MedPAR file in
support of its application for new technology add-on payments for FY
2006. The applicant used a combination of diagnosis codes to determine
which cases could potentially use the System 100. The applicant found
28,155 cases with the following combination of ICD-9-CM diagnosis
codes: 428.0 through 428.9 (Heart Failure), 402.91 (Unspecified with
Heart Failure), or 402.11 (Hypertensive Heart Disease with Heart
Failure), in combination with 276.6 (Fluid Overload) and 782.3 (Edema).
The 28,155 cases were found among 148 DRGs with 50.1 percent of cases
mapped across DRGs 88, 89, 127, 277 and 316. The applicant eliminated
those DRGs with less than 150 cases, which resulted in a total of
22,620 cases that could potentially use the System 100. The case-
weighted average standardized charge across all DRGs was $13,619.32.
The case-weighted threshold across all DRGs was $16,125.42. Although
the case-weighted threshold is greater than the case-weighted
standardized charge, it is necessary to include the standardized charge
for the circuits used in each case. In order to establish the charge
per circuit, the applicant submitted data regarding 76 actual cases
that used the System 100. Based on these 76 cases, the standardized
charge per circuit was $2,591. The applicant also stated that an
average of two circuits are used per case. Therefore, adding $5,182 for
the charge of the two
[[Page 23361]]
circuits to the case-weighted average standardized charge of $13,619.32
results in a total case-weighted standardized charge of $18,801.32.
This amount is greater than the case-weighted threshold of $16,125.42.
The applicant contended that the System 100 represents a
substantial clinical improvement for the following reasons: It removes
excess fluid without the use of diuretics; it does not lead to
electrolyte imbalance, hemodynamic instability or worsening renal
function; it can restore diuretic responsiveness; it does not adversely
affect the renin-angiotensin system; it reduces length of hospital stay
for the treatment of congestive heart failure, and it requires only
peripheral venous access. The applicant also noted that there are some
clinical trials that have demonstrated the clinical safety and
effectiveness as well as cost effectiveness of the System 100 in
treating patients with fluid overload.
However, as stated above, we are proposing to deny new technology
add-on payments for the System 100 because it does not meet the newness
criterion.
We received no public comments regarding this application for add-
on payments.
c. CHARITETM Artificial Disc (CHARITETM)
DePuy SpineTM submitted an application for new
technology add-on payments for the CHARITETM Artificial Disc
for FY 2006. This device is a prosthetic intervertebral disc. DePuy
SpineTM stated that the CHARITETM Artificial Disc
is the first artificial disc approved for use in the United States. It
is a 3-piece articulating medical device consisting of a sliding core
that is placed between two metal endplates. The sliding core is made
from a medical grade plastic and the endplates are made from medical
grade cobalt chromium alloy. The endplates support the core and have
small teeth that are secured to the vertebrae above and below the disc
space. The sliding core fits in between the endplates.
On October 26, 2004, the FDA approved the CHARITETM
Artificial Disc for single level spinal arthroplasty in skeletally
mature patients with degenerative disc disease (DDD) between L4 and S1.
The FDA further stated that DDD is defined as discogenic back pain with
degeneration of the disc confirmed by patient history and radiographic
studies. These DDD patients should have no more than 3 mm of
spondylolisthesis at an involved level. Patients receiving the
CHARITETM Artificial Disc should have failed at least 6
months of conservative treatment prior to implantation of the
CHARITETM Artificial Disc. Because the device is within the
statutory timeframe of 2 to 3 years and data is not yet reflected
within the DRGs, we consider the CHARITETM Artificial Disc
to meet the newness criterion.
We note that an ICD-9-CM code was effective October 1, 2004, for
IPPS tracking purposes. The code assigned to the CHARITETM
was 84.65 (Insertion of total spinal disc prosthesis, lumbosacral).
For analysis of the cost criterion, the applicant submitted two
sets of data: one that used actual cases and one that used FY 2003
MedPAR cases. The applicant expects that cases using the
CHARITETM will map to DRGs 499 and 500. The applicant
submitted 68 actual cases from 35 hospitals that used the
CHARITETM. Of these 68 cases, only 3 were Medicare patients;
the remaining cases were privately insured patients or patients for
whom the payer was unknown. Using data from the 68 actual cases, the
average standardized charge was $40,722. The applicant maintained that
this figure is well in excess of the thresholds for DRGs 499 and 500
(regardless of a case weighted threshold) of $24,828 and $17,299
respectively. Based on this analysis, the applicant maintained that the
CHARIT[Eacute]TM meets the cost criterion because the
average standardized charge exceeds the charge thresholds for DRGs 499
and 500.
In addition, as stated above, the applicant submitted cases from
the FY 2003 MedPAR file. The applicant searched the MedPAR file for
ICD-9-CM procedure codes 81.06, 81.07, and 81.08 in combination with
diagnosis codes 722.10, 722.2, 722.5, 722.52, 722.6, 722.7, 722.73 and
756.12, to identify a patient population that could be eligible for the
CHARITETM Artificial Disc and found a total of 12,680 cases.
However, these cases are from the FY 2003 MedPAR file and precede the
effective date of ICD-9-CM code 84.65 that is currently used to track
the device. Of these 12,680 cases, 55.5 percent were reported in DRG
497, and 44.5 percent were reported in DRG 498. The applicant stated
that cases using the CHARITETM device group to the DRGs for
back and neck procedures that exclude spinal fusions (DRGs 499 and
500). However, the applicant argues that the CHARITETM could
be a substitute for spinal fusion procedures found in DRGs 497 and 498
and, therefore, used cases from these DRGs to evaluate whether the
CHARITETM meets the cost criterion and to argue that
procedures using the technology should be grouped to the spinal fusion
DRGs. The average standardized charge per case was $50,098 for DRG 497
and $41,290 for DRG 498. Using revenue codes 272 and 278 from the
MedPAR file, the applicant then subtracted the charges for surgical and
medical supplies used in connection with spinal fusion procedures,
which resulted in a standardized charge of all other charges of $24,333
for DRG 497 and $22,183 for DRG 498. Based on the actual cases above,
the applicant then estimated the average standardized charge for
surgical and medical supplies per case for the CHARITETM was
$20,033. The applicant estimated that charges have grown by 15 percent
from FY 2003 to FY 2005 and, therefore, deflated the average
standardized charge for surgical and medical supplies of the
CHARITETM by 15 percent to $17,420. The applicant then added
the average standardized charge for surgical and medical supplies of
the CHARITETM to the standardized charge of all other
charges for DRG 497 and 498 and also inflated the charges by 15 percent
in order to update the data to FY 2005 charge levels. This amounted to
a case-weighted average standardized charge of $46,256. Although the
analysis was completed with DRGs 497 and 498, it is necessary to
compare the average standardized charge to the thresholds of DRGs 499
and 500 because the GROUPER maps these cases to DRGs 499 and 500. As a
result, the case-weighted threshold was $21,480. Similar to the
analysis above, the applicant stated that the case-weighted average
standardized charge is greater than the case-weighted threshold and, as
a result, the applicant maintained that the CHARITETM meets
the cost criterion.
The applicant also contended that the CHARITETM
represents a substantial clinical improvement over existing technology.
Use of the CHARITETM may eliminate the need for spinal
fusion and the use of autogenous bone, and the applicant stated that,
based on the Investigational Device Exemption (IDE) study, ``A
Prospective Randomized Multicenter Comparison of Artificial Disc vs.
Fusion for Single Level Lumbar Degenerative Disc Disease'' (Blumenthal,
S, et al, National American Spine Society 2004 Abstract) that patients
who received the CHARITETM Artificial Disc were discharged
from the hospital after an average of 3.7 days compared to 4.2 days in
the fusion group. Furthermore, the applicant stated that patients who
received the CHARITETM Artificial Disc had a statistically
greater improvement in Oswetry Disability Index scores and Visual
Analog Scale Pain scores compared to the fusion group at 6 weeks
[[Page 23362]]
and 3, 6 and 12 months. The study also showed greater improvement from
baseline compared to the fusion group on the Physical Component Score
at 3, 6, and 23 months. In addition, the applicant states that patients
receiving the CHARITETM Artificial Disc returned to normal
activities in half the time, compared to patients who underwent fusion,
and at the 2 year follow up, 15 percent of patients who underwent a
fusion were dissatisfied with the postoperative improvements compared
to 2 percent who received the CHARITETM Artificial Disc.
Also, patients who received the CHARITETM Artificial Disc
returned to work on average of 12.3 weeks after surgery compared to
16.3 weeks after circumferential fusion and 14.4 weeks with Bagby and
Kuslich cages. The applicant finally stated that the motion preserving
technology of the CHARITETM Artificial Disc may reduce the
risk of increase of degenerative disc disease (DDD). The applicant
explained that degeneration of adjacent discs due to increased stress
has been strongly associated with spinal fusion utilizing
instrumentation. In a followup of 100 patients (minimum 10 years) who
received the CHARITETM Artificial Disc, the incidence of
adjacent level DDD was 2 percent.
We are continuing to review the information on whether the CHARITE
TM Artificial Disc would appear to represent a substantial
clinical improvement over existing technology for certain patient
populations. Based on the studies submitted to the FDA and CMS, we
remain concerned that the information presented may not definitively
substantiate whether the CHARITE TM Artificial Disc is a
substantial clinical improvement over spinal fusion. In addition, we
are concerned that the cited IDE study enrolled no patients over 60
years of age, which excludes much of the Medicare population, and we
are concerned that the device is contraindicated in patients with
``significant osteoporosis,'' which is quite common in the Medicare
population. We invite comment on both of these points and on the more
general question of whether the device satisfies the substantial
clinical improvement criterion.
Despite the issues mentioned above, we are still considering
whether it is appropriate to approve new technology add-on payment
status for the CHARITE TM Artificial Disc for FY 2006. If
approved for add-on payments, the device would be reimbursed up to half
of the costs for the device. Because the manufacturer has stated that
the cost for the CHARITE TM Artificial Disc would be
$11,500, the maximum add-on payment for the device would be $5,750. In
the final rule, we will make a final determination on whether the
CHARITE TM Artificial Disc should receive new technology
add-on payments for FY 2006 based on public comments and our continuing
analyses.
We finally note that the applicant requested a DRG reassignment for
cases of the CHARITE TM Artificial Disc from DRGs 499 (Back
and Neck Procedures Except Spinal Fusion With CC) and 500 (Back and
Neck Procedures Except Spinal Fusion Without CC) to DRGs 497 (Spinal
Fusion Except Cervical With CC) and 498 (Spinal Fusion Except Cervical
Without CC). The applicant argued that the costs associated with an
artificial disc surgery are similar to spinal fusion and inclusion in
DRGs 497 and 498 would obviate the need to make a new technology add-on
payment. On October 1, 2004, we created new codes for the insertion of
spinal disc prostheses (codes 84.60 through 84.69). In the FY 2005 IPPS
proposed rule and the final rule, we described the new DRG assignments
for these new codes in Table 6B of the Addendum to the rules. We
received a number of comments recommending that we change the DRG
assignments from DRGs 499 and 500 in MDC 8 to the DRGs for spinal
fusion (DRGs 497 and 498). In the FY 2005 IPPS final rule (69 FR
48938), we indicated that DRGs 497 and 498 are limited to spinal fusion
procedures. Because the surgery involving the CHARITE TM is
not a spinal fusion, we decided not to include this procedure in these
DRGs. However, we will continue to analyze this issue and are
interested in public comments on both the new technology application
for the CHARITE TM and the DRG assignment for spinal disc
prostheses.
We received no public comments regarding this application for new
technology add-on payments.
d. Endovascular Graft Repair of the Thoracic Aorta
Endovascular stent-grafting of the descending thoracic aorta (TA)
provides a less invasive alternative to the traditional open surgical
approach required for the management of descending thoracic aortic
aneurysms. W.L. Gore & Associates, Inc. submitted an application for
consideration of its Endovascular Graft Repair of the Thoracic Aorta
(GORE TAG) for new technology add-on payments for FY 2006. The GORE TAG
device is a tubular stent-graft mounted on a catheter-based delivery
system, and it replaces the synthetic graft normally sutured in place
during open surgery. The device is identified using ICD-9-CM procedure
code 39.79 (Other endovascular repair (of aneurysm) of other vessels).
The applicant has requested a unique ICD-9-CM procedure code.
At this point the time of the initial application, the FDA hads not
yet approved this technology for general use. Subsequently, however, we
were notified that FDA approval was granted on March 23, 2005. Although
we discuss some of the data submitted with the application for new
technology add-on payments below, we are unable to include a detailed
analysis of cost data and substantial clinical improvement data in this
proposed rule because FDA approval occurred too late for us to conduct
a complete analysis.
The applicant submitted cost threshold information for the GORE TAG
device. According to the manufacturer, cases using the GORE TAG device
would fall into DRGs 110 and 111 (Major Cardiovascular Procedures With
and Without CC, respectively). The applicant identified 185 cases in
the FY 2003 MedPAR using procedure code 39.79 (Other endovascular
repair (of aneurysm) of other vessels) and primary diagnosis codes
441.2 (Thoracic aneurysm, without mention of rupture), 441.1 (Thoracic
aneurysm, ruptured), or 441.01 (Dissection of aorta, thoracic). The
case-weighted standardized charge for 177 of these cases was $60,905.
According to the manufacturer, the case-weighted cost threshold for
these DRGs is $49,817. Based on this analysis, the manufacturer
maintained that the technology meets our cost threshold.
The manufacturer argued that the GORE TAG represents a substantial
clinical improvement over existing technology, primarily by avoiding
the traditional open aneurysm repair procedure with its associated high
morbidity and mortality. The applicant argued that a descending
thoracic aorta aneurysm is a potentially life threatening condition
that currently requires a major operative procedure for its treatment.
The mortality and complication rates associated with this surgery are
very high, and the surgery is frequently performed under urgent or
emergent conditions. The applicant noted that such complications can
increase the length of the hospital stay and can include neurological
damage, paralysis, renal failure, pulmonary emboli, hemorrhage, and
sepsis. The average time for patients undergoing surgical repair to
return to normal activity is 3 to 4 months, but can be significantly
longer.
[[Page 23363]]
In comparison, the applicant argued that endovascular stent-
grafting done with the GORE TAG thoracic endoprosthesis is minimally
invasive. The manufacturer noted that patients treated with the
endovascular technique experience far less aneurysm-related mortality
and morbidity, compared to those patients that receive the open
procedure resulting in reduced overall length-of-stay, less intensive
care unit days and less operative complications.
We received the following public comments, in accordance with
section 503(b)(2) of Pub. L. 108-173, regarding this application for
add-on payments.
Comment: Several commenters expressed support for approval of new
technology add-on payments for the GORE TAG device. These commenters
noted that the data presented to the FDA advisory panel for
consideration for FDA approval of the device clearly demonstrate the
safety and efficacy of the GORE TAG device. They also noted that nearly
200 patients have been treated with the endografts, with a highly
significant difference in both postoperative mortality and a reduction
in the incidence of spinal cord ischemic complications, with some
commenters noting the trial results, which showed a reduction in the
rate of paraplegia from 14 percent to 3 percent, compared to open
surgery. The commenters also stressed the rigorous nature of the open
surgery, which requires a left lateral thoracotomy, resulting in
significant morbidity. The commenters further argued that, since many
of the patients with degenerative aneurysm of the thoracic aorta are
elderly or present with significant comorbidities, or both, it is ``a
common circumstance in clinical practice to deny repair to such
patients because of the magnitude of the conventional open surgery.''
Other commenters stated that the 5-year mortality in all patients
diagnosed with thoracic aortic aneurysm is as high as 80 percent in
some groups of patients. Therefore, the commenters argued, the GORE TAG
device for thoracic aortic aneurysm satisfies the criteria for
substantial clinical improvement.
Response: We appreciate the commenters' input on this criterion. We
will consider these comments regarding the substantial clinical
improvement criterion in the final rule if we determine that the
technology meets the other two criteria.
Comment: A representative of another device manufacturer stated at
the town hall meeting that the manufacturer has a similar product
awaiting FDA approval.
Response: As we discussed in the September 7, 2001 Federal Register
(66 FR 46915), an approval of a new technology for special payment
should extend to all technologies that are substantially similar.
Otherwise, our payment policy would bestow an advantage to the first
applicant to receive approval for a particular new technology. In this
case, we will determine whether the GORE TAG device qualifies for new
technology add-on payments in the FY 2006 final rule. In the event that
this technology satisfies all the criteria, we would extend new
technology payments to any substantially similar technology that also
receives FDA approval prior to publication of the FY 2006 final rule.
We welcome comments regarding this technology in light of its recent
FDA approval, particularly with regard to the cost threshold and the
substantial clinical improvement criteria.
e. Restore[supreg] Rechargeable Implantable Neurostimulator
Medtronic Neurological submitted an application for new technology
add-on payments for its Restore[supreg] Rechargeable Implantable
Neurostimulator. The Restore[supreg] Rechargeable Implantable
Neurostimulator is designed to deliver electrical stimulation to the
spinal cord for treatment of chronic, intractable pain.
Neurostimulation is designed to deliver electrical stimulation to
the spinal cord to block the sensation of pain. The current technology
standard for neurostimulators utilizes internal sealed batteries as the
power source to generate the electrical current. These internal
batteries have finite lives, and require replacement when their power
has been completely discharged. According to the manufacturer, the
Restore[supreg] Rechargeable Implantable Neurostimulator ``represents
the next generation of neurostimulator technology, allowing the
physician to set the voltage parameters in such a way that fully meets
the patient's requirements to achieve adequate pain relief without fear
of premature depletion of the battery.'' The applicant stated that the
expected life of the Restore[supreg] rechargeable battery is 9 years,
compared to an average life of 3 years for conventional neurostimulator
batteries. The applicant stated that this represents a significant
clinical improvement because patients can use any power settings that
are necessary to achieve pain relief with less concern for battery
depletion and subsequent battery replacement.
This device has not yet received approval for use by the FDA;
however, another manufacturer has received approval for a similar
device. (Advanced Bionics' Precision[supreg] Rechargeable
Neurostimulator was approved by the FDA on April 27, 2004.)
Medtronic Neurological also provided data to determine whether the
Restore[supreg] Rechargeable Implantable Neurostimulator meets the cost
criterion. Medtronic Neurological stated that the cases involving use
of the device would primarily fall into DRGs 499, 500, 531 and 532,
which have a case-weighted threshold of $24,090. The manufacturer
stated that the anticipated average standardized charge per case
involving the Restore[supreg] technology is $59,265. This manufacturer
derived this estimate by identifying cases in the FY 2003 MedPAR that
reported procedure code 03.93 (Insertion or replacement of spinal
neurostimulators). The manufacturer then added the total cost of the
Restore[supreg] Rechargeable Implantable Neurostimulator to the average
standardized charges for those cases. Of the applicable charges for the
Restore[supreg] Rechargeable Implantable Neurostimulator, only the
components that the applicant identified as new would be eligible for
new technology add-on payments. Medtronic Neurological submitted
information that distinguished the old and new components of the device
and submitted data indicating that the neurostimulator itself is
$17,995 and the patient recharger, antenna, and belt are $3,140. Thus,
the total cost for new components would be $21,135, with a maximum add-
on amount of $10,568 if the product were to be approved for new
technology payments.
We note that we reviewed a technology for add-on payments for FY
2003 called Renew\TM\ Radio Frequency Spinal Cord Stimulation (SCS)
Therapy, made by Advanced Neuromodulation Systems (ANS). In the FY 2003
final rule, we discussed and subsequently denied an application for new
technology add-on payment for Renew\TM\ SCS because ``Renew\TM\ SCS was
introduced in July 1999 as a device for the treatment of chronic
intractable pain of the trunk and limbs.'' (67 FR 50019) We also noted,
``[t]his system only requires one surgical placement and does not
require additional surgeries to replace batteries as do other internal
SCS systems.''
The applicant also stated in its application for Restore[supreg]
that cases where it is used will be identified by ICD-9-CM procedure
code 03.93 (Insertion or replacement of spinal neurostimulators). As we
discussed in the FY 2003 final rule (67 FR 50019), the Renew\TM\ SCS is
identified by the same ICD-9-CM procedure code. The
[[Page 23364]]
applicant has also applied for a new ICD-9-CM code for rechargeable
neurostimulator pulse generator (We refer readers to Tables 6A through
6H in the Addendum to this proposed rule for information regarding ICD-
9-CM codes.) Because both technologies are similar, we asked Medtronic
to provide information that would demonstrate how the products were
substantially different. The applicant noted that the Renew\TM\ SCS,
while programmable and rechargeable, is not a good option for those
patients who have high energy requirements because of chronic
intractable pain that will result in more battery wear and subsequent
surgery to replace the device. Both systems rely on rechargeable
batteries, and in the case of Renew\TM\ SCS the energy is transmitted
through the skin from a radiofrequency source for the purpose of
recharging. The manufacturer of the Restore[supreg] device contends
that it is superior to the Renew\TM\ device because Renew\TM\ requires
an external component that uses a skin adhesive that is uncomfortable
and inconvenient (causes skin irritation, is affected by moisture that
will come from bathing, sweating, swimming, etc.), leading to patient
noncompliance.
Because FDA approval has not yet been received for this device, we
are making no decision concerning the Restore[supreg] application at
this time. We will make a formal determination if FDA approval occurs
in sufficient time for full consideration in the final FY 2006 rule.
However, we have reservations about whether this technology is new for
purposes of the new technology add-on payments because of its
similarity to other products that are also used to treat the same
conditions. Although we recognize the benefits of a more easily
rechargeable neurostimulator system, we believe that the
Restore[supreg] device may not be sufficiently different from
predecessor devices to meet the newness criterion for the new
technology add-on payment. As we discussed above, similar products have
been on the market since 1999. Therefore, these technologies are
already represented in the DRG weights and are not considered new for
the purposes of the new technology add-on payment provision. We welcome
comments on this issue, specifically regarding how the Restore[supreg]
device may or may not be significantly different from previous devices.
We also seek comments on whether the product meets the cost and
significant improvement criteria.
We received no public comments regarding this application for add-
on payments.
f. Safe-Cross[supreg] Radio Frequency Total Occlusion Crossing System
(Safe-Cross[supreg])
Intraluminal Therapeutics submitted an application for the Safe
Cross[supreg] Radio Frequency (RF) Total Occlusion Crossing System.
This device performs the function of a guidewire during percutaneous
transluminal angioplasty of chronic total occlusions of peripheral and
coronary arteries. Using fiberoptic guidance and radiofrequency
ablation, it is able to cross lesions where a standard guidewire is
unsuccessful. On November 21, 2003, the FDA approved the Safe
Cross[supreg] for use in iliac and superficial femoral arteries. The
device was approved by the FDA for all native peripheral arteries
except carotids in August 2004. In January 2004, the FDA approved the
Safe Cross[supreg] for coronary arteries as well. Because the device is
within the statutory timeframe of 2 to 3 years for all approved uses
and data regarding the cost of this device are not yet reflected within
the DRG weights, we consider the Safe Cross[supreg] to meet the newness
criterion.
We note that the applicant submitted an application for a
distinctive ICD-9-CM code. The applicant noted in its application that
the device is currently coded with ICD-9-CM procedure codes 36.09
(Other removal of coronary artery obstruction) and 39.50 (Angioplasty
or atherectomy of other noncoronary vessels).
As we stated in last year's final rule, section 1886(d)(5)(K)(i) of
the Act requires that the Secretary establish a mechanism to recognize
the costs of new medical services or technologies under the payment
system established under subsection (d) of section 1886, which
establishes the system for paying for the operating costs of inpatient
hospital services. The system of payment for capital costs is
established under section 1886(g) of the Act, which makes no mention of
any add-on payments for a new medical service or technology. Therefore,
it is not appropriate to include capital costs in the add-on payments
for a new medical service or technology, and these costs should not be
considered in evaluating whether a technology meets the cost criterion.
As a result, we consider only the Safe Cross[supreg] crossing wire,
ground pad, and accessories to be operating equipment that is relevant
to the evaluation of the cost criterion.
The applicant submitted the following two analyses on the cost
criterion. The first analysis contained 27 actual cases from two
hospitals. Of these 27 cases, 25.1 percent of the cases were reported
in DRGs 24 (Seizure and Headache Age >17 With CC), 107 (Coronary Bypass
With Cardiac Catheterization), 125 (Circulatory Disorders Except AMI,
With Cardiac Catheterization and Without Complex Diagnosis), 518
(Percutaneous Cardiovascular Procedure Without Coronary Artery Stent or
AMI), and 526 (Percutaneous Cardiovascular Procedure With Drug-Eluting
Stent With AMI); and 74.9 percent were reported in DRG 527
(Percutaneous Cardiovascular Procedure With Drug-Eluting Stent Without
AMI). This resulted in a case-weighted threshold of $35,956 and a case-
weighted average standardized charge of $40,319. Because the case-
weighted average standardized charge is greater than the case-weighted
threshold, the applicant maintained that the Safe Cross[supreg] meets
the cost criterion.
The applicant also submitted cases from the FY 2003 MedPAR. The
applicant found a total of 1,274,535 cases that could be eligible for
the Safe Cross[supreg] using diagnosis codes 411 through 411.89 (Other
acute and subacute forms of ischemic heart disease) or 414 through
414.19 (Other forms of chronic ischemic heart disease) in combination
with any of the following procedure codes: 36.01 (Single vessel
percutaneous transluminal coronary angioplasty (PTCA) or coronary
atherectomy without mention of thrombolytic agent), 36.02 (Single
vessel PTCA or coronary atherectomy with mention of thrombolytic
agent), 36.05 (Multiple vessel PTCA or coronary atherectomy performed
during the same operation with or without mention of thrombolytic
agent), 36.06 (Insertion of nondrug-eluting coronary artery stent(s)),
36.07 (Insertion of drug-eluting coronary artery stent(s)) and 36.09
(Other removal of coronary artery obstruction). A total of 59.40
percent of these cases fell into DRG 517 (Percutaneous Cardiovascular
Procedure With Nondrug-Eluting Stent Without AMI), 16.4 percent of
cases into DRG 516 (Percutaneous Cardiovascular Procedure With AMI),
and 16.2 percent of cases into DRG 527, while the rest of the cases
fell into the remaining DRGs 124, 518 and 526. The average case-
weighted standardized charge per case was $40,318. This amount included
an extra $6,000 for the charges related to the Safe Cross[supreg]. The
case-weighed threshold across the DRGs mentioned above was $35,955.
Similar to the analysis above, because the case-weighted average
standardized charge is greater than the case-weighted
[[Page 23365]]
threshold, the applicant maintained that the Safe Cross[supreg] meets
the cost criterion.
The applicant maintained that the device meets the substantial
clinical improvement criterion. The applicant explained that many
traditional guidewires fail to cross a total arterial occlusion due to
difficulty in navigating the vessel and to the fibrotic nature of the
obstructing plaque. By using fiberoptic guidance and radiofrequency
ablation, the Safe Cross[supreg] succeeds where standard guidewires
fail. The applicant further maintained that in clinical trials where
traditional guidewires failed, the Safe Cross[supreg] succeeded in 54
percent of cases of coronary artery chronic total occlusions (CTOs),
and in 76 percent of cases of peripheral artery CTOs.
However, we note that we use similar standards to evaluate
substantial clinical improvement in the IPPS and OPPS. The IPPS
regulations provide that technology may be approved for add-on payments
when it ``represents an advance in medical technology that
substantially improves, relative to technologies previously available,
the diagnosis or treatment of Medicare beneficiaries'' (66 FR 46912).
Under the OPPS, the standard for approval of new devices is ``a
substantial improvement in medical benefits for Medicare beneficiaries
compared to the benefits obtained by devices in previously established
(that is, existing or previously existing) categories or other
available treatments'' (67 FR 66782). Furthermore, the OPPS and IPPS
employ identical language (for IPPS, see 66 FR 46914, and for OPPS, see
67 FR 66782) to explain and elaborate on the kinds of considerations
that are taken into account in determining whether a new technology
represents substantial improvement. In both systems, we employ the
following kinds of considerations in evaluating particular requests for
special payment for new technology:
The device offers a treatment option for a patient
population unresponsive to, or ineligible for, currently available
treatments.
The device offers the ability to diagnose a medical
condition in a patient population where that medical condition is
currently undetectable or offers the ability to diagnose a medical
condition earlier in a patient population than allowed by currently
available methods. There must also be evidence that use of the device
to make a diagnosis affects the management of the patient.
Use of the device significantly improves clinical outcomes
for a patient population as compared to currently available treatments.
Some examples of outcomes that are frequently evaluated in studies of
medical devices are the following:
--Reduced mortality rate with use of the device.
--Reduced rate of device-related complications.
--Decreased rate of subsequent diagnostic or therapeutic interventions
(for example, due to reduced rate of recurrence of the disease
process).
--Decreased number of future hospitalizations or physician visits.
--More rapid beneficial resolution of the disease process treatment
because of the use of the device.
--Decreased pain, bleeding, or other quantifiable symptom.
--Reduced recovery time.
In a letter to the applicant dated October 25, 2004, we denied
approval of the Safe Cross[supreg] for pass-through payments for the
OPPS on the basis that the technology did not meet the substantial
clinical improvement criterion. In particular, we found that studies
failed to show long-term or intermediate-term results, and the device
had a relatively low rate of successfully opening occlusions. Since
that initial determination, the applicant has requested reconsideration
for pass-through payments under the IPPS. However, on the basis of the
original findings under the OPPS, we do not now believe that the
technology can qualify for new technology add-on payments under the
IPPS. Therefore, we are proposing to deny new technology add-on payment
for FY 2006 for Safe Cross[supreg] on the grounds that it does not
appear to be a substantial clinical improvement over existing
technologies. We welcome further information on whether this device
meets the substantial clinical improvement criterion, and we will
consider any further information prior to making our final
determination in the final rule.
We received no public comments regarding this application for add-
on payments.
g. Trident[supreg] Ceramic Acetabular System
Stryker Orthopaedics submitted an application for new technology
add-on payments for the Trident[supreg] Ceramic Acetabular System. This
system is used to replace the ``ball and socket'' joint of a hip when a
total hip replacement is performed for patients suffering from
arthritis or related conditions. The applicant stated that, unlike
conventional hip replacement systems, the Trident[supreg] system
utilizes alumina ceramic-on-ceramic bearing surfaces rather than metal-
on-plastic or metal-on-metal. Alumina ceramic is the hardest material
next to diamond. The Trident[supreg] System is a patented design that
captures the ceramic insert in a titanium sleeve. This design increases
the strength of the ceramic insert by 50 percent over other designs.
The manufacturer stated that the alumina ceramic bearing of the device
is a substantial clinical improvement because it is extremely hard and
scratch resistant, has a low coefficient of friction and excellent wear
resistance, has improved lubrication over metal or polyethylene, has no
potential for metal ion release, and has less alumina particle debris.
The manufacturer also stated that fewer hip revisions are needed when
this product is used (2.7 percent of ceramic versus 7.5 percent for
polyethylene). Stryker stated that the ceramic implant also causes less
osteolysis (or bone loss from particulate debris). Due to these
improvements over traditional hip implants, the manufacturer stated the
Trident[supreg] Ceramic Acetabular System has demonstrated
significantly lower wear versus the conventional plastic/metal system
in the laboratory; therefore, it is anticipated that these improved
wear characteristics will extend the life of the implant.
The Trident[supreg] Ceramic Acetabular System received FDA approval
in February 3, 2003. However, this product was not available on the
market until April 2003. The period that technologies are eligible to
receive new technology add-on payment is no less than 2 years but not
more than 3 years from the point the product comes on the market. At
this point, we begin to collect charges reflecting the cost of the
device in the MedPAR data. Because the device became available on the
market in April 2003, charges reflecting the cost of the device may
have been included in the data used to calculate the DRG weights in FY
2005 and the proposed DRG weights for FY 2006. Therefore, the
technology may no longer be considered new for the purposes of new
technology add-on payments. For this reason, we are proposing to deny
add-on payments for the Trident[supreg] Ceramic Acetabular System for
FY 2006.
Although we are proposing not to approve this application because
the Trident[supreg] Ceramic Acetabular System does not meet the newness
criterion, we note that the applicant submitted information on the cost
and substantial clinical improvement criteria.
The applicant submitted cost threshold information for the
Trident[supreg] Ceramic Acetabular System, stating that cases using the
system would be
[[Page 23366]]
included in DRG 209 (Major Joint and Limb Reattachment Procedures of
Lower Extremity). The manufacturer indicated that there is not an ICD-
9-CM code specific to ceramic hip arthroplasty, but it is currently
reported using code 81.51 (Total hip replacement). Of the applicable
charges for the Trident[supreg] Ceramic Acetabular System, only the
components that the applicant identified as new would be eligible for
new technology add-on payments. The estimated cost of the new portions
of the device, according to the information provided in the
application, is $6,009. The charge threshold for DRG 209 is $34,195.
The data submitted by Stryker Orthopaedics showed an average
standardized charge, assuming a 28 percent implant markup, of $34,230.
Regarding the issue of substantial clinical improvement, we
recognize that the Trident[supreg] Ceramic Acetabular System represents
an incremental advance in prosthetic hip technology. However, we also
recognize that there are a number of other new prostheses available
that utilize a variety of bearing surface materials that also offer
increased longevity and decreased wear. For this reason, we do not
believe that the Trident[supreg] system has demonstrated itself to be a
clearly superior new technology.
We received the following public comments, in accordance with
section 503(b)(2) of Pub. L. 108-173, regarding this application for
add-on payments.
Comment: One commenter noted that clinical outcomes for the
Trident[supreg] Ceramic Acetabular System are not a significant
clinical improvement over similar devices on the market. A member of
the orthopedic community noted at the new technology town hall meeting
that this system is not the only new product that promises
significantly improved results because of enhancements to materials and
design. This commenter suggested that it may be inappropriate to
recognize only one of these new hip replacement products for new
technology add-on payments.
Response: We appreciate the commenter's input on this criterion. We
will consider these comments regarding the substantial clinical
improvement criterion. However, based on the observations provided at
the town hall meeting, we are considering alternative methods of
recognizing technological improvements in this area other than
approving only one of these new technologies for add-on payments. For
example, as discussed in section II.B.6.a. of the preamble to this
proposed rule, we are proposing to split DRG 209 to create a new DRG
for revisions of hip and knee replacements. We would leave all other
replacements and attachment procedures in a separate, new DRG. We also
stated that we will be reviewing these DRGs based on new procedure
codes that will provide more detailed data on the specific nature of
the revision procedures performed. In addition, we are creating new
procedure codes that will identify the type of bearing surface of a hip
replacement. As we obtain data from these new codes, we will consider
additional DRG revisions to better capture the various types of joint
procedures. We may consider a future restructuring of the joint
replacement and revision DRGs that would better capture the higher
costs of products that offer greater durability, extended life, and
improved outcomes. In doing so, of course, we may need to create
additional, more precise ICD-9-CM codes. We welcome comments on this
issue, and generally on whether the Trident[supreg] Ceramic Acetabular
System meets the criteria to qualify for new technology add-on
payments.
h. Wingspan TM Stent System with Gateway TM PTA
Balloon Catheter
Boston Scientific submitted an application for the Wingspan
TM Stent System with Gateway TM PTA Balloon
Catheter for new technology add-on payments. The device is designed for
the treatment of patients with intracranial atherosclerotic disease who
suffer from recurrent stroke despite medical management. The device
consists of the following: a self-expanding nitinol stent, a multilumen
over the wire delivery catheter, and a Gateway PTA Balloon Catheter.
The device is used to treat stenoses that occur in the intracranial
vessels. Prior to stent placement, the Gateway PTA Balloon is inflated
to dilate the target lesion, and then the stent is deployed across the
lesion to restore and maintain luminal patency. Effective October 1,
2004, two new ICD-9-CM procedure codes were created to code
intracranial angioplasty and intracranial stenting procedures:
procedure codes 00.62 (Percutaneous angioplasty or atherectomy of
intracranial vessels) and 00.65 (Percutaneous insertion of intracranial
vascular stents).
On January 9, 2004, the FDA designated the Wingspan TM
as a Humanitarian Use Designation (HUD). The manufacturer has also
applied for Humanitarian Device Exemption (HDE) status and expects
approval from the FDA in July 2005. It is important to note that
currently CMS has a noncoverage policy for percutaneous transluminal
angioplasty to treat lesions of intracranial vessels. The applicant is
working closely with CMS to review this decision upon FDA approval.
Because the device is neither FDA-approved nor Medicare-covered, we do
not believe it is appropriate to present our full analysis on whether
the technology meets the individual criteria for the new technology
add-on payment. However, we note that the applicant did submit the
following information below on the cost criterion and substantial
clinical improvement criterion.
The manufacturer submitted data from MedPAR and non-MedPAR
databases. The non-MedPAR data was from the 2003 patient discharge data
from California's Office of Statewide Health Planning and Development
database for hospitals in California and from the 2003 patient data
from Florida's Agency for Health Care Administration for hospitals in
Florida. The applicant identified cases that had a diagnosis code of
437.0 (Cerebral atherosclerosis), 437.1 (Other generalized ischemic
cerebrovascular disease) or 437.9 (Unspecified) or any diagnosis code
that begins with the prefix of 434 (Occlusion of cerebral arteries) in
combination with procedure code 39.50 (Angioplasty or atherectomy of
noncoronary vessel) or procedure code 39.90 (Insertion of nondrug-
eluting, noncoronary artery stents). The applicant used procedure codes
39.50 and 39.90 because procedure codes 00.62 and 00.65 were not
available until FY 2005. The applicant found cases in DRG 5
(Extracranial Vascular Procedures) (which previously existed under the
Medicare IPPS DRG system prior to a DRG split) and in DRGs 533
(Extracranial Procedure with CC) and 534 (Extracranial Procedure
Without CC). Even though DRG 5 was split into DRGs 533 and 534 in FY
2003, some hospitals continued to use DRG 5 for non-Medicare cases. The
applicant found 22 cases that had an intracranial PTA with a stent. The
average (nonstandardized) charge per case was $78,363.
The applicant also submitted data from the FY 2002 and FY 2003
MedPAR files. Using the latest data from the FY 2003 MedPAR and the
same combination of diagnosis and procedure codes mentioned above to
identify cases of intracranial PTA with stenting, the applicant found
116 cases in DRG 533 and 20 cases in DRG 534. The case-weighted average
standardized charge per case was $51,173. The average case-weighted
threshold was $25,394. Based on this analysis, the applicant maintained
that the technology meets the cost criteria since the average case-
weighted standardized charge per case
[[Page 23367]]
is greater than the average case-weighted threshold.
The applicant also maintained that the technology meets the
substantial clinical improvement criterion. Currently, there is no
available surgical or medical treatment for recurrent stroke that
occurs despite optimal medical management. The Wingspan TM
is the first commercially available PTA/stent system designed
specifically for the intracranial vasculature. However, because the
Wingspan TM does not have FDA approval or Medicare coverage,
as stated above, we are proposing to deny add-on payment for this new
technology.
We received no public comments regarding this application for add-
on payments.
III. Proposed Changes to the Hospital Wage Index
A. Background
Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary must adjust the standardized amounts ``for area differences
in hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level.'' In
accordance with the broad discretion conferred under the Act, we
currently define hospital labor market areas based on the definitions
of statistical areas established by the Office of Management and Budget
(OMB). A discussion of the proposed FY 2006 hospital wage index based
on the statistical areas, including OMB's revised definitions of
Metropolitan Areas, appears under section III.B. of this preamble.
Beginning October 1, 1993, section 1886(d)(3)(E) of the Act
requires that we update the wage index annually. Furthermore, this
section provides that the Secretary base the update on a survey of
wages and wage-related costs of short-term, acute care hospitals. The
survey should measure the earnings and paid hours of employment by
occupational category, and must exclude the wages and wage-related
costs incurred in furnishing skilled nursing services. This provision
also requires us to make any updates or adjustments to the wage index
in a manner that ensures that aggregate payments to hospitals are not
affected by the change in the wage index. The proposed adjustment for
FY 2006 is discussed in section II.B. of the Addendum to this proposed
rule.
As discussed below in section III.G. of this preamble, we also take
into account the geographic reclassification of hospitals in accordance
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating
the wage index. Under section 1886(d)(8)(D) of the Act, the Secretary
is required to adjust the standardized amounts so as to ensure that
aggregate payments under the IPPS after implementation of the
provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act
are equal to the aggregate prospective payments that would have been
made absent these provisions. The proposed budget neutrality adjustment
for FY 2006 is discussed in section II.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 proposed occupational mix adjustment that we are
proposing to apply beginning October 1, 2005 (the proposed FY 2006 wage
index) appears under section III.C. of this preamble.
B. Core-Based Statistical Areas Used for the Proposed Hospital Wage
Index
(If you choose to comment on issues in this section, please include
the caption ``CBSAs'' at the beginning of your comment.)
The wage index is calculated and assigned to hospitals on the basis
of the labor market area in which the hospital is located. In
accordance with the broad discretion under section 1886(d)(3)(E) of the
Act, beginning with FY 2005, we define hospital labor market areas
based on the Core-Based Statistical Areas (CBSAs) established by OMB
and announced in December 2003 (69 FR 49027). OMB defines a CBSA,
beginning in 2003, as ``a geographic entity associated with at least
one core of 10,000 or more population, plus adjacent territory that has
a high degree of social and economic integration with the core as
measured by commuting ties.'' The standards designate and define two
categories of CBSAs: Metropolitan Statistical Areas (MSAs) and
Micropolitan Statistical Areas (65 FR 82235).
According to OMB, MSAs are based on urbanized areas of 50,000 or
more population, and Micropolitan Statistical Areas (referred to in
this discussion as Micropolitan Areas) are based on urban clusters with
a population of at least 10,000 but less than 50,000. Counties that do
not fall within CBSAs are deemed ``Outside CBSAs.'' In the past, OMB
defined MSAs around areas with a minimum core population of 50,000, and
smaller areas were ``Outside MSAs.''
The general concept of the CBSAs is that of an area containing a
recognized population nucleus and adjacent communities that have a high
degree of integration with that nucleus. The purpose of the standards
is to provide nationally consistent definitions for collecting,
tabulating, and publishing Federal statistics for a set of geographic
areas. CBSAs include adjacent counties that have a minimum of 25
percent commuting to the central counties of the area. (This is an
increase over the minimum commuting threshold of 15 percent for
outlying counties applied in the previous MSA definition.)
The new CBSAs established by OMB comprised MSAs and the new
Micropolitan Areas based on Census 2000 data. (A copy of the
announcement may be obtained at the following Internet address: http://www.whitehouse.gov/omb/bulletins/fy04/b04-03.html.) The definitions
recognize 49 new MSAs and 565 new Micropolitan Areas, and extensively
revised the composition of many of the existing MSAs.
The new area designations resulted in a higher wage index for some
areas and lower wage index for others. Further, some hospitals that
were previously classified as urban are now in rural areas. Given the
significant payment impacts upon some hospitals because of these
changes, we provided a transition period to the new labor market areas
in the FY 2005 IPPS final rule (69 FR 49027 through 49034). As part of
that transition, we allowed urban hospitals that became rural under the
new definitions to maintain their assignment to the Metropolitan
Statistical Area (MSA) where they were previously located for the 3-
year period of FY 2005, FY 2006, and FY 2007. Specifically, these
hospitals were assigned the wage index of the urban area to which they
previously belonged. (For purposes of wage index computation, the wage
data of these hospitals remained assigned to the statewide rural area
in which they are located.) The hospitals receiving this transition
will not be considered urban hospitals; rather they will maintain their
status as rural hospitals. Thus, the hospital would not be eligible,
for example, for a large urban add-on payment under the capital PPS. In
other words, it is the wage index, but not the urban or rural status,
of these hospitals that is being affected by this transition. The
higher wage indices that these hospitals are receiving are also being
taken into consideration in determining
[[Page 23368]]
whether they qualify for the out-commuting adjustment discussed in
section III.I. of this preamble and the amount of any adjustment.
FY 2006 will be the second year of this transition period. We will
continue to assign the wage index for the urban area in which the
hospital was previously located through FY 2007. In order to ensure
this provision remains budget neutral, we will continue to adjust the
standardized amount by a transition budget neutrality factor to account
for these hospitals. Doing so is consistent with the requirement of
section 1886(d)(3)(E) of the Act that any ``adjustments or updates [to
the adjustment for different area wage levels] * * * shall be made in a
manner that assures that aggregate payments * * * are not greater or
less than those that would have been made in the year without such
adjustment.''
Beginning in FY 2008, these hospitals will receive their statewide
rural wage index, although they will be eligible to apply for
reclassification by the MGCRB, both during this transition period as
well as in subsequent years.
In addition, in the FY 2005 IPPS final rule (69 FR 49032 through
49033), we provided a 1-year transition blend for hospitals that, due
solely to the changes in the labor market definitions, experienced a
decrease in their FY 2005 wage index compared to the wage index they
would have received using the labor market areas included in
calculating their FY 2004 wage index. Hospitals that experienced a
decrease in their wage index as a result of adoption of the new labor
market area changes received a wage index based on 50 percent of the
CBSA labor market area definitions and 50 percent of the wage index
that the provider would have received under the FY 2004 MSA boundaries
(in both cases using the FY 2001 wage data). This blend applied to any
provider experiencing a decrease due to the new definitions, including
providers who were reclassifying under MGCRB requirements, section
1886(d)(8)(B) of the Act, or section 508 of Pub. L. 108-173. In the FY
2005 IPPS final rule (69 FR 49027 through 49033), we described the
determination of this blend in detail. We noted that this blend would
not prevent a decrease in wage index due to any reason other than
adoption of CBSAs, nor did it apply to hospitals that benefited from a
higher wage index due to the new labor market definitions.
Consistent with the FY 2005 IPPS final rule, we are proposing that
hospitals receive 100 percent of their wage index based upon the new
CBSA configurations beginning in FY 2006. Specifically, we will
determine for each hospital a new wage index employing wage index data
from FY 2002 hospital cost reports and using the CBSA labor market
definitions.
C. Proposed Occupational Mix Adjustment to FY 2006 Index
(If you choose to comment on issues in this section, please include
the caption ``Occupational Mix Adjustment'' at the beginning of your
comment.)
As stated earlier, section 1886(d)(3)(E) of the Act provides for
the collection of data every 3 years on the occupational mix of
employees for each short-term, acute care hospital participating in the
Medicare program, in order to construct an occupational mix adjustment
to the wage index, for application beginning October 1, 2004 (the FY
2005 wage index). The purpose of the occupational mix adjustment is to
control for the effect of hospitals' employment choices on the wage
index. For example, hospitals may choose to employ different
combinations of registered nurses, licensed practical nurses, nursing
aides, and medical assistants for the purpose of providing nursing care
to their patients. The varying labor costs associated with these
choices reflect hospital management decisions rather than geographic
differences in the costs of labor.
1. Development of Data for the Proposed Occupational Mix Adjustment
In the FY 2005 IPPS final rule (69 FR 49034), we discussed in
detail the data we used to calculate the occupational mix adjustment to
the FY 2005 wage index. For the FY 2006 wage index, we are proposing to
use the same CMS Wage Index Occupational Mix Survey and Bureau of Labor
Statistics (BLS) data that we used for the FY 2005 wage index, with two
exceptions. The CMS survey requires hospitals to report the number of
total paid hours for directly hired and contract employees in
occupations that provide the following services: nursing, physical
therapy, occupational therapy, respiratory therapy, medical and
clinical laboratory, dietary, and pharmacy. These services each include
several standard occupational classifications (SOCs), as defined by the
BLS' Occupational Employment Statistics (OES) survey. For the proposed
FY 2006 wage index, we used revised survey data for 20 hospitals that
took advantage of the opportunity we afforded hospitals to submit
changes to their occupational mix data during the FY 2006 wage index
data collection process (see discussion of wage data corrections
process under section III.J. of this preamble). We also excluded survey
data for hospitals that became designated as CAHs since the original
survey data were collected and hospitals for which there are no
corresponding cost report data for the proposed FY 2006 wage index. The
proposed FY 2006 wage index includes occupational mix data from 3,563
out of 3,765 hospitals (94.6 percent response rate). The results of the
occupational mix survey are included in the chart below:
[[Page 23369]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.026
[[Page 23370]]
2. Calculation of the Proposed FY 2006 Occupational Mix Adjustment
Factor and the Proposed FY 2006 Occupational Mix Adjusted Wage Index
For the proposed FY 2006 wage index, we are proposing to use the
same methodology that we used to calculate the occupational mix
adjustment to the FY 2005 wage index (69 FR 49042). We are proposing to
use the following steps for calculating the proposed FY 2006
occupational mix adjustment factor and the occupational mix adjusted
wage index:
Step 1--For each hospital, the percentage of the general service
category attributable to an SOC is determined by dividing the SOC hours
by the general service category's total hours. Repeat this calculation
for each of the 19 SOCs.
Step 2--For each hospital, the weighted average hourly rate for an
SOC is determined by multiplying the percentage of the general service
category (from Step 1) by the national average hourly rate for that SOC
from the 2001 BLS OES survey, which was used in calculating the
occupational mix adjustment for the FY 2005 wage index. The 2001 OES
survey is BLS' latest available hospital-specific survey. (See Chart 4
in the FY 2005 IPPS final rule, 69 FR 49038.) Repeat this calculation
for each of the 19 SOCs.
Step 3--For each hospital, the hospital's adjusted average hourly
rate for a general service category is computed by summing the weighted
hourly rate for each SOC within the general category. Repeat this
calculation for each of the 7 general service categories.
Step 4--For each hospital, the occupational mix adjustment factor
for a general service category is calculated by dividing the national
adjusted average hourly rate for the category by the hospital's
adjusted average hourly rate for the category. (The national adjusted
average hourly rate is computed in the same manner as Steps 1 through
3, using instead, the total SOC and general service category hours for
all hospitals in the occupational mix survey database.) Repeat this
calculation for each of the 7 general service categories. If the
hospital's adjusted rate is less than the national adjusted rate
(indicating the hospital employs a less costly mix of employees within
the category), the occupational mix adjustment factor will be greater
than 1.0000. If the hospital's adjusted rate is greater than the
national adjusted rate, the occupational mix adjustment factor will be
less than 1.0000.
Step 5--For each hospital, the occupational mix adjusted salaries
and wage-related costs for a general service category is calculated by
multiplying the hospital's total salaries and wage-related costs (from
Step 5 of the unadjusted wage index calculation in section F) by the
percentage of the hospital's total workers attributable to the general
service category and by the general service category's occupational mix
adjustment factor (from Step 4 above). Repeat this calculation for each
of the 7 general service categories. The remaining portion of the
hospital's total salaries and wage-related costs that is attributable
to all other employees of the hospital is not adjusted for occupational
mix.
Step 6--For each hospital, the total occupational mix adjusted
salaries and wage-related costs for a hospital are calculated by
summing the occupational mix adjusted salaries and wage-related costs
for the 7 general service categories (from Step 5) and the unadjusted
portion of the hospital's salaries and wage-related costs for all other
employees. To compute a hospital's occupational mix adjusted average
hourly wage, divide the hospital's total occupational mix adjusted
salaries and wage-related costs by the hospital's total hours (from
Step 4 of the unadjusted wage index calculation in Section F).
Step 7--To compute the occupational mix adjusted average hourly
wage for an urban or rural area, sum the total occupational mix
adjusted salaries and wage-related costs for all hospitals in the area,
then sum the total hours for all hospitals in the area. Next, divide
the area's occupational mix adjusted salaries and wage-related costs by
the area's hours.
Step 8--To compute the national occupational mix adjusted average
hourly wage, sum the total occupational mix adjusted salaries and wage-
related costs for all hospitals in the nation, then sum the total hours
for all hospitals in the nation. Next, divide the national occupational
mix adjusted salaries and wage-related costs by the national hours. The
proposed national occupational mix adjusted average hourly wage for FY
2006 is $27.9988.
Step 9--To compute the occupational mix adjusted wage index, divide
each area's occupational mix adjusted average hourly wage (Step 7) by
the national occupational mix adjusted average hourly wage (Step 8).
Step 10--To compute the Puerto Rico specific occupational mix
adjusted wage index, follow the Steps 1 through 9 above. The proposed
Puerto Rico occupational mix adjusted average hourly wage for FY 2006
is $12.9875.
An example of the occupational mix adjustment was included in the
FY 2005 IPPS final rule (69 FR 49043).
For the FY 2005 final wage index, we used the unadjusted wage data
for hospitals that did not submit occupational mix survey data. For
calculation purposes, this equates to applying the national SOC mix to
the wage data for these hospitals, because hospitals having the same
mix as the Nation would have an occupational mix adjustment factor
equaling 1.0000. In the FY 2005 IPPS final rule (69 FF 49035), we noted
that we would revisit this matter with subsequent collections of the
occupational mix data. Because we are using essentially the same survey
data for the proposed FY 2006 occupational mix adjustment that we used
for FY 2005, with the only exceptions as stated in section III.C.1. of
this preamble, we are proposing to treat the wage data for hospitals
that did not respond to the survey in this same manner for the proposed
FY 2006 wage index.
In implementing an occupational mix adjusted wage index based on
the above calculation, the proposed wage index values for 14 rural
areas (29.8 percent) and 206 urban areas (53.5 percent) would decrease
as a result of the adjustment. Six (6) rural areas (12.8 percent) and
111 urban areas (28.8 percent) would experience a decrease of 1 percent
or greater in their wage index values. The largest negative impact for
a rural area would be 1.9 percent and for an urban area, 4.3 percent.
Meanwhile, 33 rural areas (70.2 percent) and 179 urban areas (46.5
percent) would experience an increase in their wage index values.
Although these results show that rural hospitals would gain the most
from an occupational mix adjustment to the wage index, their gains may
not be as great as might have been expected. Further, it might not have
been anticipated that almost one-third of rural hospitals would
actually fare worse under the adjustment. Overall, a fully implemented
occupational mix adjusted wage index would have a redistributive effect
on Medicare payments to hospitals.
In the FY 2005 IPPS, we indicated that, for future data
collections, we would revise the occupational mix survey to allow
hospitals to provide both salaries and hours data for each of the
employment categories that are included on the survey. We also
indicated that we would assess whether future occupational mix surveys
should be based on the calendar year or if the data should be collected
on a fiscal year basis as part of the Medicare cost report. (One
logistical problem is that cost
[[Page 23371]]
report data are collected yearly, but occupational mix survey data are
collected only every 3 years.) We are currently reviewing options for
revising the occupational mix survey and improving the data collection
process. We will publish any changes we make to the occupational mix
survey in a Federal Register notice.
In our continuing efforts to meet the information needs of the
public, we are providing three additional public use files for the
proposed occupational mix adjusted wage index: (1) A file including
each hospital's unadjusted and adjusted average hourly wage (FY 2006
Proposed Rule Occupational Mix Adjusted and Unadjusted Average Hourly
Wage by Provider); (2) a file including each CBSA's adjusted and
unadjusted average hourly wage (FY 2006 Proposed Rule Occupational Mix
Adjusted and Unadjusted Average Hourly Wage and Pre-Reclassified Wage
Index by CBSA); and (3) a file including each hospital's occupational
mix adjustment factors by occupational category (Provider Occupational
Mix Adjustment Factors for Each Occupational Category). These
additional files are being released concurrently with the publication
of this proposed rule and are posted on the Internet, at http://www.cms.hhs.gov/providers/hipps/ippswage.asp. We will also post these
files with future applications of the occupational mix adjustment.
D. Worksheet S-3 Wage Data for the Proposed FY 2006 Wage Index Update
(If you choose to comment on issues in this section, please include
the caption ``Wage Data'' at the beginning of your comment.)
The proposed FY 2006 wage index values (effective for hospital
discharges occurring on or after October 1, 2005 and before October 1,
2006) in section VI. of the Addendum to this proposed rule are based on
the data collected from the Medicare cost reports submitted by
hospitals for cost reporting periods beginning in FY 2002 (the FY 2005
wage index was based on FY 2001 wage data).
The proposed FY 2006 wage index includes the following categories
of data associated with costs paid under the IPPS (as well as
outpatient costs):
Salaries and hours from short-term, acute care hospitals
(including paid lunch hours and hours associated with military leave
and jury duty).
Home office costs and hours.
Certain contract labor costs and hours (which includes
direct patient care, certain top management, pharmacy, laboratory, and
nonteaching physician Part A services).
Wage-related costs, including pensions and other deferred
compensation costs.
The September 1, 1994 Federal Register (59 FR 45356) included a
list of core wage-related costs that are included in the wage index,
and discussed criteria for including other wage-related costs. In that
discussion, we instructed hospitals to use generally accepted
accounting principles (GAAPs) in developing wage-related costs for the
wage index for cost reporting periods beginning on or after October 1,
1994. We discussed our rationale that ``the application of GAAPs for
purposes of compiling data on wage-related costs used to construct the
wage index will more accurately reflect relative labor costs, because
certain wage-related costs (such as pension costs), as recorded under
GAAPs, tend to be more static from year to year.''
Since publication of the September 1, 1994 rule, we have
periodically received inquiries for more specific guidance on
developing wage-related costs for the wage index. In response, we have
provided clarifications in the IPPS rules (for example, health
insurance costs (66 FR 39859)) and in the cost report instructions
(Provider Reimbursement Manual (PRM), Part II, Section 3605.2). Due to
recent questions and concerns we received regarding inconsistent
reporting and overreporting of pension and other deferred compensation
plan costs, as a result of an ongoing Office of Inspector General
review, we are clarifying in this proposed rule that hospitals must
comply with the PRM, Part I, sections 2140. 2141, and 2142 and related
Medicare program instructions for developing pension and other deferred
compensation plan costs as wage-related costs for the wage index. The
Medicare instructions for pension costs and other deferred compensation
costs combine GAAPs, Medicare payment principles, and other Federal
labor requirements. We believe that the Medicare instructions allow for
consistent reporting among hospitals and for the development of
reasonable deferred compensation plan costs for purposes of the wage
index.
Beginning with the FY 2007 wage index, hospitals and fiscal
intermediaries must ensure that pension, post-retirement health
benefits, and other deferred compensation plan costs for the wage index
are developed according to the above terms.
Consistent with the wage index methodology for FY 2005, the
proposed wage index for FY 2006 also excludes the direct and overhead
salaries and hours for services not subject to IPPS payment, such as
SNF services, home health services, costs related to GME (teaching
physicians and residents) and certified registered nurse anesthetists
(CRNAs), and other subprovider components that are not paid under the
IPPS. The proposed FY 2006 wage index also excludes the salaries,
hours, and wage-related costs of hospital-based rural health clinics
(RHCs), and Federally qualified health centers (FQHCs) because Medicare
pays for these costs outside of the IPPS (68 FR 45395). In addition,
salaries, hours and wage-related costs of CAHs are excluded from the
wage index, for the reasons explained in the FY 2004 IPPS final rule
(68 FR 45397).
Data collected for the IPPS wage index are also currently used to
calculate wage indices applicable to other providers, such as SNFs,
home health agencies, and hospices. In addition, they are used for
prospective payments to rehabilitation, psychiatric, and long-term care
hospitals, and for hospital outpatient services.
In the August 11, 2004 final rule, we stated that a commenter had
asked CMS to designate provider-based clinics as IPPS-excluded areas in
order to remove the costs from the wage index (69 FR 49049). The
commenter noted that provider-based clinics are like physician private
offices, which are excluded from the wage index calculation, and that
services provided in the provider-based clinics are paid for not
through the IPPS, but rather under the hospital outpatient PPS. In
response to the comment, we stated that we were not prepared to grant
the commenter's request without first studying the issue, and that we
would explore the matter of salaries related to provider-based clinics
in a future rule.
Regulations at 42 CFR 413.65 describe the criteria and procedures
for determining whether a facility or organization is provider-based.
Historically, under the Medicare program, some providers, referred to
as ``main providers,'' have functioned as single entities while owning
and operating multiple provider-based departments, locations, and
facilities that are treated as part of the main provider for Medicare
purposes. Section 413.65(a)(2) defines various types of provider-based
facilities, including ``department of a provider.'' A ``department of a
provider'' means a facility or organization that is either created by,
or acquired by, a main provider for the purposes of furnishing health
care services of the same type as those furnished by the main provider
under the name, ownership, and financial and administrative control of
the main provider * * * a department
[[Page 23372]]
of a provider may not itself be qualified to participate in Medicare as
a provider under Sec. 489.2 * * * the term `department of a provider'
does not include an RHC or * * * an FQHC.'' Thus, if a facility offers
services that are similar to those provided in a freestanding
physician's office, and the facility meets the criteria to become
provider-based under Sec. 413.65, the facility would be considered a
``department of a provider.'' More specifically, the facility would be
part of the main provider's outpatient department, since the facility
offers health care services of the same type as those furnished by the
main provider, and because a physician's office would not be subject to
a provider agreement or receive a Medicare provider number under Sec.
489.2. (We note that a provider-based RHC or FQHC may, by itself, be
qualified to participate in Medicare as a provider under Sec. 489.2
and, thus, would be classified not as a ``department of a provider''
but as a ``provider-based entity,'' as defined at Sec. 413.65(a)(2)).
This provider-based facility, or provider-based clinic, as the
commenter referred to it, would be reported on the main provider's
Medicare cost report as an outpatient service cost center, on Worksheet
A, line 60. With the exception of RHC and FQHC salaries that have been
excluded from the wage index beginning with FY 2004 (68 FR 45395,
August 1, 2003), the salaries attributable to employees working in
these outpatient service cost centers, including emergency departments,
are included in the main provider's total salaries on Worksheet S-3,
Part II, line 1, and accordingly, are included in the wage index
calculation. We have historically included the salaries and wages of
hospital employees working in the outpatient departments in the
calculation of the hospital wage index since these employees often work
in both the IPPS and in the outpatient areas of the hospital.
Consistent with this longstanding treatment of outpatient salary costs
in the wage index calculation, we believe it is appropriate to continue
to include the salaries and wages of employees working in outpatient
departments, including provider-based clinics, in the wage index
calculation.
E. Verification of Worksheet S-3 Wage Data
(If you choose to comment on issues in this section, please include
the caption ``Wage Data'' at the beginning of your comment.)
The wage data for the proposed FY 2006 wage index were obtained
from Worksheet S-3, Parts II and III of the FY 2002 Medicare cost
reports. Instructions for completing the Worksheet S-3, Parts II and
III are in the Provider Reimbursement Manual, Part I, sections 3605.2
and 3605.3. The data file used to construct the proposed wage index
includes FY 2002 data submitted to us as of February 23, 2005. As in
past years, we performed an intensive review of the wage data, mostly
through the use of edits designed to identify aberrant data.
We asked our fiscal intermediaries to revise or verify data
elements that resulted in specific edit failures. Some unresolved data
elements are included in the calculation of the proposed FY 2006 wage
index, pending their resolution before calculation of the final FY 2006
index. We instructed the fiscal intermediaries to complete their data
verification of questionable data elements and to transmit any changes
to the wage data no later than April 15, 2005. We believe all
unresolved data elements will be resolved by the date the final rule is
issued. The revised data will be reflected in the final rule.
Also, as part of our editing process, we removed the data for 438
hospitals from our database: 402 hospitals became CAHs by the time we
published the February public use file, and 28 hospitals were low
Medicare utilization hospitals or failed edits that could not be
corrected because the hospitals terminated the program or changed
ownership. In addition, we removed the wage data for 8 hospitals with
incomplete or inaccurate data resulting in zero or negative, or
otherwise aberrant, average hourly wages. We have notified the fiscal
intermediaries of these hospitals and will continue to work with the
fiscal intermediaries to correct these data until we finalize our
database to compute the final wage index. The data for these hospitals
will be included in the final wage index if we receive corrected data
that passes our edits. As a result, the proposed FY 2006 wage index is
calculated based on FY 2002 wage data from 3,765 hospitals.
In constructing the proposed FY 2006 wage index, we include the
wage data for facilities that were IPPS hospitals in FY 2002, even for
those facilities that have since terminated their participation in the
program as hospitals, as long as those data do not fail any of our
edits for reasonableness. We believe that including the wage data for
these hospitals is, in general, appropriate to reflect the economic
conditions in the various labor market areas during the relevant past
period. However, we exclude the wage data for CAHs (as discussed in 68
FR 45397). The proposed wage index in this proposed rule excludes
hospitals that are designated as CAHs by February 1, 2005, the date of
the latest available Medicare CAH listing at the time we released the
proposed wage index public use file on February 25, 2005.
F. Computation of the Proposed FY 2006 Unadjusted Wage Index
(If you choose to comment on issues in this section, please include
the caption ``Wage Index'' at the beginning of your comment.)
The method used to compute the proposed FY 2006 wage index without
an occupational mix adjustment follows:
Step 1--As noted above, we based the proposed FY 2006 wage index on
wage data reported on the FY 2002 Medicare cost reports. We gathered
data from each of the non-Federal, short-term, acute care hospitals for
which data were reported on the Worksheet S-3, Parts II and III of the
Medicare cost report for the hospital's cost reporting period beginning
on or after October 1, 2001 and before October 1, 2002. In addition, we
included data from some hospitals that had cost reporting periods
beginning before October 2001 and reported a cost reporting period
covering all of FY 2002. These data were included because no other data
from these hospitals would be available for the cost reporting period
described above, and because particular labor market areas might be
affected due to the omission of these hospitals. However, we generally
describe these wage data as FY 2002 data. We note that, if a hospital
had more than one cost reporting period beginning during FY 2002 (for
example, a hospital had two short cost reporting periods beginning on
or after October 1, 2001 and before October 1, 2002), we included wage
data from only one of the cost reporting periods, the longer, in the
wage index calculation. If there was more than one cost reporting
period and the periods were equal in length, we included the wage data
from the later period in the wage index calculation.
Step 2--Salaries--The method used to compute a hospital's average
hourly wage excludes certain costs that are not paid under the IPPS. In
calculating a hospital's average salaries plus wage-related costs, we
subtracted from Line 1 (total salaries) the GME and CRNA costs reported
on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3,
5 and 5.01, home office salaries reported on Line 7, and excluded
salaries reported on Lines 8 and 8.01 (that is, direct salaries
attributable to SNF services, home health services, and other
subprovider components not
[[Page 23373]]
subject to the IPPS). We also subtracted from Line 1 the salaries for
which no hours were reported. To determine total salaries plus wage-
related costs, we added to the net hospital salaries the costs of
contract labor for direct patient care, certain top management,
pharmacy, laboratory, and nonteaching physician Part A services (Lines
9 and 10), home office salaries and wage-related costs reported by the
hospital on Lines 11 and 12, and nonexcluded area wage-related costs
(Lines 13, 14, and 18).
We note that contract labor and home office salaries for which no
corresponding hours are reported were not included. In addition, wage-
related costs for nonteaching physician Part A employees (Line 18) are
excluded if no corresponding salaries are reported for those employees
on Line 4.
Step 3--Hours--With the exception of wage-related costs, for which
there are no associated hours, we computed total hours using the same
methods as described for salaries in Step 2.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocated overhead
costs to areas of the hospital excluded from the wage index
calculation. First, we determined the ratio of excluded area hours (sum
of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours
(Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01,
7, and Part III, Line 13 of Worksheet S-3). We then computed the
amounts of overhead salaries and hours to be allocated to excluded
areas by multiplying the above ratio by the total overhead salaries and
hours reported on Line 13 of Worksheet S-3, Part III. Next, we computed
the amounts of overhead wage-related costs to be allocated to excluded
areas using three steps: (1) We determined the ratio of overhead hours
(Part III, Line 13) to revised hours (Line 1 minus the sum of Lines 2,
3, 4.01, 5, 5.01, 6, 6.01, 7, 8, and 8.01); (2) we computed overhead
wage-related costs by multiplying the overhead hours ratio by wage-
related costs reported on Part II, Lines 13, 14, and 18; and (3) we
multiplied the computed overhead wage-related costs by the above
excluded area hours ratio. Finally, we subtracted the computed overhead
salaries, wage-related costs, and hours associated with excluded areas
from the total salaries (plus wage-related costs) and hours derived in
Steps 2 and 3.
Step 5--For each hospital, we adjusted 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
estimated the percentage change in the employment cost index (ECI) for
compensation for each 30-day increment from October 14, 2001 through
April 15, 2003 for private industry hospital workers from the Bureau of
Labor Statistics' Compensation and Working Conditions. We use the ECI
because it reflects the price increase associated with total
compensation (salaries plus fringes) rather than just the increase in
salaries. In addition, the ECI includes managers as well as other
hospital workers. This methodology to compute the monthly update
factors uses actual quarterly ECI data and assures that the update
factors match the actual quarterly and annual percent changes. The
factors used to adjust the hospital's data were based on the midpoint
of the cost reporting period, as indicated below.
[[Page 23374]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.027
For example, the midpoint of a cost reporting period beginning
January 1, 2002 and ending December 31, 2002 is June 30, 2002. An
adjustment factor of 1.03083 would be applied to the wages of a
hospital with such a cost reporting period. In addition, for the data
for any cost reporting period that began in FY 2002 and covered a
period of less than 360 days or more than 370 days, we annualized the
data to reflect a 1-year cost report. Dividing the data by the number
of days in the cost report and then multiplying the results by 365
accomplishes annualization.
Step 6--Each hospital was assigned to its appropriate urban or
rural labor market area before any reclassifications under section
1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the
Act. Within each urban or rural labor market area, we added the total
adjusted salaries plus wage-related costs obtained in Step 5 for all
hospitals in that area to determine the total adjusted salaries plus
wage-related costs for the labor market area.
Step 7--We divided the total adjusted salaries plus wage-related
costs obtained under both methods in Step 6 by the sum of the
corresponding total hours (from Step 4) for all hospitals in each labor
market area to determine an average hourly wage for the area.
Step 8--We added the total adjusted salaries plus wage-related
costs obtained in Step 5 for all hospitals in the nation and then
divided the sum by the national sum of total hours from Step 4 to
arrive at a national average hourly wage. Using the data as described
above, the proposed national average hourly wage is $27.9730.
Step 9--For each urban or rural labor market area, we calculated
the hospital wage index value by dividing the area average hourly wage
obtained in Step 7 by the national average hourly wage computed in Step
8.
Step 10--Following the process set forth above, we developed a
separate Puerto Rico-specific wage index for purposes of adjusting the
Puerto Rico standardized amounts. (The national Puerto Rico
standardized amount is adjusted by a wage index calculated for all
Puerto Rico labor market areas based on the national average hourly
wage as described above.) We added the total adjusted salaries plus
wage-related costs (as calculated in Step 5) for all hospitals in
Puerto Rico and divided the sum by the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an overall proposed average hourly
wage of $12.9957 for Puerto Rico. For each labor market area in Puerto
Rico, we calculated the Puerto Rico-specific wage index value by
dividing the area average hourly wage (as calculated in Step 7) by the
overall Puerto Rico average hourly wage.
[[Page 23375]]
Step 11--Section 4410 of Pub. L. 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. Furthermore, this wage index floor is to be
implemented in such a manner as to ensure that aggregate IPPS payments
are not greater or less than those that would have been made in the
year if this section did not apply. For FY 2006, this change affects
147 hospitals in 52 urban areas. The areas affected by this provision
are identified by a footnote in Table 4A in the Addendum of this
proposed rule.
G. Computation of the Proposed FY 2006 Blended Wage Index
(If you choose to comment on issues in this section, please include
the caption ``Blended Wage Index'' at the beginning of your comments.)
For the final FY 2005 wage index, we used a blend of the
occupational mix adjusted wage index and the unadjusted wage index.
Specifically, we adjusted 10 percent of the FY 2005 wage index
adjustment factor by a factor reflecting occupational mix. Given that
2003-2004 was the first time for the administration of the occupational
mix survey, hospitals had a short timeframe for collecting their
occupational mix survey data and documentation, the wage data were not
in all cases from a 1-year period, and there was no baseline data for
purposes of developing a desk review program, we found it prudent not
to adjust the entire wage index factor by the occupational mix.
However, we did find the data sufficiently reliable for applying an
adjustment to 10 percent of the wage index. We found the data reliable
because hospitals were given an opportunity to review their survey data
and submit changes in the Spring of 2004, hospitals were already
familiar with the BLS OES survey categories, hospitals were required to
be able to provide documentation that could be used by fiscal
intermediaries to verify survey data, and the results of our survey
were consistent with the findings of the 2001 BLS OES survey,
especially for nursing and physical therapy categories. In addition, we
noted that we were moving cautiously with implementing the occupational
mix adjustment in recognition of changing trends in hiring nurses, the
largest group in the survey. We noted that some States had recently
established floors on the minimum level of registered nurse staffing in
hospitals in order to maintain licensure. In addition, in some rural
areas, we believed that hospitals might be accounting for shortages of
physicians by hiring more registered nurses. (A complete discussion of
the FY 2005 wage index adjustment factor can be found in section III.G.
of the FY 2005 IPPS final rule (69 FR 49052)).
In the FY 2005 final rule, we noted that while the statute required
us to collect occupational mix data every 3 years, the statute does not
specify how the occupational mix adjustment is to be constructed or
applied. We are clarifying in this proposed rule that the October 1,
2004 deadline for implementing an occupational mix adjustment is not
codified in section 1886(d)(3)(E) of the Act, which requires only a
collection and measurement of occupational mix data, but rather stems
from the effective date provisions in section 304(c) of the Medicare,
Medicaid and SCHIP Benefits Improvement and Protection Act of 2000,
Pub. L. 106-554 (BIPA). Although we believe that applying the
occupational mix to 10 percent of the wage index factor fully
implements the occupational mix adjustment, we also interpret BIPA as
requiring only that we begin applying an adjustment by October 1, 2004.
BIPA required the Secretary to complete, ``by not later than September
30, 2003, for application beginning October 1, 2004,'' both the
collection of occupational mix data and the measurement of such data.
(BIPA, section 304(c)(3).) Thus, even if adjusting 10 percent of the
wage index for occupational mix were not (as we believe it to be)
considered to be full implementation of the BIPA effective date, we
certainly began our application of the adjustment as of October 1,
2004.
In addition, section 1886(d)(3)(E) of the Act provides broad
authority for us to establish the factor we use to adjust hospital
costs to take into account area differences in wage levels. The statute
is clear that the wage index factor is to be ``established by the
Secretary.'' The occupational mix is only one part of this wage index
factor, which, for the most part, is calculated on the basis of average
hourly wage data submitted by all hospitals in the United States. In
exercising the Secretary's broad discretion to establish the factor
that adjusts for geographic wage differences, in FY 2005 we adjusted 10
percent of such factor to account for occupational mix.
Indeed, we have often used percentage figures or blended amounts in
exercising the Secretary's authority to establish the factor that
adjusts for wage differences. For example, in the FY 2005 final rule,
we implemented new mapping boundaries for assigning hospitals to the
geographic labor market areas used for calculating the wage index. For
hospitals that were harmed by the new geographic boundaries, we used a
blended rate based on 50 percent of the wage index that would apply
using the new geographic boundaries effective for FY 2005 and 50
percent of the wage index that would apply using the old geographic
boundaries that were effective during FY 2004 (69 FR 49033). Similarly,
beginning with FY 2000, we began phasing out costs related to GME and
CRNAs from the wage index (64 FR 41505). Thus, for example, the FY 2001
wage index was based on a blend of 60 percent of an average hourly wage
including these costs, and 40 percent of an average hourly wage
excluding these costs (65 FR 47071).
For FY 2006, we are again proposing to adjust 10 percent of the
wage index factor for occupational mix. In computing the occupational
mix adjustment for the proposed FY 2006 wage index, we used the
occupational mix survey data that we collected for the FY 2005 wage
index, replacing the survey data for 20 hospitals that submitted
revised data, and excluding the survey data for hospitals with no
corresponding Worksheet S-3 wage data for FY 2006 wage index. While we
considered adjusting 100 percent of the wage index by the occupational
mix, we did not believe it was appropriate to use first-year survey
data to make such a large adjustment. As hospitals gain additional
experience with the occupational mix survey, and as we develop more
information upon which to audit the data we receive, we expect to
increase the portion of the wage index that is adjusted.
We also acknowledge the District Court opinion in Bellevue Hospital
Center v. Leavitt, No. 04-8639 (S.D.N.Y, March 2005) finding that the
statute requires full implementation of the occupational mix adjustment
beginning October 1, 2004, and granting summary judgment to plaintiffs
on the matter. At the time this proposed rule was written, an appeal
had not yet been heard in the Circuit Court. Thus, because it was not
yet clear whether the decision would be appealed, we determined that,
for FY 2006, we would continue to propose the policy we believe to be
most prudent in light of the survey data being used to adjust the wage
index.
With 10 percent of the proposed FY 2006 wage index adjusted for
occupational mix, the wage index values for 13 rural areas (27.7
percent) and 204 urban areas (53.0 percent) would decrease as a result
of the adjustment. These decreases would be minimal; the largest
negative impact for
[[Page 23376]]
a rural area would be 0.19 percent and for an urban area, 0.42 percent.
Conversely, 34 rural areas (72.3 percent) and 181 urban areas (47.0
percent) would benefit from this adjustment, with 1 urban area
increasing 2.1 percent and 1 rural area increasing 0.39 percent. As
there are no significant differences between the FY 2005 and the FY
2006 occupational mix survey data and results, we believe it is
appropriate to again apply the occupational mix to 10 percent of the
proposed FY 2006 wage index. (See Appendix A to this proposed rule for
further analysis of the impact of the occupational mix adjustment on
the proposed FY 2006 wage index.)
The wage index values in Tables 4A, 4B, 4C, and 4F and the average
hourly wages in Tables 2, 3A, and 3B in the Addendum to this proposed
rule include the occupational mix adjustment.
H. Proposed Revisions to the Wage Index Based on Hospital Redesignation
(If you choose to comment on issues in this section, please include
the caption ``Hospital Redesignations and Reclassifications'' at the
beginning of your comment.)
1. General
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 by September 1 of the
year preceding the year during which reclassification is sought.
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 Sec. Sec. 412.230 through 412.280.
Section 1886(d)(10)(D)(v) of the Act provides that, beginning with
FY 2001, a MGCRB decision on a hospital reclassification for purposes
of the wage index is effective for 3 fiscal years, unless the hospital
elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of
the Act provides that the MGCRB must use the 3 most recent years'
average hourly wage data in evaluating a hospital's reclassification
application for FY 2003 and any succeeding fiscal year.
Section 304(b) of Pub. L. 106-554 provides that the Secretary must
establish a mechanism under which a statewide entity may apply to have
all of the geographic areas in the State treated as a single geographic
area for purposes of computing and applying a single wage index, for
reclassifications beginning in FY 2003. The implementing regulations
for this provision are located at Sec. 412.235.
Section 1886(d)(8)(B) of the Act requires the Secretary to treat a
hospital located in a rural county adjacent to one or more urban areas
as being located in the MSA to which the greatest number of workers in
the county commute if: the rural county would otherwise be considered
part of an urban area under the standards for designating MSAs if the
commuting rates used in determining outlying counties were determined
on the basis of the aggregate number of resident workers who commute to
(and, if applicable under the standards, from) the central county or
counties of all contiguous MSAs. In light of the new CBSA definitions
and the Census 2000 data that we implemented for FY 2005 (69 FR 49027),
we undertook to identify those counties meeting these criteria. The
eligible counties are identified below under section III.H.5. of this
preamble.
2. Effects of Reclassification
Section 1886(d)(8)(C) of the Act provides that the application of
the wage index to redesignated hospitals is dependent on the
hypothetical impact that the wage data from these hospitals would have
on the wage index value for the area to which they have been
redesignated. These requirements for determining the wage index values
for redesignated hospitals is applicable both to the hospitals located
in rural counties deemed urban under section 1886(d)(8)(B) of the Act
and hospitals that were reclassified as a result of the MGCRB decisions
under section 1886(d)(10) of the Act. Therefore, as provided in section
1886(d)(8)(C) of the Act,\3\ the wage index values were determined by
considering the following:
---------------------------------------------------------------------------
\3\ Although section 1886(d)(8)(C)(iv)(I) of the Act also
provides that the wage index for an urban area may not decrease as a
result of redesignated hospitals if the urban area wage index is
already below the wage index for rural areas in the State in which
the urban area is located, the provision was effectively made moot
by section 4410 of Pub. L. 105-33, which provides that 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. Also, section
1886(d)(8)(C)(iv)(II) of the Act provides that an urban area's wage
index may not decrease as a result of redesignated hospitals if the
urban area is located in a State that is composed of a single urban
area.
---------------------------------------------------------------------------
If including the wage data for the redesignated hospitals
would reduce the wage index value for the area to which the hospitals
are redesignated by 1 percentage point or less, the area wage index
value determined exclusive of the wage data for the redesignated
hospitals applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
reduces the wage index value for the area to which the hospitals are
redesignated by more than 1 percentage point, the area wage index
determined inclusive of the wage data for the redesignated hospitals
(the combined wage index value) applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
increases the wage index value for the urban area to which the
hospitals are redesignated, both the area and the redesignated
hospitals receive the combined wage index value. Otherwise, the
hospitals located in the urban area receive a wage index excluding the
wage data of hospitals redesignated into the area.
The wage data for a reclassified urban hospital is
included in both the wage index calculation of the area to which the
hospital is reclassified (subject to the rules described above) and the
wage index calculation of the urban area where the hospital is
physically located.
Rural areas whose wage index values would be reduced by
excluding the wage data for hospitals that have been redesignated to
another area continue to have their wage index values calculated as if
no redesignation had occurred (otherwise, redesignated rural hospitals
are excluded from the calculation of the rural wage index).
The wage index value for a redesignated rural hospital
cannot be reduced below the wage index value for the rural areas of the
State in which the hospital is located.
3. Proposed Application of Hold Harmless Protection for Certain Urban
Hospitals Redesignated as Rural
Section 401(a) of Pub. L. 106-113 (the Balanced Budget Refinement
Act of 1999) amended section 1886(d)(8) of the Act by adding paragraph
(E). Section 401(a) created a mechanism that permits an urban hospital
to apply to the Secretary to be treated, for purposes of subsection
(d), as being located in the rural area of the State in which the
hospital is located. A hospital that is granted redesignation under
section 1886(d)(8)(E) of the Act, as added by section 401 of Pub. L.
106-113 is, therefore, treated as a rural hospital for
[[Page 23377]]
all purposes of payment under the Medicare IPPS, including the
standardized amount, wage index, and disproportionate share
calculations as of the effective date of the redesignation. Under
current policy, as a result of an approved redesignation of an urban
hospital as a rural hospital, the wage index data are excluded from the
wage index calculation for the area where the urban hospital is
geographically located and included in the rural hospital wage index
calculation.
Last year, we became aware of an instance where the approved
redesignation of an urban hospital as rural under section 1886(d)(8)(E)
of the Act resulted in the hospital's data having an adverse impact on
the rural wage index. We received a public comment noting that specific
``hold harmless'' provisions apply to reclassifications that occur
under section 1886(d)(8)(B) and section 1886(d)(10) of the Act. That
is, if a hospital is granted geographic reclassification under section
1886(d)(8)(B) or section 1886(d)(10) of the Act, there are certain
rules that apply when the inclusion of the hospital's data results in a
reduction of the reclassification area's wage index, and these rules
are slightly different for urban areas versus rural areas. These rules
are more fully described in the FY 2005 IPPS final rule (69 FR 49053).
Generally stated, these rules prevent a rural area from being adversely
affected as a result of reclassification. That is, if excluding the
reclassifying hospitals' wage data would decrease the wage index of the
rural area, the reclassifying hospitals are included in the rural
area's wage index. Otherwise, the reclassifying hospitals are excluded.
For hospitals reclassifying out of urban areas, the rules provide that
the wage data for the reclassified urban hospital is included in the
wage index calculation of the urban area where the hospital is
physically located.
The commenter recommended that we revise our regulations and apply
similar hold harmless provisions and treat hospitals redesignated under
1886(d)(8)(E) of the Act in the same manner as reclassifications under
section 1886(d)(8)(B) and section 1886(d)(10) of the Act. In our
continued effort to promote consistency, equity and to simplify our
rules with respect to how we construct the wage indexes of rural and
urban areas, we are persuaded that there is a need to modify our policy
when hospital redesignations occur under section 1886(d)(8)(E) of the
Act. Therefore, for the FY 2006 wage index, we are proposing to apply
the hold harmless rule that currently applies when rural hospitals are
reclassifying out of the rural area (from rural to urban) to situations
where hospitals are reclassifying into the rural area (from urban to
rural under section 1886(d)(8)(E) of the Act). Thus, the rule would be
that the wage data of the urban hospital reclassifying into the rural
area is included in the rural area's wage index, if including the urban
hospital's data increases the wage index of the rural area. Otherwise,
the wage data is excluded. Similarly, we are proposing to apply to
these cases the rule that currently applies when urban hospitals
reclassify under the MGCRB process. Thus, the wage data for an urban
hospital reclassifying under section 1886(d)(8)(E) of the Act is always
included in the wage index of the urban area where the hospital is
located, and can also be included in the wage index of the rural area
to which it is reclassifying (if doing so increases the rural area's
wage index). We believe this proposal provides uniformity in the way
geographic areas are treated under all types of reclassifications. In
addition, our proposal promotes predictability by alleviating
fluctuations in the wage indexes due to a section 401 redesignation.
We are including in the Addendum to this proposed rule Table 9C,
which shows hospitals redesignated under section 1886(d)(8)(E) of the
Act.
4. FY 2006 MGCRB Reclassifications
At the time this proposed rule was constructed, the MGCRB had
completed its review of FY 2006 reclassification requests. There were
295 hospitals approved for wage index reclassifications by the MGCRB
for FY 2006. Because MGCRB wage index reclassifications are effective
for 3 years, hospitals reclassified during FY 2004 or FY 2005 are
eligible to continue to be reclassified based on prior
reclassifications to current MSAs during FY 2006. There were 395
hospitals reclassified for wage index for FY 2005, and 94 hospitals
reclassified for wage index in FY 2004. Some of the hospitals that
reclassified in FY 2004 and FY 2005 have elected not to continue their
reclassifications in FY 2006 because, under the new labor market area
definitions, they are now physically located in the areas to which they
previously reclassified. Of all of the hospitals approved for
reclassification for FY 2004, FY 2005, and FY 2006, 672 hospitals will
be in a reclassification status for FY 2006.
Prior to FY 2004, hospitals had been able to apply to be
reclassified for purposes of either the wage index or the standardized
amount. Section 401 of Pub. L. 108-173 established that all hospitals
will be paid on the basis of the large urban standardized amount,
beginning with FY 2004. Consequently, all hospitals are paid on the
basis of the same standardized amount, which made such
reclassifications moot. Although there could still be some benefit in
terms of payments for some hospitals under the DSH payment adjustment
for operating IPPS, section 402 of Pub. L. 108-173 equalized DSH
payment adjustments for rural and urban hospitals, with the exception
that the rural DSH adjustment is capped at 12 percent (except that RRCs
have no cap). (A detailed discussion of this application appears in
section IV.I. of the preamble of the FY 2005 IPPS final rule (69 FR
49085.)
5. Proposed FY 2006 Redesignations Under Section 1886(d)(8)(B) of the
Act
Beginning October 1, 1988, section 1886(d)(8)(B) of the Act
required us to treat a hospital located in a rural county adjacent to
one or more urban areas as being located in the MSA if certain criteria
were met. Prior to FY 2005, the rule was that a rural county adjacent
to one or more urban areas would be treated as being located in the MSA
to which the greatest number of workers in the county commute, if the
rural county would otherwise be considered part of an urban area under
the standards published in the Federal Register on January 3, 1980 (45
FR 956) for designating MSAs (and NECMAs), and if the commuting rates
used in determining outlying counties (or, for New England, similar
recognized areas) were determined on the basis of the aggregate number
of resident workers who commute to (and, if applicable under the
standards, from) the central county or counties of all contiguous MSAs
(or NECMAs). Hospitals that met the criteria using the January 3, 1980
version of these OMB standards were deemed urban for purposes of the
standardized amounts and for purposes of assigning the wage data index.
On June 6, 2003, OMB announced the new CBSAs based on Census 2000
data. For FY 2005, we used OMB's 2000 CBSA standards and the Census
2000 data to identify counties qualifying for redesignation under
section 1886(d)(8)(B) for the purpose of assigning the wage index to
the urban area. We presented this listing, effective for discharges
occurring on or after October 1, 2004 (FY 2005), in Chart 6 of the FY
2005 final rule (69 FR 49057). However, Chart 6 in the FY 2005 final
rule contained a printing error in which we misidentified rural
counties that qualified for redesignation under
[[Page 23378]]
section 1886(d)(8)(B) of the Act. The list of rural counties qualifying
to be urban in that Chart 6 incorrectly included Monroe, PA and
Walworth, WI. This error was made only in the chart and not in the
application of the rules; that is, we correctly applied the rules to
the correct rural counties qualifying to be urban for FY 2005.
In addition, we discovered that, in the FY 2005 IPPS final rule, we
had erroneously printed the names of the entire Metropolitan
Statistical Areas rather than the Metropolitan Division names. Because
we recognized Metropolitan Divisions as MSAs in the FY 2005 IPPS final
rule (69 FR 49029), we should have printed the division names for the
following counties: Henry, FL; Starke, IN; Henderson, TX; Fannin, TX;
and Island, WA.
The chart below contains the corrected listing of the rural
counties designated as urban under section 1886(d)(8)(B) of the Act
that we are proposing to use for FY 2006. We are proposing that, for
discharges occurring on or after October 1, 2005, hospitals located in
the first column of this chart will be redesignated for purposes of
using the wage index of the urban area listed in the second column.
BILLING CODE 4120-01-P
[[Page 23379]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.028
[[Page 23380]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.029
BILLING CODE 4120-01-C
[[Page 23381]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.030
As in the past, hospitals redesignated under section 1886(d)(8)(B)
of the Act are also eligible to be reclassified to a different area by
the MGCRB. Affected hospitals are permitted to compare the reclassified
wage index for the labor market area in Table 4C in the Addendum of
this proposed rule into which they have been reclassified by the MGCRB
to the wage index for the area to which they are redesignated under
section 1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB
reclassification within 45 days of the publication of this proposed
rule.
6. Reclassifications Under Section 508 of Pub. L. 108-173
Under section 508 of Pub. L. 108-173, a qualifying hospital could
appeal the wage index classification otherwise applicable to the
hospital and apply for reclassification to another area of the State in
which the hospital is located (or, at the discretion of the Secretary,
to an area within a contiguous State). We implemented this process
through notices published in the Federal Register on January 6, 2004
(69 FR 661) and February 13, 2004 (69 FR 7340). Such reclassifications
are applicable to discharges occurring during the 3-year period
beginning April 1, 2004 and ending March 31, 2007. Under section
508(b), reclassifications under this process do not affect the wage
index computation for any area or for any other hospital and cannot be
effected in a budget neutral manner.
We show the reclassifications effective under the one-time appeal
process in Table 9B in the Addendum to this proposed rule.
I. Proposed FY 2006 Wage Index Adjustment Based on Commuting Patterns
of Hospital Employees
(If you choose to comment on issues in this section, please include
the caption ``Out-Migration Adjustment'' at the beginning of your
comment.)
In accordance with the broad discretion under section 1886(d)(13)
of the Act, as added by section 505 of Pub. L. 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
process, outlined in the FY 2005 IPPS final rule (69 FR 49061),
provides for an increase in the wage index for hospitals located in
certain counties that have a relatively high percentage of hospital
employees who reside in the county but work in a different county (or
counties) with a higher wage index. Such adjustments to the wage index
are effective for 3 years, unless a hospital requests to waive the
application of the adjustment. A county will not lose its status as a
qualifying county due to wage index changes during the 3-year period,
and counties will receive the same wage index increase for those 3
years. However, a county that qualifies in any given year may no longer
qualify after the 3-year period, or it may qualify but receive a
different adjustment to the wage index level. Hospitals that receive
this adjustment to their wage index are not eligible for
reclassification under section 1886(d)(8) or section 1886(d)(10) of the
Act. Adjustments under this provision are not subject to the IPPS
budget neutrality requirements at section 1886(d)(3)(E) or section
1886(d)(8)(D) of the Act.
Hospitals located in counties that qualify for the wage index
adjustment are to receive an increase in the wage index that is equal
to the average of the differences between the wage indexes of the labor
market area(s) with higher wage indexes and the wage index of the
resident county, weighted by the overall percentage of hospital workers
residing in the qualifying county who are employed in any labor market
area with a higher wage index. We have employed the prereclassified
wage indexes in making these calculations.
We are proposing that hospitals located in the qualifying counties
identified in Table 4J in the Addendum to this proposed rule that have
not already reclassified through section 1886(d)(10) of the Act,
redesignated through section 1886(d)(8) of the Act, received a section
508 reclassification, or requested to waive the application of the out-
migration adjustment would receive the wage index adjustment listed in
the table for FY 2006. We used the same formula described in the FY
2005 final rule (69 FR 49064) to calculate the out-migration
adjustment. This proposed adjustment was calculated as follows:
Step 1. Subtract the wage index for the qualifying county from the
wage index for the higher wage area(s).
Step 2. Divide the number of hospital employees residing in the
qualifying county who are employed in such higher wage index area by
the total number of hospital employees residing in the qualifying
county who are employed in any higher wage index area. Multiply this
result by the result obtaining in Step 1.
Step 3. Sum the products resulting from Step 2 (if the qualifying
county has workers commuting to more than one higher wage area).
Step 4. Multiply the result from Step 3 by the percentage of
hospital employees who are residing in the qualifying county and who
are
[[Page 23382]]
employed in any higher wage index area.
The proposed adjustments calculated for qualifying hospitals are
listed in Table 4J in the Addendum to this proposed rule. These
proposed adjustments would be effective for each county for a period of
3 fiscal years. Hospitals that received the adjustment in FY 2005 will
be eligible to retain that same adjustment for FY 2006 and FY 2007. For
hospitals in newly qualified counties, adjustments to the wage index
would be effective for 3 years, beginning with discharges occurring on
or after October 1, 2005.
As previously noted, hospitals receiving the wage index adjustment
under section 1886(d)(13)(F) of the Act are not eligible for
reclassification under section 1886(d)(10) of the Act or
reclassifications under section 508 of Pub. L. 108-173. Hospitals that
wish to waive the application of this wage index adjustment must notify
CMS within 45 days of the publication of this proposed rule. Waiver
notification should be sent to the following address: Centers for
Medicare and Medicaid Services, Center for Medicare Management,
Attention: Wage Index Adjustment Waivers, Division of Acute Care, Room
C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. We will
assume that hospitals that have been redesignated under section
1886(d)(8) of the Act or reclassified under section 886(d)(10) of the
Act or under section 508 of Pub. L. 108-173 would prefer to keep their
redesignation/reclassification unless they explicitly notify CMS that
they would like to receive the out-migration adjustment instead. In
addition, hospitals that wish to retain their redesignation/
reclassification (instead of receiving the out-migration adjustment)
for FY 2006 do not need to submit a formal request to CMS, and will
automatically retain their redesignation/reclassification status for FY
2006. However, consistent with Sec. 412.273, hospitals that have been
reclassified by the MGCRB are permitted to withdraw their applications
within 45 days of the publication of this proposed rule. Hospitals that
have been reclassified by the MGCRB (including reclassifications under
section 508 of Pub. L. 108-173) may terminate an existing 3-year
reclassification within 45 days of the publication of this proposed
rule in order to receive the wage index adjustment under this
provision. Hospitals that are eligible to receive the wage index
adjustment and that withdraw their application for reclassification
will then automatically receive the wage index adjustment listed in
Table 4J in the Addendum to this proposed rule. The request for
withdrawal of an application for reclassification or termination of an
existing 3-year reclassification that would be effective in FY 2006
must be received by the MGCRB within 45 days of the publication of this
proposed rule. Hospitals should carefully review the wage index
adjustment that they would receive under this provision (as listed in
Table 2 in the Addendum to this proposed rule) in comparison to the
wage index adjustment that they would receive under the MGCRB
reclassification (Table 9 in the Addendum to this proposed rule).
J. Process for Requests for Wage Index Data Corrections
(If you choose to comment on issues in this section, please include
the caption ``Wage Index Data Corrections'' at the beginning of your
comment.)
In the FY 2005 IPPS final rule (68 FR 27194), we revised the
process and timetable for application for development of the wage
index, beginning with the FY 2005 wage index. The preliminary and
unaudited Worksheet S-3 wage data and occupational mix survey files
were made available on October 8, 2004 through the Internet on the CMS
Web site at: http://cms.hhs.gov/providers/hipps/ippswage.asp. In a
memorandum dated October 6, 2004, we instructed all Medicare fiscal
intermediaries to inform the IPPS hospitals they service of the
availability of the wage index data files and the process and timeframe
for requesting revisions (including the specific deadlines listed
below). We also instructed the fiscal intermediaries to advise
hospitals that these data are also made available directly through
their representative hospital organizations.
If a hospital wished to request a change to its data as shown in
the October 8, 2004 wage and occupational mix data files, the hospital
was to submit corrections along with complete, detailed supporting
documentation to its fiscal intermediary by November 29, 2004.
Hospitals were notified of this deadline and of all other possible
deadlines and requirements, including the requirement to review and
verify their data as posted on the preliminary wage index data file on
the Internet, through the October 6, 2004 memorandum referenced above.
In the October 6, 2004 memorandum, we also specified that a
hospital could only request revisions to the occupational mix data for
the reporting period that the hospital used in its original FY 2005
wage index occupational mix survey. That is, a hospital that submitted
occupational mix data for the 12-month reporting period could not
switch to submitting data for the 4-week reporting period and vice
versa. Further, a hospital could not submit an occupational mix survey
for the periods beginning before January 1, 2003, or after January 11,
2004. In addition, a hospital that did not submit an occupational mix
survey for the FY 2005 wage index was not permitted to submit a survey
for the FY 2006 wage index.
The fiscal intermediaries notified the hospitals by mid-February
2005 of any changes to the wage index data as a result of the desk
reviews and the resolution of the hospitals' late November 2004 change
requests. The fiscal intermediaries also submitted the revised data to
CMS by mid-February 2005. CMS published the proposed wage index public
use files that included hospitals' revised wage data on February 25,
2005. In a memorandum also dated February 25, 2005, we instructed
fiscal intermediaries to notify all hospitals regarding the
availability of the proposed wage index public use files and the
criteria and process for requesting corrections and revisions to the
wage index data. Hospitals had until March 14, 2005 to submit requests
to the fiscal intermediaries for reconsideration of adjustments made by
the fiscal intermediaries as a result of the desk review, and to
correct errors due to CMS's or the fiscal intermediary's mishandling of
the wage index data. Hospitals were also required to submit sufficient
documentation to support their requests.
After reviewing requested changes submitted by hospitals, fiscal
intermediaries are to submit any additional revisions resulting from
the hospitals' reconsideration requests by April 15, 2005. The deadline
for a hospital to request CMS intervention in cases where the hospital
disagrees with the fiscal intermediary's policy interpretations is
April 22, 2005.
Hospitals should also examine Table 2 in the Addendum to this
proposed rule. Table 2 contains each hospital's adjusted average hourly
wage used to construct the wage index values for the past 3 years,
including the FY 2002 data used to construct the FY 2006 wage index. We
note that the hospital average hourly wages shown in Table 2 only
reflect changes made to a hospital's data and transmitted to CMS by
February 23, 2005.
We will release a final wage index data public use file in early
May 2005 to hospital associations and the public on the Internet at
http://www.cms.hhs.gov/providers/hipps/
[[Page 23383]]
ippswage.asp. The May 2005 public use file will be made available
solely for the limited purpose of identifying any potential errors made
by CMS or the fiscal intermediary in the entry of the final wage data
that result from the correction process described above (revisions
submitted to CMS by the fiscal intermediaries by April 15, 2005). If,
after reviewing the May 2005 final file, a hospital believes that its
wage data were incorrect due to a fiscal intermediary or CMS error in
the entry or tabulation of the final wage data, it should send a letter
to both its fiscal intermediary and CMS that outlines why the hospital
believes an error exists and provide all supporting information,
including relevant dates (for example, when it first became aware of
the error). CMS and the fiscal intermediaries must receive these
requests no later than June 10, 2005. Requests mailed to CMS should be
sent to:
Centers for Medicare & Medicaid Services, Center for Medicare
Management, Attention: Wage Index Team, Division of Acute Care, C4-08-
06, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Each request also must be sent to the fiscal intermediary. The
fiscal intermediary will review requests upon receipt and contact CMS
immediately to discuss its findings.
At this point in the process, that is, after the release of the May
2005 wage index data file, changes to the hospital wage data will only
be made in those very limited situations involving an error by the
fiscal intermediary or CMS that the hospital could not have known about
before its review of the final wage index data file. Specifically,
neither the intermediary nor CMS will approve the following types of
requests:
Requests for wage data corrections that were submitted too
late to be included in the data transmitted to CMS by fiscal
intermediaries on or before April 15, 2005.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the February 25,
2005 wage index data file.
Requests to revisit factual determinations or policy
interpretations made by the fiscal intermediary or CMS during the wage
index data correction process.
Verified corrections to the wage index received timely by CMS and
the fiscal intermediaries (that is, by June 10, 2005) will be
incorporated into the final wage index to be published by August 1,
2005, and to be effective October 1, 2005.
We created the processes described above to resolve all substantive
wage index data correction disputes before we finalize the wage and
occupational mix data for the FY 2006 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 fiscal intermediary's decision with
respect to requested changes. Specifically, our policy is that
hospitals that do not meet the procedural deadlines set forth above
will not be permitted to challenge later, before the Provider
Reimbursement Review Board, the failure of CMS to make a requested data
revision (See W. A. Foote Memorial Hospital v. Shalala, No. 99-CV-
75202-DT (E.D. Mich. 2001), also Palisades General Hospital v.
Thompson, No. 99-1230 (D.D.C. 2003)).
Again, we believe the wage index data correction process described
above provides hospitals with sufficient opportunity to bring errors in
their wage index data to the fiscal intermediaries' attention.
Moreover, because hospitals will have access to the final wage index
data by early May 2005, they have the opportunity to detect any data
entry or tabulation errors made by the fiscal intermediary or CMS
before the development and publication of the final FY 2006 wage index
by August 1, 2005, and the implementation of the FY 2006 wage index on
October 1, 2005. If hospitals avail themselves of the opportunities
afforded to provide and make corrections to the wage data, the wage
index implemented on October 1 should be accurate. Nevertheless, in the
event that errors are identified by hospitals and brought to our
attention after June 10, 2005, we retain the right to make midyear
changes to the wage index under very limited circumstances.
Specifically, in accordance with Sec. 412.64(k)(1) of our existing
regulations, we make midyear corrections to the wage index for an area
only if a hospital can show that: (1) The fiscal intermediary or CMS
made an error in tabulating its data; and (2) the requesting hospital
could not have known about the error or did not have an opportunity to
correct the error, before the beginning of the fiscal year. For
purposes of this provision, ``before the beginning of the fiscal year''
means by the June deadline for making corrections to the wage data for
the following fiscal year's wage index. This provision is not available
to a hospital seeking to revise another hospital's data that may be
affecting the requesting hospital's wage index for the labor market
area. As indicated earlier, since CMS makes the wage data available to
a hospital on the CMS website prior to publishing both the proposed and
final IPPS rules, and the fiscal intermediaries notify hospitals
directly of any wage data changes after completing their desk reviews,
we do not expect that midyear corrections would 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.
We are proposing to revise Sec. 412.64(k)(2) to specify that a
change to the wage index can be made retroactive to the beginning of
the Federal fiscal year only when: (1) The fiscal intermediary or CMS
made an error in tabulating data used for the wage index calculation;
(2) the hospital knew about the error and requested that the fiscal
intermediary and CMS correct the error using the established process
and within the established schedule for requesting corrections to the
wage data, before the beginning of the fiscal year for the applicable
IPPS update (that is, by the June 10, 2005 deadline for the FY 2006
wage index); and (3) CMS agreed that the fiscal intermediary or CMS
made an error in tabulating the hospital's wage data and the wage index
should be corrected. We are proposing this change because there may be
instances in which a hospital identifies an error in its wage data and
submits a correction request using all appropriate procedures and by
the June deadline, CMS agrees that the fiscal intermediary or CMS
caused the error in the hospital's wage data and that the wage index
must be corrected, but CMS fails to publish or implement the corrected
wage index value by the beginning of the Federal fiscal year. We
believe that the above proposed revision to Sec. 412.64(k)(2) is
appropriate and fair. We also believe that unlike a generalized
retroactive policy, the situations where this will occur will be
minimal, thus minimizing the administrative burden associated with such
retroactive corrections. In those circumstances where a hospital
requests a correction to its wage data before CMS calculates the final
wage index (that is, by the June deadline), and CMS acknowledges that
the error in the hospital's wage data caused by CMS's or the fiscal
intermediary'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, this provision would not be
available to a hospital seeking to revise another
[[Page 23384]]
hospital's data. In addition, the provision could not be used to
correct prior years' wage data; it could only be used for the current
Federal fiscal year. In other situations, we continue to believe that
it is appropriate to make prospective corrections to the wage index in
those circumstances where a hospital could not have known about or did
not have the opportunity to correct the fiscal intermediary's or CMS's
error before the beginning of the fiscal year (that is, by the June
deadline).
We are proposing to make this change to Sec. 412.64(k)(2)
effective on October 1, 2005, that is, beginning with the FY 2006 wage
index. We note that, as with prospective changes to the wage index, the
proposed retroactive correction would 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 would still
apply in those instances where a judicial decision reverses a CMS
denial of a hospital's wage data revision request.
In addition, we are proposing to correct the FY 2005 wage index
retroactively (that is, from October 1, 2004) on a one-time only basis
for a limited circumstance using the authority provided under section
903(a)(1) of Pub. L. 108-173. This provision authorizes the Secretary
to make retroactive changes to items and services if failure to apply
such changes would be contrary to the public interest. However, as
indicated, our current regulations at Sec. 412.64(k)(1) allow only for
a prospective correction to the hospitals' area wage index values. We
are proposing to correct the FY 2005 wage index retroactively in the
limited circumstance where a hospital meets all of the following
criteria: (1) The fiscal intermediary or CMS made an error in
tabulating a hospital's FY 2005 wage index data; (2) the hospital
informed the fiscal intermediary or CMS, or both, about the error,
following the established schedule and process for requesting
corrections to its FY 2005 wage index data; and (3) CMS agreed before
October 1 that the fiscal intermediary or CMS made an error in
tabulating the hospital's wage data and the wage index should be
corrected by the beginning of the Federal fiscal year (that is, by
October 1, 2004), but CMS was unable to publish the correction by the
beginning of the fiscal year.
On December 30, 2004, we published in the Federal Register a
correction notice to the FY 2005 IPPS final rule that included the
corrected wage data for four hospitals that meet all of the three above
stated criteria (69 FR 78526). These corrections were effective January
1, 2005. As noted, our current regulations allow only for a prospective
correction to the hospitals' area wage index values. However, we
believe that, in the limited circumstance mentioned above, a
retroactive correction to the FY 2005 wage index is appropriate and
meets the condition of section 903(a)(1) of Pub. L. 108-173 that
``failure to apply the change retroactively would be contrary to the
public interest.''
IV. Proposed Rebasing and Revision of the Hospital Market Baskets
(If you choose to comment on issues in this section, please include
the caption ``Hospital Market Basket'' at the beginning of your
comment.)
A. Background
Effective for cost reporting periods beginning on or after July 1,
1979, we developed and adopted a hospital input price index (that is,
the hospital market basket for operating costs). Although ``market
basket'' technically describes the mix of goods and services used to
produce hospital care, this term is also commonly used to denote the
input price index (that is, cost category weights and price proxies
combined) derived from that market basket. Accordingly, the term
``market basket'' as used in this document refers to the hospital input
price index.
The terms ``rebasing'' and ``revising,'' while often used
interchangeably, actually denote different activities. ``Rebasing''
means moving the base year for the structure of costs of an input price
index (for example, in this proposed rule, we are proposing to shift
the base year cost structure for the IPPS hospital index from FY 1997
to FY 2002). ``Revising'' means changing data sources, or price
proxies, used in the input price index.
The percentage change in the market basket reflects the average
change in the price of goods and services hospitals purchase in order
to furnish inpatient care. We first used the market basket to adjust
hospital cost limits by an amount that reflected the average increase
in the prices of the goods and services used to provide hospital
inpatient care. This approach linked the increase in the cost limits to
the efficient utilization of resources.
Since the inception of the IPPS, the projected change in the
hospital market basket has been the integral component of the update
factor by which the prospective payment rates are updated every year.
An explanation of the hospital market basket used to develop the
prospective payment rates was published in the Federal Register on
September 1, 1983 (48 FR 39764). We also refer the reader to the August
1, 2002 Federal Register (67 FR 50032) in which we discussed the
previous rebasing of the hospital input price index.
The hospital market basket is a fixed weight, Laspeyres-type price
index that is constructed in three steps. First, a base period is
selected (in this proposed rule, FY 2002) and total base period
expenditures are estimated for a set of mutually exclusive and
exhaustive spending categories based upon type of expenditure. Then the
proportion of total operating costs that each category represents is
determined. These proportions are called cost or expenditure weights.
Second, each expenditure category is matched to an appropriate price or
wage variable, referred to as a price proxy. In nearly every instance,
these price proxies are price levels 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 time
period.
The market basket is described as a fixed-weight index because it
describes the change in price over time of the same mix of goods and
services purchased to provide hospital services in a base period. The
effects on total expenditures resulting from changes in the quantity or
mix of goods and services (intensity) purchased subsequent to the base
period are not measured. For example, shifting a traditionally
inpatient type of care to an outpatient setting might affect the volume
of inpatient goods and services purchased by the hospital, but would
not be factored into the price change measured by a fixed weight
hospital market basket. In this manner, the market basket measures only
the pure price change. Only when the index is rebased using a more
recent base period would the quantity and intensity effects be captured
in the cost weights. Therefore, we rebase the market basket
periodically so the cost weights reflect changes in the mix of goods
and services that hospitals purchase (hospital inputs) to furnish
inpatient care between base periods. We last
[[Page 23385]]
rebased the hospital market basket cost weights effective for FY 2003
(67 FR 50032, August 1, 2002), with FY 1997 data used as the base
period for the construction of the market basket cost weights.
B. Rebasing and Revising the Hospital Market Basket
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
The major source of expenditure data for developing the proposed
rebased and revised hospital market basket cost weights is the FY 2002
Medicare cost reports. These cost reports are from IPPS hospitals only.
They do not reflect data from hospitals excluded from the IPPS or CAHs.
The IPPS cost reports yield seven major expenditure or cost categories:
wages and salaries, employee benefits, contract labor, pharmaceuticals,
professional liability insurance (malpractice), blood and blood
products, and a residual ``all other.''
[GRAPHIC] [TIFF OMITTED] TP04MY05.031
b. Other Data Sources
In addition to the Medicare cost reports, other sources of data
used in developing the market basket weights are the Benchmark Input-
Output Tables (I-Os) created by the Bureau of Economic Analysis, U.S.
Department of Commerce, and the Business Expenses Survey developed by
the Bureau of the Census, U.S. Department of Commerce, from its
Economic Census.
New data for these Census sources are scheduled for publication
every 5 years, but often take up to 7 years after the reference year.
Only an Annual I-O is produced each year, but the Annual I-O contains
less industry detail than does the Benchmark I-O. When we rebased the
market basket using FY 1997 data in the FY 2003 IPPS final rule, the
1997 Benchmark I-O was not yet available. Therefore, we did not
incorporate data from that source into the FY 1997-based market basket
(67 FR 50033). However, we did use a secondary source, the 1997 Annual
Input-Output tables. The third source of data, the 1997 Business
Expenditure Survey (now known as the Business Expenses Survey) was used
to develop weights for the utilities and telephone services categories.
The 1997 Benchmark I-O data are a much more comprehensive and
complete set of data than the 1997 Annual I-O estimates. The 1997
Annual I-O is an update of the 1992 I-O tables, while the 1997
Benchmark I-O is an entirely new set of numbers derived from the 1997
Economic Census. The 2002 Benchmark Input-Output tables are not yet
available. Therefore, we are proposing to use the 1997 Benchmark I-O
data in the proposed FY 2002-based market basket, to be effective for
FY 2006. Instead of using the less detailed, less accurate Annual I-O
data, we aged the 1997 Benchmark I-O data forward to FY 2002. The
methodology we used to age the data involves applying the annual price
changes from the price proxies to the appropriate cost categories. We
repeat this practice for each year.
The ``all other'' cost category is further divided into other
hospital expenditure category shares using the 1997 Benchmark Input-
Output tables. Therefore, the ``all other'' cost category expenditure
shares are proportional to their relationship to ``all other'' totals
in the I-O tables. For instance, if the cost for telephone services
were to represent 10 percent of the sum of the ``all other'' I-O (see
below) hospital expenditures, then telephone services would represent
10 percent of the market basket's ``all other'' cost category.
2. PPS--Selection of Price Proxies
After computing the FY 2002 cost weights for the proposed rebased
hospital market basket, it is necessary to select appropriate wage and
price proxies to reflect the rate-of-price change for each expenditure
category. With the exception of the Professional Liability proxy, all
the indicators are based on Bureau of Labor Statistics (BLS) data and
are grouped into one of the following BLS categories:
Producer Price Indexes--Producer Price Indexes (PPIs)
measure price changes for goods sold in other than retail markets. PPIs
are preferable price proxies for goods that hospitals purchase as
inputs in producing their outputs because the PPIs would better reflect
the prices faced by hospitals. For example, we use a special PPI for
prescription drugs, rather than the Consumer Price Index (CPI) for
prescription drugs because hospitals generally purchase drugs directly
from the wholesaler. The PPIs that we use measure price change at the
final stage of production.
Consumer Price Indexes--Consumer Price Indexes (CPIs)
measure change in the prices of final goods and services bought by the
typical consumer. Because they may not represent the price faced by a
producer, we used CPIs only if an appropriate PPI
[[Page 23386]]
was not available, or if the expenditures were more similar to those of
retail consumers in general rather than purchases at the wholesale
level. For example, the CPI for food purchased away from home is used
as a proxy for contracted food services.
Employment Cost Indexes--Employment Cost Indexes (ECIs)
measure the rate of change in employee wage rates and employer costs
for employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. Appropriately, they are not affected by shifts in
employment mix.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Timeliness implies that the proxy is published regularly,
at least once a quarter. Availability means that the proxy is publicly
available. Finally, relevance means that the proxy is applicable and
representative of the cost category weight to which it is applied. The
CPIs, PPIs, and ECIs selected meet these criteria.
Chart 2 sets forth the complete proposed market basket including
cost categories, weights, and price proxies. For comparison purposes,
the corresponding FY 1997-based market basket is listed as well. A
summary outlining the choice of the various proxies follows the chart.
BILLING CODE 4120-01-P
[[Page 23387]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.032
[[Page 23388]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.033
BILLING CODE 4120-01-C
[[Page 23389]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.034
BILLING CODE 4120-01-C
a. Wages and Salaries
For measuring the price growth of wages in the proposed FY 2002-
based market basket, we are proposing to use the ECI for wages and
salaries for civilian hospital workers as the proxy for wages in the
hospital market basket. This same proxy was used for the 1997-based
market basket.
b. Employee Benefits
The proposed FY 2002-based hospital market basket uses the ECI for
employee benefits for civilian hospital workers. This is the same proxy
that was used in the FY 1997-based market basket.
c. Nonmedical Professional Fees
The ECI for compensation for professional and technical workers in
private industry is applied to this category because it includes
occupations such as management and consulting, legal, accounting and
engineering services. The same proxy was used in the FY 1997-based
market basket.
d. Fuel, Oil, and Gasoline
The percentage change in the price of gas fuels as measured by the
PPI (Commodity Code 0552) is applied to this component. The
same proxy was used in the FY 1997-based market basket.
e. Electricity
The percentage change in the price of commercial electric power as
measured by the PPI (Commodity Code 0542) is applied to this
component. The same proxy was used in the FY 1997-based market basket.
f. Water and Sewerage
The percentage change in the price of water and sewerage
maintenance as measured by the CPI for all urban consumers (CPI Code
CUUR0000SEHG01) is applied to this component. The same proxy
was used in the FY 1997-based market basket.
g. Professional Liability Insurance
The proposed FY 2002-based index uses the percentage change in the
hospital professional liability insurance (PLI) premiums as estimated
by the CMS Hospital Professional Liability Index, which we use as a
proxy in the Medicare Economic Index (68 FR 63244), for the proxy of
this category. Similar to the Physicians Professional Liability Index,
we attempt to collect commercial insurance premiums for a fixed level
of coverage, holding nonprice factors constant (such as a change in the
level of coverage). In the FY 1997-based market basket, the same price
proxy was used.
We continue to research options for improving our proxy for
professional liability insurance. This research includes exploring
various options for expanding our current survey, including the
identification of another entity that would be willing to work with us
to collect more complete and comprehensive data. We are also exploring
other options such as third party or industry data that might assist us
in creating a more precise measure of PLI premiums. At this time, we
have not yet identified a preferred option. Therefore, we are not
proposing to make any changes to the proxy in this proposed rule.
h. Pharmaceuticals
The percentage change in the price of prescription drugs as
measured by the PPI (PPI Code PPI283DRX) is used as a
proxy for this category. This is a special index produced by BLS and is
the same proxy used in the 1997-based index.
i. Food: Direct Purchases
The percentage change in the price of processed foods and feeds as
measured by the PPI (Commodity Code 02) is applied to this
component. The same proxy was used in the FY 1997-based market basket.
j. Food: Contract Services
The percentage change in the price of food purchased away from home
as measured by the CPI for all urban consumers (CPI Code
CUUR0000SEFV) is applied to this component. The same proxy was
used in the FY 1997-based market basket.
k. Chemicals
The percentage change in the price of industrial chemical products
as measured by the PPI (Commodity Code 061) is applied to this
component. While the chemicals hospitals purchase include industrial as
well as other types of chemicals, the industrial chemicals component
constitutes the largest proportion by far. Thus, we believe that
Commodity Code 061 is the appropriate proxy. The same proxy
was used in the FY 1997-based market basket.
l. Medical Instruments
The percentage change in the price of medical and surgical
instruments as
[[Page 23390]]
measured by the PPI (Commodity Code 1562) is applied to this
component. The same proxy was used in the FY 1997-based market basket.
m. Photographic Supplies
The percentage change in the price of photographic supplies as
measured by the PPI (Commodity Code 1542) is applied to this
component. The same proxy was used in the FY 1997-based market basket.
n. Rubber and Plastics
The percentage change in the price of rubber and plastic products
as measured by the PPI (Commodity Code 07) is applied to this
component. The same proxy was used in the FY 1997-based market basket.
o. Paper Products
The percentage change in the price of converted paper and
paperboard products as measured by the PPI (Commodity Code
0915) is used. The same proxy was used in the FY 1997-based
market basket.
p. Apparel
The percentage change in the price of apparel as measured by the
PPI (Commodity Code 381) is applied to this component. The
same proxy was used in the FY 1997-based market basket.
q. Machinery and Equipment
The percentage change in the price of machinery and equipment as
measured by the PPI (Commodity Code 11) is applied to this
component. The same proxy was used in the FY 1997-based market basket.
r. Miscellaneous Products
The percentage change in the price of all finished goods less food
and energy as measured by the PPI (Commodity Code SOP3500) is
applied to this component. Using this index removes the double-counting
of food and energy prices, which are already captured elsewhere in the
market basket. The same proxy was used in the FY 1997-based index. The
weight for this cost category is higher than in the FY 1997-based index
because the weight for blood and blood products (1.082) is added to it.
In the FY 1997-based market basket, we included a separate cost
category for blood and blood products, using the BLS PPI (Commodity
Code 063711) for blood and derivatives as a price proxy. A
review of recent trends in the PPI for blood and derivatives suggests
that its movements may not be consistent with the trends in blood costs
faced by hospitals. While this proxy did not match exactly with the
product hospitals are buying, its trend over time appears to be
reflective of the historical price changes of blood purchased by
hospitals. However, an apparent divergence over recent periods led us
to reevaluate whether the PPI for blood and derivatives was an
appropriate measure of the changing price of blood. We ran test market
baskets classifying blood in three separate cost categories: blood and
blood products, contained within chemicals as was done for the FY 1992-
based index, and within miscellaneous products. These categories use as
proxies the following PPIs: The PPI for blood and blood products, the
PPI for chemicals, and the PPI for finished goods less food and energy,
respectively. Of these three proxies, the PPI for finished goods less
food and energy moved most like the recent blood cost and price trends.
In addition, the impact on the overall market basket by using different
proxies for blood was negligible, mostly due to the relatively small
weight for blood in the market basket. Therefore, we chose the PPI for
finished goods less food and energy for the blood proxy because we
believe it will best be able to proxy price changes (not quantities or
required tests) associated with blood purchased by hospitals. We will
continue to evaluate this proxy for its appropriateness and will
explore the development of alternative price indexes to proxy the price
changes associated with this cost.
s. Telephone
The percentage change in the price of telephone services as
measured by the CPI for all urban consumers (CPI Code
CUUR0000SEED) is applied to this component. The same proxy was used in
the FY 1997-based market basket.
t. Postage
The percentage change in the price of postage as measured by the
CPI for all urban consumers (CPI Code CUUR0000SEEC01) is
applied to this component. The same proxy was used in the FY 1997-based
market basket.
u. All Other Services: Labor Intensive
The percentage change in the ECI for compensation paid to service
workers employed in private industry is applied to this component. The
same proxy was used in the FY 1997-based market basket.
v. All Other Services: Nonlabor Intensive
The percentage change in the all-items component of the CPI for all
urban consumers (CPI Code CUUR0000SA0) is applied to this
component. The same proxy was used in the FY 1997-based market basket.
For further discussion of the rationales for choosing many of the
specific price proxies, we refer the reader to the August 1, 2002 final
rule (67 FR 50037).
[[Page 23391]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.035
3. Labor-Related Share
(If you choose to comment on issues in this section, please include
the caption ``Labor-Related Share'' at the beginning of your comment.)
Under section 1886(d)(3)(E) of the Act, the Secretary estimates
from time to time the proportion of payments that are labor-related.
``The Secretary shall adjust the proportion (as estimated by the
Secretary from time to time) of hospitals' costs which are attributable
to wages and wage-related costs of the DRG prospective payment rates. *
* *'' We refer to the proportion of hospitals' costs that are
attributable to wages and wage-related costs as the ``labor-related
share.''
The labor-related share is used to determine the proportion of the
national PPS base payment rate to which the area wage index is applied.
We are proposing to continue to use our current methodology of defining
the labor-related share as the national average proportion of operating
costs that are related to, influenced by, or vary with the local labor
markets. We believe that the operating cost categories that are related
to, influenced by, or vary with the local labor markets are wages and
salaries, fringe benefits, professional fees, contract labor, and labor
intensive services. Therefore, we are proposing to calculate the labor-
related share by adding the relative weights for these operating cost
categories. After we reviewed all cost categories in the proposed IPPS
market basket using this definition of labor-related, we removed
postage costs from the proposed FY 2002-based labor-related share
because we no longer believe these costs are likely to vary with the
local labor market. Using the cost category weights that we determined
in section IV.B. of this preamble, we calculated a labor-related share
of 69.731 percent, using the FY 2002-based PPS market basket.
Accordingly, we are proposing to implement a labor-related share of
69.7 percent for discharges occurring on or after October 1, 2005. We
note that section 403 of Pub. L. 108-173 amended sections 1886(d)(3)(E)
and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must
employ 62 percent as the labor-related share unless this employment
``would result in lower payments than would otherwise be made.''
We also are proposing an update to the labor-related share for
Puerto Rico. Consistent with our methodology for determining the
national labor-related share, we are proposing to add the Puerto Rico-
specific relative weights for wages and salaries, fringe benefits, and
contract labor. Because there are no Puerto Rico-specific relative
weights for professional fees and labor intensive services, we are
proposing to use the national weights. Alternatively, we could apply
the national labor-related share to the Puerto Rico-specific rate. We
note that we are still reviewing our data and have not yet calculated
the updated Puerto Rico-specific labor-related share percentage.
Therefore, the labor-related and nonlabor-related portions of the
Puerto Rico-specific standardized amount listed in Table 1C of the
Addendum to this proposed rule reflect the current (FY 2005) labor-
related share for Puerto Rico of 71.3 percent. Once we have calculated
the updated labor-related share for Puerto Rico, we will post it on the
CMS website at http://www.cms.hhs.gov/providers/hipps. In addition, if
we adopt this proposal, we would publish the updated Puerto Rico labor-
related share in the IPPS final rule. We welcome comments on our
proposal to update the labor-related share for Puerto Rico.
Unlike the 1997 Annual I-O which was based on Standard Industrial
Codes (SIC), the 1997 Benchmark I-O is categorized using the North
American Industrial Classification System (NAICS). This change required
us to classify all cost categories under NAICS, including a
reevaluation of labor-related costs on the NAICS definitions. Chart 4
compares the FY 1992-based labor-related share, the current measure,
with the FY 2002-based labor-related share. When we rebased the market
basket to
[[Page 23392]]
reflect FY 1997 data, we did not change the labor-related share (67 FR
50041). Therefore, the FY 1992-based labor-related share is the current
measure.
[GRAPHIC] [TIFF OMITTED] TP04MY05.036
Although we are proposing to continue to calculate the labor-
related share by adding the relative weights of the labor-related
operating cost categories, we continue to evaluate alternative
methodologies. In the May 9, 2002 Federal Register (67 FR 31447), we
discussed our research on the methodology for the labor-related share.
This research involved analyzing the compensation share (the sum of
wages and salaries and benefits) separately for urban and rural
hospitals, using regression analysis to determine the proportion of
costs influenced by the area wage index, and exploring alternative
methodologies to determine whether all or only a portion of
professional fees and nonlabor intensive services should be considered
labor-related.
Our original analysis, which appeared in the May 9, 2002 Federal
Register (67 FR 31447) and which focused mainly on edited FY 1997
hospital data, found that the compensation share of costs for hospitals
in rural areas was higher on average than the compensation share for
hospitals in urban areas. We also researched whether only a proportion
of the costs in professional fees and labor-intensive services should
be considered labor-related, not the entire cost categories. However,
there was not enough information available to make this determination.
Our finding that the average compensation share of costs for rural
hospitals was higher than the average compensation for urban hospitals
was validated consistently through our regression analysis. Regression
analysis is a statistical technique that determines the relationship
between a dependent variable and one or more independent variables. We
tried several regression specifications in an effort to determine the
proportion of costs that are influenced by the area wage index.
Furthermore, MedPAC raised the possibility that regression may be an
alternative to the current market basket methodology. Our initial
regression specification (in log form) was Medicare operating cost per
Medicare discharge as the dependent variable and the independent
variables being the area wage index, the case-mix index, the ratio of
residents per bed (as proxy for IME status), and a dummy variable that
equals one if the hospital is located in a metropolitan area with a
population of 1 million or more. (A dummy variable represents the
presence or absence of a particular characteristic.) This regression
produced a coefficient for all hospitals for the area wage index of
0.638 (which is equivalent to the labor share and can be interpreted as
an elasticity because of the log specification) with an adjusted R-
squared of 64.3. (Adjusted R-squared is a measure of how well the
regression model fits the data.) While, on the surface, this appeared
to be a reasonable result, this same specification for urban hospitals
had a coefficient of 0.532 (adjusted R-squared = 53.2) and a
coefficient of 0.709 (adjusted R-squared = 36.4) for rural hospitals.
This highlighted some apparent problems with the specification because
the overall regression results appear to be masking underlying
problems. It did not seem reasonable that urban hospitals would have a
labor share below their actual compensation share or that the
discrepancy between urban and rural hospitals would be this large. When
we standardized the Medicare operating cost per Medicare discharge for
case mix, the fit, as measured by adjusted R-squared, fell dramatically
and the urban/rural discrepancy became even larger.
Based on this initial result, we tried two modifications to the FY
1997 regressions to correct for the underlying problems. First, we
edited the data differently to determine if a few reports were causing
the inconsistent results. We found when we tightened the edits, the
wage index coefficient was lower and the fit was worse. When we
loosened the edits, we found higher wage index coefficients and still a
worse fit. Second, we added additional variables to the regression
equation to attempt to explain some of the variation that was not being
captured. We found the best fit occurred when the following variables
were added: The occupancy rate, the number of hospital beds, a dummy
variable that equals one if the hospital is privately owned and zero
otherwise, a dummy variable that equals one if the hospital is
government-controlled and zero otherwise, the Medicare length-of-stay,
the number of FTEs per bed, and the age of fixed
[[Page 23393]]
assets. The result of this specification was a wage index coefficient
of 0.620 (adjusted R-squared = 68.7), with the regression on rural
hospitals having a coefficient of 0.772 (adjusted R-squared = 45.0) and
the regression on urban hospitals having a coefficient of 0.474
(adjusted R-squared = 60.9). Neither of these alternatives seemed to
help the underlying difficulties with the regression analysis.
Subsequent to the work described above, we have undertaken the
research necessary to reevaluate the current assumptions used in
determining the labor-related share. We ran regressions applying the
previous specifications to more recent data (FY 2001 and FY 2002), and,
as described below, we ran regressions using alternative
specifications. Once again we encourage comments on this research and
any information that is available to help determine the most
appropriate measure.
The first step in our regression analysis to determine the
proportion of hospitals' costs that varied with labor-related costs was
to edit the data, which had significant outliers in some of the
variables we used in the regressions. We originally began with an edit
that excluded the top and bottom 5 percent of reports based on average
Medicare cost per discharge and number of discharges. We also used
edits to exclude reports that did not meet basic criteria for use, such
as having costs greater than zero for total, operating, and capital for
the overall facility and just the Medicare proportion. We also required
that the hospital occupancy rate, length-of-stay, number of beds, FTEs,
and overall and Medicare discharges be greater than zero. Finally, we
excluded reports with occupancy rates greater than one.
Our regression specification (in log form) was Medicare operating
cost per Medicare discharge as the dependent variable (the same
dependent variable we used in the regression analysis described in the
May 9, 2002 Federal Register) with the independent variables being the
compensation per FTE, the ratio of interns and residents per bed (as
proxy for IME status), the occupancy rate, the number of hospital beds,
a dummy variable that equals one if the hospital is privately owned and
is zero otherwise, a dummy variable that equals one if the hospital is
government-controlled and is zero otherwise, the Medicare length-of-
stay, the number of FTEs per bed, the age of fixed assets, and a dummy
variable that equals one if the hospital is located in a metropolitan
area with a population of 1 million or more. This is a similar model to
the one described in the May 9, 2002 Federal Register (67 FR 31447) as
having the best fit, with two notable exceptions. First, the area wage
index is replaced by compensation per FTE, where compensation is the
sum of hospital wages and salaries, contract labor costs, and benefits.
The area wage index is a payment variable computed by averaging wages
across all hospitals within each MSA, whereas compensation per FTE
differs from one hospital to the next. Second, the case-mix index is no
longer included as a regressor because it is correlated with other
independent variables in the regression. In other words, the other
independent variables are capturing part of the effect of the case-mix
index. We made these two specification changes in an attempt to only
use cost variables to explain the variation in Medicare operating costs
per discharge. We believe this is appropriate in order to compare to
the results we are getting from the market basket methodology, which is
based solely on cost data. As we will show below, the use of payment
variables on the right-hand side of the equation appears to be
producing less reasonable results when cost data are used.
The revised specification for FY 2002 produced a coefficient for
all hospitals for compensation per FTE of 0.673 (which is roughly
equivalent to the labor share and can be interpreted as an elasticity
because of the log specification) with an adjusted R-squared of 63.7.
The coefficient result for FY 2001 is 64.5, with an adjusted R-squared
of 65.2. (For comparison, a separate regression for FY 2002 with the
log area wage index and log case-mix index included in the set of
regressors displays a log area wage index coefficient of 75.6 (adjusted
R-squared = 67.7).) For FY 2001, the coefficient for the log area wage
index is 72.3 (adjusted R-squared = 67.9). On the surface, these seem
to be reasonable results. However, a closer look reveals some problems.
In FY 2001, the coefficient for urban hospitals was 59.6 (adjusted R-
squared = 57.3), and the coefficient for rural hospitals was 61.3
(adjusted R-squared = 50.6). On the other hand, in FY 2002, the
coefficient for urban hospitals increased to 69.2 (adjusted R-squared =
55.9), and the coefficient for rural hospitals decreased to 58.2
(adjusted R squared = 46.0). The results for FY 2001 seem reasonable,
but not when compared with the results for FY 2002. Furthermore, for FY
2002 the compensation share of costs for hospitals in rural areas was
higher on average than the compensation share for hospitals in urban
areas. Rural areas had an average compensation share of 63.3 percent,
while urban areas had a share of 60.5 percent. This compares to a share
of 61.2 percent for all hospitals.
Due to these problems, we do not believe the regression analysis is
producing sound enough evidence at this point for us to make the
decision to change from the current method for calculating the labor-
related share. We continue to analyze these data and work on
alternative specifications, including working with MedPAC, who in the
past have done similar analysis in their studies of payment adequacy.
Comments on this approach would be welcomed, given the difficulties we
have encountered.
We also continue to look into ways to refine our market basket
approach to more accurately account for the proportion of costs
influenced by the local labor market. Specifically, we are looking at
the professional fees and labor-intensive cost categories to determine
if only a proportion of the costs in these categories should be
considered labor-related, not the entire cost category. Professional
fees include management and consulting fees, legal services, accounting
services, and engineering services. Labor-intensive services are mostly
building services, but also include other maintenance and repair
services.
We conducted preliminary research into whether the various types of
professional fees are more or less likely to be purchased in local
labor markets. Through contact with a handful of hospitals in only two
States, we asked for the percentages of their advertising, legal, and
management and consulting services that they purchased in either local,
regional, or national labor markets. The results were quite consistent
across all of the hospitals, indicating most advertising and legal
services are purchased in local or regional markets and nearly all
management and consulting services are purchased in national labor
markets. This suggested we may be appropriately reflecting advertising
and legal services in the labor-related share, but we plan to
investigate further whether management and consulting services are
appropriately reflected. We do not believe that this limited effort
produced enough evidence for us to change our methodology. However, we
do plan to expand our efforts in this area to ensure we appropriately
determine the labor-related share. We are soliciting data or studies
that would be helpful in this analysis. We are unsure if we will be
able to finish this analysis in time for inclusion in the FY 2006 IPPS
final rule.
[[Page 23394]]
As mentioned previously, we are proposing to continue to calculate
the labor-related share by adding the relative weights of the operating
cost categories that are related to, influenced by, or vary with the
local labor markets. These categories include wages and salaries,
fringe benefits, professional fees, contract labor and labor-intensive
services. Since we no longer believe that postage costs meet our
definition of labor-related, we are excluding them from the labor-
related share. Using this methodology, we calculated a labor-related
share of 69.731. Therefore, we are proposing a labor-related share of
69.731.
C. Separate Market Basket for Hospitals and Hospital Units Excluded
from the IPPS
(If you choose to comment on issues in this section, please include
the caption ``Excluded Hospital Market Basket'' at the beginning of
your comment.)
1. Hospitals Paid Based on Their Reasonable Costs
On August 7, 2001, we published a final rule in the Federal
Register (66 FR 41316) establishing the PPS for IRFs, effective for
cost reporting periods beginning on or after January 1, 2002. On August
30, 2002, we published a final rule in the Federal Register (67 FR
55954) establishing the PPS for LTCHs, effective for cost reporting
periods beginning on or after October 1, 2002. On November 15, 2004, we
published a final rule in the Federal Register (69 FR 66922)
establishing the PPS for the IPFs, effective for cost reporting periods
beginning on or after January 1, 2005.
Prior to being paid under a PPS, IRFs, LTCHs, and IPFs were
reimbursed solely under the reasonable cost-based system under Sec.
413.40 of the regulations, which impose rate-of-increase limits.
Children's and cancer hospitals and religious nonmedical health care
institutions (RNHCIs) are still reimbursed solely under the reasonable
cost-based system, subject to the rate-of-increase limits. Under these
limits, an annual target amount (expressed in terms of the inpatient
operating cost per discharge) is set for each hospital based on the
hospital's own historical cost experience trended forward by the
applicable rate-of-increase percentages. To the extent a LTCH or IPF
receives a blend of reasonable cost-based payment and the Federal
prospective payment rate amount, the reasonable cost portion of the
payment is also subject to the applicable rate-of-increase percentage.
Section 1886(b)(3)(B)(ii) of the Act sets the percentage increase of
the limits, which in certain years was based upon the market basket
percentage increase. Beginning in FY 2003 and subsequent years, the
applicable rate-of-increase is the market basket percentage increase.
The market basket currently (and historically) used is the excluded
hospital operating market basket, representing the cost structure of
rehabilitation, long-term care, psychiatric, children's, and cancer
hospitals (FY 2003 final rule, 67 FR 50042).
Because IRFs, LTCHs, and some IPFs are now paid under a PPS, we are
considering developing a separate market basket for these hospitals
that contains both operating and capital costs. We would publish any
proposal to use a revised separate market basket for each of these
types of hospitals when we propose the nest update of their respective
PPS rates. Children's and cancer hospitals are two of the remaining
three types of hospitals excluded from the IPPS that are still being
paid based solely on their reasonable costs, subject to target amounts.
(RNHCIs, the third type of IPPS-excluded entity still subject to target
amounts, are reimbursed under Sec. 403.752(a) of the regulations.)
Because there are a small number of children's and cancer hospitals and
RNHCIs, which receive in total less than 1 percent of all Medicare
payments to hospitals and because these hospitals provide limited
Medicare cost report data, we are not proposing to create a separate
market basket specifically for these hospitals. Under the broad
authority in sections 1886(b)(3)(A) and (B), 1886(b)(3)(E), and 1871 of
the Act, we are proposing to use the proposed FY 2002 IPPS operating
market basket percentage increase to update the target amounts for
children's and cancer hospitals reimbursed under sections 1886(b)(3)(A)
and (b)(3)(E) of the Act and the market basket for RNHCIs under Sec.
403.752(a) of the regulations. This proposal reflects our belief that
it is best to use an index that most closely represents the cost
structure of children's and cancer hospitals and RNHCIs. The FY 2002
cost weights for wages and salaries, professional liability, and ``all
other'' for children's and cancer hospitals are noticeably closer to
those in the IPPS operating market basket than those in the excluded
hospital market basket, which is based on the cost structure of IRFs,
LTCHs, IPFs, and children's and cancer hospitals and RNHCIs. Therefore,
we believe it is more appropriate to use the IPPS operating market
basket for children's and cancer hospitals and RNHCIs. However, when we
compare the weights for LTCHs and IPFs to the weights for IPPS
hospitals, we did not find them comparable. Therefore, we do not
believe it is appropriate to use the IPPS market basket for LTCHs and
IPFs.
For similar reasons, we are considering at some other date
proposing a separate market basket to update the adjusted Federal
payment amount for IRFs, LTCHs, and IPFs. We expect that these changes
would be proposed in separate proposed rules for each of these three
hospital types. We envision that these changes should apply to the
adjusted Federal payment rate, and not the portion of the payment that
is based on a facility-specific (or reasonable cost) payment to the
extent such a hospital or unit is paid under a blend methodology. In
other words, to the extent any of these hospitals are paid under a
blend methodology whereby a percentage of the payment is based on
reasonable cost principles, we would not propose to make changes to the
existing methodology for developing the market basket for the
reasonable cost portion of the payment because this portion of the
payment is being phased out, if it is not already a nonexistent feature
of the PPSs for IRFs, LTCHs, and IPFs. We do not believe that it makes
sense to propose to create an entirely new methodology for creating the
market basket index which updates the ``reasonable cost'' portion of a
blend methodology since the ``reasonable cost portion'' will last at
most for just 1 or 3 additional years (1 year for LTCHs paid under a
blend methodology since LTCHs only have 1 year remaining in their
transition, and 3 years for IPFs since IPFs paid under a blend
methodology only have 3 years remaining under a blend methodology).
However, the same cannot be said for the adjusted Federal payment
amount. In the case of the IRF PPS, all IRFs are paid at 100 percent of
the adjusted Federal payment amount and will continue to be paid based
on 100 percent of this amount for perpetuity. In the LTCH PPS, most
LTCHs (98 percent) are already paid at 100 percent of the adjusted
Federal payment amount. In the case of the few LTCHs that are paid
under a blend methodology for cost reporting periods beginning on or
after October 1, 2006, payment will be based entirely on the adjusted
Federal prospective payment rate. In the case of IPFs, new IPFs (as
defined in Sec. 412.426(c)) will be paid at 100 percent of the
adjusted Federal prospective payment rate (the Federal per diem payment
amount), while all others will
[[Page 23395]]
continue to transition to 100 percent of the Federal per diem payment
amount. In any event, even those transitioning will be at 100 percent
of the adjusted Federal prospective payment rate in 3 years.
Chart 5 compares the updates for the FY 2002-based IPPS operating
market basket, our proposed index used to update the target amounts for
children's and cancer hospitals, and RNHCIs, with a FY 2002-based
excluded hospital market basket that is based on the current
methodology (that is, based on the cost structure of IRFs, LTCHs, IPFs,
and children's and cancer hospitals). Although the percent change in
the IPPS operating market basket is typically lower than the percent
change in the FY 2002-based excluded hospital market basket (see
charts), we believe it is important to propose using the market basket
that most closely reflects the cost structure of children's and cancer
hospitals. We invite comments on our proposal to use the proposed FY
2002 IPPS operating market basket to update the target amounts for
children's and cancer hospitals reimbursed under sections 1886(b)(3)(A)
and (b)(3)(E) of the Act and the market basket for RNHCIs under Sec.
403.752(a) of the regulations.
Chart 5 shows the historical and forecasted updates under both the
proposed FY 2002-based IPPS operating market basket and the proposed FY
2002-based excluded hospital market basket. The forecasts are based on
Global Insight, Inc. 4th quarter, 2004 forecast with historical data
through the 3rd quarter of 2004. Global Insight, Inc. is a nationally
recognized economic and financial forecasting firm that contracts with
CMS to forecast the components of the market baskets.
[GRAPHIC] [TIFF OMITTED] TP04MY05.037
2. Excluded Hospitals Paid Under a Blend Methodology
As we discuss in greater detail in Appendix B to this proposed
rule, in the past, hospitals and hospital units excluded from the IPPS
have been paid based on their reasonable costs, subject to TEFRA
limits. However, some of these categories of excluded hospitals and
hospital units are now paid under their own PPSs. Specifically, some
LTCHs and most IPFs are or will be transitioning from reasonable cost-
based payments (subject to the TEFRA limits) to prospective payments
under their respective PPSs. Under the respective transition period
methodologies for the LTCH PPS and the IPF PPS, which are described
below, payment is based, in part, on a decreasing percentage of the
reasonable cost-based payment amount, which is subject to the TEFRA
limits and an increasing percentage of the Federal prospective payment
rate. For those LTCHs and IPFs whose PPS payment is comprised in part
of a reasonable cost-based payment will have those reasonable cost-
based payment amounts limited by the hospital's TEFRA ceiling.
Effective for cost reporting periods beginning on or after October
1, 2002, LTCHs are paid under the LTCH PPS,
[[Page 23396]]
which was implemented with a 5-year transition period, transitioning
existing LTCHs to a payment based on the fully Federal prospective
payment rate (August 30, 2002; 67 FR 55954). However, a LTCH may elect
to be paid at 100 percent of the Federal prospective rate at the start
of any of its cost reporting periods during the 5-year transition
period. A ``new'' LTCH, as defined in Sec. 412.23(e)(4), are paid
based on 100 percent of the standard Federal rate. Effective for cost
reporting periods beginning on or after January 1, 2005, IPFs are paid
under the IPF PPS under which they receive payment based on a
prospectively determined Federal per diem rate that is based on the sum
of the average routine operating, ancillary, and capital costs for each
patient day of psychiatric care in an IPF, adjusted for budget
neutrality. During a 3-year transition period, existing IPFs are paid
based on a blend of the reasonable cost-based payments and the Federal
prospective per diem base rate. For cost reporting periods beginning on
or after January 1, 2008, existing IPFs are to be paid based on 100
percent of the Federal per diem rate. A ``new'' IPF, as defined in
Sec. 412.426(c), are paid based on 100 percent of the Federal per diem
payment amount. Any LTCHs or IPFs that receive a PPS payment that
includes a reasonable cost-based payment during its respective
transition period will have that portion of its payment subject to the
TEFRA limits.
Under the broad authority of section 1886(b)(3)(A) and (b)(3)(B) of
the Act, for LTCHs and IPFs that are transitioning to the fully Federal
prospective payment rate, we are proposing to use the rebased FY 2002
based-excluded hospital market basket to update the reasonable cost-
based portion of their payments. The proposed market basket update is
described in detail below. We do not believe the IPPS operating market
basket should be used for the proposed update to the reasonable cost-
based portion of the payments to LTCHs or IPFs because this market
basket does not reflect the cost structure of LTCHs and IPFs.
3. Development of Cost Categories and Weights for the Proposed FY 2002-
Based Excluded Hospital Market Basket
a. Medicare Cost Reports
The major source of expenditure data for developing the proposed
rebased and revised excluded hospital market basket cost weights is the
FY 2002 Medicare cost reports. We choose FY 2002 as the base year
because we believe this is the most recent, relatively complete year
(with a 90-percent reporting rate) of Medicare cost report data. These
cost reports are from rehabilitation, psychiatric, long-term care,
children's, cancer, and religious nonmedical excluded hospitals. They
do not reflect data from IPPS hospitals or CAHs. These are the same
hospitals included in the FY 1997-based excluded hospital market
basket, except for religious nonmedical hospitals. Due to insufficient
Medicare cost report data for these excluded hospitals, their cost
reports yield only four major expenditure or cost categories: Wages and
salaries, pharmaceuticals, professional liability insurance
(malpractice), and a residual ``all other.''
Since the cost weights for the FY 2002-based excluded hospital
market basket are based on facility costs, we are proposing to use
those cost reports for IRFs, LTCHs, and children's, cancer, and RNHCIs
whose Medicare average length of stay is within 15 percent (that is, 15
percent higher or lower) of the total facility average length of stay
for the hospital. We are proposing to use a less stringent edit for
Medicare length of stay for IPFs, requiring the average length of stay
to be within 30 or 50 percent (depending on the total facility average
length of stay) of the total facility length of stay. This allows us to
increase our sample size by over 150 reports and produce a cost weight
more consistent with the overall facility. The edit we applied to IPFs
when developing the FY 1997-based excluded hospital market basket was
based on the best available data at the time.
We believe that limiting our sample to hospitals with a Medicare
average length of stay within a comparable range of the total facility
average length of stay provides a more accurate reflection of the
structure of costs for Medicare treatments. Our method results in
including in our data set hospitals with a share of Medicare patient
days relative to total patient days that was approximately three times
greater than for those hospitals excluded from our sample. Our goal is
to measure cost shares that are reflective of case-mix and practice
patterns associated with providing services to Medicare beneficiaries.
Cost weights for benefits, contract labor and blood and blood
products were derived using the proposed FY 2002-based IPPS market
basket. This is necessary because these data are poorly reported in the
cost reports for non-IPPS hospitals. For example, the ratio of the
benefit cost weight to the wages and salaries cost weight was applied
to the proposed excluded hospital wages and salaries cost weight to
derive a benefit cost weight for the proposed excluded hospital market
basket.
[GRAPHIC] [TIFF OMITTED] TP04MY05.038
[[Page 23397]]
b. Other Data Sources
In addition to the Medicare cost reports, the other source of data
used in developing the excluded hospital market basket weights is the
Benchmark Input-Output Tables (I-Os) created by the Bureau of Economic
Analysis, U.S. Department of Commerce.
New data for this source are scheduled for publication every 5
years, but often take up to 7 years after the reference year. Only an
Annual I-O is produced each year, but the Annual I-O contains less
industry detail than does the Benchmark I-O. When we rebased the
excluded hospital market basket using FY 1997 data in the FY 2003 IPPS
final rule, the 1997 Benchmark I-O was not yet available. Therefore, we
did not incorporate data from that source into the FY 1997-based
excluded hospital market basket (67 FR 50033). However, we did use a
secondary source the 1997 Annual Input-Output tables. The third source
of data, the 1997 Business Expenditure Survey (now known as the
Business Expenses Survey), was used to develop weights for the
utilities and telephone services categories.
The 1997 Benchmark I-O data are a much more comprehensive and
complete set of data than the 1997 Annual I-O estimates. The 1997
Annual I-O is an update of the 1992 I-O tables, while the 1997
Benchmark I-O is an entirely new set of numbers derived from the 1997
Economic Census. The 2002 Benchmark Input-Output tables are not yet
available. Therefore, we are proposing to use the 1997 Benchmark I-O
data in the proposed FY 2002-based excluded hospital market basket, to
be effective for FY 2006. Instead of using the less detailed, less
accurate Annual I-O data, we aged the 1997 Benchmark I-O data forward
to FY 2002. The methodology we used to age the data involves applying
the annual price changes from the price proxies to the appropriate cost
categories. We repeat this practice for each year.
The ``all other'' cost category is further divided into other
hospital expenditure category shares using the 1997 Benchmark Input-
Output tables. Therefore, the ``all other'' cost category expenditure
shares are proportional to their relationship to ``all other'' totals
in the I-O tables. For instance, if the cost for telephone services
were to represent 10 percent of the sum of the ``all other'' I-O (see
below) hospital expenditures, then telephone services would represent
10 percent of the market basket's ``all other'' cost category. The
remaining detailed cost categories under the residual ``all other''
cost category were derived using the 1997 Benchmark Input-Output Tables
aged to FY 2002 using relative price changes.
4. Proposed 2002-Based Excluded Hospital Market Basket--Selection of
Price Proxies
After computing the FY 2002 cost weights for the proposed rebased
excluded hospital market basket, it is necessary to select appropriate
wage and price proxies to reflect the rate-of-price change for each
expenditure category. With the exception of the Professional Liability
proxy, all the indicators are based on Bureau of Labor Statistics (BLS)
data and are grouped into one of the following BLS categories:
Producer Price Indexes--Producer Price Indexes (PPIs)
measure price changes for goods sold in other than retail markets. PPIs
are preferable price proxies for goods that hospitals purchase as
inputs in producing their outputs because the PPIs would better reflect
the prices faced by hospitals. For example, we use a special PPI for
prescription drugs, rather than the Consumer Price Index (CPI) for
prescription drugs because hospitals generally purchase drugs directly
from the wholesaler. The PPIs that we use measure price change at the
final stage of production.
Consumer Price Indexes--Consumer Price Indexes (CPIs)
measure change in the prices of final goods and services bought by the
typical consumer. Because they may not represent the price faced by a
producer, we used CPIs only if an appropriate PPI was not available, or
if the expenditures were more similar to those of retail consumers in
general rather than purchases at the wholesale level. For example, the
CPI for food purchased away from home is used as a proxy for contracted
food services.
Employment Cost Indexes--Employment Cost Indexes (ECIs)
measure the rate of change in employee wage rates and employer costs
for employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. Appropriately, they are not affected by shifts in
employment mix.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Timeliness implies that the proxy is published regularly,
at least once a quarter. Availability means that the proxy is publicly
available. Finally, relevance means that the proxy is applicable and
representative of the cost category weight to which it is applied. The
CPIs, PPIs, and ECIs selected meet these criteria and, therefore, we
believe they continue to be the best measure of price changes for the
cost categories to which they are applied.
Chart 7 sets forth the complete proposed FY 2002-based excluded
hospital market basket including cost categories, weights, and price
proxies. For comparison purposes, the corresponding FY 1997-based
excluded hospital market basket is listed as well. A summary outlining
the choice of the various proxies follows the charts.
BILLING CODE 4120-01-P
[[Page 23398]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.039
[[Page 23399]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.040
BILLING CODE 4120-01-C
a. Wages and Salaries
For measuring the price growth of wages in the proposed FY 2002-
based excluded hospital market basket, we are proposing to use the ECI
for wages and salaries for civilian hospital workers as the proxy for
wages. This same proxy was used for the FY 1997-based excluded hospital
market basket.
b. Employee Benefits
The proposed FY 2002-based excluded hospital market basket uses the
ECI for employee benefits for civilian hospital workers. This is the
same proxy that was used in the FY 1997-based excluded hospital market
basket.
c. Nonmedical Professional Fees
The ECI for compensation for professional and technical workers in
private industry is applied to this category because it includes
occupations such as management and consulting, legal, accounting and
engineering services. The same proxy was used in the FY 1997-based
excluded hospital market basket.
[[Page 23400]]
d. Fuel, Oil, and Gasoline
The percentage change in the price of gas fuels as measured by the
PPI (Commodity Code 0552) is applied to this component. The
same proxy was used in the FY 1997-based excluded hospital market
basket.
e. Electricity
The percentage change in the price of commercial electric power as
measured by the PPI (Commodity Code 0542) is applied to this
component. The same proxy was used in the FY 1997-based excluded
hospital market basket.
f. Water and Sewerage
The percentage change in the price of water and sewerage
maintenance as measured by the CPI for all urban consumers (CPI Code
CUUR0000SEHG01) is applied to this component. The same proxy
was used in the FY 1997-based excluded hospital market basket.
g. Professional Liability Insurance
The proposed FY 2002-based excluded hospital market basket uses the
percentage change in the hospital professional liability insurance
(PLI) premiums as estimated by the CMS Hospital Professional Liability
Index for the proxy of this category. Similar to the Physicians
Professional Liability Index, we attempt to collect commercial
insurance premiums for a fixed level of coverage, holding nonprice
factors constant (such as a change in the level of coverage). In the FY
1997-based excluded hospital market basket, the same price proxy was
used.
We continue to research options for improving our proxy for
professional liability insurance. This research includes exploring
various options for expanding our current survey, including the
identification of another entity that would be willing to work with us
to collect more complete and comprehensive data. We are also exploring
other options such as third party or industry data that might assist us
in creating a more precise measure of PLI premiums. At this time, we
have not yet identified a preferred option. Therefore, we are not
proposing to make any changes to the proxy in this proposed rule.
h. Pharmaceuticals
The percentage change in the price of prescription drugs as
measured by the PPI (PPI Code PPI283DRX) is used as a
proxy for this category. This is a special index produced by BLS and is
the same proxy used in the FY 1997-based excluded hospital market
basket.
i. Food: Direct Purchases
The percentage change in the price of processed foods and feeds as
measured by the PPI (Commodity Code 02) is applied to this
component. The same proxy was used in the FY 1997-based excluded
hospital market basket.
j. Food: Contract Services
The percentage change in the price of food purchased away from home
as measured by the CPI for all urban consumers (CPI Code
CUUR0000SEFV) is applied to this component. The same proxy was used in
the FY 1997-based excluded hospital market basket.
k. Chemicals
The percentage change in the price of industrial chemical products
as measured by the PPI (Commodity Code 061) is applied to this
component. While the chemicals hospitals purchase include industrial as
well as other types of chemicals, the industrial chemicals component
constitutes the largest proportion by far. Thus, we believe that
Commodity Code 061 is the appropriate proxy. The same proxy
was used in the FY 1997-based excluded hospital market basket.
l. Medical Instruments
The percentage change in the price of medical and surgical
instruments as measured by the PPI (Commodity Code 1562) is
applied to this component. The same proxy was used in the FY 1997-based
excluded hospital market basket.
m. Photographic Supplies
The percentage change in the price of photographic supplies as
measured by the PPI (Commodity Code 1542) is applied to this
component. The same proxy was used in the FY 1997-based excluded
hospital market basket.
n. Rubber and Plastics
The percentage change in the price of rubber and plastic products
as measured by the PPI (Commodity Code 07) is applied to this
component. The same proxy was used in the FY 1997-based excluded
hospital market basket.
o. Paper Products
The percentage change in the price of converted paper and
paperboard products as measured by the PPI (Commodity Code
0915) is used. The same proxy was used in the FY 1997-based
excluded hospital market basket.
p. Apparel
The percentage change in the price of apparel as measured by the
PPI (Commodity Code 381) is applied to this component. The
same proxy was used in the FY 1997-based excluded hospital market
basket.
q. Machinery and Equipment
The percentage change in the price of machinery and equipment as
measured by the PPI (Commodity Code 11) is applied to this
component. The same proxy was used in the FY 1997-based excluded
hospital market basket.
r. Miscellaneous Products
The percentage change in the price of all finished goods less food
and energy as measured by the PPI (Commodity Code SOP3500) is
applied to this component. Using this index removes the double-counting
of food and energy prices, which are already captured elsewhere in the
market basket. The same proxy was used in the FY 1997-based excluded
hospital market basket. The weight for this cost category is higher
than in the FY 1997-based index because it also includes blood and
blood products. In the FY 1997-based excluded hospital market basket,
we included a separate cost category for blood and blood products,
using the BLS PPI (Commodity Code 063711) for blood and
derivatives as a price proxy. A review of recent trends in the PPI for
blood and derivatives suggests that its movements may not be consistent
with the trends in blood costs faced by hospitals. While this proxy did
not match exactly with the product hospitals are buying, its trend over
time appears to be reflective of the historical price changes of blood
purchased by hospitals. However, an apparent divergence over recent
periods led us to reevaluate whether the PPI for blood and derivatives
was an appropriate measure of the changing price of blood. We ran test
market baskets classifying blood in three separate cost categories:
blood and blood products, contained within chemicals as was done for
the FY 1992-based index, and within miscellaneous products. These
categories use as proxies the following PPIs: the PPI for blood and
blood products, the PPI for chemicals, and the PPI for finished goods
less food and energy, respectively. Of these three proxies, the PPI for
finished goods less food and energy moved most like the recent blood
cost and price trends. In addition, the impact on the overall market
basket by using different proxies for blood was negligible, mostly due
to the relatively small weight for blood in the market basket.
Therefore, we chose the PPI for finished goods less food and energy for
the blood proxy because we believe it will best be able to proxy price
[[Page 23401]]
changes (not quantities or required tests) associated with blood
purchased by hospitals. We will continue to evaluate this proxy for its
appropriateness and will explore the development of alternative price
indexes to proxy the price changes associated with this cost.
s. Telephone
The percentage change in the price of telephone services as
measured by the CPI for all urban consumers (CPI Code
CUUR0000SEED) is applied to this component. The same proxy was
used in the FY 1997-based excluded hospital market basket.
t. Postage
The percentage change in the price of postage as measured by the
CPI for all urban consumers (CPI Code CUUR0000SEEC01) is
applied to this component. The same proxy was used in the FY 1997-based
excluded hospital market basket.
u. All Other Services: Labor Intensive
The percentage change in the ECI for compensation paid to service
workers employed in private industry is applied to this component. The
same proxy was used in the FY 1997-based excluded hospital market
basket.
v. All Other Services: Nonlabor Intensive
The percentage change in the all-items component of the CPI for all
urban consumers (CPI Code CUUR0000SA0) is applied to this
component. The same proxy was used in the FY 1997-based excluded
hospital market basket.
For further discussion of the rationale for choosing many of the
specific price proxies, we refer the reader to the August 1, 2002 final
rule (67 FR 50037).
[GRAPHIC] [TIFF OMITTED] TP04MY05.041
D. Frequency of Updates of Weights in IPPS Hospital Market Basket
Section 404 of Pub. L. 108-173 (MMA) requires CMS to report in this
proposed rule the research that has been done to determine a new
frequency for rebasing the hospital market basket. Specifically,
section 404 states:
``(a) More frequent updates in weights. After revising the weights
used in the hospital market basket under section 1886(b)(3)(B)(iii) of
the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the
most current data available, the Secretary shall establish a frequency
for revising such weights, including the labor share, in such market
basket to reflect the most current data available more frequently than
once every 5 years; and
``(b) Incorporation of explanation in rulemaking. The Secretary
shall include in the publication of the final rule for payment for
inpatient hospitals services under section 1886(d) of the Social
Security Act (42 U.S.C. 1395ww(d)) for fiscal year 2006, an explanation
of the reasons for, and options considered, in determining the
frequency established under subsection (a).''
This section of the proposed rule discusses the research we have
done to fulfill this requirement, and proposes a rebasing frequency
that makes optimal use of available data.
Our past practice has been to monitor the appropriateness of the
market basket on a consistent basis in order to rebase and revise the
index when necessary. The decision to rebase and revise the index has
been driven in large part by the availability of the data necessary to
produce a complete index. In the past, we have supplemented the
Medicare cost report data that are available on an annual basis with
Bureau of the Census hospital expense data that are typically available
only every 5 years (usually in years ending in 2 and 7). Because of
this, we have generally rebased the index every 5 years. However, prior
to the requirement associated with section 404 of Pub. L. 108-173,
there was no legislative requirement regarding the timing of rebasing
the hospital market basket nor was there a hard rule that we
[[Page 23402]]
used in determining this frequency. ProPAC, one of MedPAC's predecessor
organizations, did a report to the Secretary on April 1, 1985, that
supported periodic rebasing at least every 5 years.
The most recent rebasing of the hospital market basket was just 3
years ago, for the FY 2003 update. Since its inception with the
hospital PPS in FY 1984, the hospital market basket has been rebased
several times (FY 1987 update, FY 1991 update, FY 1997 update, FY 1998
update, and FY 2003 update). One of the reasons we believe it
appropriate to rebase the index on a periodic basis is that rebasing
(as opposed to revising, as explained in section IV.A. of this
preamble) tends to have only a minor impact on the actual percentage
increase applied to the PPS update. There are two major reasons for
this: (1) The cost category weights tend to be relatively stable over
shorter term periods (3 to 5 years); and (2) the update is based on a
forecast, which means the individual price series tend not to grow as
differently as they have in some historical periods.
We focused our research in two major areas. First, we reviewed the
frequency and availability of the data needed to produce the market
basket. Second, we analyzed the impact on the market basket of
determining the market basket weights under various frequencies. We did
this by developing market baskets that had base years for every year
between 1997 and 2002, and then analyzed how different the market
basket percent changes were over various periods. We used the results
from these areas of research to assist in our determination of a new
rebasing frequency. Based on this analysis, we are proposing to rebase
the hospital market basket every 4 years. This would mean the next
rebasing would occur for the FY 2010 update.
As we have described in numerous Federal Register documents over
the past few decades, the hospital market basket weights are the
compilation of data from more than one data source. When we are
discussing rebasing the weights in the hospital market basket, there
are two major data sources: (1) The Medicare cost reports; and (2)
expense surveys from the Bureau of the Census (the Economic Census is
used to develop data for the Bureau of Economic Analysis' input-output
series). We will explore the future availability of each of these data
sources.
Each Medicare-participating hospital submits a Medicare cost report
to CMS on an annual basis. It takes roughly 2 years before ``nearly
complete'' Medicare cost report data are available. For example,
approximately 90 percent of FY 2002 Medicare cost report data were
available in October 2004 (only 50 percent of FY 2003 data was
available), although only 20 percent of these reports were settled. We
choose FY 2002 as the base year because we believe this is the most
recent, relatively complete year (with a 90 percent reporting rate) of
Medicare cost report data. In developing the hospital market basket
weights, we have used the Medicare cost reports to determine the
weights for six major cost categories (wages, benefits, contract labor,
pharmaceuticals, professional liability, and blood). In FY 2002, these
six categories accounted for 68.5 percent of the hospital market
basket. Therefore, it is possible to develop a new set of market basket
weights for these categories on an annual basis, but with a substantial
lag (for the FY 2006 update, we consider the latest year of historical
data to be FY 2002).
The second source of data is the U.S. Department of Commerce,
Bureau of Economic Analysis' Benchmark Input-Output (I-O) table. These
data are published every 5 years with a more significant lag than the
Medicare cost reports. For example, the 1997 Benchmark I-O tables were
not published until the beginning of 2003. We have sometimes used data
from a third data source, the Bureau of the Census' Business Expenses
Survey (BES), which is also published every 5 years. The BES data are
used as an input into the I-O data, and thus are published a few months
prior to the release of the I-O. However, the BES contains only a
fraction of the detail contained in the I-O.
Chart 9 below takes into consideration the expected availability of
these major data sources and summarizes how they could be incorporated
into the development of future market basket weights.
[[Page 23403]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.042
It would be necessary to age the I-O or BES data to the year for
which cost report data are available using the price changes between
those periods. While not a preferred method in developing the market
basket weights, we have done this in the past when rebasing the index.
We are proposing to age the 1997 Benchmark I-O data for this proposed
rule.
As the table clearly indicates, the most optimal rebasing frequency
from a data availability standpoint is every 5 years. That is, if we
were to next rebase for the FY 2011 update, we could use the 2002
Benchmark I-O data that would recently be available. In order to match
the Medicare cost report data that would be available at that time (FY
2007 data), we would have to age the I-O data to FY 2007. However, this
would be aging the data only 5 years, whereas if the rebasing frequency
was determined to be every 4 years, we would have to age 1997 I-O data
to FY 2006. While aging data over 5 years is problematic (there can be
significant utilization and intensity changes over that length period,
as opposed to only a year or two), it would be significantly worse to
age data over an 8-year or 9-year period. If we were on a 5-year
rebasing frequency, for the FY 2016 update, we would use cost report
data for FY 2012 and the newly available 2007 I-O data. Again, the I-O
data would have to be aged only 5 years to match the cost report data.
We can look at the implications of determining a rebasing frequency
of every 3 or 4 years. Considering a frequency of 3 years first, we
would next rebase for the FY 2009 update using FY 2005 Medicare cost
report data and 1997 I-O data (the same data currently being used in
the proposed FY 2002-based market basket). This is problematic because
the 1997 I-O data would need to be aged 8 years to match the cost
report data. The next two rebasings would be for the FY 2012 update
(using FY 2008 cost report data and 2002 I-O data) and FY 2015 (using
FY 2011 cost report data and 2002 I-O data). This means that while we
are making optimal use of the Medicare cost report data, we would be
forced to use the same I-O data in consecutive rebasings and would have
to age that data as much as 9 years to use the same year as the cost
report data.
For a rebasing frequency of every 4 years, our next rebasing would
be for the FY 2010 update using FY 2006 Medicare cost report data and
1997 I-O data. This is also problematic because the 1997 I-O data would
need to be aged 9 years to match the cost report data. The next two
rebasings would be for the FY 2014 update (using FY 2010 cost report
data and 2002 I-O data) and FY 2018 (using FY 2014 cost report data and
2007 I-O data). Again, this frequency would make optimal use of the
Medicare cost report data but would require aging of the I-O data
between 7 and 9 years in order to match the cost report data.
[[Page 23404]]
It is clear from this analysis that neither the 3-year nor 4-year
rebasing frequencies makes as good use of all the data as rebasing
every 5 years. In addition, when comparing the 3-year and 4-year
rebasing frequencies, no one method stands out as being significantly
improved over another. Thus, this analysis does not lead us to draw any
definitive conclusions as to a rebasing frequency more appropriate than
every 5 years.
Our second area of research in determining a new rebasing frequency
was to analyze the impact on the market basket of determining the
market basket weights under various frequencies. We did this by using
the current historical data that are available (both Medicare cost
report and I-O) to develop market baskets with base year weights for
each year between FY 1997 and FY 2002. We then analyzed how differently
the market baskets moved over various historical periods.
Approaching the analysis this way allowed us to develop six
hypothetical market baskets with different base years (FY 1997, FY
1998, FY 1999, FY 2000, FY 2001, and FY 2002). As we have done when
developing the official market baskets, we used Medicare cost report
data where available. Thus, cost report data were used to determine the
weights for wages and salaries, benefits, contract labor,
pharmaceuticals, blood and blood products, and all other costs. We used
the 1997 Benchmark I-O data to fill out the remainder of the market
basket weights (note that this produces a different index for FY 1997
than the official FY 1997-based hospital market basket that used the
Annual 1997 I-O data), aging the data to the appropriate year to match
the cost report data. This means the FY 2002-based index used in this
analysis matches the FY 2002-based market basket we are proposing in
this rule. Chart 10 shows the weights from these hypothetical market
baskets:
[[Page 23405]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.043
Note that the weights remain relatively stable between periods. It
is for this reason that we believe defining the market basket as a
Laspeyres-type, fixed-weight index is appropriate. Because the weights
in the market basket are generally for aggregated costs (for example,
wages and salaries for all employees), there is not much volatility in
the weights between periods, especially over shorter time spans. As the
results of this analysis will show, it is for this reason that rebasing
the market basket more frequently than every 5 years is expected to
have little impact on the overall percent change in the hospital market
basket.
Using these hypothetical market baskets, we can produce market
basket percent changes over historical periods to determine what is the
impact of using various base periods. In our analysis, we consider the
hypothetical FY 1997-based index to be the benchmark measure and the
other indexes to indicate the impact of rebasing over various
frequencies. The hypothetical FY 2000-based index would reflect the
impact of rebasing every 3 years, the hypothetical FY 2001-based index
would reflect the impact of rebasing every 4 years, and the
hypothetical FY 2002-based index would reflect the
[[Page 23406]]
impact of rebasing every 5 years. Chart 11 shows the results of these
comparisons.
[GRAPHIC] [TIFF OMITTED] TP04MY05.044
It is clear from this comparison that there is little difference
between the indexes, and, for some FYs, there would be no difference in
the market basket update factor if we had rebased the market basket
more frequently. In particular, there is no difference in the
hypothetical indexes based between FY 2000 and FY 2002. This suggests
that setting the rebasing frequency to 3, 4, or 5 years will have
little or no impact on the resulting market basket. As we found when
analyzing data availability, this portion of our research does not
suggest that rebasing the market basket more frequently than every 5
years results in an improved market basket or that there is any
noticeable difference between rebasing every 3 or 4 years.
Market basket rebasing is a 1-year to 2-year long process that
includes data processing, analytical work, methodology reevaluation,
and regulatory process. After developing a rebased and revised market
basket, there are extensive internal review processes that a rule must
undergo, both in proposed and final form. Once the proposed rule has
been published, there is a 60-day comment period set aside for the
public to respond to the proposed rule. After comments are received, we
then need adequate time to research and reply to all comments
submitted. The last part of the regulatory process is the 60-day
requirement--the final rule must be published 60 days before the
provisions of the rule can become effective.
We would like to rebase all of our indexes (PPS operating, PPS
capital, excluded hospital with capital, SNFs, HHAs, and Medicare
Economic Index) on a regular schedule. Therefore, if we were to choose
a 3-year rebasing schedule, we would have to rebase more than one index
at a time. This may potentially limit the amount of time we could
devote to the market basket rebasing process. In addition, we recognize
that, in the future, we may be required to develop additional market
baskets that would require frequent rebasing.
Given the number of market baskets we are responsible for rebasing
and revising, the regulatory process for each, and the availability of
source data, we believe that while it is not necessary, rebasing and
revising the hospital market baskets every 4 years is the most
appropriate frequency to meet the legislative requirement.
E. Capital Input Price Index Section
The Capital Input Price Index (CIPI) was originally described in
the September 1, 1992 Federal Register (57 FR 40016). There have been
subsequent discussions of the CIPI presented in the May 26, 1993 (58 FR
30448), September 1, 1993 (58 FR 46490), May 27, 1994 (59 FR 27876),
September 1, 1994 (59 FR 45517), June 2, 1995 (60 FR 29229), September
1, 1995 (60 FR 45815), May 31, 1996 (61 FR 27466), and August 30, 1996
(61 FR 46196) issues of the Federal Register. The August 1, 2002 (67 FR
50032) rule discussed the most recent revision and rebasing of the CIPI
to a FY 1997 base year, which reflects the capital cost structure
facing hospitals in that year.
We are proposing to revise and rebase the CIPI to a FY 2002 base
year to reflect the more recent structure of capital costs in
hospitals. Unlike the PPS operating market basket, we do not have FY
2002 Medicare cost report data available for the development of the
capital cost weights, due to a change in the FY 2002 cost reporting
requirements. Rather, we used hospital capital expenditure data for the
capital cost categories of depreciation, interest, and other capital
expenses for FY 2001 and aged these data to a FY 2002 base year using
the relevant vintage-weighted price proxies. As with the FY 1997-based
index, we have developed two sets of weights in order to calculate the
proposed FY 2002-based CIPI. The first set of proposed weights
identifies the proportion of hospital capital expenditures attributable
to each expenditure category, while the second set of proposed weights
is a set of relative vintage weights for depreciation
[[Page 23407]]
and interest. The set of vintage weights is used to identify the
proportion of capital expenditures within a cost category that is
attributable to each year over the useful life of the capital assets in
that category. A more thorough discussion of vintage weights is
provided later in this section.
Both sets of proposed weights are developed using the best data
sources available. In reviewing source data, we determined that the
Medicare cost reports provided accurate data for all capital
expenditure cost categories. We are proposing to use the FY 2001
Medicare cost reports for PPS hospitals, aged to FY 2002, excluding
expenses from hospital-based subproviders, to determine weights for all
three cost categories: depreciation, interest, and other capital
expenses. We compared the weights determined from the Medicare cost
reports to the 2002 Bureau of the Census' Business Expenses Survey and
found the weights to be similar to those developed from the Medicare
cost reports.
Lease expenses are not broken out as a separate cost category in
the CIPI, but are distributed among the cost categories of
depreciation, interest, and other, reflecting the assumption that the
underlying cost structure of leases is similar to capital costs in
general. As was done in previous rebasings of the CIPI, we assumed 10
percent of lease expenses are overhead and assigned them to the other
capital expenses cost category as overhead. The remaining lease
expenses were distributed to the three cost categories based on the
proportion of depreciation, interest, and other capital expenses to
total capital costs excluding lease expenses.
Depreciation contains two subcategories: building and fixed
equipment and movable equipment. The split between building and fixed
equipment and movable equipment was determined using the Medicare cost
reports. This methodology was also used to compute the FY 1997-based
index.
Total interest expense cost category is split between government/
nonprofit and profit interest. The FY 1997-based CIPI allocated 85
percent of the total interest cost weight to government/nonprofit
interest, proxied by average yield on domestic municipal bonds, and 15
percent to for-profit interest, proxied by average yield on Moody's Aaa
bonds (67 FR 50044). The methodology used to derive this split is
explained in the June 2, 1995 issue of the Federal Register (60 FR
29233). We are proposing to derive the split using the relative FY 2001
Medicare cost report data on interest expenses for government/nonprofit
and profit hospitals. Based on these data, we are proposing a 75/25
split between government/nonprofit and profit interest. We believe it
is important that this split reflects the latest relative cost
structure of interest expenses. The proposed split of 75/25 had little
(less than 0.1 percent in any given year) or no effect on the annual
capital market basket percent change in both the historical and
forecasted periods.
Chart 12 presents a comparison of the proposed FY 2002-based CIPI
capital cost weights and the FY 1997-based CIPI capital cost weights.
[GRAPHIC] [TIFF OMITTED] TP04MY05.045
[[Page 23408]]
Because capital is acquired and paid for over time, capital
expenses in any given year are determined by both past and present
purchases of physical and financial capital. The vintage-weighted CIPI
is intended to capture the long-term consumption of capital, using
vintage weights for depreciation (physical capital) and interest
(financial capital). These vintage weights reflect the proportion of
capital purchases attributable to each year of the expected life of
building and fixed equipment, movable equipment, and interest. We used
the vintage weights to compute vintage-weighted price changes
associated with depreciation and interest expense.
Vintage weights are an integral part of the CIPI. Capital costs are
inherently complicated and are determined by complex capital purchasing
decisions, over time, based on such factors as interest rates and debt
financing. In addition, capital is depreciated over time instead of
being consumed in the same period it is purchased. The CIPI accurately
reflects the annual price changes associated with capital costs, and is
a useful simplification of the actual capital investment process. By
accounting for the vintage nature of capital, we are able to provide an
accurate, stable annual measure of price changes. Annual nonvintage
price changes for capital are unstable due to the volatility of
interest rate changes and, therefore, do not reflect the actual annual
price changes for Medicare capital-related costs. CMS' CIPI reflects
the underlying stability of the capital acquisition process and
provides hospitals with the ability to plan for changes in capital
payments.
To calculate the vintage weights for depreciation and interest
expenses, we needed a time series of capital purchases for building and
fixed equipment and movable equipment. We found no single source that
provides the best time series of capital purchases by hospitals for all
of the above components of capital purchases. The early Medicare cost
reports did not have sufficient capital data to meet this need. While
the AHA Panel Survey provided a consistent database back to 1963, it
did not provide annual capital purchases. The AHA Panel Survey provided
a time series of depreciation expenses through 1997 which could be used
to infer capital purchases over time. From 1998 to 2001, hospital
depreciation expenses were calculated by multiplying the AHA Annual
Survey total hospital expenses by the ratio of depreciation to total
hospital expenses from the Medicare cost reports. Beginning in 2001,
the AHA Annual Survey began collecting depreciation expenses. We hope
to be able to use these data in future rebasings.
In order to estimate capital purchases from AHA data on
depreciation expenses, the expected life for each cost category
(building and fixed equipment, movable equipment, and interest) is
needed to calculate vintage weights. We used FY 2001 Medicare cost
reports to determine the expected life of building and fixed equipment
and movable equipment. The expected life of any piece of equipment can
be determined by dividing the value of the asset (excluding fully
depreciated assets) by its current year depreciation amount. This
calculation yields the estimated useful life of an asset if
depreciation were to continue at current year levels, assuming
straight-line depreciation. From the FY 2001 cost reports, the expected
life of building and fixed equipment was determined to be 23 years, and
the expected life of movable equipment was determined to be 11 years.
The FY 1997-based CIPI showed the same expected life for the two
categories of depreciation.
Although we are proposing to use this methodology for deriving the
useful life of an asset, we intend to conduct a further review of the
methodology between the publication of this proposed rule and the final
rule. We plan to review alternate data sources, if available, and
analyze in more detail the hospital's capital cost structure reported
in the Medicare cost reports.
We are proposing to use the building and fixed equipment and
movable equipment weights derived from FY 2001 Medicare cost reports to
separate the depreciation expenses into annual amounts of building and
fixed equipment depreciation and movable equipment depreciation. Year-
end asset costs for building and fixed equipment and movable equipment
were determined by multiplying the annual depreciation amounts by the
expected life calculations from the FY 2001 Medicare cost reports. We
then calculated a time series back to 1963 of annual capital purchases
by subtracting the previous year asset costs from the current year
asset costs. From this capital purchase time series, we were able to
calculate the vintage weights for building and fixed equipment and
movable equipment. Each of these sets of vintage weights is explained
in detail below.
For building and fixed equipment vintage weights, the real annual
capital purchase amounts for building and fixed equipment derived from
the AHA Panel Survey were used. The real annual purchase amount was
used to capture the actual amount of the physical acquisition, net of
the effect of price inflation. This real annual purchase amount for
building and fixed equipment was produced by deflating the nominal
annual purchase amount by the building and fixed equipment price proxy,
the Boeckh Institutional Construction Index. Because building and fixed
equipment have an expected life of 23 years, the vintage weights for
building and fixed equipment are deemed to represent the average
purchase pattern of building and fixed equipment over 23-year periods.
With real building and fixed equipment purchase estimates available
back to 1963, we averaged sixteen 23-year periods to determine the
average vintage weights for building and fixed equipment that are
representative of average building and fixed equipment purchase
patterns over time. Vintage weights for each 23-year period are
calculated by dividing the real building and fixed capital purchase
amount in any given year by the total amount of purchases in the 23-
year period. This calculation is done for each year in the 23-year
period, and for each of the sixteen 23-year periods. We are proposing
to use the average of each year across the sixteen 23-year periods to
determine the 2002 average building and fixed equipment vintage weights
for the FY 2002-based CIPI.
For movable equipment vintage weights, the real annual capital
purchase amounts for movable equipment derived from the AHA Panel
Survey were used to capture the actual amount of the physical
acquisition, net of price inflation. This real annual purchase amount
for movable equipment was calculated by deflating the nominal annual
purchase amount by the movable equipment price proxy, the PPI for
Machinery and Equipment. Based on our determination that movable
equipment has an expected life of 11 years, the vintage weights for
movable equipment represent the average expenditure for movable
equipment over an 11-year period. With real movable equipment purchase
estimates available back to 1963, twenty-eight 11-year periods were
averaged to determine the average vintage weights for movable equipment
that are representative of average movable equipment purchase patterns
over time. Vintage weights for each 11-year period are calculated by
dividing the real movable capital purchase amount for any given year by
the total amount of purchases in the 11-year period. This calculation
was done for each year in the 11-year period, and for
[[Page 23409]]
each of the twenty-eight 11-year periods. We are proposing to use the
average of each year across the twenty-eight 11-year periods to
determine the average movable equipment vintage weights for the FY
2002-based CIPI.
For interest vintage weights, the nominal annual capital purchase
amounts for total equipment (building and fixed, and movable) derived
from the AHA Panel and Annual Surveys were used. Nominal annual
purchase amounts were used to capture the value of the debt instrument.
Because we have determined that hospital debt instruments have an
expected life of 23 years, the vintage weights for interest are deemed
to represent the average purchase pattern of total equipment over 23-
year periods. With nominal total equipment purchase estimates available
back to 1963, sixteen 23-year periods were averaged to determine the
average vintage weights for interest that are representative of average
capital purchase patterns over time. Vintage weights for each 23-year
period are calculated by dividing the nominal total capital purchase
amount for any given year by the total amount of purchases in the 23-
year period. This calculation is done for each year in the 23-year
period and for each of the sixteen 23-year periods. We are proposing to
use the average of each year across the sixteen 23-year periods to
determine the average interest vintage weights for the FY 2002-based
CIPI. The vintage weights for the FY 1997 CIPI and the proposed FY 2002
CIPI are presented in Chart 13.
[GRAPHIC] [TIFF OMITTED] TP04MY05.046
After the capital cost category weights were computed, it was
necessary to select appropriate price proxies to reflect the rate of
increase for each expenditure category. Our proposed price proxies for
the FY 2002-based CIPI are the same as those used in the FY 1997-based
CIPI. We still believe these are the most appropriate proxies for
[[Page 23410]]
hospital capital costs that meet our selection criteria of relevance,
timeliness, availability, and reliability. We ran the proposed FY 2002-
based index using the Moody's Aaa bonds average yield and then using
the Moody's Baa bonds average yield as proxy for the for-profit
interest cost category. There was no difference in the two sets of
index percent changes either historically or forecasted. The rationale
for selecting these price proxies is explained more fully in the August
30, 1996 final rule (61 FR 46196). The proposed proxies are presented
in Chart 14.
[GRAPHIC] [TIFF OMITTED] TP04MY05.047
Global Insight, Inc. forecasts a 0.7 percent increase in the FY
2002-based CIPI for 2006, as shown in Chart 15. This is the result of a
1.3 percent increase in projected depreciation prices (building and
fixed equipment, and movable equipment) and a 2.7 percent increase in
other capital expense prices, partially offset by a 2.3 percent
decrease in vintage-weighted interest rates in FY 2006, as indicated in
Chart 15. Accordingly, we are proposing a 0.7 percent increase in the
CIPI.
[[Page 23411]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.048
Rebasing the CIPI from FY 1997 to FY 2002 decreased the percent
change in the FY 2006 forecast by 0.1 percentage point, from 0.8 to
0.7, as shown in Chart 12. The difference is caused mostly by changes
in the relationships between the cost category weights within
depreciation and interest. The fixed depreciation cost weight relative
to the movable depreciation cost weight and the nonprofit/government
interest cost weight relative to the for-profit interest cost weight
are both less in the FY 2002-based CIPI. The changes in these
relationships have a small effect on the FY 2002-based CIPI percent
changes. However, when added together, they are responsible for a
negative one-tenth percentage point difference between the FY 2002-
based CIPI and the FY 1997-based CIPI.
V. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
A. Postacute Care Transfer Payment Policy (Sec. 412.4)
(If you choose to comment on issues in this section, please include
the caption ``Postacute Care Transfers'' at the beginning of your
comment.)
1. Background
Existing regulations at Sec. 412.4(a) define discharges under the
IPPS as situations in which a patient is formally released from an
acute care hospital or dies in the hospital. Section 412.4(b) defines
transfers from one acute care hospital to another, and Sec. 412.4(c)
defines transfers to certain postacute care providers. Our policy
provides that, in transfer situations, full payment is made to the
final discharging hospital and each transferring hospital is paid a per
diem rate for each day of the stay, not to exceed the full DRG payment
that would have been made if the patient had been discharged without
being transferred.
The per diem rate paid to a transferring hospital is calculated by
dividing the full DRG payment by the geometric mean length of stay for
the DRG. Based on an analysis that showed that the first day of
hospitalization is the most expensive (60 FR 45804), our policy
provides for payment that is double the per diem amount for the first
day (Sec. 412.4(f)(1)). Transfer cases are also eligible for outlier
payments. The outlier threshold for transfer cases is equal to the
fixed-loss outlier threshold for nontransfer cases, divided by the
geometric mean length of stay for the DRG, multiplied by the length of
stay for the case, plus one day. The purpose of the IPPS transfer
payment policy is to avoid providing an incentive for a hospital to
transfer patients to another hospital early in the patients' stay in
order to minimize costs while still receiving the full DRG payment. The
transfer policy adjusts the payments to approximate the reduced costs
of transfer cases.
2. Changes to DRGs Subject to the Postacute Care Transfer Policy
(Sec. Sec. 412.4(c) and (d))
Section 1886(d)(5)(J) of the Act provides that, effective for
discharges on or after October 1, 1998, a ``qualified discharge'' from
one of 10 DRGs selected by the Secretary to a postacute care provider
would be treated as a transfer case. This section required the
Secretary to define and pay as transfers all cases assigned to one of
10 DRGs selected by the Secretary, if the
[[Page 23412]]
individuals are discharged to one of the following postacute care
settings:
A hospital or hospital unit that is not a subsection
1886(d) hospital. (Section 1886(d)(1)(B) of the Act identifies the
hospitals and hospital units that are excluded from the term
``subsection (d) hospital'' as psychiatric hospitals and units,
rehabilitation hospitals and units, children's hospitals, long-term
care hospitals, and cancer hospitals.)
A SNF (as defined at section 1819(a) of the Act).
Home health services provided by a home health agency, if
the services relate to the condition or diagnosis for which the
individual received inpatient hospital services, and if the home health
services are provided within an appropriate period (as determined by
the Secretary).
In the July 31, 1998 IPPS final rule (63 FR 40975 through 40976),
we specified that a patient discharged to home would be considered
transferred to postacute care if the patient received home health
services within 3 days after the date of discharge. In addition, in the
July 31, 1998 final rule, we did not include patients transferred to a
swing-bed for skilled nursing care in the definition of postacute care
transfer cases (63 FR 40977).
Section 1886(d)(5)(J) of the Act directed the Secretary to select
10 DRGs based upon a high volume of discharges to postacute care and a
disproportionate use of postacute care services. As discussed in the
July 31, 1998 final rule, these 10 DRGs were selected in 1998 based on
the MedPAR data from FY 1996. Using that information, we identified and
selected the first 20 DRGs that had the largest proportion of
discharges to postacute care (and at least 14,000 such transfer cases).
In order to select 10 DRGs from the 20 DRGs on our list, we considered
the volume and percentage of discharges to postacute care that occurred
before the mean length of stay and whether the discharges occurring
early in the stay were more likely to receive postacute care. We
identified 10 DRGs to be subject to the postacute care transfer rule
starting in FY 1999.
Section 1886(d)(5)(J)(iv) of the Act authorizes the Secretary to
expand the postacute care transfer policy for FY 2001 or subsequent
fiscal years to additional DRGs based on a high volume of discharges to
postacute care facilities and a disproportionate use of postacute care
services. In the FY 2004 IPPS final rule (68 FR 45412), we expanded the
postacute care transfer policy to include additional DRGs. We
established the following criteria that a DRG must meet, for both of
the 2 most recent years for which data are available, in order to be
included under the postacute care transfer policy:
At least 14,000 postacute care transfer cases;
At least 10 percent of its postacute care transfers
occurring before the geometric mean length of stay;
A geometric mean length of stay of at least 3 days; and
If a DRG is not already included in the policy, a decline
in its geometric mean length of stay during the most recent 5-year
period of at least 7 percent.
In the FY 2004 IPPS final rule, we identified 21 new DRGs that met
these criteria. We also determined that one DRG from the original group
of 10 DRGs (DRG 263) no longer met the volume criterion of 14,000
transfer cases. Therefore, we removed DRGs 263 and 264 (DRG 264 is
paired with DRG 263) from the policy and expanded the postacute care
transfer policy to include payments for transfer cases in the new 21
DRGs, effective October 1, 2003. As a result, a total of 29 DRGs were
subject to the postacute care transfer policy in FY 2004. In the FY
2004 IPPS final rule, we indicated that we would review and update this
list periodically to assess whether additional DRGs should be added or
existing DRGs should be removed (68 FR 45413).
For FY 2005, we analyzed the available data from the FY 2003 MedPAR
file. For the 2 most recent years of available data (FY 2002 and FY
2003), we found that no additional DRGs qualified under the four
criteria set forth in the IPPS final rule for FY 2004. We also analyzed
the DRGs included under the policy for FY 2004 to determine if they
still met the criteria to remain under the policy. In addition, we
analyzed the special circumstances arising from a change to one of the
DRGs included under the policy in FY 2004.
In the FY 2005 IPPS final rule (69 FR 48942), we deleted DRG 483
(Tracheostomy With Mechanical Ventilation 96+ Hours or Principal
Diagnosis Except Face, Mouth, and Neck Diagnosis) and established the
following new DRGs as replacements: DRG 541 (Tracheostomy With
Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face,
Mouth and Neck Diagnoses With Major O.R. Procedure) and DRG 542
(Tracheostomy with Mechanical Ventilation 96+ Hours or Principal
Diagnosis Except Face, Mouth and Neck Diagnoses Without Major O.R.
Procedure). Cases in the existing DRG 483 were assigned to the new DRGs
541 and 542 based on the presence or absence of a major O.R. procedure,
in addition to the tracheostomy code that was previously required for
assignment to DRG 483. Specifically, if the patient's case involves a
major O.R. procedure (a procedure whose code is included on the list
that is assigned to DRG 468 (Extensive O.R. Procedure Unrelated to
Principal Diagnosis), except for tracheostomy codes 31.21 and 31.29),
the case is assigned to the DRG 541. If the patient does not have an
additional major O.R. procedure (that is, if there is only a
tracheostomy code assigned to the case), the case is assigned to DRG
542.
Based on data analysis, we determined that neither DRG 541 nor DRG
542 would have enough cases to meet the existing threshold of 14,000
transfer cases for inclusion in the postacute care transfer policy.
Nevertheless, we believed the cases that would be incorporated into
these two DRGs remained appropriate candidates for application of the
postacute care transfer policy and that the subdivision of DRG 483
should not change the original application of the postacute care
transfer policy to the cases once included in that DRG. Therefore, for
FY 2005, we proposed alternate criteria to be applied in cases where
DRGs do not satisfy the existing criteria, for discharges occurring on
or after October 1, 2004 (69 FR 28273 and 28374). The proposed new
criteria were designed to address situations such as those posed by the
split of DRG 483, where there remain substantial grounds for inclusion
of cases within the postacute care transfer policy, although one or
more of the original criteria may no longer apply. Under the proposed
alternate criteria, DRGs 430, 541, and 542 would have qualified for
inclusion in the postacute care transfer policy.
In the response to comments on our FY 2005 proposal, we decided not
to adopt the proposed alternate criteria for including DRGs under the
postacute care transfer policy in the FY 2005 IPPS final rule. Instead
we adopted the policy of simply grandfathering, for a period of 2
years, any cases that were previously included within a DRG that has
split, when the split DRG qualified for inclusion in the postacute care
transfer policy for both of the previous 2 years. Under this policy,
the cases that were previously assigned to DRG 483 and that now fall
into DRGs 541 and 542 continue to be subject to the policy. Therefore,
effective for discharges on or after October 1, 2004, 30 DRGs,
including new DRGs 541 and 542, are subject to the postacute care
transfer policy. We indicated that we would monitor the frequency with
which these
[[Page 23413]]
cases are transferred to postacute care settings and the percentage of
these cases that are short-stay transfer cases. Because we did not
adopt the proposed alternate criteria for DRG inclusion in the
postacute care transfer policy, DRG 430 (Psychoses) did not meet the
criteria for inclusion and has not been subject to the postacute care
transfer policy for FY 2005. We also invited comments on how to treat
the cases formerly included in a split DRG after the grandfathering
period.
We note that some commenters also suggested that, in place of the
proposed alternate criteria, we should adopt a policy of permanently
applying the postacute care transfer policy to a DRG once it has
initially qualified for inclusion in the policy. These commenters noted
that removing DRGs from the postacute care transfer policy makes the
payment system less stable and results in inconsistent incentives over
time. They also argued that ``a drop in the number of transfers to
postacute care settings is to be expected after the transfer policy is
applied to a DRG, but the frequency of transfers may well rise again if
the DRG is removed from the policy.'' We indicated that we would
consider adopting this general policy once we had evaluated the
experience with the specific cases that are subject to the
grandfathering policy for FY 2005 and FY 2006.
In the May 18, 2004 proposed rule, we also called attention to the
data concerning DRG 263, which was subject to the postacute care
transfer policy until FY 2004. We removed DRG 263 from the postacute
care transfer policy for FY 2004 because it did not have the minimum
number of cases (14,000) transferred to postacute care (13,588 transfer
cases in FY 2002, with more than 50 percent of transfer cases being
short-stay transfers). The FY 2003 MedPAR data show that there were
15,602 transfer cases in the DRG in FY 2003, of which 46 percent were
short-stay transfers. Because we removed the DRG from the postacute
care transfer policy in FY 2004, it must meet all criteria to be
included under the policy in subsequent fiscal years. Because the
geometric mean length of stay for DRG 263 showed only a 6-percent
decrease since 1999, DRG 263 did not qualify to be added to the policy
for FY 2005 under the existing criteria that were included in last
year's rule. DRG 263 would have qualified under the volume threshold
and percent of short-stay transfer cases under the proposed new
alternate criteria contained in the FY 2005 proposed rule. However, it
still would not have met the proposed required decline in length of
stay to qualify to be added to the policy for FY 2005. We indicated
that we would continue to monitor the experience with DRG 263,
especially in light of the comment that recommended a general policy of
grandfathering cases that qualify under the criteria for inclusion in
the postacute care transfer policy.
The table below displays the 30 DRGs that are included in the
postacute care transfer policy, effective for discharges occurring on
or after October 1, 2004.
[[Page 23414]]
[GRAPHIC] [TIFF OMITTED] TP04MY05.049
For this year's proposed rule, we have conducted an extensive
analysis of the FY 2003 and FY 2004 MedPAR data to monitor the effects
of the postacute care transfer policy. We have also conducted an
overall assessment of the postacute care transfer policy since its
inception in FY 1999. Specifically, we have examined the relationship
between rates of postacute care utilization and the geometric mean
length of stay and the relationship between a high volume and a high
proportion of postacute care transfers within a DRG in light of
experience under the current policy. Specifically, we examined whether
a decline in the geometric mean length of stay is associated with an
increase in the volume and proportion of total cases in a DRG that are
discharges to postacute care. We analyzed these data as part of
determining whether to retain the criteria that a DRG must have a
decline in the geometric mean length of stay of
[[Page 23415]]
at least 7 percent in the previous 5-year period to be included under
the postacute care transfer policy.
Our current criteria for inclusion in the postacute care transfer
policy include a requirement that, if a DRG is not already included in
the policy, there must be a decline of at least 7 percent in the DRG's
geometric mean length of stay during the most recent 5-year period. It
has come to our attention that not all DRGs that experience an increase
in postacute care utilization also experience a decrease in geometric
mean length of stay. In fact, some DRGs with increases in postacute
care utilization during the past several years have also experienced an
increase in the geometric mean length of stay. The table below lists a
number of DRGs that experienced increases in postacute care utilization
and increases in the geometric mean length of stay from FY 2002 through
FY 2004:
[GRAPHIC] [TIFF OMITTED] TP04MY05.050
Our current criteria also include a requirement that a DRG have at
least 14,000 total postacute care transfer cases in order to be
included in the policy. We have examined the data on the numbers of
transfers and the percentage of postacute care transfer cases across
DRGs. Among the 30 DRGs currently included within the postacute care
transfer policy, the percentage of postacute care transfer cases ranges
from a low of 15 percent to a high of 76 percent. Among DRGs that are
not currently included within the policy, many have a relatively high
percentage of postacute care transfer cases in proportion to the total
volume of cases for the DRG or a relatively high volume of discharges
to postacute care facilities, or both. For this reason, we reviewed the
data for all DRGs before proposing a change to the postacute care
transfer payment policy. As part of this review, we found that:
Of 550 DRGs, 26 have been deactivated and 17 have no cases
in the FY 2004 MedPAR files. We are not proposing any changes for these
DRGs because application of the postacute care transfer policy to them
would have no effect.
Of the remaining 507 DRGs, 220 have geometric mean lengths
of stay that are less than 3.0 days. Because the transfer payment
policy provides 2 times the per diem rate for the first day of care
(due to the large proportion of charges incurred on the first day of a
patient's treatment), including these DRGs in the transfer policy would
be relatively meaningless as they would all receive a full DRG payment.
For this reason, we are not proposing any
[[Page 23416]]
changes to the postacute care transfer policy for these DRGs.
Of the remaining 287 DRGs, 64 have fewer than 100 short-
stay transfer cases. In addition, 39 of these 64 DRGs have fewer than
50 short-stay transfer cases. Consistent with the statutory guidance,
we are not proposing any change to how we apply the postacute care
transfer payment policy to these DRGs because we believe that these
DRGs do not have a high volume of discharges to postacute care
facilities or involve a disproportionate use of postacute care
services.
Once we eliminated the DRGs cited above from consideration for the
postacute care transfer policy, we examined the characteristics of the
remaining 223 DRGs. We found that these DRGs had three common
characteristics:
The DRG had at least 2,000 total postacute care transfer
cases.