Federal Register, Volume 72 Issue 162 (Wednesday, August 22, 2007)

[Federal Register Volume 72, Number 162 (Wednesday, August 22, 2007)]
[Rules and Regulations]
[Pages 47130-48175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-3820]

[[Page 47129]]

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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 411, 412, 413, and 489

Medicare Program; Changes to the Hospital Inpatient Prospective Payment
Systems and Fiscal Year 2008 Rates; Final Rule

Federal Register / Vol. 72, No. 162 / Wednesday, August 22, 2007 /
Rules and Regulations

[[Page 47130]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 411, 412, 413, and 489

[CMS-1533-FC]
RIN 0938-AO70

Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2008 Rates

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

ACTION: Final rule with comment period.

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SUMMARY: We are revising 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, and to implement certain provisions made by the Deficit
Reduction Act of 2005 (Pub. L. 109-171), the Medicare Improvements and
Extension Act under Division B, Title I of the Tax Relief and Health
Care Act of 2006 (Pub. L. 109-432), and the Pandemic and All Hazards
Preparedness Act (Pub. L. 109-417). In addition, in the Addendum to
this final rule with comment period, we describe the 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 the rate of increase limits for certain
hospitals and hospital units excluded from the IPPS that are paid on a
reasonable cost basis subject to these limits, or that have a portion
of a prospective payment system payment based on reasonable cost
principles. These changes are applicable to discharges occurring on or
after October 1, 2007.
In this final rule with comment period, as part of our efforts to
further refine the diagnosis related group (DRG) system under the IPPS
to better recognize severity of illness among patients, for FY 2008, we
are adopting a Medicare Severity DRG (MS DRG) classification system for
the IPPS. We are also adopting the structure of the MS-DRG system for
the LTCH prospective payment system (referred to as MS-LTC-DRGs) for FY
2008.
Among the other policy decisions and changes that we are making, we
are making changes related to: limited revisions of the
reclassification of cases to MS-DRGs, the relative weights for the MS-
LTC-DRGs; applications for new technologies and medical services add-on
payments; the wage data, including the occupational mix data, used to
compute the FY 2008 wage indices; payments to hospitals for the
indirect costs of graduate medical education; submission of hospital
quality data; provisions governing the application of sanctions
relating to the Emergency Medical Treatment and Labor Act of 1986
(EMTALA); provisions governing the disclosure of physician ownership in
hospitals and patient safety measures; and provisions relating to
services furnished to beneficiaries in custody of penal authorities.

DATES: Effective Date: This final rule with comment period is effective
October 1, 2007 and applies to discharges occurring on or after that
date.
Comment Date: We will consider public comments only on the
provisions of section V., Changes to the IPPS for Capital Related
Costs, of the preamble of this final rule with comment period, if we
receive them at one of the addresses provided below, no later than 5
p.m. on November 20, 2007.

ADDRESSES: In commenting on the provisions of section V. of the
preamble of this final rule with comment period, please refer to file
code CMS-1533-FC.
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 on specific
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click
on the link ``Submit electronic comments on CMS regulations with an
open comment period''. (Attachments should be in Microsoft Word,
WordPerfect, or Excel; however, we prefer Microsoft Word.)
2. By regular 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-1533-FC, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1533-FC, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (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 appropriately for
hand or courier delivery may be delayed and received after the comment
period.
Submitting Comments: You can assist us by referencing the file code
CMS-1533-FC and the specific ``issue identifier'' that precedes section
V., Changes to the IPPS for Capital Related Costs.
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. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on
CMS Regulations'' on that Web site to view public comments.
Comments received timely will also be available for public
inspection, generally beginning approximately 3 weeks after publication
of a document, at the headquarters of the Centers for Medicare &
Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244,
Monday through Friday of each week from 8:30 a.m. to 4:00 p.m. To
schedule an appointment to view public comments, phone 1-800-743-3951.

FOR FURTHER INFORMATION CONTACT: Marc Hartstein, (410) 786-4548,
Operating Prospective Payment, Diagnosis Related Groups (DRGs), Wage
Index, New Medical Services and Technology Add-On Payments, and
Hospital Geographic Reclassifications Issues.

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Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, Graduate Medical Education, Critical Access Hospitals, and
Long-Term Care (LTC)-DRG Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Issues.
Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment
Update Issues.
Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing
Issues.
Jacqueline Proctor, (410) 786-8852, Disclosure of Physician
Ownership in Hospitals.
Marilyn Dahl, (410) 786-8665, Patient Safety Measures Issues.
Fred Grabau, (410) 786-0206, Services to Beneficiaries in Custody
of Penal Authorities Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web; the Superintendent of Documents' home page address
is http://www.gpoaccess.gov/, by using local WAIS client software, or
by telnet to swais.access.gpo.gov, then login as guest (no password
required). Dial-in users should use communications software and modem
to call (202) 512-1661; type swais, then login as guest (no password
required).

Acronyms

ACGME--Accreditation Council for Graduate Medical Education
AMGA--American Medical Group Association
AHA--American Hospital Association
AHIMA--American Health Information Management Association
AHRQ--Agency for Health Care Research and Quality
AMI--Acute myocardial infarction
AOA--American Osteopathic Association
APR DRG--All Patient Refined Diagnosis Related Group System
ASC--Ambulatory surgical center
ASP--Average sales price
AWP--Average wholesale price
BBA--Balanced Budget Act of 1997, Pub. L. 105-33
BBRA--Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L.
106-113
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
CART--CMS Abstraction & Reporting Tool
CBSAs--Core-based statistical areas
CC--Complication or comorbidity
CCR--Cost-to-charge ratio
CDAC--Clinical Data Abstraction Center
CIPI--Capital input price index
CPI--Consumer price index
CMI--Case-mix index
CMS--Centers for Medicare & Medicaid Services
CMSA--Consolidated Metropolitan Statistical Area
COBRA--Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-
272
CoP--[Hospital] Condition of participation
CPI--Consumer price index
CY--Calendar year
DRA--Deficit Reduction Act of 2005, Pub. L. 109-171
DRG--Diagnosis-related group
DSH--Disproportionate share hospital
ECI--Employment cost index
EMR--Electronic medical record
EMTALA--Emergency Medical Treatment and Labor Act of 1986, Pub. L.
99-272
FDA--Food and Drug Administration
FIPS--Federal information processing standards
FQHC--Federally qualified health center
FTE--Full-time equivalent
FY--Fiscal year
GAAP--Generally Accepted Accounting Principles
GAF--Geographic Adjustment Factor
GME--Graduate medical education
GMEC--Graduate Medical Education Committee
HCAHPS--Hospital Consumer Assessment of Healthcare Providers and
Systems
HCFA--Health Care Financing Administration
HCRIS--Hospital Cost Report Information System
HHA--Home health agency
HHS--Department of Health and Human Services
HIC--Health insurance card
HIPAA--Health Insurance Portability and Accountability Act of 1996,
Pub. L. 104-191
HIPC--Health Information Policy Council
HIS--Health information system
HIT--Health information technology
HMO--Health maintenance organization
HSA--Health savings account
HSCRC--Maryland Health Services Cost Review Commission
HSRV--Hospital-specific relative value
HSRVcc--Hospital-specific relative value cost center
HQA--Hospital Quality Alliance
HQI--Hospital Quality Initiative
ICD-9-CM--International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-PCS--International Classification of Diseases, Tenth Edition,
Procedure Coding System
IHS--Indian Health Service
IME--Indirect medical education
IOM--Institute of Medicine
IPF--Inpatient psychiatric facility
IPPS--Acute care hospital inpatient prospective payment system
IRF--Inpatient rehabilitation facility
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
MAC--Medicare Administrative Contractor
MCC--Major complication or comorbidity
MCE--Medicare Code Editor
MCO--Managed care organization
MCV--Major cardiovascular condition
MDC--Major diagnostic category
MDH--Medicare-dependent, small rural hospital
MedPAC--Medicare Payment Advisory Commission
MedPAR--Medicare Provider Analysis and Review File
MEI--Medicare Economic Index
MGCRB--Medicare Geographic Classification Review Board
MIEA-TRHCA--Medicare Improvements and Extension Act, Division B of
the Tax Relief and Health Care Act of 2006, Pub. L. 109-432
MMA--Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Pub. L. 108-173
MPN--Medicare provider number
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
NCQA--National Committee for Quality Assurance
NCVHS--National Committee on Vital and Health Statistics
NECMA--New England County Metropolitan Areas
NQF--National Quality Forum
NTIS--National Technical Information Service
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)
PMSAs--Primary metropolitan statistical areas
PPI--Producer price index
PPS--Prospective payment system
PRA--Per resident amount
PRM--Provider Reimbursement Manual
ProPAC--Prospective Payment Assessment Commission
PRRB--Provider Reimbursement Review Board
PSF--Provider Specific File
PS&R--Provider Statistical and Reimbursement (System)
QIG--Quality Improvement Group, CMS
QIO--Quality Improvement Organization
RCE--Reasonable compensation equivalent
RHC--Rural health clinic
RHQDAPU--Reporting hospital quality data for annual payment update
RNHCI--Religious nonmedical health care institution

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RRC--Rural referral center
RUCAs--Rural-urban commuting area codes
RY--Rate year
SAF--Standard Analytic File
SCH--Sole community hospital
SFY--State fiscal year
SIC--Standard Industrial Classification
SNF--Skilled nursing facility
SOCs--Standard occupational classifications
SOM--State Operations Manual
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
VBP--Value-based purchasing

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.
Inpatient Rehabilitation Facilities (IRFs) b. Long-Term Care
Hospitals (LTCHs) c. Inpatient Psychiatric Facilities (IPFs)
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical Education (GME)
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
C. Provisions of the Medicare Improvements and Extension Act
under Division B, Title I of the Tax Relief and Health Care Act of
2006
D. Provisions of the Pandemic and All-Hazards Preparedness Act
E. Issuance of a Notice of Proposed Rulemaking
1. DRG Reclassifications and Recalibrations of Relative Weights
2. Proposed Changes to the Hospital Wage Index
3. Other Decisions and Proposed Changes to the IPPS for
Operating Costs and GME Costs
4. Proposed Changes to the IPPS for Capital-Related Costs
5. Proposed Changes to the Payment Rates for Excluded Hospitals
and Hospital Units: Rate-of-Increase Percentages
6. Services Furnished to Beneficiaries in Custody of Penal
Authorities
7. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate of Increase Limits
8. Impact Analysis
9. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
10. Discussion of Medicare Payment Advisory Commission
Recommendations
F. Public Comments Received on the Proposed Rule
II. Changes to DRG Classifications and Relative Weights
A. Background
B. DRG Reclassifications
1. General
2. Yearly Review for Making DRG Changes
C. MedPAC Recommendations for Revisions to the IPPS DRG System
D. Refinement of DRGs Based on Severity of Illness
1. Evaluation of Alternative Severity-Adjusted DRG Systems
a. Overview of Alternative DRG Classification Systems
b. Comparative Performance in Explaining Variation in Resource
Use
c. Payment Accuracy and Case-Mix Impact
d. Other Issues for Consideration
2. Development of the Medicare Severity DRGs (MS DRGs)
a. Comprehensive Review of the CC List
b. Chronic Diagnosis Codes
c. Acute Diagnosis Codes
d. Prior Research on Subdivisions of CCs into Multiple
Categories
e. Medicare Severity DRGs (MS-DRGs)
3. Dividing MS DRGs on the Basis of the CCs and MCCs
4. Conclusion
5. Impact of the MS-DRGs
6. Changes to Case-Mix Index (CMI) from the MS-DRGs
7. Effect of the MS-DRGs on the Outlier Threshold
8. Effect of the MS-DRGs on the Postacute Care Transfer Policy
E. Refinement of the Relative Weight Calculation
1. Summary of RTI's Report on Charge Compression
2. RTI Recommendations
a. Short-Term Recommendations
b. Medium-Term Recommendations
c. Long-Term Recommendations
F. Hospital-Acquired Conditions, Including Infections
1. General
2. Legislative Requirement
3. Public Input
4. Collaborative Effort
5. Criteria for Selection of the Hospital-Acquired Conditions
6. Selection of Hospital-Acquired Conditions
7. Other Issues
G. Changes to Specific DRG Classifications
1. Pre-MDCs: Intestinal Transplantation
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Implantable Neurostimulators
b. Intracranial Stents
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and
Throat)--Cochlear Implants
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. Hip and Knee Replacements
b. Spinal Fusions
c. Spinal Disc Devices
d. Other Spinal DRGs
5. MDC 17 (Myeloproliferative Diseases and Disorders, Poorly
Differentiated Neoplasm): Endoscopic Procedures
6. Medicare Code Editor (MCE) Changes
a. Non-Covered Procedure Edit: Code 00.62 (Percutaneous
angioplasty or atherectomy of intracranial vessel(s))
b. Non-Specific Principal Diagnosis Edit 7 and Non-Specific O.R.
Procedures Edit 10
c. Limited Coverage Edit 17
d. Revision to Part 1, Pancreas Transplant Edit A
7. Surgical Hierarchies
8. CC Exclusions List
a. Background
b. CC Exclusions List for FY 2008
9. Review of Procedure Codes in CMS DRGs 468, 476, and 477
a. Moving Procedure Codes from CMS DRG 468 (MS-DRGs 981 through
983) or CMS DRG 477 (MS-DRGs 987 through 989) to MDCs
b. Reassignment of Procedures Among CMS DRGs 468, 476, and 477
(MS-DRGs 981 through 983, 984 through 986, and 987 through 989)
c. Adding Diagnosis or Procedure Codes to MDCs
10. Changes to the ICD-9-CM Coding System
11. Other DRG Issues Addressed in the FY 2008 IPPS Proposed Rule
a. Seizures and Headaches
b. Devices That are Replaced Without Cost or Where Credit for a
Replaced Device is Furnished to the Hospital
12. Other MS-DRG Issues Raised in the Public Comments on the
Proposed Rule
a. Heart Transplants or Implants of Heart Assist System and
Liver Transplants (Pre-MDC)
b. Gliadel[reg] Wafer (MDC 1)
c. Myasthenia Gravis and Acute and Chronic Inflammatory
Demyelinating Neuropathies (AIDP-CIDP) (MDC 1)
d. Peripheral and Spinal Neurostimulators (MDC 1 and MDC 8)
e. Stroke and Administration of Tissue Plasminogen Activator
(tPA) (MDC 1)
f. Gliasite[reg] Radiation Therapy System (RTS) (MDC 1)
g. Noninvasive Ventilation (MDC 4)
h. Heart Assist Devices (MDC 5)
i. Automatic Implantable Cardioverter-Defibrillators (ACID) Lead
and Generator Procedures (MDC 5)
j. Artificial Heart (MDC 5)
k. Vascular Procedures (MDC 5)
l. Coronary Artery Stents (MDC 5)
m. Endovascular Repair of Aortic and Thoracic Aneurysms (MDC 5)
n. O.R. Procedures for Obesity (MDC 10)
o. Penile Restorative Procedures (MDC 12)
p. Female Reproductive System Reconstruction Procedures (MDC 13)
q. Urological and Gynecological Disorders with Grafts or
Prosthesis (MDCs 13 and 14)
r. High Dose Interleukin-2 (HD-IL-2) (MDC 17)
s. Computer Assisted Surgery
13. Changes to MS-DRG Logic As a Result of Public Comments
H. Recalibration of DRG Weights
I. MS-LTC-DRG Reclassifications and Relative Weights for LTCHs
for FY 2008
1. Background
2. Changes in the LTC-DRG Classifications
a. Background
b. Patient Classifications into DRGs
3. Development of the FY 2008 MS-LTC-DRG Relative Weights
a. General Overview of Development of the MS-LTC-DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value Methodology
d. Treatment of Severity Levels in Developing Relative Weights
e. Low-Volume MS-LTC-DRGs
4. Steps for Determining the FY 2008 MS-LTC-DRG Relative Weights

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J. Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2008 Status of Technologies Approved for FY 2007 Add-On
Payments
a. Endovascular Graft Repair of the Thoracic Aorta
b. Restore[reg] Rechargeable Implantable Neurostimulators
c. X STOP Interspinous Process Decompression System
4. FY 2008 Application for New Technology Add-On Payments
5. Technical Correction
III. Changes to the Hospital Wage Index
A. Background
B. Core-Based Statistical Areas for the Hospital Wage Index
C. Occupational Mix Adjustment to the FY 2008 Wage Index
1. Development of Data for the FY 2008 Occupational Mix
Adjustment
2. Timeline for the Collection, Review, and Correction of the
Occupational Mix Data
3. Calculation of the Occupational Mix Adjustment for FY 2008
4. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index
D. Worksheet S-3 Wage Data for the FY 2008 Wage Index
1. Included Categories of Costs
2. Contract Labor for Indirect Patient Care Services
3. Excluded Categories of Costs
4. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals under the IPPS
E. Verification of Worksheet S-3 Wage Data
F. Wage Index for Multicampus Hospitals
G. Computation of the FY 2008 Unadjusted Wage Index
1. Method for Computing the FY 2008 Unadjusted Wage Index
2. Expiration of the Imputed Floor
3. CAHs Reverting Back to IPPS Hospitals and Raising the Rural
Floor
4. Application of Rural Floor Budget Neutrality
H. Analysis and Implementation of the Occupational Mix
Adjustment and the FY 2008 Occupational Mix Adjusted Wage Index
I. Revisions to the Wage Index Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2008 MGCRB Reclassifications
4. Hospitals That Applied for Reclassification Effective in FY
2008 and Reinstating Reclassifications in FY 2008
5. Clarification of Policy on Reinstating Reclassifications
6. ``Fallback'' Reclassifications
7. Geographic Reclassification Issues for Multicampus Hospitals
8. Redesignations of Hospitals under Section 1886(d)(8)(B) of
the Act
9. Reclassifications under Section 1886(d)(8)(B) of the Act
10. New England Deemed Counties
11. Reclassifications under Section 508 of Pub. L. 108-173
12. Other Issues
J. FY 2008 Wage Index Adjustment Based on Commuting Patterns of
Hospital Employees
K. Process for Requests for Wage Index Data Corrections
L. Labor-Related Share for the Wage Index for FY 2008
M. Wage Index Study Required under Pub. L. 109-432
N. Proxy for the Hospital Market Basket
IV. Other Decisions and Changes to the IPPS for Operating Costs and
GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
2. FY 2008 Quality Measures
3. New Quality Measures and Program Requirements for FY 2009 and
Subsequent Years
a. New Quality Measures for FY 2009 and Subsequent Years
b. Data Submission
4. Retiring or Replacing RHQDAPU Program Quality Measures
5. Procedures for the RHQDAPU Program for FY 2008 and FY 2009
a. Procedures for Participating in the RHQDAPU Program
b. Procedures for Participating in the RHQDAPU Program for FY
2009
c. Chart Validation Requirements
d. Data Validation and Attestation
e. Public Display
f. Reconsideration and Appeal Procedures
g. RHQDAPU Program Withdrawal Requirements
6. Electronic Medical Records
7. New Hospitals
B. Development of the Medicare Hospital Value-Based Purchasing
Plan
C. Rural Referral Centers (RRCs)
1. Annual Update of RRC Status Criteria
a. Case-Mix Index
b. Discharges
2. Acquired Rural Status of RRCs
D. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2008
3. Time Spent by Residents on Vacation or Sick Leave and in
Orientation
a. Background
b. Vacation and Sick Leave Time
c. Orientation Activities
d. Regulation Changes
E. Payments to Disproportionate Share Hospitals (DSHs):
Technical Correction
1. Background
2. Technical Correction: Inclusion of Medicare Advantage Days in
the Medicare Fraction of the Medicare DSH Calculation
F. Hospital Emergency Services under EMTALA
1. Background
2. Recent Legislation Affecting EMTALA Implementation
a. Secretary's Authority to Waive Requirements During National
Emergencies
b. Provisions of the Pandemic and All-Hazards Preparedness Act
c. Revisions to the EMTALA Regulations
G. Disclosure of Physician Ownership in Hospitals and Patient
Safety Measures
1. Disclosure of Physician Ownership in Hospitals
2. Patient Safety Measures
H. Rural Community Hospital Demonstration Program
V. Changes to the IPPS for Capital-Related Costs
A. Background
B. Policy Change
VI. Changes for Hospitals and Hospital Units Excluded from the IPPS
A. Payments to Existing and New Excluded Hospitals and Hospital
Units
B. Separate PPS for IRFs
C. Separate PPS for LTCHs
D. Separate PPS for IPFs
E. Determining LTCH Cost-to-Charge Ratios (CCRs) under the LTCH
PPS
F. Report of Adjustment (Exceptions) Payments
VII. Services Furnished to Beneficiaries in Custody of Penal
Authorities
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
C. Waiver of Notice of Proposed Rulemaking

Regulation Text

Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-
of-Increase Percentages Effective With Cost Reporting Periods Beginning
On or After October 1, 2007

I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient
Operating Costs for FY 2008
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. Imputed Rural Floor--Budget Neutrality Adjustment
d. Case-Mix Budget Neutrality Adjustment
e. Outliers
f. Rural Community Hospital Demonstration Program Adjustment
(Section 410A of Pub. L. 108-173)
5. FY 2008 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 the Prospective Payment Rates
1. Federal Rate
2. Hospital Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital Specific Rate

[[Page 47134]]

b. Updating the FY 1982, FY 1987, FY 1996, and FY 2002 Hospital
Specific Rates for FY 2008
3. General Formula for Calculation of Prospective Payment Rates
for Hospitals Located in Puerto Rico Beginning On or After October
1, 2007 and Before October 1, 200
a. Puerto Rico Rate
b. National Rate
III. Changes to Payment Rates for Acute Care Hospital Inpatient
Capital-Related Costs for FY 2008
A. Determination of Federal Hospital Inpatient Capital Related
Prospective Payment Rate Update
1. Projected Capital Standard Federal Rate Update
a. Description of the Update Framework
b. MedPAC Update Recommendation
2. Outlier Payment Adjustment Factor
3. Budget Neutrality Adjustment Factor for Changes in DRG
Classifications and Weights and the GAF
4. Exceptions Payment Adjustment Factor
5. Capital Standard Federal Rate for FY 2008
6. Special Capital Rate for Puerto Rico Hospitals
B. Calculation of the Inpatient Capital-Related Prospective
Payments for FY 2008
C. Capital Input Price Index
1. Background
2. Forecast of the CIPI for FY 2008
IV. Changes to Payment Rates for Excluded Hospitals and Hospital
Units: Rate-of-Increase Percentages
V. 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 2006; Hospital Wage Indexes for Federal Fiscal
Year 2008; Hospital Average Hourly Wages for Federal Fiscal Years
2006 (2002 Wage Data), 2007 (2003 Wage Data), and 2008 (2004 Wage
Data); and 3-Year Average of Hospital Average Hourly Wages
Table 3A--FY 2008 and 3-Year Average Hourly Wage for Urban Areas
by CBSA
Table 3B--FY 2008 and 3-Year Average Hourly Wage for Rural Areas
by CBSA
Table 4A--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Urban Areas by CBSA--FY 2008
Table 4B--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Rural Areas by CBSA--FY 2008
Table 4C--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Hospitals That Are Reclassified by CBSA--FY 2008
Table 4F--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) by CBSA--FY 2008
Table 4J--Out-Migration Wage Adjustment--FY 2008
Table 5--List of Medicare Severity Diagnosis-Related Groups (MS-
DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean
Length of Stay
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 6I--Complete List of Complication and Comorbidity (CC)
Exclusions
(Available only through the Internet on the CMS Web site at:
http://www.cms.hhs.gov / AcuteInpatientPPS/)
Table 7A--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2006 MedPAR Update--March 2007
GROUPER V24.0 CMS DRGs
Table 7B--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2006 MedPAR Update--March 2007
GROUPER V25.0 CMS DRGs
Table 8A--Statewide Average Operating Cost-to-Charge Ratios--
July 2007
Table 8B--Statewide Average Capital Cost-to-Charge Ratios--July
2007
Table 8C--Statewide Average Total Cost-to-Charge Ratios for
LTCHs--July 2007
Table 9A--Hospital Reclassifications and Redesignations--FY 2008
Table 9C--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act--FY 2008
Table 10--Geometric Mean Plus the Lesser of .75 of the National
Adjusted Operating Standardized Payment Amount (Increased to Reflect
the Difference Between Costs and Charges) or .75 of One Standard
Deviation of Mean Charges by Medicare Severity Diagnosis-Related
Groups (MS-DRGs)--July 2007
Table 11--FY 2008 MS-LTC-DRGs, Relative Weights, Geometric
Average Length of Stay, Short-Stay Outlier Threshold, and IPPS
Comparable Threshold

Appendix A--Regulatory Impact Analysis

I. Overall Impact
II. Objectives
III. Limitations on Our Analysis
IV. Hospitals Included In and Excluded From the IPPS
V. Effects on Excluded Hospitals and Hospital Units
VI. Quantitative Effects of the Policy Changes Under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Changes to the DRG Reclassifications and
Relative Cost-Based Weights (Column 2)
D. Effects of Wage Index Changes (Column 3)
E. Combined Effects of DRG and Wage Index Changes (Column 4)
F. Effects of the Expiration of the 3-Year Provision Allowing
Urban Hospitals That Were Converted to Rural as a Result of the FY
2005 Labor Market Area Changes to Maintain the Wage Index of the
Urban Labor Market Area in Which They Were Formerly Located (Column
5)
G. Effects of MGCRB Reclassifications (Column 6)
H. Effects of the Adjustment to the Application of the Rural
Floor (Column 7)
I. Effects of Application of the Imputed Floor (Column 8)
J. Effects of the Expiration of Section 508 of Pub. L. 108-173
(Column 9)
K. Effects of the Wage Index Adjustment for Out-Migration
(Column 10)
L. Effects of All Changes with CMI Adjustment Prior to Estimated
Growth (Column 11)
M. Effects of All Changes with CMI Adjustment and Assumed
Estimated (Column 12)
N. Effects of Policy on Payment Adjustments for Low-Volume
Hospitals
O. Impact Analysis of Table II
VII. Effects of Other Policy Changes
A. Effects of Policy on Hospital-Acquired Conditions, Including
Infections
B. Effects of MS-LTC-DRG Reclassifications and Relative Weights
for LTCHs
C. Effects of New Technology Add-On Payments
D. Effects of Requirements for Hospital Reporting of Quality
Data for Annual Hospital Payment Update
E. Effects of Policy on Cancellation of Classification of
Acquired Rural Status and Rural Referral Centers
F. Effects of Policy Change on Payment for IME and Direct GME
G. Effects of Policy Changes Relating to Emergency Services
under EMTALA During an Emergency Period
H. Effects of Policy on Disclosure of Physician Ownership in
Hospitals and Patient Safety Measures
I. Effects of Implementation of the Rural Community Hospital
Demonstration Program
J. Effects of Policy Changes on Services Furnished to
Beneficiaries in Custody of Penal Authorities
VIII. Impact of Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Alternatives Considered
X. Overall Conclusion
XI. Accounting Statement
XII. Executive Order 12866

Appendix B--Recommendation of Update Factors for Operating Cost Rates
of Payment for Inpatient Hospital Services

I. Background
II. Inpatient Hospital Update for FY 2008
III. Secretary's Final Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare

[[Page 47135]]

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 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, FY 1996, or FY 2002) 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. (Until FY 2007,
an MDH has received the IPPS rate plus 50 percent of the difference
between the IPPS rate and its hospital-specific rate 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. As discussed below, for discharges occurring on or after
October 1, 2007, but before October 1, 2011, an MDH will receive the
IPPS rate plus 75 percent of the difference between the IPPS rate and
its hospital-specific rate, if the hospital-specific rate is higher
than the IPPS 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 IPPS, payments are adjusted by the same DRG for the case as
they are under the operating IPPS. Capital IPPS payments are also
adjusted for IME and DSH, similar to the adjustments made under the
operating IPPS. In addition, hospitals may receive outlier payments for
those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the
IPPS are located in 42 CFR Part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded from the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain
specialty hospitals and hospital units are excluded from the IPPS.
These hospitals and units are: rehabilitation hospitals and units;
long-term care hospitals (LTCHs); psychiatric hospitals and units;
children's hospitals; and cancer hospitals. Religious nonmedical health
care institutions (RNHCIs) are also excluded from the IPPS. Various
sections of the Balanced Budget Act of 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)), LTCHs, and psychiatric hospitals and
units (referred to as inpatient psychiatric facilities (IPFs)), as
discussed below. Children's hospitals, cancer hospitals, and RNHCIs
continue to be paid solely under a reasonable cost-based system.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR Parts 412 and 413.
a. Inpatient Rehabilitation Facilities (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
on or after 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. IRFs subject to the blend were
also permitted to elect payment based on 100 percent of the Federal
rate. The existing regulations governing payments under the IRF PPS are
located in 42 CFR Part 412, Subpart P.
b. Long-Term Care Hospitals (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, the LTCH PPS was effective
for a LTCH's first cost reporting period beginning on or after October
1, 2002. LTCHs that do not meet the definition of ``new'' under Sec.
412.23(e)(4) are paid, during a 5-year

[[Page 47136]]

transition period, a LTCH prospective payment that is comprised of an
increasing proportion of the LTCH Federal rate and a decreasing
proportion based on reasonable cost principles. Those LTCHs that did
not meet the definition of ``new'' under Sec. 412.23(e)(4) could elect
to be paid based on 100 percent of the Federal prospective payment rate
instead of a blended payment in any year during the 5-year transition.
For cost reporting periods beginning on or after October 1, 2006, all
LTCHs are paid 100 percent of the Federal rate. The existing
regulations governing payment under the LTCH PPS are located in 42 CFR
Part 412, Subpart O.
c. Inpatient Psychiatric Facilities (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 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. For cost
reporting periods beginning on or after January 1, 2008, all 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 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 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.

B. Provisions of the Deficit Reduction Act of 2005 (DRA)

The Deficit Reduction Act of 2005 (DRA), Pub. L. 109-171, made a
number of changes to the Act relating to prospective payments to
hospitals and other providers for inpatient services. The final rule
implements amendments made by (1) section 5001(a), which, effective for
FY 2007 and subsequent years, expands the requirements for hospital
quality data reporting; and (2) section 5001(c), which requires the
Secretary to select, by October 1, 2007, at least two hospital-acquired
conditions that meet certain specified criteria that will be subject to
a quality adjustment in DRG payments during FY 2008.
In this final rule with comment period, we also discuss our
development of a plan to implement, beginning with FY 2009, a value-
based purchasing plan for section 1886(d) hospitals, in accordance with
the requirements of section 5001(b) of Pub. L. 109-171.

C. Provisions of the Medicare Improvements and Extension Act under
Division B, Title I of the Tax Relief and Health Care Act of 2006

In this final rule with comment period, we discuss the provisions
of section 106(b)(1) of the Medicare Improvements and Extensions Act
under Division B, Title I of the Tax Relief and Health Care Act of 2006
(MIEA-TRHCA), Pub. L. 109-432, which requires MedPAC to submit to
Congress, not later than June 30, 2007, a report on the Medicare wage
index classification system applied under the Medicare Prospective
Payment System. Section 106(b) of the MIEA-TRHCA requires the report to
include any alternatives that MedPAC recommends to the method to
compute the wage index under section 1886(d)(3)(E) of the Act.
In addition, we discuss the provisions of section 106(b)(2) of the
MIEA-TRHCA, which instructs the Secretary of Health and Human Services,
taking into account MedPAC's recommendations on the Medicare wage index
classification system, to include in the FY 2009 IPPS proposed rule one
or more proposals to revise the wage index adjustment applied under
section 1886(d)(3)(E) of the Act for purposes of the IPPS.
We note that we published a notice in the Federal Register on March
23, 2007 (72 FR 13799) that addressed the provisions of section 106(a)
of the MIEA-TRHCA relating to the extension of geographic
reclassifications of hospitals under section 508 of Pub. L. 108-173
(that expired on March 31, 2007) through September 30, 2007.

D. Provisions of the Pandemic and All-Hazards Preparedness Act

On December 19, 2006, Congress enacted the Pandemic and All-Hazards
Preparedness Act, Pub. L. 109-417. Section 302(b) of Pub. L. 109-417
makes two specific changes that affect EMTALA implementation in
emergency areas during an emergency period. Specifically section
302(b)(1)(A) of Pub. L. 109-417 amended section 1135(b)(3)(B) of the
Act to state that sanctions may be waived for the direction or
relocation of an individual for screening where, in the case of a
public health emergency that involves a pandemic infectious disease,
that direction or relocation occurs pursuant to a State pandemic
preparedness plan. In addition, sections 302(b)(1)(B) and (b)(1)(C) of
Pub. L. 109-417 amended section 1135(b)(3)(B) of the Act to state that,
if a public health emergency involves a pandemic infectious disease
(such as pandemic influenza) the duration of a waiver or modification
under section 1135(b)(3) of the Act (relating to EMTALA) shall be
determined in accordance with section 1135(e) of the Act as that
subsection applies to public health emergencies.
In this final rule with comment period, we are making changes to
the EMTALA regulations to conform them to the sanction waiver
provisions of section 302(b) of Pub. L. 109-417.

E. Issuance of a Notice of Proposed Rulemaking

On May 3, 2007, we issued in the Federal Register (72 FR 24680) a
notice of proposed rulemaking that set forth proposed changes to the
Medicare IPPS for operating costs and for capital-related costs in FY
2008. We also set forth proposed changes relating to payments for GME
and IME costs and payments to certain hospitals and units that continue
to be excluded from the IPPS and paid on a reasonable cost basis that
would be effective for discharges occurring on or after October 1,
2007. Below is a summary of the major changes that we proposed to make:
1. DRG Reclassifications and Recalibrations of Relative Weights
We proposed to adopt a Medicare Severity DRG (MS-DRG)
classification system for the IPPS to better recognize severity of
illness. We presented the methodology we used to establish the MS-DRGs
and discussed our efforts to

[[Page 47137]]

further analyze alternative severity-adjusted DRG systems and to refine
the relative weight calculations for DRGs.
We presented a proposed listing and discussion of hospital-acquired
conditions, including infections, which were evaluated and proposed to
be subject to the statutorily required quality adjustment in DRG
payments for FY 2008.
We proposed limited annual revisions to the DRG classification
system in the following areas: Intestinal transplants,
neurostimulators, intracranial stents, cochlear implants, knee and hip
replacements, spinal fusions and spinal disc devices, and endoscopic
procedures.
We presented our reevaluation of certain FY 2007 applicants for
add-on payments for high-cost new medical services and technologies,
and our analysis of the FY 2008 applicant (including public input, as
directed by Pub. L. 108-173, obtained in a town hall meeting).
We proposed 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 2008. We proposed that the LTC-DRGs would be
revised to mirror the proposed MS-DRGs for the IPPS.
2. Proposed Changes to the Hospital Wage Index
In section III. of the preamble to the proposed rule, we proposed
revisions to the wage index and the annual update of the wage data.
Specific issues addressed included the following:
The FY 2008 wage index update, using wage data from cost
reporting periods that began during FY 2004.
Analysis and implementation of the proposed FY 2008
occupational mix adjustment to the wage index.
Proposed changes relating to expiration of the imputed
rural floor for the wage index and application of budget neutrality for
the rural floor.
Proposed changes in the determination of the wage index
for multicampus hospitals.
The proposed revisions to the wage index based on hospital
redesignations and reclassifications, including reclassifications for
multicampus hospitals.
The proposed adjustment to the wage index for FY 2008
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 were in effect for the FY 2008 wage index.
The labor-related share for the FY 2008 wage index,
including the labor-related share for Puerto Rico.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble to the proposed rule, we discussed a
number of the provisions of the regulations in 42 CFR Parts 412, 413,
and 489, including the following:
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Development of the Medicare value-based purchasing plan
and reports on the ``listening sessions'' held.
The proposed updated national and regional case-mix values
and discharges for purposes of determining RRC status and a proposed
policy change relating to the acquired rural status of RRCs.
The statutorily-required IME adjustment factor for FY 2008
and a proposed policy change relating to determining counts of
residents on vacation or sick leave and in orientation for IME and
direct GME purposes.
Proposed changes relating to the waiver of sanctions for
requirements for emergency services for hospitals under EMTALA during
national emergencies.
Proposed policy changes relating to the disclosure to
patients of physician ownership of hospitals and patient safety
measures.
Discussion of the fourth year of implementation of the
Rural Community Hospital Demonstration Program.
4. Proposed Changes to the IPPS for Capital-Related Costs
In section V. of the preamble to the proposed rule, we discussed
the payment policy requirements for capital-related costs and capital
payments to hospitals and proposed changes relating to adjustments to
the Federal capital rate to address continuous large positive margins.
5. Proposed Changes to the Payment Rates for Excluded Hospitals and
Hospital Units: Rate-of-Increase Percentages
In section VI. of the preamble to the proposed rule, we discussed
payments to excluded hospitals and hospital units, and proposed changes
for determining LTCH CCRs under the LTCH PPS.
6. Services Furnished to Beneficiaries in Custody of Penal Authorities
In section VII. of the preamble to the proposed rule, we clarified
when individuals are considered to be in ``custody'' for purposes of
Medicare payment for services furnished to beneficiaries who are under
penal authorities.
7. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits
In the Addendum to the proposed rule, we set forth proposed changes
to the amounts and factors for determining the FY 2008 prospective
payment rates for operating costs and capital-related costs. We also
established the proposed threshold amounts for outlier cases. In
addition, we addressed the proposed update factors for determining the
rate-of-increase limits for cost reporting periods beginning in FY 2008
for hospitals and hospital units excluded from the PPS.
8. Impact Analysis
In Appendix A of the proposed rule, we set forth an analysis of the
impact that the proposed changes would have on affected hospitals.
9. Recommendation of Update Factors for Operating Cost Rates of Payment
for Inpatient Hospital Services
In Appendix B of the proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2008 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.
10. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a
report to Congress, no later than March 1 of each year, in which MedPAC
reviews and makes recommendations on Medicare payment policies.
MedPAC's March 2007 recommendations concerning hospital inpatient
payment policies addressed 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. We
addressed these recommendations in Appendix B of the proposed rule. For
further information relating specifically to the MedPAC March 2007
reports or to obtain a copy of the reports, contact

[[Page 47138]]

MedPAC at (202) 220-3700 or visit MedPAC's Web site at: www.medpac.gov.

F. Public Comments Received on the Proposed Rule

We received approximately 900 timely pieces of correspondence in
response to the FY 2008 IPPS proposed rule issued in the Federal
Register on May 3, 2007. These public comments addressed issues on
multiple topics in the proposed rule. We present a summary of the
public comments and our responses to them in the applicable subject
matter sections of this final rule with comment period.

II. 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.

B. DRG Reclassifications

1. General
As discussed in the preamble to the FY 2007 IPPS final rule (71 FR
47881 through 47971), we are focusing our efforts in FY 2008 on making
significant reforms to the IPPS consistent with the recommendations
made by MedPAC in its ``Report to the Congress, Physician-Owned
Specialty Hospitals'' in March 2005. MedPAC recommended that the
Secretary refine the entire DRG system by taking into account severity
of illness and applying hospital-specific relative value (HSRV) weights
to DRGs.\1\ We began this reform process by adopting cost-based weights
over a 3-year transition period beginning in FY 2007 and making interim
changes to the DRG system for FY 2007 by creating 20 new CMS DRGs and
modifying 32 others across 13 different clinical areas involving nearly
1.7 million cases. As described below in more detail, these refinements
were intermediate steps towards comprehensive reform of both the
relative weights and the DRG system that is occurring as we undertook
further study.
---------------------------------------------------------------------------

\1\ Medicare Payment Advisory Commission: Report to the
Congress, Physician-Owned Specialty Hospitals, March 2005, page
viii.
---------------------------------------------------------------------------

Currently, cases are classified into CMS 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 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 to ensure that the DRGs would be clinically
coherent. The diagnoses in each MDC correspond to a single organ system
or etiology and, in general, are associated with a particular medical
specialty. Thus, in order to maintain the requirement of clinical
coherence, no final 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 2007, cases are assigned to one of 538 DRGs in
25 MDCs. The table below lists the 25 MDCs.

Major Diagnostic Categories
[MDCs]
------------------------------------------------------------------------

------------------------------------------------------------------------
1............................ Diseases and Disorders of the Nervous
System.
2............................ Diseases and Disorders of the Eye.
3............................ Diseases and Disorders of the Ear, Nose,
Mouth, and Throat.
4............................ Diseases and Disorders of the Respiratory
System.
5............................ Diseases and Disorders of the Circulatory
System.
6............................ Diseases and Disorders of the Digestive
System.
7............................ Diseases and Disorders of the
Hepatobiliary System and Pancreas.
8............................ Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue.
9............................ Diseases and Disorders of the Skin,
Subcutaneous Tissue and Breast.
10........................... Endocrine, Nutritional and Metabolic
Diseases and Disorders.
11........................... Diseases and Disorders of the Kidney and
Urinary Tract.
12........................... Diseases and Disorders of the Male
Reproductive System.
13........................... Diseases and Disorders of the Female
Reproductive System.
14........................... Pregnancy, Childbirth, and the
Puerperium.
15........................... Newborns and Other Neonates with
Conditions Originating in the Perinatal
Period.
16........................... Diseases and Disorders of the Blood and
Blood Forming Organs and Immunological
Disorders.
17........................... Myeloproliferative Diseases and Disorders
and Poorly Differentiated Neoplasms.
18........................... Infectious and Parasitic Diseases
(Systemic or Unspecified Sites).
19........................... Mental Diseases and Disorders.
20........................... Alcohol/Drug Use and Alcohol/Drug Induced
Organic Mental Disorders.

[[Page 47139]]

21........................... Injuries, Poisonings, and Toxic Effects
of Drugs.
22........................... Burns.
23........................... Factors Influencing Health Status and
Other Contacts with Health Services.
24........................... Multiple Significant Trauma.
25........................... Human Immunodeficiency Virus Infections.
------------------------------------------------------------------------

In general, cases are assigned to an MDC based on the patient's
principal diagnosis before assignment to a DRG. However, under the most
recent version of the CMS GROUPER (Version 24.0), there are 9 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 transplants,
lung transplants, simultaneous pancreas/kidney transplants, pancreas
transplants, and for tracheostomies. Cases are assigned to these DRGs
before they are classified to an MDC. The table below lists the nine
current pre-MDCs.

Pre-Major Diagnostic Categories
[Pre-MDCs]
------------------------------------------------------------------------

------------------------------------------------------------------------
DRG 103...................... Heart Transplant or Implant of Heart
Assist System.
DRG 480...................... Liver Transplant and/or Intestinal
Transplant.
DRG 481...................... Bone Marrow Transplant.
DRG 482...................... Tracheostomy for Face, Mouth, and Neck
Diagnoses.
DRG 495...................... Lung Transplant.
DRG 512...................... Simultaneous Pancreas/Kidney Transplant.
DRG 513...................... Pancreas Transplant.
DRG 541...................... ECMO or Tracheostomy with Mechanical
Ventilation 96+ Hours or Principal
Diagnosis Except for Face, Mouth, and
Neck Diagnosis with Major O.R.
DRG 542...................... Tracheostomy with Mechanical Ventilation
96+ Hours or Principal Diagnosis Except
for Face, Mouth, and Neck Diagnosis
without Major O.R.
------------------------------------------------------------------------

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. Because the presence
of a surgical procedure that required the use of the operating room
would have a significant effect on the type of hospital resources used
by a patient, most MDCs were initially divided into surgical DRGs and
medical DRGs. Surgical DRGs are based on a hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. Medical DRGs generally are differentiated on the
basis of diagnosis and age (0 to 17 years of age or greater than 17
years of age). Some surgical and medical DRGs are further
differentiated based on the presence or absence of a complication or
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. An example is
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
diagnosis class 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 CC. A
substantial CC 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 CC would consistently
affect the consumption of hospital resources.
A patient's diagnosis, procedure, discharge status, and demographic
information is entered into the Medicare claims processing systems and
subjected to a series of automated screens called the Medicare Code
Editor (MCE). The MCE screens are designed to identify cases that
require further review before classification into 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 payment 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 payment 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 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 FY 2000
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

[[Page 47140]]

date 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.
As we proposed in the FY 2008 IPPS proposed rule, for FY 2008, we
are adopting significant changes to the current DRGs. As described in
detail below, we proposed significant improvement in the DRG system to
recognize severity of illness and resource usage by proposing to adopt
Medicare Severity DRGs (MS-DRGs). The changes we proposed (and are
adopting in this final rule with comment period) will be reflected in
the FY 2008 GROUPER, Version 25.0, and will be effective for discharges
occurring on or after October 1, 2007. As noted in the proposed rule,
our DRG analysis was based on data from the December 2006 update of the
FY 2006 MedPAR file, which contained hospital bills received through
December 31, 2006, for discharges occurring in FY 2006. For this final
rule with comment period, our analysis is based on more recent data
from the March 2007 update of the FY 2006 MedPAR file, which contains
hospital bills received through March 31, 2007, for discharges
occurring in FY 2006.
2. Yearly Review for Making DRG Changes
Many of the changes to the DRG classifications we make annually are
the result of specific issues brought to our attention by interested
parties. As we indicated in the proposed rule, 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 annual proposed rule and, if included, may be
subjected to public review and comment. Therefore, similar to the
timetable for interested parties to submit non MedPAR data for
consideration in the 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 actual process of forming the DRGs was, and will likely
continue to be, highly iterative, involving a combination of
statistical results from test data combined with clinical judgment. We
describe in detail below the process we used to develop the MS-DRGs
that we proposed and are adopting in this final rule with comment
period. In addition, in deciding whether to make further modification
to the MS-DRGs for particular circumstances brought to our attention,
we considered whether the resource consumption and clinical
characteristics of the patients with a given set of conditions are
significantly different than the remaining patients in the MS-DRG. We
evaluated patient care costs using average charges and lengths of stay
as proxies for costs and relied on the judgment of our medical advisors
to decide whether patients are clinically distinct or similar to other
patients in the MS-DRG. In evaluating resource costs, we considered
both the absolute and percentage differences in average charges between
the cases we selected for review and the remainder of cases in the MS-
DRG. We also considered variation in charges within these groups; that
is, whether observed average differences were consistent across
patients or attributable to cases that were extreme in terms of charges
or length of stay, or both. Further, we considered the number of
patients who will have a given set of characteristics and generally
preferred not to create a new DRG unless it would include a substantial
number of cases.

C. MedPAC Recommendations for Revisions to the IPPS DRG System

In the FY 2006 and FY 2007 IPPS final rules, we discussed a number
of recommendations made by MedPAC regarding revisions to the DRG system
used under the IPPS (70 FR 47473 through 47482 and 71 FR 47881 through
47939).
In Recommendations 1-3 in the 2005 Report to Congress on Physician
Owned Specialty Hospitals, MedPAC recommended that CMS:
Refine the current DRGs to more fully capture differences
in severity of illness among patients.
Base the DRG relative weights on the estimated cost of
providing care.
Base the weights on the national average of the hospital-
specific relative values (HSRVs) for each DRG (using hospital-specific
costs to derive the HSRVs).
Adjust the DRG relative weights to account for differences
in the prevalence of high-cost outlier cases.
Implement the case-mix measurement and outlier policies
over a transitional period.
As we noted in the FY 2006 IPPS final rule, we had insufficient
time to complete a thorough evaluation of these recommendations for
full implementation in FY 2006. However, we did adopt severity-weighted
cardiac DRGs in FY 2006 to address public comments on this issue and
the specific concerns of MedPAC regarding cardiac surgery DRGs. We also
indicated that we planned to further consider all of MedPAC's
recommendations and thoroughly analyze options and their impacts on the
various types of hospitals in the FY 2007 IPPS proposed rule.
For FY 2007, we began this process. In the FY 2007 IPPS proposed
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY
2008 (if not earlier). However, based on public comments received on
the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs.
Rather, we decided to make interim changes to the existing DRGs for FY
2007 by creating 20 new DRGs involving 13 different clinical areas that
would significantly improve the CMS DRG system's recognition of
severity of illness. We also modified 32 DRGs to better capture
differences in severity. The new and revised DRGs were selected from 40
existing CMS DRGs that contained 1,666,476 cases and represent a number
of body systems. In creating these 20 new DRGs, we deleted 8 and
modified 32 existing DRGs. We indicated that these interim steps for FY
2007 were being taken as a prelude to more comprehensive changes to
better account for severity in the DRG system by FY 2008. In the FY
2007 IPPS final rule, we indicated our intent to pursue further DRG
reform through two initiatives. First, we announced that we were in the
process of engaging a contractor to assist us with evaluating
alternative DRG systems that were raised as potential alternatives to
the CS DRGs in the public comments. Second, we indicated our intent to
review over 13,000 ICD-9-CM diagnosis codes as part of making further
refinements to the current CMS DRGs to better recognize severity of
illness based on the work that CMS (then HCFA) did in the mid-1990's to
adopt severity DRGs. We describe in detail below the progress we have
made on these two initiatives, our actions for FY 2008, and our plans
for continued analysis of reform of the DRG system for FY 2009. We note
that revising the DRGs to better recognize severity of illness has
implications for the outlier threshold, the application of the
postacute care transfer policy, the measurement of real case-mix versus
apparent case-mix, and the IME and DSH payment adjustments. We discuss
these implications in more detail in the following sections.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's
recommendations to move to a cost-based HSRV weighting methodology
beginning with the FY 2007 IPPS

[[Page 47141]]

proposed rule. Although we proposed to adopt HSRV weights for FY 2007,
we decided not to adopt the proposed methodology in the final rule
after considering the public comments we received on the proposal.
Instead, in the FY 2007 IPPS final rule, we adopted a cost-based
weighting methodology without the hospital-specific portion of the
methodology. The cost-based weights are being adopted over a 3-year
transition period in \1/3\ increments between FY 2007 and FY 2009. In
addition, in the FY 2007 IPPS final rule, we indicated our intent to
further study the hospital-specific methodology as well as other issues
brought to our attention with respect to the cost-based weights. There
was significant concern in the public comments that we account for
charge compression--the practice of applying a higher charge markup
over costs to lower cost than higher cost items and services--if we are
to develop relative weights based on cost. Further, public commenters
expressed concern about potential inconsistencies between how costs and
charges are reported on the Medicare cost reports and charges on the
Medicare claims. In the FY 2007 IPPS final rule, we used costs and
charges from the cost report to determine departmental level cost-to-
charge ratios (CCRs) to apply to charges on the Medicare claims to
determine the cost-based weights. The commenters were concerned about
potential distortions to the cost-based weights that would result from
inconsistent reporting between the cost reports and the Medicare
claims. After publication of the FY 2007 IPPS final rule, we entered
into a contract with RTI International to study both charge compression
and to what extent our methodology for calculating DRG relative weights
is affected by inconsistencies between how hospitals report costs and
charges on the cost report and how hospitals report charges on
individual claims. Further, as part of its study of alternative DRG
systems, the RAND Corporation is analyzing the HSRV cost-weighting
methodology.
As we present below, we believe that revisions to the DRG system to
better recognize severity of illness and changes to the relative
weights based on costs rather than charges are improving the accuracy
of the payment rates in the IPPS. We agree with MedPAC that these
refinements should be pursued. Although we continue to caution that any
system that groups cases will always present some opportunities for
providers to specialize in cases they believe to have higher margins,
we believe that the changes we have adopted and the continuing reforms
we proposed, and are adopting in this final rule with comment period,
for FY 2008 will improve payment accuracy and reduce financial
incentives to create specialty hospitals.

D. Refinement of DRGs Based on Severity of Illness

For purposes of the following discussions, the term ``CMS DRGs''
means the DRG system we currently use under the IPPS; the term
``Medicare-Severity DRGs (MS-DRGs)'' means the revisions that we
proposed to make (and are adopting in this final rule with comment
period) to the current CMS DRGs to better recognize severity of illness
and resource use based on case complexity. Although we have found the
terms ``CMS DRGs'' and ``MS-DRGs'' useful to distinguish the current
DRG system from the DRGs that we proposed to adopt for FY 2008, we
invited public comments on how to best refer to both the current DRGs
and the proposed DRGs to avoid confusion and improve clarity.
Comment: One commenter responded to our request for name
suggestions for the new DRG system. The commenter agreed that the name
should differentiate which DRG scheme is being referenced. The
commenter did not provide an alternative suggestion.
Response: We agree with the importance of being able to
differentiate between the current and the revised DRG system. We
believe the name ``Medicare Severity DRGs (MS-DRGs)'' is an appropriate
name for this revised system. Therefore, we are adopting as final our
reference to the revised DRG system as the ``Medicare Severity DRGs (MS
DRGs).''
1. Evaluation of Alternative Severity-Adjusted DRG Systems
In the FY 2007 IPPS final rule, we stated our intent to engage a
contractor to assist us with an evaluation of alternative DRG systems
that may better recognize severity than the current CMS DRGs. We noted
it was possible that some of the alternative systems would better
recognize severity of illness and are based on the current CMS DRGs. We
further stated that if we were to develop a clinical severity concept
using the current CMS DRGs as the starting point, it was possible that
several of the issues raised by commenters (in response to the CS DRGs,
which, in the FY 2007 IPPS proposed rule, we proposed to adopt for FY
2008 or earlier) would no longer be a concern. We noted that if we were
to propose adoption of severity DRGs for FY 2008, we would consider the
issues raised by commenters on last year's proposed rule as we
continued to make further refinements to account for complexity as well
as severity to better reflect relative resource use. We stated that we
believed it was likely that at least one of several alternative
severity-adjusted DRG systems suggested for review (or potentially a
system we would develop ourselves) would be suitable to achieve our
goal of improving payment accuracy beginning in FY 2008.
On September 1, 2006, we awarded a contract to the RAND Corporation
to perform an evaluation of alternative severity-adjusted DRG
classification systems. RAND is evaluating several alternative DRG
systems based on how well they are suited to classifying and making
payments for hospital inpatient services provided to Medicare patients.
Each system is being assessed on its ability to differentiate among
severity of illness. A final report is due on or before September 1,
2007.
RAND's draft interim report focused on the following criteria:
Severity-adjusted DRG classification systems.
How well does each classification system explain
variation in resource use?
How would the classification system affect a hospital's
patient mix?
Are the groupings manageable, administratively feasible
and understandable?
Payment accuracy--What are the payment implications of
selected models?
In response to our request, several vendors of DRG systems
submitted their products for evaluation. The following products were
evaluated by RAND:

3M/Health Information Systems (HIS)

CMS DRGs modified for AP-DRG Logic (CMS+AP-DRGs)
Consolidated Severity-Adjusted DRGs (CS DRGs)

Health Systems Consultants (HSC)

Refined DRGs (HSC-DRGs)

HSS/Ingenix

All-Payer Severity DRGs with Medicare modifications (MM-
APS-DRGs)

Solucient

Solucient Refined DRGs (Sol-DRGs)

Vendors submitted their commercial (off-the-shelf) software to RAND
in late September 2006. The five systems were compared to the CMS DRGs
that were in effect as of October 1, 2006 (FY 2007). RAND assigned FY
2004 and FY 2005 Medicare discharges from acute care hospitals to the
FY 2007 CMS DRGs and

[[Page 47142]]

to each of the alternative severity-adjusted DRG systems. RAND's
initial analysis provided an overview of each alternative DRG
classification system, their comparative performance in explaining
variation in resource use, differences in DRG grouping logic, and case
mix change.
A Technical Expert Panel comprised of individuals representing
academic institutions, hospital associations, and MedPAC was formed in
October 2006. The members received the preliminary draft report of
RAND's alternative severity-adjusted DRG systems evaluation in early
January 2007. The panel met with RAND and CMS on January 18, 2007, to
discuss the preliminary draft report and to provide additional
comments. RAND incorporated items raised by the panel into its
preliminary draft report and submitted a revised interim report to CMS
in mid-March 2007. CMS posted RAND's interim report on the CMS Web site
in late March 2007. Interested individuals can view RAND's interim
report on the CMS Web site at: http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292. The report may also be viewed on
RAND's Web site at http://www.rand.org/pubs/online/health.
At this time, RAND has completed its evaluation of the alternative
severity adjusted DRG systems. RAND's interim report reflects its
evaluation of five alternative DRG systems using the criteria described
above. Since the proposed rule, RAND evaluated the Medicare Severity
DRG (MS-DRG) system using the same criteria applied to the other DRG
systems. We are continuing to work with RAND to evaluate alternate
methodologies for establishing relative weights using the MS-DRGs. Once
RAND completes its work on the alternate methodologies for establishing
relative weights, we will be in a better position to evaluate the issue
of charge compression and potential improvements to our methodology to
determine cost-based relative weights. We plan to review RAND's
analysis of these issues and determine if it will be appropriate to
propose additional adjustments to the MS-DRGs or the relative weight
methodology in the FY 2009 IPPS proposed rule.
We instructed RAND to evaluate the MS-DRGs using the same criteria
that it applied to the other DRG systems. Consistent with conclusions
we made in the IPPS proposed rule, RAND's findings demonstrate that MS-
DRGs explain 43 percent of the cost variation; a 9.1 percent
improvement over the CMS DRGs. RAND reports that the explanatory power
of the MS-DRGs is higher than the CMS+AP-DRGs, but lower than the other
systems analyzed. The MS-DRGs have the lowest adjusted R\2\ values
among the severity-adjusted systems in seven MDCs. In three of these
MDCs, the R\2\ values are actually lower than under the CMS DRGs: MDC
19 (Mental Diseases and Disorders), MDC 20 (Alcohol/Drug Use and
Alcohol/Drug Induced Organic Mental Disorders) and MDC 22 (Burns). RAND
attributes the reduction in R\2\ values to how the CMS DRGs were
collapsed to form the base DRGs and recommends future examination. We
agree that RAND's findings provide us with potential issues to examine
to further improve the MS-DRGs for FY 2009.
Although RAND's findings related to R² in certain MDCs
are of concern, we believe the MS-DRGs remain an improvement over the
current CMS DRGs and have significant advantages over the other DRG
systems being evaluated. Specifically, they are more up-to-date because
of our review of secondary diagnoses and classification into MCCs and
CCs. Further, they are understandable, available in the public domain,
and will have fewer transition issues than the other systems. As MS-
DRGs are a modification of the current CMS DRGs, they allow for updates
and maintenance to continue using the same process as under the current
CMS DRGs.
Depending on the criteria being evaluated, the relative merits of
each system being evaluated by RAND are different. For instance, the CS
DRGs performed well in explaining resource variation but have the
highest potential for case-mix growth. Other than the MS-DRGs, the
CMS+AP-DRGs did the poorest among the systems evaluated in explaining
variation in resource usage but did the best on producing reliable and
stable results. The remaining systems generally performed somewhere in
between on most of the measures that RAND used in its comparative
analysis. The MS-DRGs are the result of modifications to the CMS DRGs
to better account for severity. Unlike the other systems, the MS-DRGs
are available in the public domain, and as a result, systems
implementation and other costs are likely to be at a minimum. As
suggested above, RAND found that the MS-DRGs are an improvement over
the CMS DRGs and compare favorably to the alternative DRG systems being
evaluated on some criteria and not as well on others.
As RAND has completed its evaluation of the alternative DRG
systems, including the MS-DRGs, consistent with RAND's findings, we
believe it is appropriate at this time to adopt the MS-DRG system for
the Medicare IPPS in FY 2008. While there will be an opportunity for
the public to comment on RAND's findings, we expect to permanently
adopt the MS-DRGs for the IPPS. We do not think it is likely that there
will be persuasive public comments suggesting that one of the
alternative DRG systems being evaluated by RAND is clearly superior. In
our view, none of the systems appears to be clearly superior or
inferior to the other systems based on the criteria RAND used for the
evaluation. Given the strong support in the public comments for the MS-
DRGs and the fact they compare well overall to the alternative DRG
systems being evaluated by RAND, we believe it is likely that the MS-
DRGs will be the system that Medicare uses permanently for the IPPS.
However, because we are interested in public input on this issue, we
are making RAND's final report available on the CMS Web Site at: http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292. The
report may also be viewed on RAND's Web site at http://www.rand.org/pubs/online/health.
Interested members of the public can write to the following address
to make their views known to us about the RAND Report:
Division of Acute Care, Center for Medicaid Management, 7500
Security Boulevard, C4-08-06, Baltimore, MD 21244, Attn: Mady Hue.
In the FY 2008 IPPS proposed rule, we proposed to adopt the MS-DRGs
for FY 2008. We are providing the following update on RAND's progress
in evaluating the MS-DRGs against the alternative DRG systems. In the
proposed rule, we also invited public comment regarding RAND's
preliminary analysis of each vendor-supplied alternative severity-
adjusted DRG system described below. A summary of any public comments
that we received and our responses to those comments are presented
under each subject area.
a. Overview of Alternative DRG Classification Systems
Analysis of how each of the six severity adjusted DRG systems
performs began by using the current CMS DRGs as a baseline. Two of the
six systems (CS DRGs and MM-APS-DRGs) are derivatives of all-patient
severity-adjusted DRG systems that have been modified by their
developers for the Medicare population and two of the systems (HSC-DRGs
and Sol-DRGs) are all-patient systems that incorporate severity levels
into the CMS DRGs. The CMS+AP-DRGs are a combination of CMS DRGs and a
modification for the Medicare population of the major CC

[[Page 47143]]

(MCC) severity groupings used in the AP-DRG system. (The AP-DRG system
was developed by 3M/HIS specifically for the State of New York to
capture the non-Medicare population.) The MS-DRG system modifies the
current CMS DRGs by collapsing any paired DRGs (DRGs distinguished by
the presence or absence of CCs and/or age) into base DRGs and then
splits the base DRGs into MCC/CC-severity levels.
Table A below shows how each of the six alternative severity-
adjusted systems classifies patients into base DRGs and their
corresponding severity levels.

Table A.--Logic of CMS and Alternative DRG Systems
----------------------------------------------------------------------------------------------------------------
CMS-DRG CMS+AP-DRG HSC-DRG Sol-DRG MM-APS-DRG CS DRG MS-DRG
----------------------------------------------------------------------------------------------------------------
Number of MDCs................ 25 25 25 25 25 25 25
Number of base DRGs........... 379 379 391 393 328 270 335
Total number of DRGs.......... 538 602 1,293 1,261 915 863 745
Number of DRGs <500 discharges 97 (18%) 97 (16%) 374 (29%) 474 (38%) 115 (13%) 113 (13%) 38 (5.2%)
Number of CC (severity) 2 3 3 (med) 3 (med) 3 4 3
subclasses. or 4 or 4
(surg) (surg)
CC subclasses................. With CC, Without CC, No CC, Minor/no Without CC, Minor, Without
without With CC Class C substant With CC, Moderate CC, With
CC for for CC, ial CCs, With Major , Major, CC, With
selected selected Class B Moderate CC with Severe Major CC
base DRGs base DRGs CC, CCs, some with with
and Major Class A Major collapsing some collapsi
CC across CC CCs, at base collapsi ng
DRGs (Surgica Catastro DRG level ng at between
within MDC l only) phic CCs DRG severity
(Surgica level levels
l only) for same
base
DRG.
Multiple CCs recognized....... No No No No Yes (in Yes No.
computatio
n of
weight)
CC assignment logic........... Presence/ Presence/ Presence/ Presence/ Presence/ 18-step Presence/
absence absence absence absence absence process absence.
MDC assignment................ Principal Principal Principal Principal Principal Principal Principal
diagnosis diagnosis diagnosi diagnosi diagnosis diagnosi diagnosi
s s s with s.
reroutin
g
Death used in DRG assignment.. Yes (in Yes (in Yes Yes Yes (in No Yes (in
selected selected (``early (``early selected selected
DRGs) DRGs) death'' death'' DRGs) DRGs and
DRGs) DRGs) CC
assignme
nts).
----------------------------------------------------------------------------------------------------------------

RAND's evaluation of the logic for each system demonstrated the
following:
Four systems add severity levels to the base CMS DRGs; the
CS DRGs add severity levels to the base APR DRGs, which are comparable
but not identical to the base CMS DRGs. Both the CS DRGs and MM-APS-
DRGs collapse some base DRGs with low Medicare volume. The MS-DRGs
collapse the current CMS DRG splits and either leave the base DRG
undivided or divide it into two or three severity levels.
The HSC-DRGs and the Sol-DRGs use uniform severity levels
for each base DRG (three for medical and four for surgical). The
general structure of the MS-DRG logic establishes three severity levels
for each base DRG: With MCC, with CC, and without CC. However, CMS
consolidated severity levels for the same base DRG if they do not meet
specific statistical criteria. The general structure of the MM-APS-DRG
logic includes three severity levels for each base DRG, but some
severity levels for the same base DRG are consolidated to address
Medicare low-volume DRGs and nonmonotonicity issues. Monotonicity is
when the average costs for a severity group consistently rise as the
severity level of the group increases. For example, in a monotonic
system, if within a base DRG there are three severity groups and level
1 severity is less than level 2 severity and level 2 severity is less
than level 3 severity, the average costs for a level 3 case would be
greater than the average costs for a level 2 case, which would be
greater than the average costs for a level 1 case. When a DRG is
nonmonotonic, the mean cost in the higher severity level is less than
the mean cost in the lower severity level. The general structure of the
CS DRGs includes four severity levels for each base DRG. However,
severity level consolidations occur to address Medicare low-volume DRGs
and nonmonotonicity. The CS DRGs consolidate both adjacent severity
levels for the same base DRG and the same severity level across
multiple base DRGs (especially for severity level 4).
Under the CMS+AP-DRGs and MM-APS-DRGs, each diagnosis is
assigned a uniform CC-severity level across all base DRGs (other than
CCs on the exclusion list for specific principal diagnoses). The
remaining systems assign diagnoses to CC-severity level classifications
by groups of DRGs.
Under the grouping logic used by all systems other than
the CS DRGs, each discharge is assigned to the highest severity level
of any secondary diagnosis. The MS-DRGs assign discharges with no CC
but certain high cost devices to a higher severity level. The CS DRGs
adjust the initial severity level assignment based on other factors,
including the presence of additional CCs. None of the other systems
adjusts the severity level classification for additional factors or
CCs. However, the MM-APS-DRG system handles additional CCs through an
enhanced relative weight.

[[Page 47144]]

The HSC-DRGs and the Sol-DRGs have a medical ``early
death'' DRG within each MDC. The CS DRGs do not use death in the
grouping logic. In addition, most complications of care do not affect
the DRG assignment. The MS-DRGs use death in making an assignment in
selected DRGs and do not count certain conditions as MCCs and CCs (such
as cardiac arrest) in patients who die during the inpatient stay.
b. Comparative Performance in Explaining Variation in Resource Use
In evaluating the comparative performance of each alternative DRG
system, RAND used MedPAR data from FY 2004 and FY 2005. RAND excluded
data from CAHs, Indian Health Service hospitals, and hospitals that
have all-inclusive rate charging practices. Consistent with CMS
practice, RAND did not exclude data from Maryland hospitals, which
operate under an IPPS waiver. Records that failed edits for data
consistency or that had missing variables that were needed to determine
standardized costs were also excluded.
RAND reported that evaluation of each alternative severity-adjusted
DRG system is a complex process due to differences in how each of the
severity levels are applied, the number of severity-adjusted DRGs in
each system, and the average number of discharges assigned to each DRG.
In addition, the manner in which the DRGs for patients 0 to 17 years of
age are assigned in the severity-adjusted systems affects the number of
low volume DRGs using Medicare discharges. Low-volume, severity-
adjusted DRGs can affect the relative performance of a classification
system. However, the percentage of Medicare discharges assigned to
these DRGs is small--approximately 0.7 percent in the HSC-DRG and Sol-
DRG systems compared to 0.1 percent in the CMS DRGs.
To facilitate compatrisons across the severity-adjusted DRG system,
RAND assigned a severity level to each MS-DRG consistent with the
method used for the other DRG systems. The severity level is based on
the lowest severity level. If a base MS-DRG divided into two DRGs, one
for both discharges with no CC and discharges with CCs and the other
for discharges with MCCs, RAND assigned Level 0 to the DRG for
discharges with no MCC and Level 2 to the DRG for discharges with MCCs.
RAND also assigned Severity Level 0 to base DRGs that do not split by
CC level. Table B summarizes the distribution of DRGs and discharges
across severity levels by classification system, exclusive of MDC 15,
ungroupable discharges, and statistical outliers. In comparison to the
other severity-adjusted systems, the MS-DRGs have a much higher
percentage of discharges assigned to the lowest severity level. This
includes base DRGs that are not divided into severity subgroups, the no
CC severity level, and the no MCC severity level in those base DRGs
that are split based on the presence of a MCC only. Sixty percent of
discharges are assigned to Severity Level 0 DRGs compared to only 20
percent in the CS DRG system. There are several reasons for the higher
percentage, including the reassessment of CC assignments, the
collapsing of the no CC and CC severity levels in 43 base MS-DRGs, and
no severity subgroups in 53 base MS-DRGs.

[[Page 47145]]

[GRAPHIC] [TIFF OMITTED] TR22AU07.001

Severity-adjusted DRGs are designed to reduce the amount of cost
variation within DRGs. To compare how much within-DRG variation occurs
in each DRG system, RAND computed the mean standardized cost, standard
deviation, and coefficient of variation (CV) for each DRG across the
various systems. Each severity-adjusted system has a smaller proportion
of DRGs with a CV >100 percent than the CMS DRGs. Seventeen percent of
the 511 CMS DRGs to which Medicare patients were assigned in 2005 had a
CV >100 percent. In contrast, 8 percent of the 736 MS-DRGs have a CV
>100 percent. This is a slightly lower percentage than in the CMS+AP
DRGs but slightly higher percentage than the other four severity-
adjusted DRG systems. Only 1.7 percent of discharges are assigned to
MS-DRGs with a CV >100 percent, which is comparable to the percentage
of discharges assigned to DRGs with a CV >100 percent in the CS DRGs
and the CMS+AP DRGs. The MM-APS DRGs and CMS+AP DRGs have slightly
lower and higher percentages, respectively, of discharges assigned to
DRGs with a CV >100 percent.
RAND utilized a general linear regression model to evaluate how
well each severity-adjusted DRG system explains variation in costs per
case. The initial results demonstrate that all six severity-adjusted
DRG systems predict cost better than the CMS DRGs. The CS DRGs have
higher adjusted R\2\ values (explanatory power) than the other
severity-adjusted systems in nearly every MDC. In general, the adjusted
R\2\ value for the CS DRGs is 0.4458, a 13-percent improvement over the
adjusted R\2\ value for the CMS DRGs. The HSC-DRGs demonstrate an 11-
percent improvement, while the adjusted R\2\ values for the MM-APS-DRGs
and Sol-DRGs are 10.0 percent and 9.7 percent higher, respectively,
than the CMS DRG R\2\ value. The adjusted R\2\ value for the MS-DRGs is
0.4300, a 9.1 percent improvement over the CMS DRGs. The CMS+AP-DRGs
show the smallest improvement, nearly 8 percent.
Another aspect of RAND's evaluation was to identify the validity of
each alternative DRG system as a measurement for resource costs. For a
base DRG, the severity levels should be monotonic; that is, the mean
cost per discharge should increase simultaneously with an increase in
the severity level. A distinction between patient groups and varying
treatment costs should be accomplished by the severity levels. When a
DRG is nonmonotonic, the mean cost in the higher severity level is less
than the mean cost in the lower severity level. RAND studied the
percentage differences and absolute differences in cost between the
severity levels within the base DRGs for each system under evaluation.
For the analysis, RAND assigned the severity levels for discharges
assigned to the CMS+AP-

[[Page 47146]]

DRGs and CS DRGs that include several base DRGs to the base DRG to
which they would have been assigned at a lower severity level.
Table C shows the percentage difference between the mean
standardized cost for discharges with severity levels 1 through 3 as
applicable to the adjacent lower severity level within the base DRG
(for example, Base DRG 1 Severity Level 1 compared with Base DRG 1
Severity Level 0). The first column of the table shows the number of
DRGs with severity level 0 and the proportion of discharges assigned to
those DRGs. The ``Other DRGs'' column, which is not applicable to the
MS-DRGs, includes DRGs for age 0 to 17 years and any DRGs for which
there was no base DRG with severity level 0 that could be used in the
comparison, for example, no Medicare discharges were assigned to the
base DRG severity level 0. For severity level 1 and higher, RAND
computed the ratio of the mean cost for that level to the mean cost for
the adjacent lower level (for example, mean costDRG!Level!2/
mean costDRG!Level!1) and reported the results by the
magnitude of the ratio. RAND used the number of discharges assigned to
the higher severity level to calculate the percentage of discharges
assigned to each ratio category.
For the two systems (CMS+AP-DRGs and CS DRGs) that include several
base DRGs, RAND assigned those discharges to the lower severity level
base DRG. Following that methodology, RAND was able to calculate how
much more costly the discharges assigned to the consolidated or lower
severity levels were than the discharges in the base DRG assigned to
the next higher severity level. Results demonstrate that, overall,
nonmonotonicity is not a factor across the alternative DRG systems.
There are only a small percentage of discharges that are assigned to
nonmonotonic DRGs. Unlike the other systems, all severity level 1 or
level 2 MS-DRGs were monotonic.
Using the data from severity of illness levels 1 through 3 (except
for the MM-APS-DRGs, which do not have a severity of illness level 3),
RAND calculated the discharge-weighted mean cost difference between
severity levels and the mean ratio of the cost per discharge for the
higher severity level to the adjacent lower severity level. The
greatest cost discrimination was present in the higher severity levels
versus the lower severity levels across all the systems. Unlike the
other systems, each MS-DRG was at least 20 percent more costly than the
adjacent lower severity DRG. The remaining systems demonstrated
equivalent percentage cost differences between the severity levels as
shown in Table C below.

[[Page 47147]]

[GRAPHIC] [TIFF OMITTED] TR22AU07.002

In examining whether each of the alternative DRG systems provided
stability in the relative weights from year to year, RAND compared the
relative weights derived from the MedPAR data in FY 2004 to the
relative weights data from FY 2005. RAND's results demonstrate that
generally, across all the systems, only a small percentage of DRGs had
greater than a 5-percent change in relative weights. RAND did not
repeat this analysis for the MS-DRGs. However, RAND had no reason to
expect that the results would be substantially different for this
system. For further details and discussion, we encourage readers to
view RAND's full interim report on the CMS Web site at: http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292. The
report may also be viewed on RAND's Web site at http://www.rand.org/pubs/online/health.
c. Payment Accuracy and Case-Mix Impact
Similar to how CMS established the relative weights in the FY 2007
IPPS final rule, RAND used standardized costs as determined by the
national CCR and the FY 2005 MedPAR data to construct relative weights
for each of the DRG systems being evaluated. RAND analyzed the effect
of variations in the explanatory power on the distribution of Medicare
payments for each system under evaluation. The preliminary findings
indicate payment accuracy is improved by each severity-adjusted system
by redistributing payment from lower-cost discharges to higher-cost
discharges. However, the total payment redistribution across systems
differs and reflects the payment impact of improved explanatory power.
Although these findings are estimates, the percent of total payment
redistributed was the least under the CMS+AP-DRGs (7.1 percent) and the
most under the CS DRGs (11.9 percent). The total payment redistribution
under the MS-DRGs is 8.4 percent of the total payment. The
redistribution is less than the CS DRG system, the same as the HSC-DRG
system, and more than in the other systems, even though some of these
systems have higher explanatory power.
Table D shows changes in case-mix index (CMI) by hospital category
across alternative severity-adjusted DRG

[[Page 47148]]

systems. Results demonstrate that, under the severity-adjusted systems,
urban hospitals have a higher average CMI than under the CMS DRGs, and
rural hospitals have a lower CMI. The analysis suggests that any system
adopted to better recognize severity of illness with a budget
neutrality constraint will result in payment redistribution that can be
expected to benefit urban hospitals at the expense of rural hospitals.
This impact occurs because patients treated in urban hospitals are
generally more severely ill than patients in rural hospitals and the
CMS DRGs are not currently recognizing the full extent of these
differences. For purposes of the study, RAND assumed no behavioral
changes in coding practice or the types of patients treated.
On average, the CMI for urban hospitals increases under the
severity-adjusted systems, and that for rural hospitals decreases. The
change is greatest in the CS DRGs, where the CMI for rural hospitals is
2.4 percent lower than that under the CMS DRGs. The CMI for large urban
hospitals (those located in metropolitan areas with more than 1 million
population) and other urban hospitals is 0.6 and 0.1 percent higher,
respectively, under the CS DRGs. Under the MS-DRGs, there is a slightly
larger increase in the average CMI for large urban hospitals, a
reduction in the CMI for other urban hospitals, and a smaller reduction
for rural hospitals.
The CMI for larger hospitals increases, while that for smaller
hospitals decreases across the systems. This result is consistent with
a severity-adjusted DRG system shifting payment from less expensive
cases to more expensive cases. Larger hospitals tend to have relatively
more complex cases and severely ill patients than smaller hospitals do.
Teaching hospitals also tend to treat more complex cases, but the
impact on these facilities differs by severity-adjusted DRG system.
Across all the severity-adjusted systems, nonteaching hospitals have a
lower CMI, ranging from a 0.2 percent reduction under the HSC-DRGs and
Sol-DRGs to a 0.5 percent reduction under the CS DRGs. In three of the
systems (CMS+AP-DRG, HSC-DRG, and MM-APS-DRG), hospitals with large
teaching programs (100 or more residents) would experience a larger
increase than hospitals with smaller teaching programs. Under the Sol-
DRG system, hospitals with large teaching programs would have a 0.1
percent increase, compared with a 0.2 percent increase for hospitals
with smaller teaching programs. Under the CS DRG system, the CMI for
hospitals with large teaching programs would be about the same, but
that for hospitals with smaller teaching programs would increase 0.7
percent relative to the CMS DRGs.

Table D.--CMI Change in Alternative DRG Systems Relative to the CMS DRG CMI
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage change from CMS-DRG CMI
CMS- -----------------------------------------------------------------
Number of Number of DRG CMS+AP- MM-APS-
hospitals discharges CMI DRG HSC-DRG Sol-DRG DRG CSDRG MS-DRG
(Percent) (Percent) (Percent) (Percent) (Percent) (Percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL................................................. 3,890 12,165,763 1.00 0.0 0.0 0.0 0.0 0.0 0.0
By Geographic Location:
Large urban areas (pop>1 million)............... 1,485 5,715,356 1.02 0.5 0.4 0.3 0.6 0.6 0.7
Other urban areas (pop<1 million ).............. 1,186 4,578,447 1.04 -0.2 -0.2 -0.1 -0.2 0.1 -0.3
Rural hospitals................................. 1,219 1,871,960 0.84 -1.3 -0.9 -1.0 -1.4 -2.4 -1.7
Bed Size (Urban):
0--99 beds...................................... 685 611,139 0.91 -1.0 -1.1 -1.1 -1.3 -1.6 -1.2
100-199 beds.................................... 875 2,346,922 0.93 0.0 0.1 0.0 0.1 0.0 0.0
200-299 beds.................................... 511 2,446,737 1.00 0.1 0.2 0.3 0.3 0.6 0.3
300-499 beds.................................... 433 2,965,216 1.08 0.3 0.3 0.3 0.4 0.8 0.4
500 or more beds................................ 167 1,923,789 1.17 0.6 0.3 0.2 0.4 0.4 0.5
Bed Size (Rural):
0-49 beds....................................... 543 330,242 0.73 -2.5 -2.1 -2.2 -2.7 -5.0 -3.0
50-99 beds...................................... 398 595,599 0.80 -1.4 -1.0 -1.1 -1.6 -2.7 -2.0
100-149 beds.................................... 160 415,367 0.85 -1.1 -0.7 -0.8 -1.2 -2.0 -1.5
150-199 beds.................................... 69 260,910 0.91 -0.8 -0.6 -0.7 -0.8 -1.5 -1.0
200 or more beds................................ 49 269,842 0.99 -0.6 -0.1 -0.1 -0.6 -0.5 -0.9
Urban by Region:
New England..................................... 129 541,471 0.99 0.1 -0.2 -0.5 -0.5 -0.6 -0.5
Middle Atlantic................................. 370 1,621,488 1.00 0.0 -0.4 -0.5 -0.3 -1.5 -0.1
South Atlantic.................................. 432 2,208,336 1.04 0.5 0.7 0.7 0.7 1.4 0.7
East North Central.............................. 410 1,856,164 1.03 0.6 0.7 0.6 0.8 1.5 0.6
East South Central.............................. 168 696,943 1.06 -0.2 -0.2 -0.2 -0.2 -0.3 -0.4
West North Central.............................. 164 657,322 1.08 -0.3 -0.3 0.0 -0.3 0.3 -0.3
West South Central.............................. 369 1,115,411 1.05 0.1 0.0 0.1 0.3 0.5 0.3
Mountain........................................ 153 465,093 1.08 0.4 0.2 0.5 0.4 1.0 0.7
Pacific......................................... 423 1,016,135 1.03 0.0 -0.2 -0.1 -0.1 0.2 0.3
Puerto Rico..................................... 53 115,440 0.87 -1.1 -1.4 -0.1 -1.2 -5.1 -1.3
Rural by Region:
New England..................................... 34 49,842 0.90 -0.6 -0.6 -0.5 -1.1 -0.6 -1.1
Middle Atlantic................................. 68 139,639 0.85 -1.1 -0.7 -0.7 -1.3 -1.5 -1.4
South Atlantic.................................. 191 409,116 0.82 -0.8 -0.4 -0.5 -0.9 -1.8 -1.2
East North Central.............................. 163 290,069 0.87 -1.1 -0.7 -0.9 -1.3 -1.8 -1.6
East South Central.............................. 201 328,326 0.82 -1.5 -0.9 -1.1 -1.4 -3.2 -1.9
West North Central.............................. 184 240,449 0.87 -1.6 -1.2 -1.1 -1.8 -2.5 -2.0
West South Central.............................. 227 266,419 0.80 -2.1 -1.8 -1.9 -2.0 -4.3 -2.5
Mountain........................................ 91 80,219 0.85 -1.2 -1.0 -0.4 -1.3 -1.2 -1.1
Pacific......................................... 60 67,881 0.86 -0.9 -1.0 -1.1 -1.4 -1.6 -1.6

[[Page 47149]]

By Payment Classification:
Teaching Status:
Non-teaching.................................... 2,791 6,115,193 0.92 -0.4 -0.2 -0.2 -0.4 -0.5 -0.4
Fewer than 100 Residents........................ 853 4,061,451 1.04 0.1 0.2 0.2 0.2 0.7 0.2
100 or more Residents........................... 246 1,989,119 1.16 0.8 0.3 0.1 0.5 0.0 0.6
Urban DSH:
Non-DSH......................................... 778 2,574,640 1.02 -0.1 0.0 0.1 -0.2 0.5 0.0
100 or more beds................................ 1,541 7,378,095 1.05 0.3 0.2 0.2 0.4 0.4 0.4
Less than 100 beds.............................. 352 341,068 0.82 -0.9 -0.8 -1.0 -1.1 -2.0 -1.1
Rural DSH:
Non-DSH......................................... 238 300,747 0.87 -1.4 -1.0 -0.9 -1.7 -1.9 -1.7
SCH............................................. 402 599,823 0.83 -1.3 -1.0 -1.0 -1.4 -2.4 -1.8
RRC............................................. 132 466,395 0.92 -0.8 -0.3 -0.5 -0.7 -1.4 -1.1
Other Rural
100 or more beds................................ 60 135,146 0.80 -0.9 -0.8 -1.2 -1.3 -2.0 -1.5
Less than 100 beds.............................. 387 369,849 0.74 -2.1 -1.6 -1.7 -2.2 -4.3 -2.6
Urban teaching and DSH:
Both teaching and DSH........................... 829 4,705,476 1.09 0.5 0.3 0.3 0.5 0.5 0.5
Teaching and no DSH............................. 204 1,108,092 1.06 0.0 0.1 0.0 -0.1 0.4 0.1
No teaching and DSH............................. 1,064 3,013,687 0.95 -0.1 0.1 0.0 0.1 0.1 0.1
No teaching and no DSH.......................... 574 1,466,548 1.00 -0.2 -0.1 0.1 -0.3 0.5 0.0
Rural Hospital Types:
RRC............................................. 145 519,808 0.92 -0.8 -0.4 -0.5 -0.7 -1.4 -1.1
SCH............................................. 423 457,119 0.79 -1.6 -1.2 -1.2 -1.7 -3.0 -2.1
MDH............................................. 180 164,453 0.75 -2.1 -1.7 -1.7 -2.3 -4.1 -2.7
SCH and RRC..................................... 76 266,027 0.92 -0.9 -0.7 -0.7 -1.1 -1.3 -1.3
MDH and RRC..................................... 8 19,746 0.85 -1.4 -0.6 -0.8 -1.6 -1.9 -1.7
Other Rural..................................... 387 444,807 0.77 -1.6 -1.2 -1.4 -1.8 -3.3 -2.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

RAND also noted that changes in documentation and coding that
increase case mix will occur with each severity adjusted DRG system
they evaluated. Increases in CMI after adopting the system could be the
result of improved coding rather than increases in actual patient
severity. RAND observed that the experience of Maryland hospitals using
the APR DRG system provides some indication of the likely impact on
case-mix of introducing a severity-adjusted system. RAND also noted
that coding behaviors are expected to vary under alternative systems
according to RAND. Therefore, the risk of case-mix growth due to
improved documentation and coding exists with any system. However, RAND
advises that the amount of risk can be assessed based on the logic of
the DRG system and result in anticipated changes in coding behavior.
For the analysis we presented in the proposed rule, RAND found that the
CMS+AP-DRG system may have the lowest risk of case-mix increase, while
the CS DRGs present the greatest risk. The remaining systems under
evaluation demonstrated equivalent risk, based on the DRG logic and
other features specific to each system.
RAND did not repeat the analysis of the potential for documentation
and coding improvements to increase case-mix using the MS-DRGs because
it only worked with FY 2005 data to evaluate them. Further, CMS did a
detailed analysis of the likely impact of documentation and coding
improvements on case-mix using the MS-DRGs. Section II.D.6. of the
preamble of this rule describes in detail the CMI impact under the MS-
DRGs using the State of Maryland's experience and data.
d. Other Issues for Consideration
RAND was asked to examine whether each of the alternative severity-
adjusted DRG systems under evaluation appears to contain logic that is
manageable, administratively feasible, and understandable. RAND's
results describe the extent to which those features are present in the
grouping logic of each system. A brief summary of these findings and
other discussion points follow. For more complete details of the
grouping logic for each system evaluated, we encourage readers to
review RAND's interim report at the following CMS Web site: http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292. The
report may also be viewed on RAND's Web site at http://www.rand.org/pubs/online/health.
To increase and promote understanding of a DRG classification
system, the grouping logic should include a uniform structure. With the
exception of the CS DRGs, RAND found that there is uniformity in the
hierarchical structure for assigning discharges to MDCs, DRGs, and
severity levels for each system evaluated. The CS DRGs utilize a
complex rerouting logic and severity of illness level assignment.
However, the result is a higher explanatory power that accounts for
limitations in the current system. Therefore, due to the complexities
associated with that system, it may not easily be understood. However,
if the results yield clinically coherent groups of patients with
comparable costs, RAND concluded that the system may be worth exploring
further. The HSC-DRG and Sol-DRG grouping logic uses a standard number
of severity levels for each base DRG, although the result is an
increase in the number of low-volume DRGs. The standard severity level
structure provides increased understanding, although as mentioned

[[Page 47150]]

previously, low-volume, severity-adjusted DRGs can affect the relative
performance of a classification system. The MM-APS-DRGs and CS DRGs use
standard DRG severity levels. However, the method of collapsing DRGs
varies due to the modifications made for Medicare use. The underlying
logic of the MS-DRG system uses standard severity levels, but the
criteria for establishing severity subgroups result in severity levels
that vary by base DRG. Because the severity levels are often collapsed
and the resulting subgroups depend on the particular DRG, it is a more
complicated system to understand than those systems that uniformly
define subgroups according to RAND. By only collapsing DRGs to
determine relative weights, RAND notes it is possible to preserve the
underlying DRG structure, which perhaps would lead to a more
understandable system.
As stated earlier, there are also several transition issues that
require attention when evaluating alternative severity-adjusted DRG
systems. In determining how manageable, administratively feasible, and
understandable the systems being evaluated are, consideration should be
given to how they crosswalk or map to the current CMS DRGs. Because
four of the systems under evaluation are based on the underlying CMS
DRG grouping logic to establish their base DRGs (CMS+AP-DRGs, HSC-DRGs,
Sol-DRGs, and MM-APS-DRGs), the CMS DRGs are able to crosswalk smoothly
to these severity-adjusted DRGs. Conversely, crosswalking in reverse or
backward mapping from the CMS+AP DRGs to the CMS DRGs is problematic
due to the discharges in one severity level of the CMS+AP-DRG system
compared to several base CMS DRGs. As expected, the CS DRGs do not
crosswalk easily to the CMS DRGs due to the complex grouping logic. The
MM-APS-DRGs pose unique complications as well due to the large number
(over 1,000) of DRGs. Although the MS-DRGs are based on the CMS DRGs,
there are challenges in crosswalking discharges between the two systems
because of the revisions in the CC list and the sequential renumbering
of the DRGs.
System updates are another important factor that may have serious
implications. All of the DRG systems RAND evaluated were reported to
make annual updates to reflect ICD-9-CM coding changes. However, the CC
severity level assignments for each system have not routinely been
reviewed and revised. The CC exclusion list and severity level
assignments should be reviewed where appropriate to reflect current
patterns of care, according to RAND. RAND found that the MS-DRGs are
the most updated of the severity-adjusted DRG systems. CMS reviewed the
CC list and severity-level assignments in developing the MS-DRGs.
Further, the MS-DRGs incorporate recent refinements in the CMS DRGs to
account for complexity as well as severity. According to RAND, the
other CMS-based systems use CC lists and severity level assignments
that are based on outdated analyses of the effect of a condition on
treatment costs from either the 1988 Yale study or the 1994 CMS
refinement study. The APR DRGs have not been reviewed for several years
and are not as current as the severity-based systems according to RAND.
Accessibility to each of the severity-adjusted DRG system's logic
and software is also a concern. Each system RAND analyzed is currently
maintained as a proprietary product. In general, all of the vendors
indicated a willingness to place their product in the public domain,
under certain terms. As such, CMS believes it is likely there would
need to be discussion as to whether there would be any limitations
(such as the source code as well as the DRG logic) on the availability
of the DRG systems to hospitals or competing vendors. None of these
concerns would be an issue with the MS-DRGs. RAND further noted that
because the MS-DRGs are in the public domain, there should be less
disruption to existing arrangements for acquiring and installing the
GROUPER software and integrating that software with other hospital
systems. The intent of each vendor to provide public access to its
GROUPER logic and software is described in further detail in RAND's
interim report.
Comment: One commenter supported the efforts of CMS to evaluate
several alternatives to the existing DRG system. The commenter
expressed appreciation that CMS had incorporated comments submitted by
the provider community in setting the criteria for evaluating the
various DRG products. This commenter also stated it looked forward to
reviewing the final recommendations when the RAND report is released.
Response: We appreciate the commenter's support of our efforts. As
we indicated in the proposed rule, we have focused our efforts in
response to public comments regarding the refinement of the current DRG
system. With the assistance of RAND in the evaluation of alternative
severity-adjusted DRG systems, our objective has been to select a
classification system that will better recognize severity of illness,
utilization of resources, and complexity of services. The ultimate goal
of these combined objectives is to greatly improve the payment accuracy
of the IPPS.
Comment: Several commenters supported the implementation of a
severity-based system. However, they urged CMS to wait until RAND
completes the final report before moving forward with a specific
system. One commenter articulated its appreciation of the thorough
analysis conducted on the other alternative severity-adjusted systems.
However, the commenter remains concerned that CMS would consider moving
forward with the MS-DRGs in the absence of completing an analysis of
them using the same criteria applied to the other systems under review.
Other commenters expressed concern that CMS may implement the proposed
MS-DRGs for FY 2008 and then switch to a completely different severity-
based system in FY 2009, or phase in a different system in subsequent
years. One commenter stated that, given the potential for heightened
administrative burdens as well as financial consequences, it would seem
prudent that CMS invest the needed time and energy to confirm whether
its belief in the proposed MS-DRG system can be validated. This same
commenter added that by stating it is not precluded from adopting
another system for FY 2009, CMS is tacitly acknowledging that the MS-
DRG system may not be the best system. Another commenter stated that
CMS' request for RAND to evaluate the proposed MS-DRGs indicates it is
not satisfied that the MS DRGs are ready for long-term use in the IPPS.
Response: In the proposed rule, we indicated that we asked RAND to
evaluate the proposed MS-DRG system using the same criteria it is
applying to the other alternative severity-adjusted DRG systems. Our
intent in not committing permanently to the MS-DRGs was not to suggest
that we were not satisfied with the long-term application of the MS-DRG
system or that we had concerns about it being the best system. Rather,
we were interested in an objective evaluation of the MS-DRGs by RAND
using the same criteria applied to the other alternative severity-
adjusted systems. That is, before making a permanent commitment to the
MS-DRGs, we were interested in knowing how well it demonstrates the
ability to meet the objectives described previously--better recognition
of severity of illness, utilization of resources, complexity of
services and improved payment accuracy over the current CMS DRG system.
While we proposed the MS-DRGs for

[[Page 47151]]

implementation in FY 2008, we were further interested in the public's
response to the MS-DRGs and RAND's evaluation of them before making a
final decision on a permanent DRG system to use for Medicare payment.
Specifically, public comments on the FY 2007 IPPS proposed rule asked
that CMS show evidence that the alternative system proposed results in
an improved payment system compared to the current system, test the
degree to which the variation in costs within cases at the DRG level is
reduced, maintain the improvements made over the years to account for
complexity of service and new technologies, and avoid a proprietary
system that lacks transparency. We considered all these factors in the
development of the MS-DRGs and had we not provided the proposed MS-DRG
system to RAND for evaluation, we would not be able to make a fair
comparison and final determination for the best course of action for
Medicare long term. At the time of the proposed rule, we were unsure
whether RAND would be able to complete its evaluation of the MS-DRGs by
the time of this final rule with comment period. However, as summarized
above, RAND has completed its analysis of the MS-DRG system and found
that it compares favorably to the other DRG systems being evaluated on
a number of criteria.
As RAND has completed its evaluation of alternative DRG systems,
including the MS-DRGs, consistent with RAND's findings, we believe it
is appropriate at this time to adopt the MS-DRG system for Medicare in
FY 2008. We believe the MS-DRGs represent an improvement over the
current CMS DRGs. While there will be an opportunity for the public to
comment on RAND's findings, we expect to permanently adopt the MS-DRGs
for the IPPS. We do not believe it is likely that there will be
persuasive public comments suggesting that one of the alternative DRG
systems being evaluated by RAND is clearly superior. We plan on using
RAND's report to continue to examine ways to improve and refine the
Medicare inpatient payment system and expect that any future
refinements will be based on the MS-DRGs. Therefore, as final policy
for FY 2008, we are adopting the MS-DRGs as the new classification
system for the IPPS.
Comment: One commenter agreed that CMS should adopt a transparent
and publicly available DRG system and applauded the proposed MS-DRGs.
The commenter stated that the transparency of the current system has
been a critical aspect of its success over the years, and this will be
even more important to ensure the successful adoption of the new
severity-adjusted system chosen.
Response: We appreciate the commenter's support for the proposal to
use MS DRGs. We agree that transparency is an important factor in the
selection of a new severity-adjusted DRG system. We refer readers to
sections II.D.2. and 3. of the preamble of this final rule with comment
period for a complete discussion of the MS-DRGs.
Comment: One commenter stated CMS should consider adopting a more
robust severity-based DRG system than the proposed MS-DRGs. The
commenter admitted that it regards the APR DRG system highly and
indicated it should not be abandoned because it is more complicated to
implement and because of the controversy surrounding its suggested
implementation. The commenter also noted that, as RAND stated in its
preliminary report, it is a more robust, accurate, and precise system,
and it was reluctant to see CMS abandon this superior system entirely
before receiving RAND's final report and recommendations. Further, the
commenter stated that, while the MS-DRGs would unquestionably represent
a major improvement over the current CMS DRGs, it believed CMS has the
ability and should proceed with introducing a better and more robust
system and continue exploring further options while waiting for RAND's
final report.
Response: In the FY 2007 proposed rule (71 FR 24015), we proposed
to adopt the CS DRGs which were based on a consolidated version of the
APR DRGs. We received a significant number of public comments strongly
urging us not to move forward with the CS DRGs. These comments are
described in detail in the FY 2007 final rule (71 FR 47906 through
47912). Among other concerns, the public comments suggested that the
system was overly complex and difficult to understand. Further, there
was concern that the logic and source code would not be available in
the public domain like the current CMS DRGs and that many of the
improvements and refinements made to the CMS DRGs over the years would
be abandoned. For these and other reasons, we decided not to adopt the
CS DRGs for FY 2007. Our proposed adoption of MS-DRGs did not raise
these same concerns in the public comments. Given that the MS-DRGs are
a substantial improvement over the current CMS DRGs in their ability to
recognize severity of illness and meet other objectives that we set for
IPPS payment reform, we believe it is a better system to select for use
by Medicare than the CS DRGs or APR DRGs.
Comment: One commenter, a vendor, submitted its DRG product to RAND
for evaluation. The commenter expressed its concern that CMS developed
a completely new and untested severity system while there are several
alternate systems currently under evaluation by RAND. The commenter
noted that its product has been in continuous use for 18 years and is
based on the original Yale University methodology and developed under
contract with the Health Care Financing Administration, now CMS,
between 1986 and 1989.
The commenter urged CMS to continue with the current CMS DRGs for
one more year. According to the commenter, introducing a new temporary
severity system, the MS-DRGs, with the expectation that hospitals move
to another system for FY 2009, will create unnecessary havoc for the
hospital industry. The commenter noted that it is pleased with the work
CMS has done in reviewing 13,549 secondary diagnosis codes to refine
the CC list and believed the use of this new list will result in a
greatly improved DRG GROUPER. However, the commenter stated it is not
fair to compare the FY 2008 MS-DRGs (with the new CC list and new
codes) with FY 2006 and FY 2007 alternative severity systems using the
unrevised CC list. The commenter recommended that CMS create Version
25.0 CMS DRGs with the new CC list and new codes to allow the vendors
of the alternative systems until November or December to incorporate
the information into updated versions of their systems. The commenter
also suggested that the RAND report deadline could be extended beyond
September 1, 2007, to allow the comparison of alternative DRG systems
to occur with the revised CC list.
In addition, the commenter believed the MS-DRGs have the following
shortcomings:
Although CMS' chief concern is Medicare patients, it is
shortsighted to ignore non-Medicare patients in the proposed MS-DRG
system, as the health care industry often focuses its attention on the
Medicare relative value system for all of its hospital patients.
The DRG system has always been comprehensive, including
all possible ICD-9-CM diagnoses and procedures. Consolidating low-
volume procedures and procedures now performed primarily in an
outpatient setting creates confusion in the MS-DRG classification
system. Procedures such as tonsillectomies, carpal tunnel release, and
cataract extractions are different MDCs and are treated by different
medical specialists. They are similar

[[Page 47152]]

only with respect to historical cost data and only for the time being.
Eliminating newborns, maternity, and congenital anomalies
from the usual MS-DRG severity level approach does not provide a
comprehensive severity system.
Lastly, the commenter indicated that whatever software system is
chosen for the public, it should be provided in a modern and accessible
software language and format. The commenter recommended a ``C''
version, on CDs or DVDs, and suggested that continuing to place CMS
software into the public domain written in IBM assembler and
distributed through the National Technical Information Service (NTIS)
on 9-track tapes or 3480 cartridges seems difficult to imagine, as this
technology is over 40 years old.
Response: We disagree that we are implementing a ``completely new
and untested severity system.'' While the MS-DRGs constitute a major
reform to better recognize severity of illness, they are a refinement
of the current CMS DRGs that have been in use for Medicare payment for
over 20 years. Further, our proposed rule analysis--subsequently
validated by RAND--suggested that they are major improvement over the
current CMS DRGs. Most of the other systems represent less updated
refinements of the CMS DRGs. While these systems have been in use for
other purposes, we note that (other than the APR DRGs that are used for
payment in Maryland and the AP DRGs that were used in New York's all
payer ratesetting system in the 1990s), the other systems being
evaluated have never been used for Medicare payment.
We stated in the FY 2008 IPPS proposed rule that we developed the
MS-DRG system in response to public comments received as a result of
the FY 2007 proposed rule (in response to the proposed CS DRGs). We
also stated we submitted the MS-DRG system to RAND for evaluation and
the final report was expected on or before September 1, 2007. At this
time RAND has completed the evaluation of alternative severity-adjusted
DRG systems, including the MS-DRGs. In the near future, we will post
RAND's analysis of the MS-DRG system to the following CMS Web site:
http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292. The report may also be viewed on
RAND's Web site at http://www.rand.org/pubs/online/health. This report
is referred to as an Addendum to RAND's interim report that was
released in March 2007. A completed final report incorporating the
evaluation of all six severity adjusted DRG systems into one document
will be posted to the CMS Web site after September 1, 2007.
As noted above, we share the commenter's concern about adopting one
DRG system this year and potentially another one next year. We believe
the MS-DRGs should be the system that is adopted for long-term use by
Medicare for IPPS payment. However, we are interested in obtaining
further public input on RAND's findings. We do not believe it is likely
that there will be persuasive public comments suggesting that one of
the alternative DRG systems evaluated by RAND is clearly superior to
the MS-DRGs.
We appreciate the commenter's support of our efforts in the review
of 13,549 secondary diagnosis codes. We agree that a new, updated CC
list greatly improves the ability of a DRG GROUPER to reflect severity
of illness and distribute payments more accurately. The intent of
RAND's evaluation was to compare each of the alternative DRG systems in
its current form. The fact that delays would be necessary to allow the
other systems to adopt the improvements that CMS made to the CC list
for the MS-DRGs suggests that the other systems would not be ready for
implementation as soon. As noted elsewhere, we are interested in
adopting comprehensive improvements to the DRG system for severity of
illness at the earliest possible date. We do not believe it is in the
public interest to delay adopting these improvements to wait for the
alternative DRG systems to incorporate refinements to the CC list.
Further, we note that CMS first discussed performing a comprehensive
review of the CC list over 2 years ago. Each vendor could have
undertaken a similar review of the CC list to improve its DRG product
at any time.
We disagree with the commenter's assertion that our decision should
turn on how the MS-DRGs can be used for non-Medicare payers. As we have
stated many times in the past, we encourage private insurers and other
non-Medicare payers to make refinements to Medicare's DRG system to
better suit the needs of the patients they serve. With respect to the
maternity and newborn DRGs, we cannot adopt the same approach to refine
these DRGs that we did with the rest of the MS-DRGs because of the
extremely low volume of Medicare patients there are in these DRGs.
Medicare simply does not have enough cases in these DRGs to apply the
same approach we did in the other MDCs. Whether we made revisions to
these DRGs or not, private insurers and other private payers would have
to develop their own DRGs or relative weights to address the needs of
these patients that are not well-represented in the Medicare
population. With respect to other pediatric patients, in our view, a
significant advantage of the MS-DRGs over the prior CMS DRGs is the
fewer number of low volume DRGs. By eliminating pediatric (ages 0 to 17
years) splits, the MS-DRGs will have fewer low-volume DRGs and less
instability in the DRG relative weights for the cases paid using these
DRGs.
With regards to the software, undere CMS' agreement with its
contractor, the software provided by NTIS is the same public domain
software that is provided to CMS for use by our system maintainers,
regional offices, and fiscal intermediaries.MAC. We will consider this
comment as we make updates to our information systems and related
contracts.
As stated elsewhere in this final rule with comment period, we are
adopting the MS-DRGs for implementation on October 1, 2007 (FY 2008). A
detailed discussion summarizing the public comments received in
response to the MS-DRG proposal is described in section II.D.2. of the
preamble of this final rule with comment period.
2. Development of the Medicare Severity DRGs (MS-DRGs)
As discussed previously, we are committed to continuing our efforts
of making refinements to the current CMS DRGs to better recognize
severity of illness. In the FY 2007 IPPS final rule, we stated that we
had begun a comprehensive review of over 13,000 diagnosis codes to
determine which codes should be classified as CCs when present as a
secondary diagnosis. We stated that we would also build on the severity
DRG work we performed in the mid-1990's. We received a number of public
comments on last year's proposed rule that supported the refinement of
the current CMS DRGs so that they better recognize severity of illness
for FY 2007.
We also committed to performing a more thorough reform of the
entire DRG system to better recognize severity of illness for FY 2008.
As a result of this broad based analysis, we developed the MS-DRGs that
we proposed and are adopting in this final rule with comment period.
The MS-DRGs represent a comprehensive approach to applying a severity
of illness stratification for Medicare patients throughout the DRGs. As
discussed in proposed rule and in section II.D.5. of the preamble of
this final rule with comment period, the MS-DRGs maintain the
significant advancements in identifying medical technology made

[[Page 47153]]

to the DRGs in past years. At the same time, they greatly improve our
ability to identify groups of patients with varying levels of severity
using secondary diagnoses. Further, they improve our ability to assign
patients to different DRG severity levels based on resource use that is
independent of the patient's secondary diagnosis--referred to in this
discussion as ``complexity.'' We proposed to adopt the MS-DRGs for FY
2008 and also submitted the system to RAND to be considered as part of
its evaluation of alternative DRG systems. In the proposed rule, we
encouraged comments on our proposed methodology to establish a severity
DRG system and the resulting DRGs.
a. Comprehensive Review of the CC List
Our efforts to better recognize severity of illness began with a
comprehensive review of the CC list. Currently, 115 DRGs are split
based on the presence or absence of a CC. For these DRGs, the presence
of a CC assigns the discharge to a higher weighted DRG. The list of
diagnoses designated as a CC was initially created at Yale University
in 1980-1981 as part of the project to develop an ICD-9-CM version of
the DRGs. The researchers at Yale University developed the ICD-9-CM
DRGs using national hospital data with diagnoses and procedures coded
in ICD-9-CM from the second half of 1979. Because hospitals only began
reporting ICD-9-CM codes in 1979, discharge abstracts at that time were
much less likely to fully report all secondary diagnoses. As a result,
the Yale University researchers developed a liberal definition of a CC
as any secondary diagnosis that ``would cause an increase in length of
stay by at least 1 day in at least 75 percent of the patients.''
Because of the likely underreporting of secondary diagnoses in the 1979
data, the Yale University researchers also used age as a surrogate for
identifying patients with a CC. The original version of the ICD-9-CM
DRGs assigned patients to a CC DRG if they had a secondary diagnosis on
the CC list or if the patient was 70 years or older.
With the implementation of the IPPS in FY 1984, the coding of
secondary diagnoses by hospitals dramatically improved. During the
first 4 years of the IPPS, the CC definition included the age 70
criterion. With the improved coding and reporting of diagnoses
associated with the implementation of the IPPS, the use of age as a
surrogate for CCs was no longer necessary. Thus, beginning in FY 1988,
the age 70 criterion was removed from the CC definition and a CC DRG
was defined exclusively by the presence of a secondary diagnosis on the
CC list.
Except for new diagnosis codes that were added to ICD-9-CM after FY
1984 (for example, HIV), the CC list of diagnoses currently used in the
CMS DRGs is virtually identical to the CC list created at Yale
University. However, there have been dramatic changes not only in the
accuracy and completeness of the coding of secondary diagnoses but also
in the characteristics of patients admitted to hospitals and the
practice patterns within hospitals as well.
Since the implementation of the IPPS, Medicare average length of
stay has dropped dramatically from 9.8 days in 1983 to 5.7 days in
2005. The economic incentives inherent in DRGs motivated a change in
practice patterns to discharge patients earlier from the hospital.
These changes were facilitated by the increased availability of
postacute care services, such as nursing homes and home health
services, which allowed problems previously requiring continued
hospitalization to be effectively treated outside the acute care
hospital. Furthermore, there has also been a dramatic shift to
outpatient surgery that avoids costly inpatient stays. Many surgical
procedures formerly performed in the hospital are now routinely
performed on an outpatient basis. As a result, patients admitted to the
hospital today are on average more likely to have a CC than when the
IPPS was implemented. The net effect of better coding of secondary
diagnoses, reductions in hospital length of stay, increased
availability of postacute care services, and the shift to outpatient
care is that most patients (nearly 80 percent) admitted to a hospital
now have a CC. As a result of the changes that have occurred during the
22 years since the implementation of the IPPS, the CC list as currently
defined has lost much of its capacity to discriminate hospital resource
use.
Currently, 115 CMS DRGs have a CC subdivision. Up until FY 2002,
the number of DRGs with a CC subdivision remained essentially unchanged
from the original FY 1984 version of the DRGs. As a means of improving
the payment accuracy of the DRGs, beginning with the FY 2002 DRG
update, each base CMS DRG without a CC subdivision was evaluated to
determine if a CC subdivision was warranted. Over the past five DRG
updates, only seven base CMS DRGs have had a CC subdivision added. The
primary constraint preventing a significant increase in the number of
base CMS DRGs with a CC subdivision is the low number of patients who
would be assigned to the non-CC group. Thus, the expansion of the
number of CMS DRGs subdivided based on a CC is constrained because the
vast majority of patients would be assigned to the CC group and few
patients would be assigned to the non CC group. To remedy these
problems, we reviewed each of the 13,549 secondary diagnosis codes to
evaluate their assignment as a CC or non-CC using statistical
information from the Medicare claims data and applying medical judgment
based on current clinical practice. We refer to this list in this
section as the ``revised CC list.''
The need for a revised CC list prompted a reexamination of the
secondary diagnoses that qualify as a CC. Our intent was to better
distinguish cases that are likely to result in increased hospital
resource use based on secondary diagnoses. Using a combination of
mathematical data and the judgment of our medical advisors, we included
the condition on the CC list if it could demonstrate that its presence
would lead to substantially increased hospital resource use.
Diagnoses may require increased hospital resource use because of a
need for such services as:
Intensive monitoring (for example, an intensive care unit
(ICU) stay).
Expensive and technically complex services (for example,
heart transplant).
Extensive care requiring a greater number of caregivers
(for example, nursing care for a quadriplegic).
There are 3,326 diagnosis codes on the current CC list. Our 2006
review of the CC list reduced the number of diagnosis codes on the CC
list to 2,583. Based on the current CC list, 77.66 percent of patients
have at least one CC present. Based on the revised CC list from our
2006 review, the percent of patients having at least one CC present
would be reduced to 40.34 percent.
b. Chronic Diagnosis Codes
The 1979 data used in the original formation of the CC list often
did not have the manifestations of a chronic disease fully coded. As a
result, the CC list included many chronic diseases with a broad range
of manifestations. Such chronic illness diagnoses usually do not cause
a significant increase in hospital resource use unless there is an
acute exacerbation present or there is a significant deterioration in
the underlying chronic condition. Therefore, in the revised CC list, we
removed chronic diseases without a significant acute manifestation.
Recognition of the impact of the chronic disease is accomplished by
separately coding the acute manifestation. For example, the mitral
valve disease codes

[[Page 47154]]

(codes 396.0 through 396.9) are assigned to the current CC list.
However, unless the mitral valve abnormalities are associated with
other diagnoses indicating acute deterioration, such as acute
congestive heart failure, acute pulmonary edema, or respiratory
failure, they would not be expected to significantly increase hospital
resource use. Therefore, the revised CC list did not include the mitral
valve codes. Recognition of the contribution of mitral valve disease to
the complexity of hospital care would be accomplished by separately
coding those diseases on the CC list that are associated with an acute
exacerbation or deterioration of the mitral valve disease.
The revised CC list applied the criterion that chronic diagnoses
having a broad range of manifestations are not assigned to the CC list
as long as there are codes available that allow the acute
manifestations of the disease to be coded separately. For some
diseases, there are ICD-9-CM codes that explicitly include a
specification of the acute exacerbation of the underlying disease. For
example, for congestive heart failure, the following codes specify an
acute exacerbation of the congestive heart failure:
428.21, Acute systolic heart failure
428.41, Acute systolic and diastolic heart failure
428.43, Acute on chronic systolic heart failure
428.31, Acute diastolic heart failure
428.33, Acute on chronic diastolic heart failure
These congestive heart failure codes are included on the revised CC
list. However, the following congestive heart failure codes do not
indicate an acute exacerbation and are not included in the revised CC
list:
428.0, Congestive heart failure not otherwise specified
428.1, Left heart failure
428.20, Systolic heart failure not otherwise specified
428.22, Chronic systolic heart failure
428.32, Chronic diastolic heart failure
428.40, Systolic and diastolic heart failure
428.9, Heart failure not otherwise specified
As a result of this approach, most chronic diseases were not
assigned to the revised CC list. In general, a significant acute
manifestation of the chronic disease must be present and coded for the
patient to be assigned a CC. We made exceptions for diagnosis codes
that indicate a chronic disease in which the underlying illness has
reached an advanced stage or is associated with systemic physiologic
decompensation and debility. The presence of such advanced chronic
diseases, even in the absence of a separately coded acute
manifestation, significantly adds to the treatment complexity of the
patient. Thus, the presence of the advanced chronic disease inherently
makes the reason for admission more difficult to treat. For example,
under the revised CC list, stage IV, V, or end-stage chronic renal
failure (codes 585.4 through 585.6) are designated as a CC, but stage I
through III chronic renal failure (codes 585.1 through 585.3) are not.
For obesity, a body mass index over 35 (codes V85.35 through V85.4) is
a CC, but a body mass index between 19 and 35 is not. End-stage renal
failure and extreme obesity are examples of chronic diseases for which
the advanced stage of the disease is clearly specified.
However, for most major chronic diseases, the stage of the disease
is not clearly specified in the code. These codes were evaluated based
on the consistency and intensity of the physiologic decompensation and
debility associated with the chronic disease. For example, quadriplegia
(codes 344.00 through 344.09) requires extensive care with a
substantial increase in nursing services and more intensive monitoring.
Therefore, quadriplegia is considered a CC in the revised CC list.
c. Acute Diagnosis Codes
Examples of acute diseases included on the revised CC list included
acute myocardial infarction (AMI), cerebrovascular accident (CVA) or
stroke, acute respiratory failure, acute renal failure, pneumonia, and
septicemia. These six diseases are representative of the types of
illnesses we included on the revised CC list. Other acute diseases were
designated as a CC if their impact on hospital resource use would be
expected to be comparable to these representative acute diseases. For
example, acute endocarditis was included on the CC list but urinary
tract infection was not.
The revised CC list is essentially comprised of significant acute
disease, acute exacerbations of significant chronic diseases, advanced
or end stage chronic diseases and chronic diseases associated with
extensive debility. Compared to the existing CC list, the revised CC
list requires a secondary diagnosis to have a consistently greater
impact on hospital resource use.
The following Table E compares the current CC list and the revised
CC list. There are 3,326 diagnosis codes on the current CC list. The CC
revisions reduce the number of diagnosis codes on the CC list to 2,583.
Based on the current CC list, 77.66 percent of patients have at least
one CC present, using FY 2006 MedPAR data. Based on the revised CC
list, the percent of patients having at least one CC present is reduced
to 40.34 percent. The revised CC list increases the difference in
average charges between patients with and without a CC by 56 percent
($15,236 versus $9,743).

Table E.--Comparison of Current CC List and Revised CC List
------------------------------------------------------------------------
Current CC Revised CC
list list
------------------------------------------------------------------------
Codes designated as a CC...................... 3,326 2,583
Percent of patients with one or more CCs...... 77.66 40.34
Percent of patients with no CC................ 22.34 59.66
Average charge of patients with one or more $24,538 $31,451
CCs..........................................
Average charge of patients with no CCs........ $14,795 $16,215
------------------------------------------------------------------------

The analysis above suggests that merely reviewing and updating the
CC list can lead to significant improvements in the ability of the CMS
DRGs to recognize severity of illness. Although we could potentially
adopt this one change to better recognize severity of illness in the
CMS DRGs, we have undertaken additional analyses that further refine
secondary diagnoses into MCCs, CCs and non-CCs as described below.
d. Prior Research on Subdivision of CCs into Multiple Categories
(1) Refined DRGs
During the mid-1980s, CMS (then HCFA) funded a project at Yale
University to revise the use of CCs in the CMS DRGs. The Yale
University project mapped all secondary diagnoses that were considered
a CC in the CMS DRGs into 136 secondary diagnosis groups, each of which
was assigned a CC complexity level. For surgical patients, each of the
136 secondary diagnosis groups was assigned to 1 of 4 CC complexity
levels (non-CC, moderate CC, MCC, and catastrophic CC). For medical
patients, each of the 136 secondary diagnosis groups was assigned to 1
of 3 CC complexity levels (non-CC, moderate/MCC, and catastrophic CC).
All age subdivisions and CC subdivisions in the DRGs were

[[Page 47155]]

eliminated and replaced by the four CC subgroups for surgical patients,
or the three CC subgroups for medical patients. The Yale University
project did not reevaluate the categorization of secondary diagnosis as
a CC versus a non-CC. Only the diagnoses on the standard CC list were
used to create the moderate, major, and catastrophic subgroups. All
secondary diagnoses in a secondary diagnosis group were assigned the
same level, and a patient was assigned to the subgroup corresponding to
the highest level secondary diagnosis. The number of secondary
diagnoses had no effect on the subgroup assigned to the patient (that
is, multiple secondary diagnoses at one level did not cause a patient
to be assigned to a higher subgroup). The DRG system developed by the
Yale University project demonstrated that a subdivision of the CCs into
multiple subclasses would improve the predictability of hospital costs.
(2) 1994 Severity DRGs
We also examined the work we performed in the mid-1990's to revise
the CMS DRGs to better recognize severity. In 1993, we reevaluated the
use of CCs within the CMS DRGs. The reevaluation excluded the CMS DRGs
associated with pregnancy, newborn, and pediatric patients (MDCs 14 and
15 and DRGs defined based on age 0-17). The major CC list from the AP-
DRGs that are used for Medicaid payment by New York and other States
was used to identify an initial list of MCCs. Using Medicare data, we
reevaluated the categorization of each secondary diagnosis as a non-CC,
CC, or an MCC. The end result was that 111 diagnoses that were non-CCs
in the standard CMS DRGs were made a CC, 220 diagnoses that were a CC
were made a non-CC, and 395 CCs were considered an MCC.
All CC splits in the CMS DRGs were eliminated, and an additional 24
DRGs were merged together. The resulting base CMS DRGs were then
subdivided into three, two, or no subgroups based on an analysis of
Medicare data. The result was 84 DRGs with no subgroups, 124 DRGs with
two subgroups, and 85 DRGs with three subgroups. An additional 63
pregnancy, newborn, and pediatric DRGs not evaluated resulted in a
total of 652 DRGs.
A patient was assigned to the CC subgroup corresponding to the
highest level secondary diagnosis. Multiple secondary diagnoses at one
level did not cause a patient to be assigned to a higher subgroup. The
categorization of a diagnosis as non-CC, CC, or MCC was uniform across
the CMS DRGs, and there were no modifications for specific DRGs. As
part of the FY 1995 IPPS proposed rule, we made a complete file of the
revised DRG descriptions available to the public. However, we never
adopted the revised DRGs (55 FR 27756).
e. Medicare Severity DRGs (MS-DRGs)
We had several options in developing a refinement to the current
CMS DRGs to better recognize increased resource use due to severity of
illness. One option would involve simply taking the work performed in
1994 and then updating it with all the code changes that have taken
place since then. We were reluctant to do this because of changes in
medical practices as well as the substantial changes in ICD-9-CM codes
since that time. Another option would have been to build on current CMS
DRGs which include a number of advancements that better identify
medical practices and technologies. Many commenters on the FY 2007 IPPS
proposed rule urged us to take the latter approach because they
believed the current base CMS DRGs clearly differentiate between the
complexities of varying surgical procedures and medical devices.
Therefore, we chose the option of developing a new severity DRG system
based on the current CMS DRGs.
The development of the 1994 Severity DRGs involved three steps:
Consolidation of existing DRGs into base DRGs.
Categorization of each diagnosis as an MCC, CC, or non-CC.
Subdivision of each base DRG into subclasses based on CCs.
We reviewed and revised each of the three steps and applied them to
our current CMS DRGs to develop DRGs that better identify severity of
illness among Medicare patients. We refer to this system that we
proposed (and are adopting in this final rule with comment period) as
the Medicare Severity DRGs (MS-DRGs). The purpose of the MS-DRGs is to
more accurately stratify groups of Medicare patients with varying
levels of severity.
(1) Consolidation of Existing CMS DRGs into Base MS-DRGs
The first step in our process was the consolidation of existing CMS
DRGs into new proposed base MS-DRGs. We combined together the 115 pairs
of CMS DRGs that are subdivided based on the presence of a CC. We
further consolidated the CMS DRGs that are split on the basis of a
major cardiovascular condition, AMI with and without major complication
(CMS DRGs 121 and 122), and cardiac catheterization with and without
complex diagnoses (CMS DRGs 124 and 125). We also consolidated the
three pairs of burn CMS DRGs that were defined based on the presence of
a CC or a significant trauma (CMS DRGs 506 and 507; 508 and 509; and
510 and 511). Next, we consolidated the 43 pediatric CMS DRGs that are
defined based on age less than or equal to 17. These pediatric CMS DRGs
contain a very low volume of Medicare patients. As shown in Table 10 of
the FY 2007 IPPS final rule (71 FR 48318), only two of these pediatric
CMS DRGs contained more than 100 patients (CMS DRGs 298 and 333).
Seventeen of these pediatric DRGs had no patients (CMS DRGs 30, 33, 41,
48, 54, 58, 137, 252, 255, 282, 330, 340, 343, 393, 405, 446, and 448).
As we have stated frequently, our primary focus in maintaining the CMS
DRGs is to serve the Medicare population. We do not have the data or
the expertise to maintain the DRGs in clinical areas that are not
relevant to the Medicare population. We continue to encourage users of
the CMS DRGs (or MS-DRGs that are being adopted) to make relevant
adaptations if they are being used for a non-Medicare patient
population.
In addition to the pediatric CMS DRGs defined by the age of the
patient, there are a number of CMS DRGs that relate primarily to the
pediatric or adult population that have very low volume in the Medicare
population, such as male sterilization, tubal interruptions,
circumcisions, tonsillectomies, and myringotomies. These CMS DRGs were
consolidated into the most clinically similar MS-DRG.
Over the past two decades, the site of service for some elective
procedures such as carpal tunnel release, cataract extraction, and
laparoscopy has shifted from the inpatient to the outpatient setting,
resulting in the CMS DRGs associated with these procedures having very
low volume. These CMS DRGs were also consolidated into the most
clinically similar MS-DRG. In addition, there were some clinically
related CMS DRGs that had significant Medicare patient volume but had
no significant difference in resource use. For example, thyroid (CMS
DRG 290) and parathyroid (CMS DRG 289) procedures were virtually
identical in terms of hospital resource use and were, therefore,
consolidated. In total, 34 of these CMS DRGs were consolidated. The DRG
consolidations are summarized in Table F below.
Four pairs of MS-DRGs (223 and 224; 228 and 229; 323 and 324; and
551 and 552) were defined based on the presence of a CC or some other
condition. For example, MS-DRG 323 is defined based on the presence of
a CC or the performance of extracorporeal shock

[[Page 47156]]

wave lithotripsy. For these MS-DRGs, the CC condition was removed and
the pair of DRGs remains separate but defined based only on the other
condition (that is, MS-DRG 323 became urinary stones with
extracorporeal shock wave lithotripsy). As was done in the 1994
severity DRG work, we did not consolidate any of the CMS DRGs for
maternity or newborn cases.
Before proceeding further, we made one additional change to a base
DRG assignment after completing these consolidations. We assigned
cranial-facial bone procedures to a new base DRG (Cranial/Facial Bone
Procedures). These cases were previously assigned to DRGs 52 and 55
through 63. We also created a new base DRG, MS-DRG 245 (Automatic
Implantable Cardiac Defibrillator (ACID) Lead and Generator
Procedures). This DRG was created by removing automatic implantable
cardiac defibrillator leads and generator procedures from the pacemaker
DRG (CMS DRG 551; now new MS-DRGs 242 through 244).
Table F below shows how DRGs in the CMS DRGs (Version 24.0) were
consolidated into new base MS DRGs. We refer readers to section II.D.2.
of the preamble of the proposed rule and this final rule with comment
period for a detailed discussion of CCs and MCCs under the MS-DRG
system.

Table F.--DRG Consolidation
----------------------------------------------------------------------------------------------------------------
MS-DRGs
CMS-DRG version 24.0 DRG description version 25.0 New base MS-DRG description
----------------------------------------------------------------------------------------------------------------
6................................... Carpal Tunnel Release....... 40 Peripheral & Cranial Nerve &
41 Other Nervous System
42 Procedure with MCC, with
CC, and without CC/MCC.
7, 8................................ Peripheral & Cranial Nerve &
Other Nervous System
Procedure.
----------------------------------------------------------------------------------------------------------------
36.................................. Retinal Procedures.......... 116 Intraocular Procedures with
117 and without CC/MCC.
38.................................. Primary Iris Procedures.
39.................................. Lens Procedures with or
without Vitrectomy.
42.................................. Intraocular Procedures
Except Retina, Iris & Lens.
----------------------------------------------------------------------------------------------------------------
43.................................. Hyphema..................... 124 Other Disorders of the Eye
125 with and without MCC.
46, 47, 48.......................... Other Disorders of the Eye.
----------------------------------------------------------------------------------------------------------------
50.................................. Sialoadenectomy............. 139 Salivary Gland Procedures.
51.................................. Salivary Gland Procedures
Except Sialoadenectomy.
----------------------------------------------------------------------------------------------------------------
52.................................. Cleft Lip & Palate Repair... 133 Other Ear, Nose, Mouth &
Throat O.R. Procedures with
and without CC/MCC.
55.................................. Miscellaneous Ear, Nose,
Mouth & Throat Procedures.
----------------------------------------------------------------------------------------------------------------
56.................................. Rhinoplasty................. 131 New DRG--Cranial/Facial Bone
132 Procedures with and without
CC/MCC.
57, 58.............................. Tonsillectomy &
Adenoidectomy Procedure,
Except Tonsillectomy &/or
Adenoidectomy Only.
59, 60.............................. Tonsillectomy &/or
Adenoidectomy Only.
61, 62.............................. Myringotomy with Tube
Insertion.
63.................................. Other Ear, Nose, Mouth &
Throat O.R. Procedures.
----------------------------------------------------------------------------------------------------------------
67.................................. Epiglottitis................ 152 Otitis Media & Upper
153 Respiratory Infection with
and without MCC.
68, 69, 70.......................... Otitis Media & Upper
Respiratory Infection.
71.................................. Laryngotracheitis.
----------------------------------------------------------------------------------------------------------------
72.................................. Nasal, Trauma & Deformity... 154 Other Ear, Nose, Mouth &
155 Throat Diagnoses with MCC,
156 with CC, without CC/MCC.
73, 74.............................. Other Ear, Nose, Mouth &
Throat Diagnoses.
----------------------------------------------------------------------------------------------------------------
185, 186............................ Dental & Oral Diseases 157 Dental & Oral Diseases with
Except Extractions & 158 MCC, with CC, without CC/
Restorations. 159 MCC.
187................................. Dental Extractions &
Restorations.
----------------------------------------------------------------------------------------------------------------
199................................. Hepatobiliary Diagnostic 420 Hepatobiliary Diagnostic
Procedure for Malignancy. 421 Procedures with MCC, with
422 CC, without CC/MCC.
200................................. Hepatobiliary Diagnostic
Procedure for Non-
Malignancy.
----------------------------------------------------------------------------------------------------------------

[[Page 47157]]

244, 245............................ Bone diseases & Specific 553 Bone Diseases &
Arthropathies. 554 Arthropathies with and
without MCC.
246................................. Non-Specific Arthropathies.
----------------------------------------------------------------------------------------------------------------
259, 260............................ Subtotal Mastectomy for 584 Breast Biopsy, Local
Malignancy *. 585 Excision & Other Breast
Procedures with and without
CC/MCC.
261................................. Breast Procedures for Non-
Malignancy Except Biopsy &
Local Excision.
262................................. Breast Biopsy & Local
Excision for Non-
Malignancy.
----------------------------------------------------------------------------------------------------------------
267................................. Perianal & Pilonidal 579 Other Skin, Subcutaneous
Procedures. 580 Tissue & Breast Procedures
581 with MCC, with CC, without
CC/MCC.
268................................. Skin, Subcutaneous Tissue &
Breast Plastic Procedures.
269, 270............................ Other Skin, Subcutaneous
Tissue & Breast Procedure.
----------------------------------------------------------------------------------------------------------------
289................................. Parathyroid Procedures...... 625 Thyroid, Parathyroid &
626 Thyroglossal Procedures
627 with MCC, with CC, without
CC/MCC.
290................................. Thyroid Procedures.
291................................. Thyroglossal Procedures.
----------------------------------------------------------------------------------------------------------------
294................................. Diabetes > 35............... 637 Diabetes with MCC, with CC,
without CC/MCC.
295................................. Diabetes < 35.
----------------------------------------------------------------------------------------------------------------
338................................. Testes Procedures for 711 Testes Procedures with and
Malignancy. 712 without CC/MCC.
339, 340............................ Testes Procedures, Non-
Malignancy.
----------------------------------------------------------------------------------------------------------------
342, 343............................ Circumcision................ .............. Procedure 64.0 changed to
non-O.R. Cases with only
this procedure will go to
medical DRGs.
----------------------------------------------------------------------------------------------------------------
351................................. Sterilization, Male......... 729 Other Male Reproductive
730 System Diagnoses with and
without CC/MCC
352................................. Other Male Reproductive
System Diagnoses.
----------------------------------------------------------------------------------------------------------------
361................................. Laparoscopy & Incisional 744 D&C, Conization, Laparascopy
Tubal Interruption. 745 & Tubal Interruption with
and without CC/MCC.
362................................. Endoscopic Tubal
Interruption.
363................................. D&C, Conization & Radio-
Implant, for Malignancy.
364................................. D&C, Conization Except for
Malignancy.
----------------------------------------------------------------------------------------------------------------
411................................. History of Malignancy 843 Other Myeloproliferative
without Endoscopy. 844 Disease or Poorly
845 Differentiated Neoplasm
Diagnosis with MCC, with
CC, without CC/MCC.
412................................. History of Malignancy with
Endoscopy.
413, 414............................ Other Myeloproliferative
Disease or Poorly
Differentiated Neoplasm
Diagnosis.
----------------------------------------------------------------------------------------------------------------
465................................. Aftercare with History of 949 Aftercare with and without.
Malignancy as Secondary
Diagnosis.
----------------------------------------------------------------------------------------------------------------
466................................. Aftercare without History of 950 CC/MCC.
Malignancy as Secondary
Diagnosis.
----------------------------------------------------------------------------------------------------------------
* Codes 85.22 and 85.23 in CMS DRGs 259 and 260 were moved to MS-DRG 582 and 583.

As summarized in Table G, the consolidation resulted in the
formation of 335 base MS-DRGs.

Table G.--Consolidation of Current CMS DRGs Into MS DRGs
------------------------------------------------------------------------
Number
------------------------------------------------------------------------
Current CMS DRGs............................................. 538
Elimination of CC subgroups.................................. -114
Elimination of MCC subgroups................................. -7
Elimination of CC complexity subgroups....................... -5

[[Page 47158]]

Elimination of age 0-17 subgroups............................ -43
Consolidation due to volume or resource similarity........... -34
New DRG...................................................... +1
Revised Base DRGs............................................ 311
Newborn, maternity and error DRGs............................ +24
Base DRGs for severity subdivision........................... 335
------------------------------------------------------------------------

The end result of the consolidation of the CMS DRGs in the MS-DRGs
was similar to the consolidation performed in the 1994 severity DRGs.
The 1994 DRG consolidations resulted in 356 base DRGs plus 2 error
DRGs. The number of the 1994 base DRGs is different because new CMS
DRGs have been added since 1994, the 43 age 0-17 pediatric CMS DRGs
were not consolidated, and some of the volume shifts to outpatient care
had not yet occurred in 1994. In the 1994 severity DRGs, 24 DRGs were
consolidated due to volume or resource similarity. Sixteen of these
1994 DRG consolidations are included in the 34 consolidations done in
the 2007 consolidations. However, due to concerns expressed by our
physician consultants, 8 of the DRG consolidations from 1994 were not
done. For example, interstitial lung disease (DRGs 92 and 93) was not
consolidated with simple pneumonia and pleurisy (DRGs 89, 90, 91) as
was done in the 1994 consolidations.
Comment: One commenter expressed concern that the focus of MS-DRGs
was on the Medicare population. As a result of this focus, many of the
DRGs reflect severity and resource use only for the Medicare
population. The commenter stated that certain diagnoses present
differently at different ages or actually represent a different disease
process. For instance, the commenter stated that hypertension in a
child represents a very different disease than for adults. The
commenter also stated that CMS DRGs 569 and 570 (Major Small and Large
Bowel Procedures with CC and with or without Major Gastrointestinal
Diagnosis, respectively) have different costs for a Medicare patient
than a child. The commenter also indicated that CMS did not perform
updates to MDC 14 (Obstetrics) and MDC 14 (Newborns and Other Neonates
with Problems Arising in the Perinatal Period). The commenter stated
that the MS-DRGs will not work well for other populations.
Response: The MS-DRGs were specifically designed for purposes of
Medicare hospital inpatient services payment. As we stated above, we
generally use MedPAR data to evaluate possible DRG classification
changes and recalibrate the DRG weights. The MedPAR data only represent
hospital inpatient utilization by Medicare beneficiaries. We do not
have comprehensive data from non-Medicare payers to use for this
purpose. The Medicare program only provides health insurance benefits
for people over the age of 65 or who are disabled or suffering from
end-stage renal disease. Therefore, newborns, maternity, and pediatric
patients are not well-represented in the MedPAR data that we used in
the design of the MS-DRGs. We simply do not have enough data to
establish stable and reliable DRGs and relative weights to address the
needs of non-Medicare payers for pediatric, newborn, and maternity
patients. For this reason, we encourage those who want to use MS-DRGs
for patient populations other than Medicare make the relevant
refinements to our system so it better serves the needs of those
patients.
(2) Categorization of Diagnoses
We decided to establish three different levels of CC severity into
which we would subdivide the diagnosis codes. The proposed three levels
are MCC, CC, and non-CC. Diagnosis codes classified as MCCs reflect the
highest level of severity. The next level of severity includes
diagnosis codes classified as CCs. The lowest level is for non-CCs.
Non-CCs are diagnosis codes that do not significantly affect severity
of illness and resource use. Therefore, secondary diagnoses that are
non-CCs do not affect the DRG assignment under either the CMS DRGs or
the MS-DRGs.
The categorization of diagnoses as an MCC, CC, or non-CC was
accomplished using an iterative approach in which each diagnosis was
evaluated to determine the extent to which its presence as a secondary
diagnosis resulted in increased hospital resource use. In order to
begin this iterative process, we started with an initial categorization
of each diagnosis as an MCC, CC, or non-CC. As noted previously, the
1994 CC revision began by separating CCs into MCC and CC based on the
AP-DRG major CCs. One way to begin this iterative process would have
been to use the 1994 CC categorization. However, the 1994 CC
categorization was based on FY 1992 data and ICD-9-CM diagnosis codes,
which now are 15 years old. Since 1992, 1,897 new diagnosis codes have
been added, and 346 diagnosis codes have been deleted. Because the
revised CC list (explained in section II.C.2.a. of this preamble) was
based on current ICD-9-CM codes and used recent data, we decided to
utilize the revised CC list rather than the 1994 categorization as our
starting point for determining whether each secondary diagnosis should
be an MCC, a CC, or a non-CC.
The revised CC list categorizes each diagnosis as a CC or a non-CC.
We decided to use this list in combination with the categorization
under the AP-DRGs and the APR DRGs. The AP-DRGs and the APR DRGs are
updated annually with current codes and provide a good comparison
source to use with the revised CC list. We designated as an MCC any
diagnosis that was a CC in the revised CC list and was an AP-DRG major
CC and was an APR DRG default severity level 3 (major) or 4
(extensive). We designated as a non-CC any diagnosis that was a non-CC
in the revised CC list and was an AP-DRG non-CC and was an APR DRG
default severity level of 1 (minor). Any diagnoses that did not meet
either of the above two criteria was designated as a CC.
The only exception to our approach was for diagnoses related to
newborns, maternity, and congenital anomalies. These diagnoses are very
low volume in the Medicare population and were not reviewed for
purposes of creating the revised CC list. We used the APR DRGs to
categorize these diagnoses. For newborn, obstetric, and congenital
anomaly diagnoses, we designated the APR DRG default severity level 3
(major) and 4 (extreme) diagnoses as an MCC, the APR DRG default
severity level 2 (moderate) diagnoses as a CC, and the APR DRG default
severity 1 (minor) diagnoses as a non-CC. Table H summarizes the number
of codes in each CC category.

Table H.--Initial Categorization of CC Codes
------------------------------------------------------------------------
Number of
codes
------------------------------------------------------------------------
MCC.......................................................... 1,096
CC........................................................... 4,221
Non CC....................................................... 8,232
----------
Total.................................................... 13,549
------------------------------------------------------------------------

This initial CC categorization of diagnosis codes was used to begin
the iterative process of determining the proposed final CC
categorization for each diagnosis code.

[[Page 47159]]

(3) Additional CC Exclusions
For some CMS DRGs, the presence of specific secondary diagnoses
affects the base DRG assignment. For example, in MDC 5 (Diseases and
Disorders of the Circulatory System), the presence of an AMI code as
the principal diagnosis or as a secondary diagnosis will cause the
patient to be assigned to the AMI DRGs (CMS DRGs 121 through 123).
Therefore, if the AMI code is present as a secondary diagnosis, it
should not be used to assign the CC category for a patient because it
is redundant within the definition of the base DRG. Similarly, for MDC
24 (Multiple Significant Trauma), specific combinations of significant
trauma as principal or secondary diagnosis cause the assignment to the
multiple trauma DRGs (CMS DRGs 484 through 487). Therefore, any
secondary diagnosis of trauma is redundant with the definition of the
multiple trauma DRGs and should not be used to determine the CC
category for a patient. Any secondary diagnoses that are used to assign
a specific proposed base MS-DRG were excluded from the determination of
the CC category for patients assigned to that base MS-DRG.
Comment: Several commenters asked that we make changes to the CC
and exclusion list for codes associated with sepsis. The commenters
stated that two Systemic Inflammatory Response Syndrome (SIRS) codes,
995.91 (Sepsis) and 995.92 (Severe sepsis) are CCs under MS-DRGs. The
commenters believed that if a patient has SIRS and pneumonia, both
conditions should be coded, and that this coding would result in a
patient admitted with SIRS being assigned to MS-DRG 871 (Septicemia
without Mechanical Ventilation with MCC). The commenters stated that
the pneumonia would count as a MCC in this case. The commenters
requested that CMS exclude pneumonia from being a MCC when it occurs
with sepsis. The commenters believed pneumonia should be excluded as an
MCC for a patient with sepsis because it is an underlying and related
condition, and that these patients should not be assigned to MS-DRG
871. The commenters stated that the other SIRS codes, 995.93 (Systemic
Inflammatory Response Syndrome due to noninfectious process without
acute organ dysfunction) and 995.94 (Systemic Inflammatory Response
Syndrome due to noninfectious process with acute organ dysfunction) are
excluded from acting as a CC for pancreatitis (code 577.0). The
commenters asked that CMS not exclude codes 995.93 and 995.94 with code
577.0.
Response: The commenters are mistaken about codes 995.91 and
995.92. While these two codes are not CCs, they are on the MCC list.
Our data and the judgment of our medical advisors support the
assignment of these codes to the MCC list. Furthermore, we do not
believe it is appropriate to exclude pneumonia as an MCC for sepsis and
severe sepsis. These patients would be at an extremely high level of
severity. SIRS is not always associated with pneumonia but when it is,
the patient is at a higher severity level. Therefore, we are not making
this change to the CC exclusion list by excluding pneumonia codes from
acting as a MCC with code 995.91 and 995.92. On the second issue the
commenters raised, they are incorrect that codes 995.91 and 995.92 are
excluded from acting as a CC for code 577.0. These codes are not on the
CC exclusion list for code 577.0. Therefore, both would act as a MCC
for code 577.0. We are not making any changes to the CC exclusion list
as a result of these comments.
(4) Analysis of Secondary Diagnoses
The 311 base MS-DRGs (335 total base DRGs minus the MDC 14, MDC 5,
and error DRGs) were subdivided into three CC subgroups. Patients were
assigned to the subgroup corresponding to the most extreme CC present.
All but four of the base MS-DRGs had strictly monotonically increasing
average charges across the three CC subgroups (that is, average charges
progressively increased from the non-CC to the CC to the MCC
subgroups). The four MS-DRGs that failed to have monotonically
increasing charges all had at least one CC subgroup with very low
volume. For example, the non CC subgroup for the pancreas transplant
DRG (CMS DRG 513) had only 2 cases. The overall statistics by CC
subgroup for the 311 base MS-DRG are contained in Table I. Patients in
the MCC subgroup have average charges that are nearly double the
average charges for patients in the CC subgroup. The CC subgroup with
the largest number of patients is the non-CC subgroup with 41.1 percent
of the patients.

Table I.--Overall Statistics for MS-DRGs Excluding Those in MDCs 14 and
15
------------------------------------------------------------------------
Number of Average
CC subgroup cases Percent charges
------------------------------------------------------------------------
Major.............................. 2,604,696 22.2 $44,246
CC................................. 4,293,744 36.6 24,131
Non-CC............................. 4,818,411 41.1 18,435
------------------------------------------------------------------------

In order to evaluate the initial assignment of secondary diagnoses
to the three CC subclasses, we devised a system that determined the
impact on resource use of each secondary diagnosis. For each secondary
diagnosis, we measured the impact in resource use for the following
three subsets of patients:
(a) Patients with no other secondary diagnosis or with all other
secondary diagnoses that are non-CCs.
(b) Patients with at least one other secondary diagnosis that is a
CC but none that is an MCC.
(c) Patients with at least one other secondary diagnosis that is an
MCC.
Numerical resource impact values were assigned for each diagnosis
as follows:

------------------------------------------------------------------------
Value Meaning
------------------------------------------------------------------------
0......................................... Significantly below expected
value for the non-CC
subgroup.
1......................................... Approximately equal to
expected value for the non-
CC subgroup.
2......................................... Approximately equal to
expected value for the CC
subgroup.
3......................................... Approximately equal to
expected value for the MCC
subgroup.
4......................................... Significantly above the
expected value for the MCC
subgroup.
------------------------------------------------------------------------

Each diagnosis for which Medicare data were available was evaluated
to determine its impact on resource use and to determine the most
appropriate CC subclass (non-CC, CC, or MCC) assignment. In order to
make this determination, the average charge for each subset of cases
was compared to the expected charge for cases in that

[[Page 47160]]

subset. The following format was used to evaluate each diagnosis:

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

----------------------------------------------------------------------------------------------------------------
Code..................................... Diagnosis.................. Cnt1 C1 Cnt2 C2 Cnt3 C3
----------------------------------------------------------------------------------------------------------------

Count (Cnt) is the number of patients in each subset and C1, C2,
and C3 are a measure of the impact on resource use of patients in each
of the subsets. The C1, C2, and C3 values are a measure of the ratio of
average charges for patients with these conditions to the expected
average charge across all cases. The C1 value reflects a patient with
no other secondary diagnosis or with all other secondary diagnoses that
are non-CCs. The C2 value reflects a patient with at least one other
secondary diagnosis that is a CC but none that is a major CC. The C3
value reflects a patient with at least one other secondary diagnosis
that is a major CC. A value close to 1.0 in the C1 field would suggest
that the code produces the same expected value as a non-CC diagnosis.
That is, average charges for the case are similar to the expected
average charges for that subset and the diagnosis is not expected to
increase resource usage. A higher value in the C1 (or C2 and C3) field
suggests more resource usage is associated with the diagnosis and an
increased likelihood that it is more like a CC or major CC than a non-
CC. Thus, a value close to 2.0 suggests the condition is more like a CC
than a non-CC but not as significant in resource usage as an MCC. A
value close to 3.0 suggests the condition is expected to consume
resources more similar to an MCC than a CC or non-CC. For example, a C1
value of 1.8 for a secondary diagnosis means that for the subset of
patients who have the secondary diagnosis and have either no other
secondary diagnosis present, or all the other secondary diagnoses
present are non-CCs, the impact on resource use of the secondary
diagnoses is greater than the expected value for a non-CC by an amount
equal to 80 percent of the difference between the expected value of a
CC and a non-CC (that is, the impact on resource use of the secondary
diagnosis is closer to a CC than a non-CC).
Table J below shows examples of the results.

Table J.--Examples of Impact on Resource Use of Secondary Diagnoses
----------------------------------------------------------------------------------------------------------------
Code Cnt1 C1 CntC2 C2 Cnt3 C3 CC subclass
----------------------------------------------------------------------------------------------------------------
401.1, Benign essential 12,308 0.955 40,113 1.715 5,297 2.384 Non CC.
hypertension.
530.81, Esophageal reflux..... 294,673 0.986 917,058 1.639 122,076 2.302 Non CC.
560.1, Paralytic Ileus........ 10,651 1.466 87,788 2.320 51,303 3.226 CC.
491.20, Obstructive chronic 7,003 1.416 32,276 2.193 13,355 3.035 CC.
bronchitis.
410.71, Subendocardial 1,657 2.245 30,226 2.778 42,862 3.232 MCC.
infarction initial episode.
518.81, Acute respiratory 5,332 2.096 118,937 2.936 223,054 3.337 MCC.
failure.
----------------------------------------------------------------------------------------------------------------

The resource use impact reports were produced for all diagnoses
except obstetric, newborn, and congenital anomalies (10,690 diagnoses).
These mathematical constructs were used as guides in conjunction with
the judgment of our clinical staff to classify each secondary diagnosis
reviewed as an MCC, CC or non-CC. Our clinical panel reviewed the
resource use impact reports and modified 14.9 percent of the initial CC
subclass assignments as summarized in Table K below. The rows in the
table are the initial CC subclass categories and the columns are the
final CC subclass categories.
Comment: Several commenters acknowledged the detailed description
of the methodology used in categorizing secondary diagnoses as MCCs,
CCs, or non-CCs. While they were appreciative of the detailed iterative
process outlined in the proposed rule (72 FR 24702), the commenters
requested that CMS provide the numerical values (the C1 to C3 values)
that were assigned to classify each diagnosis as an MCC, CC or non-CC.
Response: We agree that it would be helpful to share the data we
developed and used for each individual code as part of our CC
evaluation process. We will post this data on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/ under the Downloads section.

Table K.--CC Subclass Modifications
----------------------------------------------------------------------------------------------------------------
Final CC subclass
Initial CC subclass ------------------------------------------------------
MCC CC Non-CC Total Percent
----------------------------------------------------------------------------------------------------------------
MCC...................................................... 847 62 0 909 8.5
CC....................................................... 542 2,579 737 3,858 36.1
Non-CC................................................... 0 272 5,651 5,923 55.4
----------------------------------------------------------------------------------------------------------------
Total................................................ 1,389 2,913 6,388 10,690 .........
Percent.............................................. 13.0 27.2 59.8 ......... .........
----------------------------------------------------------------------------------------------------------------

Of the diagnoses initially designated as an MCC, 6.8 percent were
made a CC (62/909), and of the diagnoses initially designated as non-
CC, 4.6 percent were made a CC (272/5,923). The major shift occurred in
the diagnoses initially assigned to the CC subclass. Fourteen percent
of the diagnoses initially designated as a CC were made an MCC (542/
3858), and 19.1 percent of the diagnoses initially designated a CC were
made a non-CC (737/3,858). In determining the CC subclass assigned to a
diagnosis, imprecise codes were, in general, not assigned to the MCC or
CC

[[Page 47161]]

subclass. For example, the congestive heart failure codes have the
following CC subclass assignments:

----------------------------------------------------------------------------------------------------------------
Code CC subclass assignment
----------------------------------------------------------------------------------------------------------------
428.21, Acute systolic heart failure........ MCC.
428.41, Acute systolic & diastolic heart MCC.
failure.
428.43, Acute on chronic systolic heart MCC.
failure.
428.31, Acute diastolic heart failure....... MCC.
428.33, Acute on chronic diastolic heart MCC.
failure.
428.1, Left heart failure................... CC.
428.20, Systolic heart failure NOS.......... CC.
428.22, Chronic systolic heart failure...... CC.
428.32, Chronic diastolic heart failure..... CC.
428.40, Systolic & diastolic heart failure.. CC.
428.0, Congestive heart failure NOS......... Non-CC.
428.9, Heart failure NOS.................... Non-CC.
----------------------------------------------------------------------------------------------------------------

The acute heart failure codes are MCCs, and the chronic heart
failure codes are CCs. However, Not Otherwise Specified (NOS) heart
failure codes are non-CCs. Thus, the precise type of heart failure must
be specified in order for an MCC or CC to be assigned.
There are currently 13,549 ICD-9-CM diagnosis codes. The external
cause of injury and poisoning codes (E800 through E999) and congenital
abnormality codes were not included in our current CC review for the
MS-DRGs. We excluded the external cause of injury and poisoning codes
from consideration as an MCC or a CC because they describe how an
injury occurred, and not the exact nature of the injury. For instance,
if a patient fell on the deck of a boat and fractured his or her skull,
one would assign an E code to describe the fall on the boat. A separate
diagnosis code would be assigned to describe the exact nature of any
resulting injury such as a contusion, fractured bone, or skull fracture
and concussion. A patient would be assigned to a severity level based
on the exact nature of the injury and not the manner in which the
injury occurred. Therefore, we decided not to classify any of the E
codes as either an MCC or a CC. The congenital abnormality codes
describe abnormalities when a baby is born. At times, a beneficiary may
live with these congenital abnormalities for years without a problem.
The congenital abnormalities may later lead to complications that
require hospital admissions. Should these congenital abnormalities lead
to medical problems that result in a hospital admission for a Medicare
beneficiary, the exact nature of the condition being treated would also
be assigned a code. This more precise code would be evaluated to
determine whether or not it was an MCC or a CC. Therefore, we decided
not to classify congenital abnormality codes as an MCC or a CC, but to
instead use the other reported diagnosis codes that better describe the
reason for the admission. Excluding the external cause of injury codes,
we reviewed 10,690 diagnosis codes.
As was done in our 1994 severity proposal, diagnoses that were
closely associated with patient mortality were assigned different CC
subclasses, depending on whether the patient lived or died. These
diagnoses are:
427.41, Ventricular fibrillation
427.5, Cardiac arrest
785.51, Cardiogenic shock
785.59, Other shock without mention of trauma
799.1, Respiratory arrest
Resource use for patients with these diagnoses who were discharged
alive was consistent with an MCC. Resource use for patients with these
diagnoses who died was consistent with a non-CC. Further, most patients
who died could legitimately have one of these diagnoses coded. As a
result, these diagnoses are assigned an MCC subclass for patients who
lived and a non-CC subclass for patients who died.
For some secondary diagnoses assigned to the CC subclass, our
medical advisors identified specific clinical situations in which the
diagnosis should not be considered a CC. In such clinical situations,
the CC exclusion list was used to exclude the secondary diagnosis from
consideration in determining the CC subgroup, essentially making the
secondary diagnosis a non-CC. For example, primary cardiomyopathy (code
425.4) is designated as a CC. However, for patients admitted for
congestive heart failure, our medical advisors believed that primary
cardiomyopathy should be treated as a non-CC. In order to accomplish
that, the congestive heart failure principal diagnoses were added to
the CC exclusion list for primary cardiomyopathy as a secondary
diagnosis.
The list of diagnosis codes that we proposed to classify as an MCC
(which we are adopting in this final rule with comment period) was
included in Table 6J in the Addendum to FY 2008 IPPS proposed rule. The
diagnosis codes that we proposed to classify as a CC (which are
adopting in this final rule with comment period) were included in Table
6K in the Addendum to the proposed rule. The E-codes, which are
diagnosis codes used to classify external causes of injury and
poisoning, are not included in this list. All E codes are designated as
non-CCs under the current CMS DRG system and our evaluation supports
this non-CC designation as appropriate. We are including a list of
changes to the MCC and CC lists as a result of public comments on the
proposed rule later in section II.G.13. of the preamble of this final
rule with comment period. We will post a complete final list of the MCC
and CC codes on the CMS Web site at: http://www/cms/hhs/gov/
AcuteInpatientPPS/ under the Files for Download section.
Comment: One commenter supported the basic methodology used to
identify MCCs and CCs. The commenter's analysis of discharge data
generally confirms the notion that the presence of chronic disease does
not usually have material impact on the expected cost of care. The
commenter agreed that the emphasis on acute manifestations of chronic
diseases is both clinically and financially appropriate. The commenter
stated that the current CC list is nearly 25 years old and does not
reflect the extent to which clinical practice has changed during that
period, with concomitant changes in expected resource use. The
commenter further stated that the current CC list also does not reflect
the nature of changes in coding practices during that period, changes
that have undermined the value of the current CC list. The commenter
stated that the elimination of common secondary diagnoses such as code
428.0 (Congestive heart failure, unspecified)

[[Page 47162]]

and code 427.31 (Atrial fibrillation) from the CC list will help to
restore CC status as a meaningful indicator of differential expected
resource use. The commenter also believed that elimination of these
diagnosis codes will address the current situation in which nearly 80
percent of Medicare discharges contain one or more CCs.
Response: We agree that it was important to perform a careful
review of the CC list to develop lists that more accurately identify
patients with significantly different severity levels. We believe that
by using both statistical data as well as input from our medical
advisors, we were able to develop the MCCs and CCs that do a much
better job of classifying Medicare patients with varying levels of
severity. We also agree that is important to remove chronic diagnoses
from the CC list that do not have a significant impact on severity. We
also believe that nonspecific codes such as code 428.0 should not be
included on the CC list. The ICD-9-CM coding system has more specific
codes to identify the specific type of heart failure. These more
specific codes have data supporting their inclusion on the MCC and CC
list. Our medical advisors also supported the inclusion of the more
specific heart failure codes on the MCC and CC list. We also agree that
patients with atrial fibrillation (code 427.31) do not necessarily have
a higher level of severity. The Medicare data suggest that when this
condition appears on the claim and the patient has no other secondary
diagnosis that is a CC, the charge data suggest the condition produces
an expected value for a non-CC rather than a CC case. Further in the
judgment of our medical advisors, the condition should not be on the CC
list. When the atrial fibrillation leads to additional cardiac
problems, the additional problems may be represented by codes that are
on the MCC or CC list. We agree that by removing codes from the CC list
that do not contribute to significantly higher levels of severity, we
can better recognize severity of illness and more accurately reimburse
hospitals.
We spent extensive time carefully reviewing the ICD-9-CM diagnosis
codes to develop the MCC and CC list. Our current CC list for Version
24.0 of the CMS DRGs contains 3,326 codes. The MS-DRGs have 3,342 codes
on the MCC list and 4,922 codes on CC list. While we did remove codes
from the CC list and add others to the list, we believe that the end
result is a better classification of conditions for identifying
differences in severity of illness. We appreciate the commenter's
support for our efforts.
Comment: Several commenters supported the MCC and CC lists as a
better means of identifying severity. The commenters recommended that
CMS consider adopting the revised CC list in FY 2008 as an interim step
toward IPPS reform. The commenters recommended that CMS delay
implementation of the new severity system until FY 2009 but adopt the
revised CC list in FY 2008. The commenters stated that by implementing
the revised CC list in FY 2008, CMS could move forward in its goal of
utilizing a system that more accurately recognizes the severity of
illness of patients. The commenters believed this option would allow a
more accurate DRG system to be in place while CMS is evaluating the
final RAND report to determine which severity-based DRG system to
propose for implementation in FY 2009.
Another commenter who supported the move to MS-DRGS and CMS'
efforts in creating the MCC and CC lists stated that it had been
working with CMS for years to develop a mechanism to appropriately
account for the resources involved in the care of patients with severe
sepsis. The commenter believed that the MS-DRGs in which severe sepsis
is recognized as a major complication, along with acute respiratory
distress syndrome, organ failure, and other conditions where resource
use is more intense, will go a long way towards better recognition of
severity of illness.
One commenter applauded CMS for the work it has put into developing
a system that will consider complexity of care as well as severity of
illness in determining Medicare payment for hospital inpatient
services. The commenter particularly supported the recognition of
hemophilia and end-stage renal disease as MCCs. The commenter stated
that these conditions clearly meet the criteria for treatment as MCCs
because they often require ``expensive and technologically complex''
services that lead to substantially increased resource use and reflect
the highest level of severity. The commenter encouraged CMS to add
other diagnoses as the evidence warrants.
Response: Comments and responses on whether to implement MS-DRGs in
FY 2008 or at a later date are discussed in detail in section II.D. of
the preamble of this final rule with comment period. We appreciate the
support for our efforts in creating the MCC and CC lists and agree that
it is important to examine data using the system and continue to refine
the MCC and CC lists.
Comment: One commenter commended CMS on the systematic way it
reviewed 13,549 secondary diagnosis codes to evaluate their assignment
as a CC or non-CC using a combination of mathematical data and the
judgment of its medical advisors. The commenter stated that, as part of
the effort to better recognize severity of illness, CMS conducted the
most comprehensive review of the CC list since the creation of the DRG
classification. However, the commenter disagreed with the
classification of many common secondary diagnoses as non-CCs.
Specifically, the commenter questioned threshold levels that were used
and at what point in the analysis CMS decided that a code was not a CC.
For example, the commenter asked what was considered ``intensive
monitoring,'' inquiring whether intensive monitoring refers to
additional nursing care on a daily basis, additional testing, intensive
care unit care, extended length of stay, all of these factors, or some
other factor. In some instances, the commenter noted that similar or
comparable codes within the same group have remained a CC/MCC, while
other clinically similar codes or codes requiring similar resources may
have been omitted. Without greater transparency, and a code-by-code
explanation, the commenter was unable to determine why significant
secondary diagnoses requiring additional resources have been removed
from the CC list. For the most part, the commenter's analysis
concentrated on reviewing current CCs that have been omitted from the
revised CC list.
The commenter made the following overall recommendations with
regard to the CC list:
CMS should make the final revised CC list publicly
available as quickly as possible so that hospitals may focus on
understanding the impact of the revised CC list, training and educating
their coders, and working with physicians for any documentation
improvements required to allow the reporting of more specific codes
where applicable.
CMS should consider additional refinements to the revised
CC list and, in particular, address issues where the ICD-9-CM codes may
need to be modified to provide the distinction between different levels
of severity.
In situations where a new code is required, CMS should
default to leaving the codes as CCs until new codes can be created.
Response: The process of evaluating both claims data and clinical
issues is a challenging one. Our medical advisors performed an
extensive evaluation of codes for the MCC and CC lists, combining their
medical judgment and claims data. We have reviewed a number of specific
codes raised by

[[Page 47163]]

commenters and considered whether or not the codes should be a MCC or
CC. These numerous code requests are discussed below. Also, as
mentioned earlier, we plan to post the data we used to evaluate each
code on the CMS Web site. These data may assist the public in making
recommendations for additional changes to the MCC and CC lists. Any
revisions made to the MS-DRGs or the MCC and CC lists are being made
available with this final rule with comment period. As suggested by the
commenter, we plan to evaluate further refinements to the MCC and CC
lists each year as we obtain additional recommendations and data under
the MS-DRG system.
Comment: One commenter acknowledged the significant effort and
consideration CMS has given to developing both the mathematical and
clinical judgment criteria in determining severity classifications.
However, the commenter did not believe it was possible to fully assess
the assignment of diagnosis codes in the severity classification
because there was an incomplete description of the process in the
proposed rule.
Response: As stated earlier, we plan to post on the CMS Web site
the data used in analyzing how to classify each ICD-9-CM code as an
MCC, CC, or non-CC. Our process for making CC/MCC decisions was an
iterative one involving data review and clinical analysis. In the FY
2008 IPPS proposed rule (72 FR 24702 through 24705), we explained in
detail our methodology for determining whether a secondary diagnosis
qualified as an MCC, CC, or non-CC. Although posting these data results
on the CMS Web site may be helpful in illustrating for commenters the
data we used in classifying conditions as MCCs, CCs or non-CCs, we note
that these data were combined with clinical judgment to make the final
determinations. That is, the data were used as an adjunct to the
judgment of our medical advisors. Clinical judgment may differ by
individual physician. Thus, the data alone may be helpful but not
definitive in helping commenters understand the reasons for some of our
decisions. Nevertheless, we welcome further public input on potential
revisions to the MCC and CC lists for FY 2009. We anticipate making
updates to the MCC and CC lists each year as we receive additional
recommendations and data. Again, below we respond to comments about
specific codes.
Comment: One commenter commended CMS for undertaking a long-overdue
comprehensive review and revision of the CC list. However, the
commenter stated that more industry input is needed regarding the
revised CC and MCC designations in the MS-DRG system. The commenter
stated that the brevity of the public comment period, in combination
with insufficient detail associated with the process and rationale for
categorization of diagnoses as MCCs, CCs, and non-CCs, made it very
difficult to conduct a thorough analysis of all of the codes on the MCC
and CC lists. Another commenter stated that its members have only had
an opportunity to do a cursory comparison of the current CMS CC list to
the MS-DRG MCC and CC lists. The commenter stated that it should have
the ability to do a complete analysis prior to implementation. The
commenter believed such a review would be time intensive and likely to
take a number of months of information exchange before it could be
completed. Although the commenter acknowledged that the MCC and CC
lists were included in the Federal Register notice and posted on the
CMS Web site, the commenter believed the review was hampered by a lack
of GROUPER software and a GROUPER Definitions Manual from being able to
complete their review. The commenter also expressed concern that the
analysis of secondary diagnoses was based on charges instead of costs.
The commenter stated that if CMS' intent is to convert to a cost-based
structure, a determination of the impact of secondary diagnoses should
not be based on charges. The commenter added that this analysis
appeared to be inconsistent with the evolution to a cost-based DRG
weight system.
Response: We recognize the extensive time that is required by the
public in order to perform a review of the MCC and CC lists. However,
we note that a DRG Definitions Manual and GROUPER have never been made
available until after completion of the final rule in past years and
public commenters never before suggested that we need to delay
implementation of proposed changes to the IPPS. While we acknowledge
that the changes proposed for FY 2008 are significantly more
comprehensive than the changes we propose in a typical year, the base
DRG assignments under the MS-DRGs are largely unchanged from the prior
CMS DRGs. The major changes result from assignment of a case to a DRG
severity level using the new classification of secondary diagnoses as
MCCs, CCs or non-CCs. For this reason, we made extensive information
available to allow public commenters to perform a variety of analyses.
The proposed rule included comprehensive lists of the codes that we
classified as MCCs and CCs, and we made this information available
electronically on the CMS Web site. The FY 2006 MedPAR data that were
used to simulate proposed rule policies were made available
simultaneous with public display of the FY 2008 proposed rule. This
data file included both the CMS DRG assigned to the case using the
Version 24.0 GROUPER and the proposed MS-DRG assignment. Further, we
provided--at no extra cost to the purchaser--an FY 2005 version of the
MedPAR that also included the CMS and MS-DRG assignment at the case
level. For these reasons, we do not believe the lack of availability of
a GROUPER or a DRG Definitions Manual should have precluded commenters
from being able to analyze the revised MCC and CC lists. In fact, we
note that a number of public commenters did provide suggestions for
further revisions to these lists, suggesting there was ample time to be
able to do these analyses.
We have considered the suggestion that we analyze changes to the
MCC and CC lists using average costs instead of charges. We adopted a
cost-based weighting methodology because of our concern that
differential markups among routine and ancillary services made charges
a poor proxy for costs when setting relative weights for dissimilar
types of cases. That is, different types of cases would use very
different mixes of routine and ancillary services with variable markups
and could create distortions in relative weights that are based on
charges. However, we are less concerned about using charges when
comparing cases that share the same primary diagnosis, which are likely
to use similar mixes of services when deciding whether to make a DRG
change. In these cases, we believe charges may provide a reasonable
proxy for costs because the cases use similar services with similar
markups.
The methodology that we use to develop cost-based weights is very
complex and works well to give us a measure of relative average
resource use when combining a high number of cases together in a single
DRG. We would need to analyze whether a methodology that tries to
determine average costs at the case or code level would provide
reliable results for making decisions about MCCs and CCs or DRG
changes. Nevertheless, we appreciate this comment and will continue to
give it further consideration as we evaluate alternative approaches to
updating the MCC and CC lists and the MS-DRGs in the future.
Comment: One commenter stated that CMS should address the
inconsistencies

[[Page 47164]]

within the CC list identified by its physician and hospital reviewers.
The commenter also recommended that, where necessary, CMS should obtain
additional input from physicians in the appropriate specialties to
determine the standard of care and consequent increased hospital
resource use of some of the conditions. The commenter provided a list
of conditions that were removed from the revised CC list and urged CMS
to maintain them on the CC list.
Response: We agree that the review of codes for the MCC and CC list
was a daunting task requiring careful review by our panel of medical
advisors. We used a number of physicians in this process, including
internists and surgeons, to evaluate the effect of specific codes on a
patient's severity levels. When necessary, our panel contacted other
medical specialists, such as orthopedists and oncologists, to obtain
additional input. We appreciate the CC issues brought to our attention.
We reexamined specific codes brought to our attention below. We expect
that we will continue to revise and update both the CC list and MCC
list as we gain experience and data under the MS-DRG system. We
anticipate making additional changes in the future with this added
information.
Comment: One commenter stated that, in some cases, the current ICD-
9-CM classification system does not adequately distinguish between
acute and chronic forms of a condition. In the MS-DRG system, this
distinction appears to be critical in predicting resources utilized at
the patient level. The commenter recommended that CMS work with the
NCHS to make ICD-9-CM code modifications to improve this acute and
chronic distinction. Additionally, the commenter suggested that CMS and
HHS should take immediate steps for the adoption of ICD-10-CM, as this
system is much better than ICD-9-CM at distinguishing clinical
severity, which is a key aspect of any severity-adjusted DRG system.
The commenter believed that continued use of ICD-9-CM severely limits
the ability of a severity-adjusted DRG system to recognize severity of
illness.
Response: We encourage anyone with specific recommendations for
revisions to the ICD-9-CM diagnosis codes to contact Donna Pickett,
National Center for Health Statistics, Centers for Disease Control and
Prevention at: (301) 458-4434. Information on requesting changes to the
ICD-9-CM diagnosis codes can be found on the Web site at: http://www.cdc.gov/nchs/icd9.htm. The Department is continuing to evaluate
whether to move to ICD-10.
Comment: One comment disagreed with CMS' elimination of many
chronic conditions from the CC list. The commenter stated that patient
care resources are utilized to prevent acute exacerbation of a chronic
condition. The commenter believed that to not include these conditions
on a CC list is a major flaw in the logic. The commenter supported
inclusion of chronic conditions on the CC list as means to recognize
the resources utilized to manage these conditions effectively, whether
they are currently in an acute phase. The commenter did not mention
specific chronic conditions that should be added to the MCC and CC
lists.
Response: We address comments on specific conditions below.
However, as a general matter, we found the Medicare data do not
generally support that chronic or ``unspecified'' conditions are more
resource intensive than conditions with an acute manifestation of a
chronic disease that are described by specific codes. After carefully
considering this issue, our medical advisors agreed that unspecified or
chronic conditions generally are not suggestive of a higher level of
severity of illness in and of themselves when there are more specific
codes available to further describe the patient's specific condition or
an acute manifestation of a chronic disease. We note that unspecified
and chronic conditions are very commonly found in the Medicare patient
population. The purpose of the MS-DRGs is to identify those conditions
that lead to higher severity of illness and resource use relative to
the average Medicare patient. These conditions suggest average or less
than average resource use across the entire Medicare population. If we
were to classify chronic and unspecified conditions as MCCs and CCs,
the MS-DRGs ability to better recognize severity of illness would be
significantly diminished.

Condition-Specific Comments

We received a number of recommendations of codes to be added to the
CC list and the MCC list. We have divided these recommendations into
three general categories and will address them accordingly. The three
categories are:
Nonspecific codes
Symptoms, chronic conditions, and low severity conditions
High severity codes that were erroneously left off of the
CC or MCC list.
The first category of recommendations includes a number of codes
that are nonspecific. For instance, one frequent recommendation for
addition to the CC list is the nonspecific code 428.0 (Congestive heart
failure, unspecified). This code is one of several codes that identify
patients who have heart failure. Depending on the degree of certainty
by the physician of the exact nature of the heart failure, a code can
be assigned to indicate a very specific and acute form of heart
failure, or a more general, nonspecific code can be assigned to
represent a patient with heart failure, but the exact nature of the
heart failure is unknown. Other nonspecific conditions include
disorders of a heart valve. If the exact nature of the disorder of a
heart valve is known, a specific code can be assigned. If the exact
nature or degree of the disorder of the valve is not known, a more
general, nonspecific code can be assigned. As discussed earlier in this
final rule with comment period, our claims data and the clinical
analysis of our medical advisors indicate that patients described by
the more general, nonspecific codes are not at a higher severity level.
If a patient's condition worsens and develops additional diagnoses or
complications, these more specific conditions may be on the CC list or
MCC list. The most frequently mentioned, nonspecific code by commenters
was code 428.0. Therefore, we will provide a detailed summary of these
comments and our response. There were a number of other nonspecific
conditions suggested for additions to the CC list. We will address
these conditions after summarizing the comments on congestive heart
failure.
The second category includes a variety of codes representing
symptoms, chronic conditions, and other conditions that do not describe
a high level of severity. These conditions do not themselves indicate a
high severity level using our mathematical analysis of the claims data
combined with the clinical analysis by our medical advisors. As stated
earlier, we did not include most chronic conditions on the CC list or
the MCC list unless the code also indicates an acute exacerbation that
would raise the severity level. If a patient has a chronic condition
that deteriorates or develops into an acute complication, the more
acute condition or complication may be on the CC list or the MCC list.
The third category of codes includes codes that commenters
suggested should have been included on the CC list or the MCC list
because they clearly describe a high level of severity. Upon further
review, we agree that this third group of codes meet the criteria for
being included on the CC list or MCC list. The claims data and our
medical advisors' clinical analysis clearly support the addition of
these codes to the CC list or the MCC list.

[[Page 47165]]

(a) Codes Representing Nonspecific Conditions
Congestive Heart Failure--Code 428.0
Comment: One commenter endorsed the implementation of the revised
CC list. The commenter stated that CMS used new criteria for refining
the CC and MCC lists, which led to the removal of codes currently on
the CC list. The commenter compared the old and revised CC lists and
found that the revision added 2,002 codes and dropped 425 codes, for a
net increase of 1,577 codes. The commenter stated that, even though the
number of added codes far exceeds the number of dropped codes, in the
last three MedPAR files, the dropped codes were used an average of
40,864 times, while the added codes were used an average of only 887
times. The commenter stated that many of the dropped codes pertain to
unspecified conditions for which more specific codes are available and
included on the revised CC list. The highest volume code, code 428.0,
was applied to an average of 2.3 million Medicare fee-for-service cases
a year during the past 3 years. This code is the most widely used
secondary diagnosis code, despite the fact that 12 more specific codes
were added in FY 2003. The additional codes are shown in the Table L
below.

Table L.--Incidence of Secondary Diagnosis Coding for Heart Failure FY
2004-FY 2006
------------------------------------------------------------------------
New in
ICD-9-CM code Description FY 2003
------------------------------------------------------------------------
428.0............................. Congestive heart failure,
unspecified.
428.1............................. Left heart failure.......
428.20............................ Systolic heart failure; x
unspecified.
428.21............................ Systolic heart failure; x
acute.
428.22............................ Systolic heart failure; x
chronic.
428.23............................ Systolic heart failure; x
acute on chronic.
428.30............................ Diastolic heart failure; x
unspecified.
428.31............................ Diastolic heart failure; x
acute.
428.32............................ Diastolic heart failure; x
chronic.
428.33............................ Diastolic heart failure; x
acute on chronic.
428.40............................ Combined systolic and x
diastolic heart failure;
unspecified.
428.41............................ Combined systolic and x
diastolic heart failure;
acute.
428.42............................ Combined systolic and x
diastolic heart failure;
chronic.
428.43............................ Combined systolic and x
diastolic heart failure;
acute on chronic.
428.9............................. Heart failure,
unspecified.
------------------------------------------------------------------------

The commenter stated that, by making code 428.0 a non-CC, hospitals
will react by coding more precisely using the more definitive heart
failure codes, raising the CMI, which results in documentation and
coding-related overpayments. The commenter argued that, if the revised
CC list were implemented before hospitals had a chance to improve their
coding to accommodate the revisions, ``case-mix creep and IPPS
overpayments would ensure.''
Response: This commenter suggests reasons why Medicare should adopt
the MS-DRGs over a transition period and does not appear to be opposed
to our decision not to classify congestive heart failure as either an
MCC or a CC. The commenter also suggests how hospitals will respond to
the coding incentives that will be presented by revisions to the MCC
and CC lists as well as the MS-DRGs. The issue of adopting the MS-DRGs
over a transition is addressed in detail in section II.E. of the
preamble of this final rule with comment period. We further address the
implications of the coding incentives raised in this public comment in
section II.D.6. of the preamble of this final rule with comment period
that discusses an adjustment to IPPS rates for improvements in
documentation and coding.
Comment: A number of other commenters urged CMS to classify the
condition under code 428.0 as a CC. The commenters indicated that code
428.0 identifies an acute condition, not a benign or a chronic
condition. Some commenters stated that any inpatient with congestive
heart failure requires increased nursing care to closely monitor and
assess physical symptoms and vital signs for indications of increased
congestion. Patients often need to undergo repeated laboratory studies.
Another commenter stated that the proposed rule incorrectly
characterized the diastolic and systolic heart failure codes as
congestive heart failure. The commenter pointed out that according to
the Fourth Quarter 2002 issue of Coding Clinic for ICD-9-CM, congestive
heart failure is not an inherent component of the codes in category 428
for systolic and diastolic heart failure. Therefore, according to
Coding Clinic, the commenter stated that code 428.0 should be assigned
as an additional code when the patient has systolic or diastolic
congestive heart failure. The commenter added that code 428.0 may
appropriately be assigned by itself when congestive heart failure is
documented, but there is no documentation of systolic or diastolic
heart failure. The commenter stated that, in ICD-9-CM, there is no
distinction between an acute exacerbation of congestive heart failure
and chronic congestive heart failure. Code 428.0 is assigned for both.
The commenter added that codes 402.11 (Benign hypertensive heart
disease with congestive heart failure) and 402.91 (Unspecified
hypertensive heart disease with congestive heart failure) are on the CC
list. The commenter suggested that code 428.0 be included on the
revised CC list as well.
Another commenter who objected to the removal of code 428.0 from
the CC list stated that, currently, ICD-9-CM codes do not distinguish
between acute, chronic, or acute exacerbation of chronic congestive
heart failure. All forms of this condition are assigned to code 428.0.
The commenter indicated that medical record documentation may not
typically include information on whether the congestive heart failure
is systolic or diastolic (acute versions of heart failure with this
specificity are considered MCCs). The commenter requested that code
428.0 be added as an MCC until a new code can be created to identify
acute exacerbation of congestive heart failure. The commenter stated
that the fact that there is ``congestion'' is medically more
problematic and more resource intensive and may necessitate care in the
intensive care unit and a prolonged

[[Page 47166]]

hospital stay. The commenter stated that coding guidelines necessitate
that acute pulmonary edema of cardiac origin be assigned code 428.0.
Response: Given the number of public comments on this one
condition, our medical advisors reviewed the data and clinical issues
surrounding code 428.0 again. They strongly recommend that we not
change this code to a CC. There are three reasons for this
recommendation. First, as stated earlier, we developed a policy of
classifying nonspecific codes as non-CCs when a more specific code was
available that identified the more specific nature of the patient's
illness. Second, data for this and other nonspecific codes do not
support assigning it to a higher severity level. Third, in the clinical
judgment of our medical advisors, the use of a nonspecific code means
that the physician had not identified a medical condition that
indicates the patient is at a higher severity level or requires greater
resources. This code is vague and does not provide any description of
the exact nature of the heart failure. Data for this very commonly
reported code clearly indicate that these patients are at a low
severity level. However, claims data and our general policy of
assigning nonspecific codes to a lower severity level were not the only
factors that we used to classify a code as an MCC, CC, or non-CC. As
stated above, the data were only used as an adjunct to the judgment of
our medical advisors. In the judgment of our medical advisors, the
condition described by code 428.0 does not suggest an increase in
patient severity of illness. In this case, 12 more specific codes are
available to indicate the more severe forms of heart failure. If the
physician includes more precise information in the medical record that
would allow the coder to identify a more specific code to describe the
type of heart failure, the documentation will reflect that the hospital
treated a more severely ill patient and the case will be assigned to a
higher severity level.
While we decided to classify code 428.0 as a non-CC based on our
policy concerning nonspecific codes, the data, and the judgment of our
medical advisors, we note that heart failure is an important national
health issue. We believe it is very important for hospitals and
physicians to use the most specific codes that describe the incidence
of heart failure in their patients. In order to accurately and
completely evaluate health care outcomes for the treatment of heart
failure, detailed and accurate information is needed on patients with
this condition. Physicians and hospitals will undermine efforts to
obtain more information on patients with this disease when they use a
nonspecific code when there is a more detailed code to describe their
patient. We highly encourage physicians and hospitals to work together
to use the most specific codes that describe their patients''
conditions. Such an effort will not only result in more accurate
payment by Medicare but will provide better information on the
incidence of this disease in the Medicare patient population.
Comment: As stated earlier, a number of commenters requested CMS to
add additional nonspecific codes to the CC list. These codes represent
a variety of nonspecific conditions affecting multiple body systems.
The commenters stated that the following nonspecific codes may increase
the severity level for a patient, and should, therefore, be added to
the CC list.
070.70, Unspecified viral hepatitis C
287.30, Primary thrombocytopenia, unspecified
287.5, Thrombocytopenia, unspecified
303.00, Acute alcohol intoxication, unspecified
345.90, Epilepsy, unspecified, without intractable
epilepsy
403.90, Hypertensive chronic kidney disease, unspecified,
with chronic kidney disease stage I through stage IV, or unspecified
424.0, Mitral valve disorders
424.1, Aortic valve disorders
426.13, Other second degree atrioventricular block
426.6, Other heart block
426.9, Conduction disorder, unspecified
447.6, Arteritis, unspecified
458.9, Hypotension, unspecified
451.2, Thrombophlebitis of lower extremities, unspecified
459.0, Hemorrhage, unspecified
585.5, Chronic kidney disease, unspecified
707.0, Decubitus ulcer, unspecified
780.39, Other convulsions
Response: As previously stated, we did not classify nonspecific
codes to the MCC list or the CC list when more specific codes were
available to identify the condition of the patient. In general, we
found that the data did not support classifying unspecified codes as
either MCCs or CCs. Further, after detailed discussions of potential
clinical scenarios among our medical advisors, there was a consensus
that a specified condition for the patient generally signals higher
degree of severity of illness. If the physician was to diagnose
additional information about the patient's condition or should the
patient's condition worsen, a more precise code would be assigned that
may be a CC or an MCC. As a result of these comments, our medical
advisors again reviewed these codes and determined that their original
decisions were correct. That is, they do not believe that these
nonspecific codes should be classified as MCCs or CCs when more
specific codes are available that provide more information about
patient severity of illness. For these reasons, we are not adding the
codes listed above to the CC list.
(b) Symptoms, Chronic Conditions, and Low Severity Conditions
Comment: Commenters requested that we add a number of codes to the
CC list that describe symptoms, chronic conditions, and low severity
conditions. These conditions include the following codes:
070.54, Chronic viral hepatitis C
250.4x, Diabetes mellitus with renal manifestations
250.5x, Diabetes mellitus with ophthalmic manifestations
250.6x, Diabetes mellitus with neurological manifestations
250.7x, Diabetes mellitus with peripheral circulatory
disorders
250.8x, Diabetes mellitus with other specified
manifestations
263.0, Moderate Malnutrition
263.1, Mild malnutrition
276.51, Dehydration
276.52, Hypovolemia
276.6, Fluid overload
276.7, Hyperpotassemia
276.9, Electrolyte and fluid disorders
280.0, Iron deficiency anemias, secondary to blood loss
(chronic)
284.8, Aplastic anemias, not elsewhere classified
287.39 Other primary thrombocytopenia
287.4 Secondary thrombocytopenia
303.01 Acute alcohol intoxication, continuous
303.02 Acute alcohol intoxication, episodic
306.00, Blindness
389.9, Deafness
413.9, Angina pectoris
427.31, Atrial fibrillation
428.1, Left heart failure (change from CC to MCC)
451.0, Thrombophlebitis of superficial vessels of lower
extremities;
492.8, Other emphysema
496, Chronic airway obstruction, not elsewhere classified
585.3, Chronic kidney disease, stage III (moderate)
599.7, Hematuria
710.0, Systemic lupus erythematosus
731.3, Major osseous defects

[[Page 47167]]

786.03, Apnea
788.20, Urinary retention
799.02, Hypoxemia
V45.1, Renal dialysis status
Response: As discussed earlier, we did not assign chronic
conditions to the CC list or the MCC list. These conditions do not
themselves indicate a high severity level using our mathematical
analysis of the claims data combined with the clinical judgment by our
medical advisors. As stated earlier, we did not include most chronic
conditions on the CC list or the MCC list unless the code also
indicates an acute exacerbation that would raise the severity level. If
the chronic condition worsens and the patient develops an acute
complication, the more specific code for the acute exacerbation would
identify the increased level of severity of illness and, if warranted,
would be on the CC or the MCC list. We also did not include general
symptoms on the CC list because, alone, they do not suggest a high
level of severity of illness. Codes identifying symptoms such as
hematuria, apnea, or hypoxemia that are found in many patients may
indicate a wide range of patient severity and describe a transient
finding. Should the physician diagnose a more specific condition that
led to the symptoms, more information about the patient and their
severity of illness would be known. The specific diagnosis may indicate
higher severity of illness and the code that describes it may be
included on the CC list or the MCC list. We also did not include
conditions on the CC list or the MCC list that do not generally raise
the severity level of a patient. If the code describes patients who
range from mild to severe, we believe it is best to use additional
secondary diagnosis codes that would be reported to better describe the
true nature of the patient's condition. These more precise codes may be
on the CC list or the MCC list.
Our clinical advisors reviewed claims data and the clinical issues
surrounding patients who had the symptoms, chronic diagnoses, and less
severe conditions listed above. They recommend that we not add the
codes listed above to the CC list because these conditions do not
significantly increase a patient's severity of illness. Therefore, we
are not adding the codes listed above to the CC list.
(c) High Severity Codes That Were Erroneously Left Off of the CC List
or the MCC List
As stated earlier, a number of commenters recommended the addition
of codes to the CC list or the MCC list for conditions that the
commenters stated clearly represented a high severity level. The
commenters provided information on the degree to which these conditions
are life threatening and require extensive amounts of resources. The
commenters questioned why these conditions were left off of the CC and
MCC lists. Commenters recommended the removal of two codes from the CC
list because the commenters believed they do not increase the patient's
severity level or lead to more resource use. We discuss these
conditions below.
Comment: Commenters requested that we add the following five codes
to the CC list. The commenters stated that these conditions clearly
increase the severity level and lead to more resource use.
285.1, Acute posthemorrhagic anemia
403.91, Hypertensive chronic kidney disease, unspecified,
with chronic kidney disease stage V or end stage renal disease
426.53, Other bilateral bundle branch block
426.54, Trifascicular block
451.11, Phlebitis and thrombophlebitis, femoral vein
(deep) (superficial)
Response: We agree with the commenters that the five codes listed
above should have been included on the CC list. Upon further review of
our data and discussions among our medical advisors, there was
consensus that these codes describe patients with a higher severity
level. Therefore, we are adding them to the CC list.
Comment: Commenters requested that we remove the following two
codes from the CC list and make them non-CCs. The commenters indicated
that there are more specific heart failure codes that would be assigned
along with these codes that would indicate whether or not the patient
had a severe form of heart failure. The commenters stated that these
two codes do not indicate the exact nature of the heart failure and
therefore should not be on the CC list.
402.11, Hypertensive heart disease, benign, with heart
failure
402.91, Hypertensive heart disease, unspecified, with
heart failure
Response: We agree with the commenters. Upon further review, we do
not believe the codes meet the criteria to be considered CCs. The codes
do not describe the exact nature of the heart failure. The more
specific heart failure codes that would be reported along with these
codes would be used to justify the assignment to a high severity level.
Therefore, we are removing the two codes from the CC list.
Comment: Commenters requested that we add the following four codes
to the MCC list. The commenters indicated that these four codes
describe patients at the highest level of severity. Patients with these
conditions would use an extensive amount of resources. Furthermore, the
commenters added, codes that describe similar conditions are currently
on the MCC list. The commenters believed these codes were erroneously
excluded from the MCC list.
282.69, Other sickle-cell disease with crisis
345.2, Petit mal status
345.71, Epilepsia partialis continua, with intractable
epilepsy
780.01, Coma
Response: We agree that we made an error in excluding these four
codes from the MCC list. Therefore, we are adding the four codes to the
MCC list. We provide a summary of all the additions and deletions to
the CC list and the MCC list at the end of this section.
Additional Comments on CC List
We received several additional comments concerning the CC and MCC
lists which we summarize below. Some of the comments involved the
commenter's confusion about our proposed CC and MCC lists. Others
involved a disagreement with our proposal of not making significant
changes to the DRGs to better distinguish severity of illness in
pregnancies and newborns, even though they are not a significant part
of the Medicare population. We also received recommendations for
alternative ways to classify conditions as CCs that do not meet our
current criteria. In addition, we received comments on our proposal of
not classifying specific conditions as a CC/MCC when the patient dies.
We discuss these issues below.
Other Myelopathy--Code 336.8
Comment: One commenter requested that we add code 336.8 (Other
myelopathy) to the CC list.
Response: Code 336.8 is already on the CC list. Therefore, we are
not making any further change for code 336.8.
Ascites--Code 789.5
Comment: One commenter requested that we add the code 789.5
(Ascites) to the CC list
Response: We note that code 789.5 is being deleted as of October 1,
2007, when two new codes are being created, code 789.51 (Malignant
ascites) and code 789.59 (Other ascites). Both of these new codes are
on the CC list. Therefore no additional change is required for ascites.
Aplastic Anemias, Not Elsewhere Classified--Code 284.8

[[Page 47168]]

Comment: One commenter objected to the removal of code 284.8
(Aplastic anemias, not elsewhere classified (NEC)) from the CC list.
Response: Code 284.8 was placed on the MCC list. Thus, while it is
not classified as a CC as the comment suggested, it is an MCC. We are
maintaining code 284.8 on the MCC list, as we agree that this is a
condition that places a patient at a high severity level.
Complications of Pregnancy, Childbirth and Puerperium--
Codes 630 through 677
Comment: One commenter objected to the removal of codes from
category 630 through 677 (Complications of pregnancy, childbirth and
puerperium) of the CC list. The commenter was concerned about the
number and wide breadth of codes from Chapter 11 of the ICD-9-CM,
Complications of pregnancy, childbirth and puerperium (categories 630-
677), that are being removed from the CC list . The commenter
acknowledged CMS'' position that, due to the low volume in the Medicare
population, diagnoses related to newborns, maternity and congenital
anomalies codes in this section were not reviewed. Of special concern
to the commenter were conditions such as infections, acute renal
failure, air and pulmonary embolism, cardiac arrest, shock, among
others, that are MCCs or CCs and would be coded as such if not for the
fact that the ICD-9-CM classification considers problems associated
with pregnancy, childbirth and the puerperium to be so clinically
significant that they require special combination codes. The
combination codes are intended to identify that the presence of the
pregnancy complicates the condition. For example, code 415.19 (Other
pulmonary embolism and infarction) is an MCC, while code 673.20
(Obstetrical blood-clot embolism, unspecified) is not even a CC.
The commenter recommended that codes in Chapter 11 be carefully
evaluated and validated with clinical experts, similar to the process
to which the codes in other chapters were submitted. The commenter
believed that combination codes should be treated consistently. If the
condition is considered a CC or MCC in a nonpregnant patient, the
corresponding pregnancy-related combination code also should be a CC or
MCC.
Response: As we stated in our proposed rule and elsewhere in this
final rule with comment period, we focused our attention in developing
the MS-DRGs for the Medicare population. We did not conduct a detailed
review of Chapter 11 codes. We encourage other payers who want to use
MS-DRG to update the system for their own population. Diagnoses related
to newborns, maternity, and congenital anomalies are very low volume in
the Medicare population and were not reviewed for purposes of creating
the MCC and CC lists. We used the APR DRGs to categorize these
diagnoses. This DRG system is used for the all payer ratesetting system
in Maryland and will be based on data that better reflects the newborn
and maternity population than Medicare. For newborn, obstetric, and
congenital anomaly diagnosis, we classified severity level 3 (major)
and 4 (extreme) diagnoses as an MCC. We designated default severity
level 2 (moderate) diagnoses as a CC and all other diagnoses as a non-
CC. We encourage the commenter to review the MCC and CC lists in on the
CMS Web site. Many codes in the 630 to 677 range appear on the MCC
list.
Extreme Immaturity--Code 765.0
Comment: One commenter objected to codes in category 765.0 (Extreme
immaturity) not being classified as CCs. The commenter stated that
codes in category 765.0 represent infants with a birth weight of less
than 1000 gm. The commenter indicated that common problems with very
low birthweight babies are low oxygen levels at birth; inability to
maintain body temperature; difficulty feeding and gaining weight;
infection; breathing problems, such as respiratory distress syndrome;
neurological problems, such as intraventricular hemorrhage;
gastrointestinal problems, such as necrotizing enterocolitis; and
sudden infant death syndrome (SIDS). The commenter stated that while
some of these problems have unique ICD-9-CM codes that could be
reported, not all of them do (for example, inability to maintain body
temperature).
Response: While we appreciate the commenter's concern about the CC
classifications for newborns, we state again that we did not examine
these newborn codes as part of our development of the MS-DRGs. We
focused our efforts on the Medicare population and used the APR DRG
classification for newborn diagnoses for Medicare. If the APR DRG
classification of this condition were to change, we would also adopt
the same designation for Medicare.
Exclusion of MCCs and CC When a Patient Dies
Comment: Several commenters addressed codes that represent
diagnoses associated with patient mortality. The commenter indicated
that, in the proposed rule, CMS noted that diagnoses that were closely
associated with patient mortality were assigned different CC
subclasses, depending on whether the patient lived or died.
These diagnoses are:
427.41, Ventricular fibrillation;
427.5, Cardiac arrest;
785.51, Cardiogenic shock;
785.59, Other shock without mention of trauma; and
799.1, Respiratory arrest.
The commenters agreed that these diagnoses should be considered
MCCs for patients who are discharged alive. However, the commenters
disagree with CMS'' proposal to make these diagnoses non-CCs when a
patient dies. The commenters urged CMS to consider the patient's length
of stay or other factors when these codes are reported and count them
as an MCC when a patient dies during the admission. The commenters
agreed that a patient who expires soon after admission may not have
significant resources associated with these conditions. However, the
commenters believed that this is not true when a patient has been
hospitalized longer, such as for a week.
Response: Our medical advisors examined this issue again and
continue to believe it is not appropriate to classify a case as an MCC
based on one of the codes above if the patient dies. While we
understand the concern of the commenters, we do not believe that a long
length of stay patient will necessarily lead to the conclusion that it
is appropriate to code these conditions in a patient that dies in the
hospital. It is a possible that a terminally ill patient with a long
length of stay required no special resuscitation efforts that would
suggest higher resource use associated with coding of these conditions.
We are concerned that changing our policy to allow use of these codes
for a patient that died in the hospital could lead to accurate and
widespread coding of the conditions when they are not indicative of a
higher patient resource costs. Therefore, we are continuing our policy
of classifying the diagnoses listed above as MCCs only if the patient
is discharged alive. We will evaluate alternative approaches such as
looking at the length of stay and other factors for these patients and
make future DRG revisions, as needed.
Selected Conditions in Joint Replacement Patients
Comment: One commenter asked that we classify certain codes as MCCs
or CCs for patients having a joint replacement. The commenter
specifically requested that the following codes be made either MCCs or
CCs when occurring in a joint replacement patient:

[[Page 47169]]

731.3, Major osseous defect
278.0, Obesity
278.01, Morbid obesity
V85.35, Body mass index 35.0-35.9, adult
V85.37, Body mass index 37.0-37.9, adult
Response: We do not believe that we should make further changes to
the MS-DRG assignments based on combinations of selected diagnoses.
These types of analyses could be done with virtually any MS-DRG and
would add significant complexity to the DRG system that we do not
believe is warranted at this time. Our medical advisors reviewed both
the data and clinical issues surrounding these codes and determined
that they would not significantly increase the severity level for
Medicare patients on average across all patients. Therefore, they are
not CCs. We are not changing these codes to CCs. They will remain non-
CC for all cases.
The following table summarizes changes to the proposed MCC (Table
6J) and CC (Table 6K) lists published in the proposed rule. These
changes are a result of review of comments and were discussed in detail
above. A complete, updated CC and MCC list will be posted on the CMS
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/ under Downloads.
We will continue to evaluate our criteria for the development of the CC
and MCC list to determine if refinements to these criteria are needed.
As we gain data and experience under MS-DRGs, we believe that there may
be refinements to these criteria.

Changes to MCC and CC List as a Result of Comments
------------------------------------------------------------------------

------------------------------------------------------------------------
Add to CC list:
285.1.............................. Acute posthemorrhagic anemia.
403.91............................. Hypertensive chronic kidney
disease, unspecified, with
chronic kidney disease stage V
or end stage renal disease.
426.53............................. Other bilateral bundle branch
block.
426.54............................. Trifascicular block.
451.11............................. Phlebitis and thrombophlebitis,
femoral vein (deep)
(superficial).
Remove from CC list:
345.2.............................. Petit mal status.
345.71............................. Epilepsia partialis continua,
with intractable epilepsy.
402.11............................. Hypertensive heart disease,
benign, with heart failure.
402.91............................. Hypertensive heart disease,
unspecified, with heart
failure.
780.01............................. Coma.
Add to MCC list:
282.69............................. Other sickle-cell disease with
crisis.
345.2.............................. Petit mal status.
345.71............................. Epilepsia partialis continua,
with intractable epilepsy.
780.01............................. Coma.
Remove from MCC list:
None...............................
------------------------------------------------------------------------

3. Dividing MS-DRGs on the Basis of the CCs and MCCs
In developing the MS-DRGs, two of our major goals were to create
DRGs that would more accurately reflect the severity of the cases
assigned to them and to create groups that would have sufficient volume
so that meaningful and stable payment weights could be developed. As
noted above, we excluded the CMS DRGs in MDCs 14 and 15 from
consideration because these DRGs are low volume. As stated previously,
we do not have the expertise or data to maintain the CMS DRGs for
newborns, pediatric, and maternity patients. We continue to maintain
MDCs 14 and 15 without modification in order to have MS-DRGs available
for these patients in the rare instance where there is a Medicare
beneficiary admitted for maternity or newborn care.
In designating an MS-DRG as one that will be subdivided into
subgroups based on the presence of a CC or MCC, we developed a set of
criteria to facilitate our decision-making process. In order to warrant
creation of a CC or major CC subgroup within a base MS-DRG, the
subgroup had to meet all of the following five criteria:
A reduction in variance of charges of at least 3 percent.
At least 5 percent of the patients in the MS-DRG fall
within the CC or MCC subgroup.
At least 500 cases are in the CC or MCC subgroup.
There is at least a 20-percent difference in average
charges between subgroups.
There is a $4,000 difference in average charges between
subgroups.
Our objective in developing these criteria was to create
homogeneous subgroups that are significantly different from one another
in terms of resource use, that have enough volume to be meaningful, and
that improve our ability to explain variance in resource use. These
criteria are essentially the same criteria we used in our 1994 severity
analysis. In developing the MS-DRGs, we continued to apply our
longstanding policy that each DRG should contain patients who are
similar from a clinical perspective.
To begin our analysis, we subdivided each of the base MS-DRGs into
three subgroups: non-CC, CC, and MCC. Each subgroup was then analyzed
in relation to the other two subgroups using the volume, charge, and
reduction in variance criteria. The criteria were applied in the
following hierarchical manner:
If a three-way subdivision met the criteria, we subdivided
the base MS-DRG into three CC subgroups.
If only one type of two-way subdivisions met the criteria,
we subdivided the base MS-DRG into two CC subgroups based on the type
of two-way subdivision that met the criteria.
If both types of two-way subdivisions met the criteria, we
subdivided the base MS- DRG into two CC subgroups based on the type of
two-way subdivision with the highest R\2\ (most explanatory power to
explain the difference in average charges).
Otherwise, we did not subdivide the base MS-DRG into CC
subgroups.
For any given base MS-DRG, our evaluation in some cases showed that
a subdivision between a non-CC and a combined CC/MCC subgroup was all
that was warranted (that is, there was not a great enough difference
between the CC and MCC subgroups to justify separate CC and MCC
subgroups). Conversely, in some cases, even though an MCC subgroup was
warranted, there was not a sufficient difference between the non-CC and
CC subgroups to justify separate non-CC and CC subgroups.
Based on this methodology, a base MS-DRG may be subdivided
according to the following three alternatives, rather than the current
``with CC'' and ``without CC'' division.
DRGs with three subgroups (MCC, CC, and non-CC).
DRGs with two subgroups consisting of an MCC subgroup but
with the CC and non-CC subgroups combined. We refer to these groups as
``with MCC'' and ``without MCC.''
DRGs with two subgroups consisting of a non-CC subgroup
but with the CC and MCC subgroups combined. We refer to these two
groups as ``with CC/MCC'' and ``without CC/MCC.''
As a result of the application of these criteria, 745 MS-DRGs were
created as shown in the following table.

[[Page 47170]]

Table M.--Number of CC Subgroups
------------------------------------------------------------------------
Number of
Subgroups base MS- Number of
DRGs MS-DRGs
------------------------------------------------------------------------
No subgroups.................................. 53 53
Three subgroups............................... 152 456
Two subgroups: CC and major CC; non-CC........ 43 86
Two subgroups: non-CC and CC; major CC........ 63 126
-------------------------
Subtotal.................................. 311 721
------------------------------------------------------------------------
MDC 14........................................ 22 22
Error DRGs.................................... 2 2
-------------------------
Total................................. 335 745
------------------------------------------------------------------------

The 745 MS-DRGs represent an increase over the 652 DRGs we proposed
in our 1994 CC revision analysis. The increase in the number of DRGs is
primarily the result of an increase in the number of proposed base MS-
DRGs that are subdivided into three CC subgroups. The distribution of
patients across the different types of CC subdivisions is contained in
Table N below. The table shows that 51.7 percent of the patients are
assigned to base MS-DRGs with three CC subgroups, and only 11.8 percent
of the patients are assigned to base MS-DRGs with no CC subgroups.

Table N.--Distribution of Patients by Type of CC Subdivision
------------------------------------------------------------------------
CC subdivision Count Percent
------------------------------------------------------------------------
None.......................................... 1,382,810 11.8
(MCC and CC), Non-CC.......................... 629,639 5.4
MCC, (CC and Non-CC).......................... 3,650,321 31.2
MCC, CC, and Non-CC........................... 6,054,081 51.7
------------------------------------------------------------------------

Using Medicare charge data (without applying any criteria to remove
statistical outlier cases), the reduction in variance (R\2\) was
computed for current CMS DRGs, the MS-DRGs with all 311 base MS-DRGs
subdivided into 3 CC subgroups, and the MS-DRGs collapsed into 745
DRGs. Table O below shows that the R\2\ for the MS-DRGs with all 311
base MS-DRGs subdivided into 3 CC subgroups (957 DRGs composed of 311
base MS-DRGs subdivided into 3 CC subgroups plus an additional 22 MDC
14 and MDC 15 DRGs as well as 2 error DRGs) is 10.62 percent higher
than the current CMS DRGs. Collapsing the 957 MS-DRGs down to 745 MS-
DRGs lowers this increase in R\2\ slightly to 9.41 percent. Although
adopting a 3-way split for each base MS-DRG would produce a DRG system
with higher explanatory power, the 957 MS-DRGs would not meet the
criteria we specified above for subdividing each base DRG. The criteria
we specified above would create a monotonic DRG system. We believe that
the value of having a monotonic DRG system outweighs the slight
decrease in explanatory power. For this reason, we proposed to adopt
the 745 MS-DRGs.

Table O.--Explanatory Power (R\2\) for MS-DRGs
------------------------------------------------------------------------
Percent
R\2\ change
------------------------------------------------------------------------
Current CMS DRG................................... 36.19 .........
2007 CMS Severity DRGs with 3 CC Subgroups........ 40.03 10.62
2007 CMS Severity DRGs Collapsed to 714 DRGs...... 39.59 9.41
------------------------------------------------------------------------

Comment: One commenter supported our five criteria for establishing
severity subgroups. The commenter believed the use of specific
quantitative criteria to determine how specific base DRGs are divided
into terminal categories that reflect severity levels is logical and
designed to ensure that only substantively important differences in
resource requirements are recognized by the MS-DRG system. The
commenter did note that CMS had not explicitly included statistical
significance in these criteria and urged CMS to consider CC or MCC
splits only when they meet minimal standards of both size and
statistical significance.
Response: We appreciate the commenter's support for our five
criteria for establishing severity subgroups. We will consider the
commenter's other suggestion as we make further refinements to the MS-
DRGs.
Comment: One commenter disagreed with our five criteria for
establishing severity subgroups. The commenter stated that these
criteria are too restrictive, lack face validity, and create perverse
admission selection incentives for hospitals by significantly
overpaying for cases without a CC and underpaying for cases with a CC.
The commenter recommended that the existing five criteria be modified
for low-volume subgroups to assure materiality. For higher volume MS-
DRG subgroups, they recommended that two other criteria be considered,
particularly for nonemergency, elective admissions. These two criteria
are:
Is the per-case underpayment amount significant enough to
affect admission vs. referral decisions on a case-by-case basis?
Is the total level of underpayments sufficient to
encourage systematic admission vs. referral policies, procedures, and
marketing strategies?
The commenters also recommended refining the five existing criteria
for MCC/CC/without subgroups as follows:
Create subgroups if they meet the five existing criteria,
with cost difference between subgroups ($1,350) substituted for charge
difference between subgroups ($4,000).
If a proposed subgroup meets criteria 2 and
3 (at least 5 percent of discharges in the subgroup and at
least 500 cases) but fails one of the others, create the subgroup if
either of the following criteria is met:

--At least $1,000 cost difference per case between subgroups; or
--At least $1,000,000 overall cost should be shifted to cases with a CC
(or MCC) within the base DRG for payment weight calculations.

The commenter stated that this approach would affect DRGs where the
total dollars under consideration may be quite high (for example, in
the hundreds of millions), due to large numbers of procedures, but the
percentage difference in average charges falls short of the 20 percent
difference in average charges between subgroups.
Response: We disagree that the five criteria for establishing
severity subgroups are too restrictive and will lead to overpayments
for cases without a CC and underpay for cases with a CC. Relative to
the current CMS DRGs, the statistical data above suggest that the
construction of the MS-DRGs using these criteria will improve payment
accuracy. The explanatory of the MS-DRGs to predict resource use is
more than 9 percent greater than under the current CMS DRGs. Further,
under the current CMS DRGs, nearly 78 percent of patients are in the
highest severity level, while only 22.2 percent are in the

[[Page 47171]]

highest severity level under the MS-DRGs. In addition to having a
better distribution of cases among severity levels, the MS-DRGs have
more significant difference in average charges over the different
severity levels compared to the current CMS DRGs (72 FR 24706).
The commenter does not appear to disagree with these statistics
suggesting that improvements will result from the MS-DRGs. Rather, the
commenter is suggesting that we should create more subgroups with
smaller differences in average charges (or costs). We do not believe
the first two alternative criteria are practical or necessary to apply.
They would require us to make subjective judgments about whether a
hospital would treat patients or refer them elsewhere solely based on
payment incentives. We do not believe it is possible or appropriate for
us to make judgments about whether a hospital would decide to treat or
not treat a patient based on how much they are paid. Further, with the
exception of cardiac specialty hospitals, we have no evidence hospitals
are selectively treating or avoiding particular types of patients
because of incentives present in Medicare's IPPS payments. The reforms
we are making are intended to pay hospitals more accurately for the
patients they are already treating and avoid incentives for more
specialty hospitals to form. Therefore, we do not believe it is
practical or necessary to use the first two criteria suggested by the
commenter.
With respect to the last criteria, we note that the MS-DRGs
represent a significant expansion in the number of DRGs from 538 in FY
2007 to 745 in FY 2008. The commenter is suggesting that we create
additional subgroups with less variation between the subgroups.
Payments under a prospective payment system are predicated on averages.
Thus, most individual cases within any DRG system will have costs that
are either higher or lower than the average for that group. While
creating groups that have lower differences in average charges or costs
between the groups may lessen variation around the average and improve
explanatory power, it will also create more low-volume groups and
increase the likelihood that the relative weights will be nonmonotonic
and have instability in their values from year to year. We believe the
value of a lower number of DRGs outweighs the benefit we would obtain
from a slight increase in R\2\ and the risk of having nonmonotonic DRGs
that would come from adopting the commenter's suggestions.
4. Conclusion
We believe the MS-DRGs represent a substantial improvement over the
current CMS DRGs in their ability to differentiate cases based on
severity of illness and resource consumption. As developed, the MS-DRGs
increase the number of DRGs by 207, while maintaining a reasonable
patient volume in each DRG. The MS-DRGs increase the explanation of
variance in hospital resource use relative to the current CMS DRGs by
9.41 percent. Further, the data shown below in Table P and Table Q
illustrate how assignment of cases to different severity of illness
subclasses improves in the MS-DRGs relative to the CMS DRGs.

Table P.--Overall Statistics for CMS DRGs
------------------------------------------------------------------------
Average
CC subclass--current CMS DRG Percent charges
------------------------------------------------------------------------
One or more CCs................................... 77.66 $24,538
Non-CC............................................ 22.34 14,795
------------------------------------------------------------------------

Table Q.--Overall Statistics for MS-DRGs
------------------------------------------------------------------------
Number of Average
CC subgroup cases Percent charges
------------------------------------------------------------------------
MCC.............................. 2,607,351 22.2 $44,219
CC............................... 4,298,362 36.6 24,115
Non-CC........................... 4,826,980 41.1 18,416
------------------------------------------------------------------------

Under the current CMS DRGs, 78 percent of cases are assigned to the
highest severity levels (CC) and the remaining 22 percent are assigned
to the lowest severity level (non-CC). Applying the three severity
subclasses to FY 2006 data would result in approximately 22 percent of
patients being assigned to the severity subgroup with the highest level
of severity (MCC), 41 percent being assigned to the lowest severity
subclass (non-CC), and the remaining 37 percent being assigned to the
middle severity subclass (CC). Adding the new MCC subgroup greatly
enhances our ability to identify and pay hospitals for treating
patients with high levels of severity. As Table Q above shows, the new
subgroups also have significantly different resource requirements. The
MCC subgroup contains patients with average charges almost twice as
large as for those in the CC group ($44,219 compared to $24,115).
In addition to resulting in improvements in the DRG system's
recognition of severity of illness, we believe the MS-DRGs are
responsive to the public comments that were made on last year's IPPS
proposed rule with respect to how we should undertake further DRG
reform. In the FY 2007 IPPS final rule, we identified three major
concerns in the public comments about our proposed adoption of CS DRGs:
We received comments after the FY 2007 IPPS final rule suggesting
that further adjustments were needed to the proposed DRG system. The
commenters believed that the CS DRGs did not incorporate many of the
changes to the DRG assignments that have been made over the years to
the CMS DRGs. There was significant interest in the public comments in
either revising the CS DRGs to reflect these changes or using the CMS
DRGs as the starting point to better recognize severity.
We believe that the MS-DRGs are responsive to these suggestions.
The MS-DRGs use the CMS DRGs as the starting point for revising the
DRGs to better recognize resource complexity and severity of illness.
We are generally retaining all of the refinements and improvements that
have been made to the base DRGs over the years that recognize the
significant advancements in medical technology and changes to medical
practice. At the same time, the MS-DRGs greatly improve our ability to
identify groups of patients with varying levels of severity. They
retain all of the improvements made to the DRGs over the years, while
providing a more equitable basis for hospital payment.
We received many comments on the FY 2007 IPPS rule about the
potential use of a proprietary DRG system. The comments about the CS
DRGs raised compelling issues about the potential government use of a
proprietary system, including concerns about the availability, price,
and transparency of the source code, logic and documentation of the DRG
system. The commenters noted that CMS makes available these resources
in the public

[[Page 47172]]

domain for purchase through the National Technical Information Service
at nominal fees to cover costs. The commenters urged CMS not to adopt a
proprietary DRG system that would not be available on the same terms as
the current CMS DRGs.
There are no proprietary issues associated with the MS-DRGs. The
MS-DRGs will be available on the same terms as the current CMS DRGs
through the National Technical Information Service.
We also received other comments on the FY 2007 IPPS rule concerning
the use of CS DRGs. The commenters stated that no alternatives to CS
DRGs had been evaluated. The commenters suggested that alternative DRG
systems can better recognize severity than the CS DRGs and should be
evaluated before CMS decides which system to adopt. In response to
these concerns, we contracted with RAND Corporation to evaluate several
alternative DRG systems, including the MS-DRGs that we proposed and are
finalizing in this final rule with comment period for FY 2008.
As indicated above, we believe the MS-DRGs offer significant
improvements to the DRG system without many of the liabilities the
public commenters on the FY 2007 IPPS rule identified with the CS DRGs.
Thus, we believe the MS-DRGs offer significant improvements in
recognition of severity of illness and complexity of resources and are
adopting them for FY 2008.
Comment: Many commenters supported the MS-DRGs. One commenter
stated that ``your proposal showcases the best of CMS, evidenced, for
example, by an elegant and reasonable framework for severity-adjusted
DRGs.'' Another commenter stated that it was ``about time that Medicare
adopted a DRG system that allows for more equitable reimbursement for
cases of severe illness with high risk of death or significant
morbidity.'' Other commenters stated that it was very apparent that CMS
dedicated an extensive amount of thought, planning, and resources
toward the development of the MS DRGs, and that the system appears to
be a very reasonable approach toward stratifying the patient grouping
system more distinctly based on the severity of the patient's illness.
Many commenters found the MS-DRGs to represent a reasonable
approach to DRG refinement, stating they are, in principle, a positive
advancement and will create a more equitable and accurate payment
system. Other commenters stated that the MS DRGs are an effective
method for incorporating greater refinements to reflect variations in
patient severity. Other commenters stated that hospitals providing
services to more complex patients should be paid in a manner that
reflects the nature of that care. These commenters stated that they do
not want to see a payment system that rewards hospital inefficiency and
it is reasonable that Medicare reimbursement policy assures that
services are appropriately compensated. Other commenters stated that,
over time, some DRGs have become more profitable than others. The
commenters stated that making adjustments in rates helps to restore
balance to the entire hospital inpatient payment system. These
commenters endorsed CMS' efforts to achieve these goals through the
adoption of the MS-DRGs.
Other commenters expressed their appreciation for CMS' recognition
and consideration of issues raised in the public comments on last
year's proposal to adopt CS DRGs. The commenters indicated that CMS
took account of the public comments in crafting this year's MS-DRG
proposal. The commenter applauded CMS for addressing many concerns that
were expressed regarding CS DRGs. One of these commenters stated that
MS-DRGs are significantly superior to the CS DRGs that were proposed
last year. One commenter indicated that it had asked CMS to do the
following when considering adoption of a new DRG system:
Show evidence that the alternative resulted in an improved
hospital payment system compared to the existing DRG system;
Test the degree to which the variation in costs within
cases at the DRG level is reduced;
Consider whether there were easier ways to adjust for
severity similar to the differentiation of patients in FY 2006 based on
the absence or existence of a major cardiovascular diagnosis;
Maintain the improvements made to differentiate cases
based on complexity in the existing system; and
Avoid creating a system that is proprietary and lacks
transparency.
The commenter indicated that CMS made a concerted effort to develop
a system that incorporates all of these goals and indicated their
support for these meaningful improvements to the IPPS. Like this
commenter, several other commenters were also in agreement that the
proposed DRG system should not be proprietary to avoid limiting public
access to the system. Another commenter who expressed appreciation for
CMS' responsiveness to issues raised in last year's IPPS rule indicated
that the MS-DRGs are logical, transparent, and nonproprietary, which
well suits the needs of the health care community. Other commenters
also expressed support for CMS' decision to make the MS-DRGs
nonproprietary, open, and accessible, and available on the same terms
as the current DRGs.
Another commenter stated that it had decades of experience doing
work with DRG systems and believe that there has been a need for a
severity adjustment mechanism in the CMS DRGs to facilitate more
accurate payment under the IPPS. In its view, the MS-DRG methodology is
an appropriate mechanism to add severity adjustments to IPPS for FY
2008. According to the commenter, the MS-DRGs' advantages include:
They are based on the current CMS DRGs, whose technical
features, data structures, and program algorithms have been fine-tuned
over the years to accommodate the insertion and deletion of DRGs,
changes in code/criteria lists, changes to CC and CC exclusion lists,
changes in hierarchy, addition or deletion of DRG criteria, among
others.
Additional severity adjustments will not require
substantial modifications to this basic, extensible, and highly
efficient architecture. The architecture will facilitate the addition
of new categories necessitated by the introduction of new technologies
or the application of the methodology to non-Medicare populations.
The commenter recommended that CMS plan for a more flexible, four-
character nomenclature in the severity DRG system as soon as reasonably
possible. The commenter noted that all commercially available severity-
adjusted DRG systems have adopted a nomenclature that employs an
initial 3-digit base DRG designation followed by a 1-digit severity
score. This approach is far more flexible and transparent. More
importantly, the approach lends itself more readily to the addition of
new base DRGs and the evolution of more granular severity-adjustment.
Many commenters were supportive of the MS-DRGs because they were
derived from the existing system and, therefore, preserve the numerous
policy decisions made over the years and embodied in the CMS DRGs.
These commenters appreciated that severity stratifications were created
from the existing base DRGs with the result of redistribution within,
rather than across, the DRGs. Commenters also stated that the MS-DRGs
provide CMS with the flexibility of making DRG reassignments within a
base MS-DRG by moving more complex services up a severity level. Other
commenters stated that the MS-

[[Page 47173]]

DRG system does a better job than last year's proposed CS DRGs or the
current CMS DRGs of reflecting advancements in medical technology and
other improvements in medical care.
Some commenters stated that, with the development and proposal of
MS-DRGs, they saw little reason for CMS to continue assessing and
considering alternative patient classification systems in the
foreseeable future. These commenters stated that the MS-DRG system is
more transparent, accessible, and understandable than the alternative
systems being evaluated by RAND.
Some commenters stated that the MS-DRGs provide more accurate
grouping for severity of illness while retaining the CMS-DRG
refinements to account for more accurate payment of resource
utilization. However, these commenters recommended that the
implementation of MS-DRGs be delayed for one year to wait for the final
RAND report and the availability of a GROUPER. One commenter stated
that the MS-DRGs are an excellent attempt to define severity of illness
based on DRGs for the Medicare population but urged us not to implement
them in FY 2008 unless it is deemed to be the final system adopted from
the ones being studied by RAND. Several commenters stated that
hospitals will undergo enormous costs to ``educationally gear up'' for
the MS-DRGs. The commenter stated that the hospital community must
expend educational dollars in its attempt to improve coding to optimize
each case's DRG assignment. These comments were concerned about the
burden and expense that would be imposed on hospitals from adopting one
significant DRG reform this year and another one next year. A number of
other similar comments urged CMS not to move to MS-DRGs if it plans to
implement another new severity system in FY 2009.
Response: We appreciate the support for MS-DRGs. We agree that,
building on the current DRG system, we have maintained the best aspects
of our past efforts while adding additional refinements to better
identify severity. We also agree that it is beneficial to consider
moving to a four-character nomenclature for MS-DRGs. We have already
developed an internal version with four characters, with the fourth
character indicating the severity levels. Systems restrictions prevent
us from using this four-character numbering system in Medicare's data
systems at this time. However, we will continue to evaluate the
possibility of moving to such a numbering system.
With respect to the comments about the RAND project and the concern
about adopting two different DRG reforms in succeeding years, we note
that RAND has completed its evaluation of alternative DRG systems,
including the MS-DRGs. Consistent with RAND's findings, we believe it
is appropriate at this time to adopt the MS-DRG system for Medicare in
FY 2008. While there will be an opportunity for the public to comment
on RAND's findings, we expect to permanently adopt the MS-DRGs for the
IPPS. We do not believe it is likely that there will be persuasive
public comments suggesting that one of the alternative DRG systems
being evaluated by RAND is clearly superior.
Comment: One commenter fully endorsed the move to MS-DRGs, but
stressed the need of maintaining the current level of transparency in
the DRG system, regardless of the chosen methodology. The commenter
stated that many companies offer software that hospitals and health
plans utilize in managing the billing, coding, and payment for hospital
inpatient services under the DRGs. The development of this software is
possible only because the current DRG methodology is a transparent
system. By that, they mean that members of the public can obtain full
access to the details underlying the system by purchasing information
and software from the National Technical Information Service (NTIS) at
a nominal charge in a timely manner (well in advance of the
implementation of changes). The commenter appreciated the agency's
commitment in the FY 2007 final rule to ``continue to strive to promote
transparency in our decision making as well as in future payment and
classification systems, as we have done in the past.'' The commenter
commended CMS for its continued attention to the transparency issue and
appreciates CMS' proposal to make the MS-DRGs available on the same
terms as they currently do CMS DRGs through NTIS.
Response: We agree that it is important to provide updates and
modifications to the DRG system in a transparent manner. We intend to
continue our efforts to do so by providing the necessary information
through our regulations, Web sites, and through NTIS. The MS-DRGs will
be available to the public on the same terms as the CMS DRGs.
Comment: MedPAC reviewed the MS-DRGs and commended CMS for its
commitment to improve the accuracy of Medicare payments for hospital
acute inpatient services. MedPAC stated that CMS staff had made
significant progress toward achieving this goal with the development of
MS-DRGs coupled with cost-based weights. MedPAC's analysis showed that
MS-DRGs will result in a substantial improvement in payment accuracy.
MedPAC took several steps to evaluate the proposed MS-DRGs. First, they
examined their face validity. An effective patient classification
system, in the context of a payment system, should group together
clinically similar cases that have similar costs. In addition, MedPAC
stated that relative weights calculated for the classification groups
(MS-DRGs) generally should exhibit a consistent hierarchy of values
across levels of severity of illness for different conditions.
Therefore, one issue is how much costs vary around the mean cost per
case for cases grouped within MS-DRGs. Another issue is whether
relative weights for different severity levels show the expected
hierarchy across most clinical conditions. For comparison, MedPAC also
looked at the cost variation and relationships among relative weights
for cases grouped in the current DRGs and in the severity categories of
the APR DRGs. MedPAC also examined how the MS-DRGs would affect payment
accuracy in the IPPS, measured by how closely payments would track
costs for different types of cases. MedPAC compared payment accuracy
under the MS-DRGs with the results under the current CMS DRGs and the
severity categories of the APR DRGs.
MedPAC found that MS-DRGs did a better job of grouping cases with
similar costs into the same category. This was expected because the MS-
DRGs break out high severity (and high cost) cases with MCCs into
separate DRGs. For comparison, MedPAC also calculated the amount of
variation in costs among cases within the severity classes of APR DRGs
(Version 23). The average absolute difference for the APR DRGs, in
turn, was 7.4 percent lower than the value for DRGs. MedPAC stated that
this suggests that at least some opportunities are available for
further refinement of the MS-DRGs. Although MedPAC found the MS-DRGs
were not perfect, and may need to be further refined over time, it
believed they represent a significant improvement over the current CMS
DRGs. MedPAC's analysis showed that payment accuracy increased
substantially when moving from the current DRGs to one based on the MS-
DRGs.
Response: We agree with MedPAC that the MS-DRGs represent a
significant improvement over the current CMS DRGs. As suggested above,
we intend to use RAND's evaluation of the MS-DRGs to make further
improvements to it. We appreciate MedPAC's suggestion to use the APR
DRGs to also help us identify potential

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areas where further improvements can be made to the MS-DRGs.
Comment: One comment stated that the ``Crosswalk from CMS DRGs to
MS-DRGs'' was somewhat misleading. The commenter was concerned that
some entities are interpreting it as a one-to-one mapping. The
commenter suggested that it be clarified that an individual DRG code
cannot be mapped directly to a MS-DRG. The commenter recommended that
MS-DRG implementation be delayed so that CMS can release the MS-DRG
GROUPER and allow hospitals time to analyze the impact prior to
implementation.
Response: After public display of the proposed rule, we were asked
to provide additional information on the CMS Web site showing how the
current CMS DRGs map to the new MS-DRGs. Although we provided this
information, we were concerned about its usefulness because of the very
issue raised in this public comment. That is, there is not a one-to-one
crosswalk between the 538 DRGs that exist under the CMS DRGs and the
745 MS-DRGs. While this information may not have been as useful as
originally anticipated by members of the public that requested it, we
believe the fact that there is not a one-to-one crosswalk between the
CMS DRGs and the MS-DRGs was well understood by the public based on the
description of each system in the proposed rule. In addition, we made
other information available to the public that would allow for a
detailed analysis of the MS-DRG proposal as well as the continuing
transition to cost-based weights. We made available two MedPAR files
(FY 2005 and FY 2006) that included the CMS DRG and MS-DRG assignment
for each case. In addition, we made available charge-based, cost-based,
and blended weights under the CMS DRGs and the blended weights under
the MS-DRGs. With this information, we believe the public had detailed
information to be able to do a comprehensive analysis of our proposal
to adopt MS-DRGs. We do not believe that there should have been any
confusion associated with the publicly requested CMS DRG to MS-DRG
crosswalk on the CMS Web site, and we do not see this comment as a
reason to delay implementation of the MS-DRGs.
Comment: A number of commenters urged CMS to process more than nine
diagnosis and six procedure codes. The commenters stated that this
particular concern is more acute with MS-DRGs where a hospital needs to
make sure that CMS processes codes that are MCCs and CCs because they
determine DRG assignment. The commenters also stated that vendors and
health care groups make decisions about quality of care based upon the
CMS claim file. The commenters asked CMS to commit to a timeframe when
it will revise its systems to accept all 25 diagnosis and procedure
codes provided via electronic transmissions.
Response: We recognize the importance of using and analyzing as
much clinical data from claims as possible. Unfortunately, current
system limitations preclude CMS from processing more than nine
diagnoses and six procedures at this time. We will continue to review
this matter in conjunction with our other information systems
priorities.
Comment: Several commenters stated that ICD-10-CM and ICD-10-PCS
would provide a much better foundation for a severity-adjusted DRG
system than ICD-9-CM. The value of MS-DRGs or any other severity-
adjusted DRG system that relies on claims data will be limited by the
continued use of an obsolete, non-specific classification system. ICD-
10-CM and ICD-10-PCS would provide greater clinical detail, and up-to-
date clinical information for capturing information on disease
severity, including complications, comorbidities and risk factors, as
well as more detailed information on the use of medical technology and
its impact on resource utilization and outcomes. The longer adoptions
of contemporary classifications are delayed, the more CMS must develop
alternatives that become costly to administer and for providers costly
to continually implement.
One commenter stated that, in previous years, the commenter's
recognition of the industry's need for consistency in medical coding,
improved data integrity, and more precise and contemporary data
reflecting 21st century medicine has led it to advocate for adoption
and coordinated implementation of ICD-10-CM and ICD-10-PCS in their
previous comments on the IPPS. The commenter stated that it is
unfortunate that, as new initiatives that rely heavily on coded data
gain momentum (such as present on admission reporting, pay-for-
performance, and DRG refinements to better recognize severity of
illness), ICD-10-CM and ICD-10-PCS still have not been implemented as
replacements for ICD-9-CM.
One commenter stated that if the obsolete ICD-9-CM coding system
had been replaced earlier, claims data that would significantly add to
the knowledge needed to measure severity, quality, and other factors
under consideration would now be available. The commenter stated that
the proposed MS-DRG system and other proposals in this year's proposed
rule are excellent examples of how ICD-10-CM and ICD-10-PCS could
improve the ability to refine reimbursement systems in order to better
reflect severity of illness. The commenter urged CMS and HHS to take
immediate action to secure the adoption and implementation of these two
classification systems, and supporting transaction standards as early
as possible.
Response: We are continuing to carefully analyze issues associated
with implementing ICD-10.
Comment: Several commenters opposed the reuse of the current CMS
DRG numbers in the MS-DRG system. Although one commenter acknowledged
the advantages of maintaining the current 3-digit numerical scheme, it
believed the use of the same DRG numbers in both the CMS DRG and MS-DRG
systems will create confusion when analyzing longitudinal data, given
the same DRG number will have a different meaning in the two systems.
The commenter suggested that delaying implementation of a severity-
adjusted DRG system until FY 2009 would allow additional time for
making more extensive systems modifications, such as adopting an
alphanumeric or 4-digit numerical structure for the new DRG system.
Another commenter suggested that CMS begin numbering with a 4-digit
number so that there will not be confusion about which system is being
used.
Response: We agree that it is beneficial to consider moving to a 4-
character nomenclature for MS-DRGs. We have already developed an
internal version with four characters, with the fourth character
indicating the severity levels. Systems restrictions prevent us from
using this 4-character numbering system in Medicare's data systems at
this time. However, we will continue to evaluate the possibility of
moving to such a numbering system in the future. We do not expect the
changes to our data systems that would be necessary to adopt a 4-digit
DRG numbering system will occur with a year's delay of the MS-DRGs.
Therefore, we do not believe that we should delay the improvements in
recognition of severity of illness in our payment system for this
reason. If there is public interest, we will make our internal 4-digit
numbering system available on the CMS Web site to assist the public in
understanding the future numbering system we would be likely to adopt.
Such information may also be useful to the public to engage in the
types of analysis suggested by this public comment.

[[Page 47175]]

Comment: One commenter stated that the Medicare CMS DRG GROUPER is
used by some payers for their commercial, non-Medicare business. The
commenter understands that CMS may want to move to MS-DRGs for Medicare
patients, but is concerned about its continued access to the current
GROUPER program, should Medicare decide to replace CMS DRGs with MS-
DRGs. The commenter requested that the existing CMS GROUPER remain
intact for commercial insurers to utilize for their non-Medicare
contracts. The commenter suggested this could be done by keeping the
GROUPER in the CMS database with the title ``CMS GROUPER.'' The
commenter stated CMS would not need to update the weights of the CMS
GROUPER or make any other adjustments.
Response: The focus of CMS' efforts is in developing and
maintaining a DRG system that is appropriate for its Medicare
population. We have, and will continue to, encourage other payers to
make any necessary modifications to this program to meet their needs.
The current versions of the CMS DRGs will remain in the public domain.
However, we do not intend to make any updates to them once we move to
the MS-DRGs or another severity DRG system. We do not believe that
Medicare should undertake the effort and expense to maintain and update
a DRG system that will have no application for Medicare beneficiaries.
We encourage other payers to avail themselves of any DRG logic in our
nonproprietary system from past years and use this information as
appropriate to develop updates and refinements annually to suit the
needs of their own patient populations.
5. Impact of the MS-DRGs
Unlike the CS DRGs we proposed last year for FY 2008, the payment
impacts from the MS-DRGs we proposed to adopt (and are finalizing in
this final rule with comment period) for FY 2008 would largely be
redistributive within each base MS-DRG. Such a result occurs because we
collapse the current CC/non-CC, age and other distinctions that exist
in the CMS DRGs and redivide them based on MCCs, CCs, and non-CCs.
Thus, within each base MS-DRG, some cases will be paid more and some
less, but the base MS-DRGs are retained so there is no redistribution
between types of cases as would have occurred under the proposed CS
DRGs. In the proposed rule, we encouraged readers to review Table 5 in
the Addendum to the proposed rule for a list of the proposed MS-DRGs
and the proposed respective relative weight from the revisions we
proposed to better recognize severity of illness to better understand
how payment for cases within each base MS-DRG will be affected.
As indicated above, all of the severity DRG systems being evaluated
by RAND can be expected to result in similar redistributions in case-
mix among hospitals. The payment models used by RAND and CMS (and RTI
as well) all assume static utilization. That is, payment impact models
simulate the effects of a change in policy, assuming no change to
Medicare utilization. Any system adopted to better recognize severity
of illness with a budget neutrality constraint will result in case-mix
changes that can be expected to benefit urban hospitals at the expense
of rural hospitals. This impact occurs because patients treated in
urban hospitals are generally more severely ill than patients in rural
hospitals and the CMS DRGs are not currently recognizing the full
extent of these differences. Similarly, there will be differential
impacts among other categories of hospitals (for example, teaching,
disproportionate share, large urban, and other urban hospitals)
depending on the mix of cases that each hospital treats. The impact of
the MS-DRGs can be expected to have similar effects on case-mix as the
DRG systems being analyzed by RAND. These conclusions are confirmed by
RAND's analysis earlier in this final rule with comment period as well
as the payment impacts we illustrated in the proposed rule and again in
this final rule with comment period.
Comment: One commenter believed that a ``stop loss'' provision
should be instituted as part of the transition. Similar to that under
the IPF PPS, no hospital can receive less than 70 percent of what they
would otherwise have been paid under the old system. Another commenter
asked that CMS investigate mechanisms for dampening large payment rate
fluctuations.
Response: Changes in payments from MS-DRGs will be mitigated in any
single year by adopting them over a 2-year transition period. We
believe a 2-year transition period for implementation of the MS-DRGs
addresses the concern of these commenters. Further information is
provided in section II.E. of the preamble of this final rule with
comment period about how MS-DRG relative weights are being determined
to reflect implementation over a 2-year period.
6. Changes to Case-Mix Index (CMI) From the MS-DRGs
After the 1983 implementation of the IPPS DRG classification
system, CMS observed unanticipated growth in inpatient hospital case-
mix (the average relative weight of all inpatient hospital cases),
which we use as a proxy measurement for severity of illness. We had
projected the rate of growth in case-mix for the period 1981 to 1984 to
be 3.4 percent. The realized rate of growth during this period, which
included the introduction of the IPPS, was 8.4 percent, a variance in
excess of 1.6 percent per year. The unexpected growth in payments was
due to increases in the hospital case-mix index (CMI) beyond the
previously projected trend. Hospitals' CMI values measure the expected
treatment cost of the mix of patients treated by a particular hospital.
There are three factors that determine changes in a hospital's CMI:
(a) Admitting and treating a more resource intensive patient-mix
(due, for example, to technical changes that allow treatment of
previously untreatable conditions and/or an aging population);
(b) Providing services (such as higher cost surgical treatments,
medical devices, and imaging services) on an inpatient basis that
previously were more commonly furnished in an outpatient setting; and
(c) Changes in documentation (more complete medical records) and
coding practice (more accurate and complete coding of the information
contained in the medical record).
We note that changes in patient-mix and medical practice signal
real changes in underlying resource utilization and cost of treatment.
While these changes may have occurred in response to incentives from
IPPS policies, they represent real changes in resource needs. In
contrast, changes in CMI as a result of improved documentation and
coding do not represent real increases in underlying resource demands.
For the implementation of the IPPS in 1983, improved documentation and
coding were found to be the primary cause in the underprojection of CMI
increases, accounting for as much as 2 percent in the annual rate of
CMI growth observed post-PPS.\2\
---------------------------------------------------------------------------

\2\ Carter, Grace M. and Ginsburg, Paul: The Medicare Case Mix
Index Increase, Medical Practice Changes, Aging and DRG Creep, Rand,
1985.
---------------------------------------------------------------------------

The Medicare Trustees Technical Review Panel \3\ has previously
determined the annual measured change in CMI for inpatient hospital
services to oscillate around an underlying real trend of 1 percent
annual growth. In 1991 the Medicare-specific trend in real CMI growth
was found in a then-HCFA

[[Page 47176]]

funded study \4\ to be within a range of 1 to 1.4 percent. In the
annual study conducted by CMS, there has been no evidence to support a
real case-mix increase in excess of the annually projected 1 percent
upper bound in the period. MedPAC findings have echoed this with its
recent study of real case-mix change finding growth rates for years
2002, 2003, and 2004 of 1 percent, 0.6 percent, and 0.4 percent,
respectively.\5\
---------------------------------------------------------------------------

\3\ Review of Assumptions and Methods of The Medicare Trustees'
Financial Projections; Technical Review Panel on the Medicare
Trustees Reports, December 2000.
\4\ ``Has DRG Creep Crept Up? Decomposing the Case Mix Index
Change Between 1987 and 1988''; Carter, Newhouse, Relles; R-4098-
HCFA/ProPAC (1991).
\5\ Medicare Payment Advisory Commission: Report to the
Congress, March 2006 (p. 52).
---------------------------------------------------------------------------

In the proposed rule, we indicated that we believe that adoption of
the proposed MS-DRGs would create a risk of increased aggregate levels
of payment as a result of increased documentation and coding. MedPAC
notes that ``refinements in DRG definitions have sometimes led to
substantial unwarranted increase in payments to hospitals, reflecting
more complete reporting of patients' diagnoses and procedures.'' MedPAC
further notes that ``refinements to the DRG definitions and weights
would substantially strengthen providers' incentives to accurately
report patients' comorbidities and complications.'' To address this
issue, MedPAC recommended that the Secretary ``project the likely
effect of reporting improvements on total payments and make an
offsetting adjustment to the national average base payment amounts.''
\6\
---------------------------------------------------------------------------

\6\ Medicare Payment Advisory Commission: Report to Congress on
Physician-Owned Specialty Hospitals, March 2005, p. 42.
---------------------------------------------------------------------------

The Secretary has broad discretion under section 1886(d)(3)(A)(vi)
of the Act to adjust the standardized amount so as to eliminate the
effect of changes in coding or classification of discharges that do not
reflect real changes in case-mix. While we modeled the changes to the
DRG system and relative weights to ensure budget neutrality, we are
concerned that the large increase in the number of DRGs will provide
opportunities for hospitals to do more accurate documentation and
coding of information contained in the medical record. Coding that has
no effect on payment under the current CMS-DRGs may result in a case
being assigned to a higher paid DRG under the proposed MS-DRGs. Thus,
more accurate and complete documentation and coding may occur because
it will result in higher payments under the MS-DRG system. For the
proposed rule, we stated that the potential for more accurate and
complete documentation and coding will apply equally under the acute
IPPS as well as under the LTCH PPS because the same DRGs are used for
both payment systems. However, for reasons explained elsewhere in this
final rule with comment period, we are limiting this analysis to the
IPPS.
CMS in the past has adjusted standardized amounts under the IRF PPS
to account for case-mix increases due to improvements in documentation
and coding. In 2004, RAND \7\ published a technical report as part of
the follow-up to the implementation of the IRF PPS. The initial weights
used within the IRF PPS were based on a mix of CY 1999 and CY 1998
data. The study reviewed the changes between this base data set and the
IRF PPS implementation year of 2002. The report found that the weight
per discharge for IRFs had grown by 3.4 percent between the CY 1999
data set and the CY 2002 data set. In a detailed analysis of both
statistical patterns in acute stay records and directly measured coding
practices, RAND found that the level of case-mix increase associated
with documentation and coding-induced changes in the transition year
ranged between 1.9 and 5.8 percent, with the upper end of the estimate
associated with real declines in resource use. (We note that RAND
revised its report in late 2005 to reflect an upper bound of 5.9
percent, instead of the 5.8 percent that we reported in the FY 2006 IRF
PPS proposed and final rules.)
---------------------------------------------------------------------------

\7\ Carter, Paddock: Preliminary Analyses of Changes in Coding
and Case Mix Under the Inpatient Rehabilitation Facility Prospective
Payment System, RAND, 2004.
---------------------------------------------------------------------------

We used the results of this analysis to justify a 1.9 percent
adjustment to payment rates for IRFs in FY 2006 (70 FR 47904) and a 2.6
percent adjustment to payment rates for IRFs in FY 2007 (71 FR 48370),
for a combined total adjustment of 4.5 percent. The implementation year
was marked by the transitioning of hospitals to the IRF PPS payment
based on cost reports beginning January 1, 2002, and staggered to
October 1, 2002. A combination of increased familiarity with the system
by providers and the staggered transition could mean that documentation
and coding-induced case-mix change continued as hospitals experienced
ongoing changes in the early years of the IRF PPS and as the incentives
within the system were more widely recognized. We also recognize that
significant changes in IRF patient populations may be occurring as a
result of recent regulatory changes, such as the phase-in of the 75-
percent rule compliance percentage. We intend to continue analyzing
changes in coding and case-mix closely, using the most current
available data, as part of our ongoing monitoring of the IRF PPS and,
based on this analysis, we intend to propose additional payment
refinements for IRFs in the future as the analysis indicates such
adjustments are warranted.
Furthermore, as part of our analysis of this issue, we considered
the recent experience of the State of Maryland with adopting the APR
DRG system. Maryland introduced APR DRGs for payment for three teaching
hospitals in 2000. Between State fiscal years (SFYs) 2001 and 2005,\8\
the remaining hospitals continued to be paid using modified CMS DRGs.
In June 2004, the remaining hospitals were notified that Maryland would
expand the use of APR DRGs throughout its all payer charge-per-case
system beginning in July 2005. Hospitals in Maryland improved coding
and documentation in response to the adoption of APR DRGs. As a result
of this improved documentation and coding, reported CMI increased at a
greater rate than real CMI. Given the similarity between coding
incentives using the APR DRGs in Maryland and the MS-DRGs that are
being proposed for Medicare, we analyzed Maryland data to develop an
adjustment for improved documentation and coding.
---------------------------------------------------------------------------

\8\ Maryland uses a July 1 to June 30 State fiscal year. Prior
to FY 2003, Maryland had a 6-month lag in the data used to calculate
the hospital base case-mix index and case-mix change. Maryland used
12 months data ending December even though the hospitals' rate year
was July 1 to June 30. In FY 2003, Maryland moved to what it calls
``Real Time Case-Mix'' and started using 12 months data ending June
30 to calculate case-mix index and case-mix change for a rate year
beginning July 1.
---------------------------------------------------------------------------

For the Maryland analysis, we assume that, in SFY 2005, those
hospitals not already being paid under the APR DRG system began acting
as if the transition to the new DRG logic had already taken place. This
assumption is supported by the following facts: (a) Maryland hospitals
were reporting to the Health Services and Cost Review Commission
(HSCRC), Maryland's governing body of its all-payer ratesetting system
using the APR DRG GROUPER in 2005; (b) hospitals were provided training
in coding under the APR DRG GROUPER; (c) hospitals had access to
reports based on APR DRG logic; and (d) hospitals were given large
amounts of feedback as to their performance under the GROUPER by the
HSCRC relative to peer hospitals.
The incentives for Maryland hospitals are to code as completely and
accurately as possible because, beginning in July 2005, all Maryland
hospitals were paid using APR DRGs. SFY 2005 was an

[[Page 47177]]

important year in Maryland, as it marked the beginning of the 2-year
period of transition after which a hospital's revenues were reduced if
coding was not as complete as a peer hospital. Under the current CMS
DRGs, each secondary diagnosis code is recognized as either a CC or
non-CC. Hospitals in Maryland and nationally for Medicare only needed
to code one secondary diagnosis as a CC when paid using CMS DRGs for
the patient to be assigned to a higher-weighted DRG split based on the
presence or absence of a CC. Under the APR DRGs, each secondary
diagnosis is designated as minor, moderate, major, or extreme. Under
the MS-DRGs, each secondary diagnosis is designated as a non-CC, CC, or
MCC. Hospitals in Maryland have incentives under the APR DRGs to code
until a case is assigned to the highest of the four severity levels
within a base DRG. Under the MS-DRGs, hospitals will have incentives to
code until a case is assigned to one of up to three severity levels
within a base DRG. Although the APR DRGs and the MS-DRGs may be
different, we believe that hospitals have the same incentive under both
systems to code as completely as possible. For this reason, we believe
that the Maryland experience is a reasonable basis for projecting
changes in coding practices for the wider national hospital population
for the first 2 years of the MS-DRGs.
We believe the analysis presented below provides a reasonable
analysis of the potential growth in CMI due to improved documentation
and coding. In addition to the similarity between coding incentives
under the proposed MS-DRGs and the APR DRGs, we note that Maryland is
an all-payer State; therefore, hospitals are paid by all third party
payers--not just the State's Medicaid program--using the APR DRGs.
Coding has been very important for each hospital's overall revenue for
many years, and the incentives are uniform across all third party
payers. The transition to APR DRGs was known well in advance of the
actual date and, as stated above, hospitals were provided training in
coding under the APR DRGs. It is reasonable to expect that hospitals'
experience with improved documentation and coding will occur over a
period of at least 2 years. Thus, the experience in Maryland may be
similar to expectations for case-mix growth for the nation as a whole.
Finally, in reviewing the results from Maryland, we note that three
large teaching hospitals began using APR DRGs prior to SFY 2005. These
facilities generally treat a wider variety of patients with higher
acuity that gives them a greater potential for increasing coding under
the APR DRG system than other hospitals throughout Maryland. Because
these hospitals were paid using the APR DRGs earlier than other
Maryland hospitals, we believe data for these hospitals need to be
analyzed from an earlier time period. However, based on the
consultations with the HSCRC, we believe there were special issues with
one of these hospitals that may have made its case-mix growth during
the early years of the transition to the APR DRGs atypical of the other
teaching hospitals.\9\ Therefore, we did not separately analyze the
data for this hospital from the earlier time period and, as stated
below, included its data with the rest of the Maryland hospitals.
---------------------------------------------------------------------------

\9\ The HSCRC informed us that it began using APR DRGs for this
hospital to calculate the CMI and case-mix change to set the
hospital's charge per case target (CPC) that is used in Maryland's
all-payer ratesetting system for payment. However the HSCRC also
compared the reasonableness of hospital rates and costs for this
hospital relative to peer institutions using modified CMS DRGs to
calculate CMI and case-mix change. This use of dual systems to
calculate CMI and case-mix change made it difficult for the hospital
to code aggressively in the first few years of using APR DRGs.
---------------------------------------------------------------------------

As part of its contract with CMS, 3M Health Information Systems
reviewed the Maryland data in the context of our proposed changes to
adopt MS-DRGs. 3M grouped Medicare cases in Maryland through both the
CMS DRGs Version 24.0 and the proposed MS-DRGs for FY 2008. At our
request, 3M deleted two of the three early transition hospitals from
the data. It compared the results of the observed growth in case-mix
from these data to the same process applied to Medicare data, excluding
Maryland hospitals.
The MedPAR data file for Federal fiscal year (FFY) 2006 (October
2005 through September 2006) was used to create relative weights for
both CMS DRG Version 24.0 and the MS-DRGs. The MedPAR data file
contained 12,794,280 records. In constructing the weights, the
following edits were used:
Cases with zero covered charges or length of stay were
excluded.
Cases with length of stay greater than 2 years were
excluded.
Only hospitals contained in the impact file for the FY
2007 IPPS final rule were included.
The latter criterion excluded providers reimbursed outside of the
IPPS, including Maryland hospitals, from the weight calculation. 3M
employed standardized charge-based relative weights developed in
accordance with the CMS methodology. Cost-based weights were not used
and no adjustment to the charge weights was made for application of CMS
transfer and postacute care transfer payment policy.
3M further grouped 2 years of MedPAR data from FY 2004 and FY 2005,
using CMS DRG Version 24.0 and the MS-DRGs for hospitals nationally.
Using 2 years of MedPAR data with one version of each DRG system
further required 3M to make adjustments to the data to reflect
revisions to ICD-9-CM codes that are made each year. MedPAR data for
Maryland IPPS acute care providers within the IPPS data set were
similarly assigned to the MS-DRGs and CMS DRGs for FYs 2004 through
2006.
Each Maryland record, exclusive of the two early transition
teaching hospitals for the 3 observed years (SFY 2004 to SFY 2006), was
assigned to a proposed MS-DRG based on the ICD-9-CM codes the hospital
submitted. The same results were obtained from data at the national
level using the MS-DRGs. Further, we obtained data from the HSCRC
showing the weighted average increase in case-mix for calendar years
2001 to 2003 for the two large academic medical centers that began an
early transition to the APR DRGs. In addition, we also obtained case-
mix increases under the CMS DRGs for FYs 2004 through 2006. The
Medicare Actuary examined the data below:

[[Page 47178]]

Table R.--Maryland and National Data Used for Case-Mix Adjustment
Analysis
------------------------------------------------------------------------
FY 2004 to FY 2005 to FY 2004 to
2005 2006 2006
(percent) (percent) (percent)
------------------------------------------------------------------------
Rest of Maryland MS-DRG CMI 2.30 2.57 4.93
[Delta].
------------------------------------------------------------------------
CY 2000 to FY
2003
------------------------------------------------------------------------
Early Transition Hospitals.... 4.4 6.7 11.4
National MS-DRG CMI [Delta]... 0.47 2.65 3.13
National CMS DRG CMI [Delta].. -0.04 1.20 1.16
Blend of MS-DRG & CMS DRG ........... ........... 1.68
[Delta] using 0.47 Percent
for 2005 and 1.2 Percent for
2006.
Difference between Maryland ........... ........... 9.58
Early Transition Hospitals
and National Data.
Difference between Rest of ........... ........... 3.20
Maryland and National Data.
Medicare Actuary Estimate (75%/ ........... ........... 4.8
25%) [Delta] between Early
Transition and Rest of
Maryland.
------------------------------------------------------------------------

The data above show that case-mix for hospitals increased by 4.93
percent from SFYs 2004 to 2006, during which Maryland adopted the APR
DRGs for most hospitals. Case-mix for the two large teaching hospitals
that were paid using the APR DRGs earlier than other hospitals in the
State increased by 11.4 percent from SFYs 2001 to 2003. The weighted
average increase in Maryland from these two categories of hospitals is
5.58 percent. Case-mix using the MS-DRGs would have increased 0.47
percent in FY 2005 and 2.65 percent in FY 2006. Nationally, Medicare
case-mix using the CMS DRGs decreased by 0.04 percent in FY 2005 and
increased by 1.2 percent in FY 2006. The Actuary calculated a Medicare
case-mix increase nationally over 2 years using a blend of these data
from the MS-DRGs for FY 2005 and national Medicare data for FY 2006
from the CMS DRGs. The Actuary did not use either the -0.04 percent for
the CMS DRGs or the 2.65 percent for the MS-DRGs to create this blended
case-mix because these figures appeared atypical to national trends.
Therefore, the Actuary dropped one atypically high and low number from
each of the 2 years of data and calculated an average increase of 1.68
percent from FY 2004 to FY 2006. These data demonstrate that the
measure of average CMI for Medicare cases is growing more rapidly
within Maryland than nationally. Case-mix for the Maryland teaching
hospitals and the rest of Maryland increased 9.58 percent and 3.20
percent more, respectively, than the national average over 2 years,
suggesting that improved documentation and coding lead to perceived,
but not real, changes in case-mix.
The Actuary noted that the case-mix increase in Maryland for two
large teaching hospitals over a 2-year period was much higher in the
early years of the APR DRGs than other Maryland hospitals (11.4 percent
compared to 4.93 percent for the rest of Maryland). Further, teaching
hospitals generally treat cases with higher acuity than other hospitals
and have more opportunity to improve coding and documentation to
increase case-mix than other hospitals. Teaching hospitals also
represent a higher proportion of national Medicare data than they do of
the data in Maryland. The two early transition teaching hospitals in
Maryland account for approximately 10 percent of the Medicare
discharges in Maryland. Nationally, teaching hospitals account for
approximately 50 percent of Medicare discharges. Therefore, the Actuary
believes that the teaching hospitals should be given a higher weight in
the national data than they represent in Maryland. However, like other
hospitals, teaching hospitals vary in size and patient mix and not all
have the same opportunity to improve documentation and coding.
Therefore, we believe the weight given to teaching hospitals should be
higher than the 10 percent for the two early transition hospitals in
Maryland but lower than the 50 percent of discharges that they account
for in Maryland. The Actuary gave a weight of 25 percent for teaching
hospitals and 75 percent for the rest of Maryland to the excess growth
in case-mix over the national average and estimates that an adjustment
of 4.8 percent will be necessary to maintain budget neutrality for the
transition to the MS-DRGs. This analysis reflects our current estimate
of the necessary adjustment needed to maintain budget neutrality for
improvements in documentation and coding that lead to increases in
case-mix. Consistent with the statute, we will compare the actual
increase in case-mix due to documentation and coding to our projection
once we have actual data to revise the Actuary's estimate and the
adjustment we make to the standardized amounts.
Based on the Actuary's analysis, using the Secretary's authority
under section 1886(d)(3)(A)(vi) of the Act to adjust the standardized
amount to eliminate the effect of changes in coding or classification
of discharges that do not reflect real changes in case mix, we proposed
to reduce the IPPS standardized amounts by 2.4 percent each year for FY
2008 and FY 2009. We indicated that we were considering proposing a 4.8
percent adjustment for FY 2008. However, we believed it would be
appropriate to provide a transition because we would be making a
significant adjustment to the standardized amounts. In the proposed
rule, we expressed interest in receiving public comments on whether we
should apply the proposed adjustment in a single year, over 2 years, or
in different increments than \1/2\ of the adjustment each year. Section
1886(d)(3)(A)(vi) of the Act further gives the Secretary authority to
revisit adjustments to the standardized amounts for changes in coding
or classification of discharges that were based on estimates in a
future year. Consistent with the statute, we will compare the actual
increase in case mix due to documentation and coding to our projection
once we have actual data for FY 2008 and FY 2009 for the FY 2010 and FY
2011 IPPS rules. At that time, if necessary, we may make a further
adjustment to the standardized amounts to account for the difference
between our projection and actual data.
Comment: Many commenters opposed the documentation and coding
adjustment, which they believed would reduce payments to hospitals by
$24 billion over the next 5 years. The commenters did not believe this
reduction is warranted. They suggested the adjustment for documentation
and coding is a ``backdoor attempt'' to reduce Medicare's inpatient
hospital payments. One commenter stated that the documentation and
coding

[[Page 47179]]

adjustment would result in a total estimated reduction in payment for
Pennsylvania hospitals of $67.5 million in FY 2008, and an estimated
$1.6 billion over the next 5 years. The commenter stated that such
reductions and attempts at backdoor budget cuts would only further
erode scarce resources and challenge hospitals in their ability to care
for patients. The commenter stated that until MS-DRGs are fully
implemented, and CMS can document and demonstrate that any increase in
case-mix results from changes in coding practices rather than real
changes in patient severity, there should be no documentation and
coding adjustment.
Response: We stress that there are no savings attached to this
adjustment. This adjustment is not a ``backdoor'' attempt to reduce
Medicare inpatient hospital payments. Without a documentation and
coding adjustment, the changes to MS-DRGs would not be budget neutral.
Substantial evidence supports our conclusion that the CMI will increase
as a result of adoption of MS-DRGs without corresponding growth in
patient severity. We have provided evidence from studies going back
over 20 years that show that hospitals respond to incentives when
payment classifications are changed to improve documentation and coding
to receive higher payments. Maryland provides a recent example
demonstrating the validity of the finding that hospitals respond to
changes in payment classification groups by changing documentation and
coding practices. Furthermore, we are not aware of a situation in which
a new or revised payment system provided a payment incentive to improve
documentation and coding, yet hospitals did not improve documentation
and coding.
Comment: Many commenters stated that the documentation and coding
adjustment is based on assumptions made with little to no data or
experience about how medical record documentation and coding practices
will change as a result of the implementation of MS-DRGs. One commenter
stated that the proposed adjustment has no basis in actual data or
research pertaining to inpatient hospital coding practices. One
commenter objected to the -2.4 percent adjustment for documentation and
coding stating it could not understand the proposal and noted that the
hospitals are utilizing the coding system that the Department of Health
and Human Services has created. The commenter stated that if, in fact,
the new severity DRGs were designed to better recognize the resources
needed to treat the various DRG conditions, the argument can be made
that CMS has been underpaying institutions for over 20 years. Other
commenters objecting to the documentation and coding adjustment further
indicated that hospitals have operated under the current DRG system for
23 years and hospitals are already expert in their ability to maximize
coding for payment. These commenters stated that not even in the
initial years of the IPPS was coding change found to be in the
magnitude of CMS' proposed FY 2008 and FY 2009 cuts. The commenters
stated that the proposed MS-DRGs would be a refinement of the existing
system; the underlying classification of patients and ``rules of
thumb'' for coding would be the same. They stated that there is no
evidence that an adjustment of 4.8 percent over 2 years is warranted
when studies by RAND, cited in the preamble, are looking at claims
between 1986 and 1987 at the beginning of the IPPS that showed only a
0.8 percent growth in case-mix due to coding. The commenters stated
that even moving from the original reasonable cost-based system to a
new patient classification-based PPS did not generate the type of
coding changes CMS contends will occur under the MS-DRGs.
Many commenters disagreed with the applicability of generalizing
from the experience in Maryland to Medicare. One commenter indicated
that MS-DRGs and APR DRGs are two completely different ways to classify
patients, and generalizing from one system to the other cannot be done.
The existing classification rules will change only marginally with the
introduction of MS-DRGs, whereas they are very different under the APR
DRG system. Differences include:
APR DRGs consider multiple CCs in determining the
placement of the patient and, ultimately, the payment. In fact, to be
placed in the highest severity level, more than one high-severity
secondary diagnosis is required.
APR DRGs consider interactions among primary and secondary
diagnoses. Thus, factors that increase the severity level for a case
under the APR DRGs will not occur under the MS-DRGs.
APR DRGs consider interactions among procedures and
diagnoses as well. MS-DRGs do not.
APR DRGs have four severity subclasses for each base DRG,
while MS-DRGs have three tiers, and this is only for 152 base DRGs--106
base DRGs only have two tiers and 77 base DRGs are not split at all.
Less than half the number of patient classifications in
the MS-DRG system are dependent on the presence or absence of a CC--410
for MS-DRGs versus 863 for APR DRGs.
The commenters believed that all of these differences make the
Maryland experience an invalid comparison. They suggested there is
significantly less possibility for changes in coding to affect payment
under the MS-DRGs.
Another commenter indicated that the CMS analysis is not applicable
to Medicare because Maryland hospitals were not paid using a DRG system
prior to APR DRG implementation. DRG data were collected for
statistical purposes, but DRGs were not used for reimbursement. The
commenter added that coding practices under APR DRGs are not
necessarily comparable to MS-DRGs because they were not designed for
reimbursement purposes. Further, the commenter found that the system
logic is not always consistent with nationally recognized coding rules
and guidelines, resulting in possible changes in coding practices that
do not necessarily represent improved coding. The commenter stated that
hospitals have little ability to change their classification and coding
practices. Another commenter stated that Maryland's hospitals were paid
prior to the APR DRGs under a State ratesetting system where an
incentive to code accurately did not significantly affect what a
hospital was paid. The commenter stated that APR DRGs are also much
more complicated than MS-DRGs. The commenter stated that generalizing
the Maryland experience to the rest of the nation's hospitals is an
``apples to oranges'' comparison.
One commenter also disagreed with CMS' use of the example of the
IRF PPS to justify the coding adjustment. The commenter believed that
the IRF experience is an inappropriate comparison. The commenter stated
that coding changes seen under the IRF PPS were the result of moving
from a cost-based system to a PPS, not the marginal difference of
moving from the existing CMS DRGs to the refined MS-DRGs. In addition,
coding under the IRF PPS is driven by the Inpatient Rehabilitation
Patient Assessment Instrument (IRF-PAI). This tool provides an
incentive for IRFs to code in a way that differs from the IPPS, which
does not utilize a patient assessment instrument. The commenter
believed that coding for the IRF-PAI differs significantly from the
longstanding coding rules that inpatient PPS hospitals have followed
for the following reasons:
The IRF-PAI introduced a new data item into coding--
namely, ``etiological

[[Page 47180]]

diagnosis.'' The definition of this new diagnosis and the applicable
coding rules are significantly different than the ``principal
diagnosis'' used to determine the DRG. More importantly, the Official
Coding Guidelines that apply to all other diagnostic coding do not
apply to the selection of the ICD-9-CM etiologic diagnoses codes.
The Official Coding Guidelines do not consistently apply
to the coding of secondary diagnoses on the IRF-PAI. Several different
exceptions to the guidelines have been developed by CMS for the
completion of the IRF-PAI.
The definition of what secondary diagnoses may be
appropriately reported differs under the IRF-PAI from the definition
used by other inpatient coders.
Most hospitals are already coding as carefully and
accurately as possible because of other incentives in the system to do
so, such as risk adjustment in various quality reporting systems.
Analysis of Medicare claims from 2001 to 2005 suggests that hospitals
have been coding CCs at high rates for many years. More than 70 percent
of claims already include CCs, and more than 50 percent of claims have
at least eight secondary diagnoses (the maximum number accepted in
Medicare's DRG GROUPER). Hospitals'' assumed ability to use even more
CCs under MS-DRGs is very low.
The commenter also indicated that according to an article in the
magazine Healthcare Financial Management, the level of coding on claims
suggests that the presence of a CC on a bill is not strongly influenced
by financial gain. The proportion of surgical cases with a CC code is
higher for cases where there is no CC split and, thus, no financial
benefit, than on those cases where there is a CC split and a
corresponding higher payment. Thus, coding is driven primarily by
coding guidelines and what is in the medical record rather than by
financial incentives according to this commenter. In addition, the
commenter believed that many cases simply do not have additional CCs to
be coded. For many claims, additional codes are simply not warranted
and not supported by the medical record. Therefore, there is no
opportunity for a coding change to increase payment.
The commenter analyzed the all-payer health care claims databases
from California, Connecticut, Florida, and Michigan because, unlike the
MedPAR files, these databases include all 25 diagnoses reported on the
claims. This analysis showed that only 0.25 percent of claims had an
MCC or CC appear for the first time in positions 10 through 25. The
commenter believed this strongly suggests that hospitals will not be
able to ``re-order'' their secondary diagnoses to appear higher on the
claim so that Medicare will pay a higher rate. The commenter's coding
experts note that most hospitals use software that automatically re-
sorts the secondary diagnoses to ensure that those pertinent to payment
are included in positions two through nine.
The commenter also examined secondary diagnosis codes and found
that there were relatively few non-specific codes listed among the
common secondary diagnoses of discharges without a MCC/CC. The
commenter believed that this means hospitals cannot shift large numbers
of discharges to MCCs or CCs based on coding a more specific code to
replace a nonspecific code.
The commenter further indicated that there is no opportunity for
increased payment due to a change in coding for 77 base DRGs under the
MS-DRG system, as there is only one severity class and no
differentiation in payment. Additionally, there are MS-DRGs that are
now split between ``with MCC'' and ``without MCC'' (a combined non-CC
and CC MS-DRG) that have historically contained a single CC/non-CC
split. These DRGs already required secondary diagnosis coding; thus,
the codes to qualify the case as an MCC already would have been
present. In these cases, it is very unlikely that the medical record
would justify an MCC that is not already present in the medical record.
Coders must code strictly based on what the physician notes in the
chart. Therefore, the commenter believed it is highly unlikely that a
coder will be able to select an MCC that was not previously present in
the medical record.
One commenter stated that case-mix will and should increase from
adoption of the MS-DRGs. According to the comment, changes in case-mix
due to improved accuracy in documentation and coding have been observed
since the introduction of DRG payments in 1983. These changes have
occurred in every refinement of every classification system across
every care setting. The commenter stated that changes are driven
primarily by the fact that documentation and numbers of diagnoses coded
is inevitably incomplete due to time pressures for completion of
paperwork and limitations of computer systems to identify this
information. If an item is not used and/or not important, it is less
well documented. Refinements in patient classification make certain
paperwork more important, encouraging providers to improve their
documentation and reporting accuracy. This, in turn, increases apparent
case mix that depends on these codes according to this commenter. The
commenter stated that coding changes that affect CMI are desirable in
the long run, since they represent more accurate data and evidence-
based care, payments, quality measurement, management decisions, and
policy are all enhanced. This increase in accuracy is not only desired,
it is necessary to truly reform health care (severity adjusted
payments, quality measurement and reporting, value based-purchasing,
among others), where ``bad data'' is frequently cited as an excuse to
defer reform efforts. This commenter stated that it is impossible to
accurately predict the total magnitude and timing of case-mix changes.
Every hospital will have their own documentation and coding accuracy
baseline, and their own real CMI based on accurate data for their
patient mix. Each will have a different commitment to increasing their
accuracy, resources to do so, and learning curve for implementation.
The commenter believed that, like any prediction of the future, it will
inevitably be wrong, particularly due to its complexity.
Response: Many of the commenters ascribed the term ``behavioral
offset'' to our proposed rule and believed that CMS was pejoratively
describing hospital motives. We note that we did not use the term
``behavioral offset'' to describe the proposed -2.4 percent adjustment
to IPPS rates for FYs 2008 and 2009 for changes in documentation and
coding. We regret that the term ``behavioral offset'' has been
attributed to us. The proposed rule uses the phrase ``documentation and
coding adjustment'' to refer to the proposed -4.8 percent (-2.4 percent
each year for FYs 2008 and 2009) adjustment to the IPPS standardized
amounts to maintain budget neutrality for the MS-DRGs consistent with
the statute. Further, we believe it is important to address the notion
in some of the public comments that CMS believes changes in how
services are documented or coded that is consistent with the medical
record is inappropriate or otherwise unethical. We do not believe there
is anything inappropriate, unethical or otherwise wrong with hospitals
taking full advantage of coding opportunities to maximize Medicare
payment that is supported by documentation in the medical record. In
its public comments, MedPAC recommended an adjustment for improvements
in documentation and coding and also noted that hospitals' efforts to
improve the specificity and

[[Page 47181]]

accuracy of documentation and coding are perfectly legitimate.\10\
---------------------------------------------------------------------------

\10\ Medicare Payment Advisory Commission: Letter to Acting
Administrator Leslie Norwalk, June 11, 2007, page 12.
---------------------------------------------------------------------------

We encourage hospitals to engage in complete and accurate coding.
Section 1886(d)(3)(A)(vi) of the Act authorizes the Secretary to adjust
the standardized amount so as to eliminate the effect of changes in
coding or classification of discharges that do not reflect real changes
in case-mix. In its public comments, MedPAC indicated that the
increases in payments that result from improvements in documentation
and coding are not warranted because the increase in measured case-mix
does not reflect any real change in illness severity or the cost of
care for the patients being treated. Therefore, offsetting adjustments
to the PPS payment rates are needed to protect the Medicare program and
those who support it through taxes and premiums from unwarranted
increases in spending.\11\
---------------------------------------------------------------------------

\11\ Medicare Payment Advisory Commission: Letter to Acting
Administrator Leslie Norwalk, June 11, 2007, page 12.
---------------------------------------------------------------------------

In response to the comment that stated, ``moving from the original
reasonable cost-based system to a new patient classification-based PPS
did not generate the type of coding changes CMS contends will occur
under the MS-DRGs,'' we believe the estimates for improvements in
documentation and coding are within the range of those projected under
the original IPPS. As stated above, for the implementation of the IPPS
in 1983, RAND found that improved documentation and coding were found
to be the primary cause in the underprojection of CMI increases,
accounting for as much as 2 percent in the annual rate of CMI growth
observed post-PPS.\12\ This study found a 2 percent annual change in
case-mix from improvements in documentation and coding during the
original adoption of the IPPS, while we are forecasting a 4.8 percent
total increase due to the MS-DRGs. MedPAC's public comments citing a
study in Health Affairs found that the original adjustment for
anticipated increases in case mix due to documentation and coding
``were substantially smaller than the actual change in case mix which
increased more than 7 percent from the pre-PPS period to the first full
year of the PPS system.'' \13\ MedPAC further noted that CMI increases
due to improvements in documentation can be expected to occur over many
years. It stated that the Prospective Payment Assessment Commission (a
predecessor of MedPAC) considered case-mix change in developing its
annual update recommendations to the Congress and made offsetting
adjustments for continuing coding improvements for 10 consecutive years
from 1986 to 1995. \14\ For these reasons, we disagree with the comment
that our forecast of changes in case-mix from improvements in
documentation and coding are not within the range of those projected
when the original IPPS was implemented.
---------------------------------------------------------------------------

\12\ Carter, Grace M. and Ginsburg, Paul: The Medicare Case Mix
Index Increase, Medical Practice Changes, Aging and DRG Creep, Rand,
1985.
\13\ Medicare Payment Advisory Comission: Letter to Acting
Administrator Leslie Norwalk, June 11, 2007, page 12 citing
Steinwald, B. and L. Dummit. 1989. ``Hospital Case-mix change:
Sicker patient or DRG Creep?'' Health Affairs. Summer, 1989.
\14\ Medicare Payment Advisory Commission: Letter to Acting
Administrator Leslie Norwalk, June 11, 2007, page 11.
---------------------------------------------------------------------------

With respect to comments about the use of the APR DRG system in
Maryland to forecast an adjustment for improvements in documentation
and coding for Medicare, we agree that there are differences between
the APR DRGs being used in Maryland and the MS-DRGs being proposed for
use by Medicare. We believe that coding incentives in Maryland under
the APR DRGs and nationally under the MS-DRGs are similar, not
identical. The Maryland experience provides a useful example to
forecast the potential increase in case mix from improvements in
documentation because it is a recent and similar change to what we plan
to adopt for Medicare. Although the APR DRGs and the MS DRGs may be
different, we believe that hospitals have the same incentive under both
systems to code as completely as possible. Moreover, as explained
above, we estimated CMI growth using the MS DRG and CMS DRG GROUPERs,
not APR DRG GROUPER. We used Medicare claims from Maryland hospitals
for our analysis, but we grouped the claims under the CMS DRG GROUPER
and proposed MS DRG GROUPER.
For these reasons, we continue to believe that the Maryland
experience is a reasonable basis for projecting increased case mix in
the wider national hospital population for the first 2 years of the MS-
DRGs. MedPAC supported using the Maryland experience to forecast
potential increases in case mix by stating: ``The case-mix reporting
changes that occurred in Maryland-when that state adopted APR DRGs in
its all payer rate-setting system--provide one of the few recent
benchmarks for comparison outside of Medicare's historical
experience.'' \15\
---------------------------------------------------------------------------

\15\ Medicare Payment Advisory Commission: Letter to Acting
Administrator Leslie Norwalk, June 11, 2007, page 12.
---------------------------------------------------------------------------

The reference to the IRF PPS was not intended to suggest that we
used the experience with that system to forecast a potential adjustment
under the IPPS. Rather, we were merely noting that the adoption of a
PPS system for IRFs also produced an increase in case-mix as a result
of the new incentives presented by going to a different payment system.
The example suggests that there is strong evidence that hospitals--
whether they are IRFs, acute care IPPS hospitals, or LTCHs--respond to
coding incentives presented by their respective payment systems and
will react accordingly. MedPAC's public comments also supported this
point. In its public comments on the FY 2008 IPPS proposed rule, MedPAC
stated that there were increases in case mix with the introduction of
prospective payment systems for IRFs and LTCHs.\16\
---------------------------------------------------------------------------

\16\ Medicare Payment Advisory Commission: Letter to Acting
Administrator Leslie Norwalk, June 11, 2007, page 11.
---------------------------------------------------------------------------

The comments about reordering of codes and substituting specific
codes for nonspecific codes suggests that hospitals are already
maximizing coding opportunities and there is no further changes they
can make that would result in an increase in Medicare payment. With
respect to reordering of codes, the commenter argues that MCCs and CCs
will already be found in the first 9 fields on the Medicare claim and
the codes that are stored or processed from fields 10 to 25 cannot be
moved up higher on the claim to increase payment. While this public
comment suggests that there will be no opportunity to increase case mix
by moving secondary diagnoses higher on a claim, another public comment
provided a specific estimate of how much this practice could increase
case-mix. The commenter examined data from New York State discharges
and indicated that if MCC and CC codes that are currently provided
beyond the original 9 diagnoses on the claim that are used by Medicare
are moved to the first 9 positions, case mix would increase by 0.5
percent. This reaffirms CMS' views that hospitals focus their
documentation and coding efforts to maximize reimbursement. Again, we
believe these examples provide evidence from the public comments
supporting the necessity for us to apply an adjustment for
documentation and coding to meet the requirements of the law.

[[Page 47182]]

We believe increases in case-mix do not only have to come from
moving codes higher on the claim. A hospital can merely change the
order of a principal and secondary diagnosis for closely related
conditions to affect payment. The selection of a principal diagnosis
that was previously coded as secondary can increase hospital payment.
Again, we found a public comment suggesting that reordering of
principal and secondary diagnoses can increase case mix. The commenter
stated some DRG groups only count a code in ``the primary position
while others only count a code in a secondary position.'' The commenter
is noting that many DRGs are split based on the presence or absence of
an MCC or CC as a secondary diagnosis. According to the commenter, many
Medicare patients have multiple conditions occasioning their admission,
suggesting that reordering the principal and secondary diagnosis codes
can result in an increase in case-mix.
We also disagree with the comments suggesting that hospitals do not
have the opportunity to substitute a specified for an unspecified code
to increase case mix. In fact, we believe these incentives will be very
strong under the MS-DRGs with the reclassification of many unspecified
codes as non-CCs. Again, we found statements in the public comments
that support the notion that hospitals will have opportunities to
substitute a specified for an unspecified condition to increase case-
mix under the MS DRGs. One commenter indicated that the CC list
revisions encourage coding of more detailed codes and estimates that
switching from ``not otherwise specified'' codes to detailed codes
could increase case mix by 0.5 percent. Another commenter states: ``The
most dramatic example is ICD-9-CM code 428.0, Congestive heart failure,
unspecified, which was applied to an average of 2.3 million Medicare
fee-for-service cases a year during the past three years. This was the
most widely used secondary diagnosis code, despite the fact that 12
more specific codes were added in FY 2003 * * * if the revised CC list
were implemented before hospitals had a chance to improve their coding
to accommodate the revisions, then case-mix creep and inpatient
prospective payment system (IPPS) overpayments would ensue.''
We further note that many of the public comments arguing against
the documentation and coding adjustment also request a year's delay in
implementation of the MS-DRGs so ``hospitals may focus on understanding
the impact of the revised CC list, training and educating their coders,
and working with their physicians for any documentation improvements
required to allow the reporting of more specific codes where
applicable.'' We believe this comment provides a strong indication
that, even though many public commenters themselves argue against the
need for the documentation and coding adjustment, the same commenters
would like a year's delay to take the very actions that they say make
an adjustment unnecessary. The MS-DRGs are not making any changes to
ICD-9-CM codes. While the MS-DRGs do include some consolidations of
base DRGs, the major changes from the current DRGs simply involve
adding severity levels to many of the new MS-DRGs. The move to MS-DRGs
will not necessitate additional data elements or changes in reporting
practices. Therefore, hospitals may continue to document and code as
they do currently to be paid by Medicare under the MS-DRGs. The only
reason hospitals would need a delay in the MS-DRGs is to have more time
to understand how their revenues are affected by coding under the new
DRG system. In our view, there is a clear indication in these comments
that hospitals will change their documentation and coding practices and
increase case mix consistent with the payment incentives that are
provided by the MS-DRG system.
As further evidence that documentation and coding practices are
affected by payment, we note a recent article in the Journal of AHIMA
(American Health Information Management Association) which discusses
methods for improving clinical documentation in order to increase
reimbursement. The article describes a program at a hospital utilizing
clinical documentation specialists that work on the hospital treatment
floors to encourage improvements in clinical documentation. The article
states that one year after implementing the program, the hospital
gained an additional $1.5 million in reimbursement. In the second year,
the hospital gained $900,000. The article reports a similar program at
another hospital where the ``the academic hospital was overly
conservative in its coding practices and ``leaving money on the table.'
'' \17\ These examples provide strong support for concluding that there
were opportunities under the current CMS DRGs to improve coding and
increase payment. With incentives changing under the MS-DRGs, we
believe there will be additional opportunities to improve documentation
and coding. We believe this article supports our contention that
hospital coders and physicians will respond to incentives available
under MS-DRGs by improving documentation and coding to increase case-
mix.
---------------------------------------------------------------------------

\17\ Dimick, Chris ``Clinical Documentation Specialists,''
Journal of AHIMA, July-August 2007, pages 44-50.
---------------------------------------------------------------------------

Comment: One commenter stated that the ICD-9-CM Official Guidelines
for Coding and Reporting and the American Hospital Association's Coding
Clinic for ICD 9-CM provide official industry guidance on complete,
accurate ICD-9-CM coding, without regard to the impact of code
assignment on reimbursement. AHIMA's Standards of Ethical Coding
stipulate that ``coding professionals are expected to support the
importance of accurate, complete, and consistent coding practices for
the production of quality healthcare data.'' The commenter believed
that all diagnoses and procedures should be coded and reported in
accordance with the official coding rules and guidelines and does not
advocate the practice of only coding enough diagnoses and procedures
for correct DRG assignment. The commenter stated that increased
attention to the quality of coding and documentation as a result of the
role coding plays in DRG assignment has led to much-improved coding
practices since the adoption of the IPPS in 1983. The commenter further
noted that hospitals code more completely so CMS has more complete data
to make DRG modifications that would recognize the resource-
intensiveness of a diagnosis or procedure.
Response: We believe the commenter's assertion supports our point
that improvements in documentation and coding occurred as a result of
the payment incentives provided by the IPPS. That is, the commenter is
saying that the adoption of the original IPPS in 1983 led hospitals to
improve documentation and coding practices because ``of the role coding
plays in DRG assignment.'' The commenter believed that MS-DRGs will not
lead to changes in documentation and coding practices and cites--among
other sources--AHIMA's Standards of Ethical Coding. AHIMA is a
professional association representing more than 51,000 health
information professionals who work throughout the healthcare industry
whose work is closely engaged with the diagnosis and procedure
classification systems that serve to create the DRGs. The article cited
above from the July-August issue of the Journal of AHIMA provided
documented examples of how hospitals can change coding practices to
maximize payments. Thus, there is an

[[Page 47183]]

assertion in this comment that official coding rules and guidelines
require all diagnoses and procedures to be reported on the claim
minimizing opportunities for changes in documentation and coding to
increase case mix. However, AHIMA's own professional journal provides
strong evidence of opportunities that exist for improvements in coding
to increase payment. As we stated previously and suggested by the
article in the Journal of AHIMA, we believe that payment incentives
lead hospital staff to carefully examine documentation and coding
practices, work with physicians to improve the precision of clinical
documentation in order to make subsequent changes in coding.
Comment: A number of commenters requested that CMS not make the
documentation and coding adjustment until hospitals have had experience
with the MS-DRGs. Once the MS-DRGs are fully implemented, the
commenters indicated that CMS can investigate whether payments have
increased due to coding rather than the severity of patients and
determine if an adjustment is necessary. Several commenters stated that
CMS is not required to make a prospective adjustment to IPPS rates to
account for improvements in documentation and coding and should not do
so without an understanding of whether there will even be coding
changes in the first few years of the refined system. Another commenter
stated that CMS should retrospectively determine the national rate
reduction to offset increases in case-mix from improvements in
documentation and coding even though the reduction would be made to
future rates and would not account for potential increases in payment
that would occur until the adjustment is made. The commenter indicated
that section 1886(d)(3)(A)(vi) of the Act authorizes just such an
adjustment and it is the only way to ensure that the level of the
reduction is accurate. All of these commenters argued that CMS can
always correct for additional payments made as a result of coding
changes in a later year when there is sufficient evidence and an
understanding of the magnitude.
One commenter suggested that CMS defer (but not eliminate)
adjustments for improvements in documentation and coding. This
commenter suggested that CMS make the adjustment at a later time when
there is actual data suggesting how much improvements in documentation
have increased case mix but that we consider a ``stop loss'' if initial
coding changes appear to far exceed the current 4.8 percent estimate.
The commenter indicated that CMS should encourage facilities to improve
their documentation and coding accuracy sooner (that is, prior to
adjusting for documentation and coding), and not do any MCC/CC
consolidations until after coding improvements have occurred (that is,
have 3 severity levels for all DRGs).
Another commenter noted that RAND's evaluation of alternative
severity DRG systems included an assessment of how coding behaviors are
expected to vary under each system. However, RAND did not evaluate the
MS-DRGs and further noted that it was not able to empirically assess
the relative risk the alternative severity-adjusted systems pose for
case mix increases attributable to coding improvement without having
the opportunity to observe actual changes in coding behavior when a DRG
system is used for payment. The commenter did not believe any payment
adjustment to account for case mix increases, which are attributable to
coding improvements, should be made until CMS has conducted appropriate
research to determine the extent to which improvements in coding
becomes an issue under the proposed MS-DRG system. While the design of
the MS-DRG system may encourage an increased level of coding
specificity, the commenter stated that it is unknown what effect, if
any, this might have on the CMI.
Response: RAND did not repeat the analysis of the potential for
documentation and coding improvements to increase case mix using the
MS-DRGs because it only worked with FY 2005 data to evaluate them. The
RAND report refers readers to the analysis CMS did of the likely impact
of documentation and coding improvements on case mix using the MS-
DRGs.\18\
---------------------------------------------------------------------------

\18\ Wynn, Barbara O., Beckett, Megan, et al., ``Evaluation of
Severity Adjusted DRG System: Draft Interim Report,'' RAND HEALTH,
August, 2007, Addendum, page 27.
---------------------------------------------------------------------------

With respect to delaying making any adjustments for documentation
and coding, the commenters are correct that section 1886(d)(3)(A)(vi)
of the Act gives the Secretary authority to revisit adjustments to the
standardized amounts for changes in coding or classification of
discharges that were based on estimates in a future year. We also note
that section 1886(d)(4)(C) of the Act requires that ``changes in
classifications or weighting factors'' not increase or decrease
aggregate inpatient hospital payments. We believe that Congress has
expressed its clear preference that all changes to DRG
reclassifications be budget neutral. Substantial evidence indicates
that, unless we make an adjustment to account for improvements in
documentation and coding, aggregate payments under the IPPS will
increase when we adopt MS-DRGs as a result of these improvements in
documentation and coding. Further, as discussed above, the independent
Office of the Actuary validated the -1.2 percent adjustment to the
standardized amount to ensure that improvements in documentation and
coding do not increase case-mix and IPPS payments.
In addition, by revisiting the adjustment at a later date when we
have actual data, we can ensure that the standardized amounts are
permanently set at the level they otherwise would have been had the
increase in case mix due to improvements in documentation and coding
been known. That is, any overestimate or underestimate of the
adjustment for improvements in documentation would not be permanently
embedded in the IPPS standardized amount for subsequent years. While
any differences between projected and actual data could result in
higher or lower payments to hospitals for the intervening years, MedPAC
believes that CMS should provide an adjustment that lies somewhere in
the middle of its own estimate of 2.0 percent and CMS' estimate of 4.8
percent. In its comments, MedPAC recommended that CMS should adopt an
adjustment for improvements in documentation and coding between 1.6 and
1.8 percent per year that would ``put both Medicare and the hospital
industry at some risk that the actual value will turn out to be higher
or lower than the adjustment that is applied.'' \19\
---------------------------------------------------------------------------

\19\ Medicare Payment Advisory Commission: Letter to Acting
Administrator Leslie Norwalk, June 11, 2007, page 13.
---------------------------------------------------------------------------

Comment: Several commenters agreed with RAND's assertion that the
magnitude of coding improvement is likely to vary across hospitals,
depending on how strong their current coding practices are and the
resources they are able to devote to improving them. One commenter
stated that the hospitals that already use the more specific codes and
those with a low proportion of cases in split DRGs would receive fewer,
if any, overpayments because their case mix indices would not increase
as much, or at all. The commenter stated that New York hospitals, in
particular, would have less opportunity for coding improvement than
other hospitals because the union of the Medicare CC list and the New

[[Page 47184]]

York State CC list has 279 more codes than the Medicare CC list alone.
Thus, moving from the union of the CC list to the revised CC list would
add only 1,298 codes, 279 fewer codes than in the rest of the country.
Furthermore, New York hospitals are well-practiced in using specific
codes because the New York State AP-DRG grouper differentiates between
CCs and major CCs, as the MS-DRG grouper would do. This commenter and
others that cited the RAND study agree that CMS' practice of making an
across-the-board adjustment to PPS payments to address case mix
increases attributable to coding improvements raises an equity issue
that CMS needs to consider. The adjustment to the standardized amount
for documentation and coding for hospitals that have already improved
coding would result in significant payment losses according to the
commenter rather than offsetting higher case mix indices. The commenter
stated that these changes are not uniform, creating unintended
distributional impacts. The commenter stated that the process to make
adjustments for documentation and coding is an across the board
adjustment to the standardized amount, while actual changes will vary
widely. This will create unintended distributional impacts across
patient types, providers, and states that will in turn, according to
the commenter, create push-back in providers, states, Congress, and
potentially the courts.
One of these commenters acknowledged that CMS may not have the
option to recoup overpayments on a hospital-specific basis, as is done
in New York. The commenter suspected that the proposed documentation
and coding adjustment is too high because hospitals in other states--
particularly New York--have more experience with secondary diagnosis
coding than the Maryland hospitals had before their change to APR DRGs.
Therefore, hospitals in other states probably have less opportunity to
generate documentation and coding improvements that increase case mix.
Response: We agree that completeness of hospital coding practices
may well vary across hospitals. Although we recognize this variability,
we believe there will be potential for coding improvements to increase
case mix for all hospitals. For instance, as noted above, a hospital
can change the order of a principal and secondary diagnosis for closely
related conditions to affect payment. The selection of a principal
diagnosis that was previously coded as secondary can increase hospital
payment. This type of potential coding change to increase case mix
could be available to all hospitals irrespective of whether or not they
maximized coding in the past. As noted above, a commenter examined data
from New York State discharges and indicated that if MCC and CC codes
that are currently provided beyond the original 9 diagnoses on the
claim that are used by Medicare are moved to the first 9 positions,
case mix would increase by 0.5 percent. Thus, this comment indicates
that there will be at least some opportunity to increase case mix
through improvements in documentation and coding in States like New
York that have used sophisticated DRG systems in the past for payment.
Similarly, there are public comments suggesting hospitals can select a
specified condition in place of an unspecified one to increase payment
under the MS-DRGs but that this change in documentation and coding
practice will not be applicable in areas of the country where a DRG
system is in use that distinguishes between MCCs and CCs. As noted
above, congestive heart failure, unspecified appears on an average of
2.3 million cases per year from FY 2004 to FY 2006 or on over 20
percent of the Medicare claims. In our view, billing of an unspecified
code on this magnitude of claims suggests potential improvements in
coding from substituting a specified for an unspecified code are
widespread. While improvements in documentation and coding that
increase case mix may be variable, section 1886(d)(3)(A)(vi) of the Act
only allows us to apply the adjustments that are a result of changes in
the coding or classification of discharges that do not reflect real
changes in case mix to the standardized amounts.
Comment: Several commenters indicated that there should be a
transition to the MS-DRGs. A number of commenters supported a 4-year
transition period for implementing the MS-DRGs. The commenters stated
that such a transition would allow hospitals the opportunity to educate
their employees and physicians to assure proper, accurate coding, along
with allocation of required resources through their budgetary process.
The commenters recommended that FY 2008 be used to prepare for and test
the MS-DRGs. In FY 2009 through 2011, the DRG weights would be computed
as a blend of the MS-DRGs and the current DRGs. These commenters
believed a 1-year delay would provide hospitals adequate time to
implement and test the new system and adjust operations and staffing
for predicted revenues. They also suggested that the 1-year delay would
provide CMS adequate time to finalize data and a CC list, introduce and
test software for case classification and payment, and train its fiscal
agents. It would also allow vendors and State agencies time to
incorporate such changes into their respective software and information
systems. Other commenters were concerned that CMS would implement the
MS-DRGs in FY 2008 and then, as a result of the final RAND report, move
to another new system for FY 2009. These commenters urged CMS to delay
the implementation of the MS-DRGs if there was a possibility for
another completely new system in FY 2009. These commenters stated that
hospitals will expend a large number of hours educating their coding
staff about the MS-DRGs so that they can attempt to legitimately
optimize their payment. Some commenters recommended that CMS implement
the MS-DRGs effective October 1, 2007, with a 3-year phase-in approach
of the relative weights.
One commenter indicated that CMS should phase in the revised CC
list and MS-DRGs to reduce the amount of documentation and coding
related overpayments that would be made ``in the first place.'' The
commenter recommended that the MS-DRGs not be implemented in FY 2008.
Instead, they recommend that the revised CC list be used with a Version
25.0 of the current CMS DRGs and allow vendors of the alternative
severity systems being evaluated by RAND to incorporate this
information into an updated version of their systems. The commenter
stated that the updated version of the CMS DRGs using the revised CC
list would produce a greatly improved DRG GROUPER. The commenter
recommended a 5-year phase-in during which the old CC list/CMS-DRG
weights and the new CC list/MS-DRG weights would be blended in the
following proportions: 80/20 percent in FY 2008, 60/40 percent in FY
2009, 40/60 percent in FY 2010, 20/80 percent in FY 2011, and 0/100
percent in FY 2012. The commenter stated that CMS should release the
MS-DRG grouper software as soon as possible and should also encourage
vendors to release products as soon as possible that ensure that both
old and new CCs are listed among the first eight secondary diagnoses,
as these are the only ones that can be used for payment purposes. With
respect to the phase-in, the commenter believed it is prudent to begin
to use the new CC list/MS-DRGs in FY 2008 so that hospitals are
compelled as soon as possible (1) to improve their coding, and (2) to
educate

[[Page 47185]]

their physicians about complete documentation. However, the commenter
would not want the new DRG weights to represent a majority of the blend
until they can be based on the first year of corrected data. The FY
2010 weights would be based on the FY 2008 cases, so they would reflect
the first year's coding corrections and would presumably be more
accurate. Because it can take several years for hospitals and
physicians to adjust to new documentation and coding requirements,
continuing blended payments in FY 2011 would be important to minimize
documentation and coding related overpayments, according to the
commenter.
The commenter stated that the goal is to minimize the aggregate
level of documentation and coding related overpayments so that
hospitals not generating increases in case mix are not unfairly
penalized by an across-the-board reduction. If overpayments could be
recouped on a hospital-specific basis, the commenter stated that an
attenuated phase-in would not be necessary. The commenter stated that
they realized that their recommended phase in would be cumbersome
because each case would have to be grouped twice to determine the DRG
assignment under the CMS DRG and MS-DRG GROUPERS. However, the
commenter believed this is the better policy option since the
alternative for good-coding hospitals and those with relatively few
patients in split DRGs would be to effectively eliminate the IPPS
update for 2 years.
Response: We received many comments in support of the MS-DRGs,
particularly because they are so structurally similar to the current
DRGs, and therefore, we believe that a full year's delay is
unwarranted. While the MS-DRGs include some consolidations of base
DRGs, the major changes from the current DRGs simply involve adding
severity levels to many of the new MS-DRGs. The move to MS-DRGs will
not necessitate additional data elements or changes in reporting
practices. Providers will be submitting the same clinical information
on their claims. In our view, the issues in the comments concerning the
need to examine the new system in detail do not justify delaying the
move to this new system. We have provided detailed information in both
the proposed and final rule as well as on our Web site on the formation
of the MS-DRGs. We believe the significant benefits of the new system
outweigh concerns by the provider community that they have not had time
to analyze the details of the new system. We are confident that once
they start working with the new system, they will find it simple to
understand and far better at identifying and paying for more costly and
severely ill patients. Accordingly, we do not believe that extensive
preparation for implementation of the MS DRGs is necessary, and
therefore, we are not delaying adoption of the MS-DRGs until FY 2009.
MedPAC also carefully evaluated the options of implementing MS-DRGs
in FY 2008 versus deferring the implementation until FY 2009 and agrees
with our assessment that there is not sufficient cause to delay the
proposed adoption of MS-DRGs beyond FY 2008. While MedPAC agreed that
MS-DRGs should be implemented in FY 2008, it also stated that the
transition should coincide with the transition to cost-based weights--
that is, implement the MS-DRGs over a 2-year period beginning in FY
2008.\20\ We agree with MedPAC that the MS-DRGs should be implemented
over a 2-year transition period that coincides with the phase-in of
cost-based weights. Therefore, we will implement MS-DRGs beginning in
FY 2008 over a 2-year transition period where the DRG relative weights
will be a blend of 50 percent each of the CMS DRG and MS DRG weights.
We have provided more detail in section II.D.2. of the preamble of this
final rule with comment period about the DRG relative weight
calculations over this 2-year transition period.
---------------------------------------------------------------------------

\20\ Medicare Payment Advisory Commission: Letter to Acting
Administrator Leslie Norwalk, June 11, 2007, page 10.
---------------------------------------------------------------------------

There appears to be a suggestion in many of the public comments
both here and above that delaying implementation of MS-DRGs will allow
the improvements in documentation and coding to occur before they have
any financial impact on the Medicare program because hospitals would
know and be encouraged to code using the incentives provided under the
MS-DRGs, while Medicare would continue to be using the current CMS DRGs
for payment. As discussed, one comment suggested that we could lessen
the need for the documentation and coding adjustment by minimizing the
financial impact of improvements in documentation and coding through a
long transition period (5 years). We believe hospitals will not improve
documentation and coding consistent with the incentives provided under
the MS-DRGs unless they have a financial incentive to do so. As
indicated in one public comment, ``Documentation and numbers of
diagnosis codes is inevitably incomplete due to time pressures for
completion of `paperwork' and limitation of computer systems to capture
this information. If an item is not used and/or not important, it is
less well documented.''
If there is a delay in MS-DRGs, the coding incentives that would
come with its adoption would not be present and, therefore, likely
would not occur. While we appreciate the suggestion for adopting a long
transition period to provide an incentive to improve coding but
minimize its financial impact on Medicare, such an idea may well just
extend the period of time that documentation and coding improvements
occur while delaying the improvements in recognition of severity of
illness that would result from adopting MS DRGs. Again, we do not
believe that either delaying or adopting MS-DRGs over a long period of
time will reduce the need to apply a documentation and coding
adjustment of the magnitude we estimated. We believe that adopting
either of the ideas would only result in us needing to delay or extend
the period of time over which the documentation and coding adjustment
is applied.
Comment: MedPAC indicated that case-mix might increase more or less
than the 4.8 percent we estimated from Maryland's experience. MedPAC
recommended an adjustment between 1.6 and 1.8 percent a year for 2
years. This adjustment is based on a comparison between the MS-DRGs in
Maryland and nationally (2.0 percent over 2 years) increased:
To reflect their view that many hospitals do not respond
quickly to improve reporting after major changes in the DRG
definitions; and
The estimated change in case-mix for hospitals in the rest
of the nation may reflect some improvements in documentation and coding
in response to changes in the DRG definitions that were adopted in 2006
(such as the refinements to the cardiac care DRGs among others).
MedPAC recommended that we apply an adjustment that is somewhere in
the middle between their estimate of 2.0 and the CMS figure of 4.8
percent. According to MedPAC, a middle point in the range of 1.6 to 1.8
percent per year would put both Medicare and the hospital industry at
some risk that the actual value will turn out to be higher or lower
than the adjustment that is applied. If the actual increase due to
improvements in case-mix reporting turns out to be higher, the Medicare
program will have paid more than it should have. If the actual increase
is lower, the hospitals will have been paid less than they should have.
MedPAC noted that we have already stated a willingness to correct for
any difference

[[Page 47186]]

between our forecast and the actual increase in case mix due to
improved coding when data become available in 2009 when we prepare the
proposed rule for fiscal year 2010. MedPAC further suggested that CMS
plan on taking coding adjustments for longer than two years. CMS may
want to adopt a series of adjustments that takes somewhat higher
adjustments in the first few years of the MS-DRG changes, on the
assumption that history has shown that previous coding adjustments have
underestimated the impact of the changes.
Response: We proposed to adjust the IPPS standardized amounts by -
2.4 percent each year for FYs 2008 and 2009 for improvements in
documentation and coding that will increase case-mix. As we are
adopting the MS-DRGs over a 2-year transition period, we do not believe
that the incentives to improve documentation and coding will be as
strong in the first year as we previously estimated. Further, as
suggested above by the evidence when the IPPS was first implemented,
MedPAC, and other public comments, it can take several years for
hospitals and physicians to adjust their documentation and coding
practices in response to payment incentives. For these reasons, we
believe the documentation and coding adjustment should be applied over
a period of 3 rather than 2 years. We do not agree with MedPAC that a
larger adjustment ``should be taken in the first few years of the MS-
DRGs on the assumption that history has shown that previous coding
adjustments have underestimated the impact of changes.'' Rather, as
stated above, we believe that the coding incentives during the first
year of MS-DRGs will be lessened because we are adopting them over a 2-
year transition period. Therefore, we believe a smaller adjustment
should be applied in the initial year. We continue to believe that our
analysis justifies a -4.8 percent adjustment for improvements in
documentation and coding at this time. Therefore, we are applying an
adjustment of -1.2 percent in this final rule with comment period to
the IPPS standardized amounts for FY 2008 and based on current
projections will apply adjustments of -1.8 percent each year to the
IPPS standardized amounts for FYs 2009 and 2010.
Consistent with the statute, we will compare the actual increase in
case-mix due to documentation and coding to our projection once we have
actual data to revise the Actuary's estimate and the adjustment we make
to the standardized amounts. With these adjustments occurring over 3
rather than 2 years, we will have information in 2009 as we prepare the
IPPS rule for FY 2010 to reevaluate how the actual increase in case mix
compares to our estimate. We may also have partial year information in
2008 to inform any proposal for FY 2009. Therefore, we will consider
revising the planned adjustments for FY 2009 and FY 2010 if information
in the Medicare billing data suggests that our projections are either
too high or low compared to actual experience.
Based on the Actuary's analysis, using the Secretary's authority
under section 1886(d)(3)(A)(vi) of the Act to adjust the standardized
amount to eliminate the effect of changes in coding or classification
of discharges that do not reflect real changes in case-mix, we are
reducing the IPPS standardized amount by -1.2 percent for FY 2008.
Section 1886(d)(3)(A)(vi) of the Act further gives the Secretary
authority to revisit adjustments to the standardized amounts for
changes in coding or classification of discharges that were based on
estimates in a future year. Consistent with the statute, we will
compare the actual increase in case-mix due to documentation and coding
to our projection once we have actual data for FY 2008. At that time,
if necessary, we may make a further adjustment to the standardized
amounts to account for the difference between our projection and actual
data.
7. Effect of the MS-DRGs on the Outlier Threshold
To qualify for outlier payments, a case must have costs greater
than Medicare's payment rate for the case plus a ``fixed loss'' or cost
threshold. The statute requires that the Secretary set the cost
threshold so that outlier payments for any year are projected to be not
less than 5 percent or more than 6 percent of total operating DRG
payments plus outlier payments. The Secretary is required by statute to
reduce the average standardized amount by a factor to account for the
estimated proportion of total DRG payments made to outlier cases.
Historically, the Secretary has set the cost threshold so that 5.1
percent of estimated IPPS payments are paid as outliers. The FY 2007
cost outlier threshold is $24,485. Therefore, for any given case, a
hospital's charge adjusted to cost by its hospital-specific CCR must
exceed Medicare's DRG payment by $24,485 for the case to receive cost
outlier payments.
Adoption of the MS-DRGs will have an effect on calculation of the
outlier threshold. For the proposed rule and this final rule with
comment period, we analyzed how the outlier threshold would be affected
by adopting the MS-DRGs. Using FY 2005 MedPAR data, we have simulated
the effect of the MS-DRGs on the outlier threshold. By increasing the
number of DRGs from 538 to 745 to better recognize severity of illness,
the MS-DRGs would be providing increased payment that better recognizes
complexity and severity of illness for cases that are currently paid as
outliers. That is, many cases that are high-cost outlier cases under
the current CMS DRG system would be paid using an MCC DRG under the MS-
DRGs and could potentially be paid as nonoutlier cases. For this
reason, we expected the FY 2008 outlier threshold to decline from its
FY 2007 level of $24,485. We proposed an FY 2008 outlier threshold of
$23,015. In this final rule with comment period, we are establishing an
FY 2008 outlier threshold of $22,650. In section II.A.4. of the
Addendum to this final rule with comment period, we provide a more
detailed explanation of how we determined the final FY 2008 cost
outlier threshold. We address any comments received on the FY 2008
proposed outlier threshold in section II.A.4. of the Addendum to this
final rule with comment period.
8. Effect of the MS-DRGs on the Postacute Care Transfer Policy
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. Section 412.4(c)
establishes the conditions under which we consider a discharge to be a
transfer for purposes of our postacute care transfer policy. In
transfer situations, 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 postacute care
transfer payment policy is to avoid providing an incentive for a
hospital to transfer

[[Page 47187]]

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.
Beginning with the FY 2006 IPPS, the regulations at Sec. 412.4
specified that, effective October 1, 2005, we make a DRG subject to the
postacute care transfer policy if, based on Version 23.0 of the DRG
Definitions Manual (FY 2006), using data from the March 2005 update of
FY 2004 MedPAR file, the DRG meets the following criteria:
The DRG had a geometric mean length of stay of at least 3
days;
The DRG had at least 2,050 postacute care transfer cases;
and
At least 5.5 percent of the cases in the DRG were
discharged to postacute care prior to the geometric mean length of stay
for the DRG.
In addition, if the DRG was one of a paired set of DRGs based on
the presence or absence of a CC or major cardiovascular condition
(MCV), both paired DRGs would be included if either one met the three
criteria above.
If a DRG met the above criteria based on the Version 23.0 DRG
Definitions Manual and FY 2004 MedPAR data, we made the DRG subject to
the postacute care transfer policy. We noted in the FY 2006 final rule
that we would not revise the list of DRGs subject to the postacute care
transfer policy annually unless we make a change to a specific CMS DRG.
We established this policy to promote certainty and stability in the
postacute care transfer payment policy. Annual reviews of the list of
CMS DRGs subject to the policy would likely lead to great volatility in
the payment methodology with certain DRGs qualifying for the policy in
one year, deleted the next year, only to be reinstated the following
year. However, we noted that, over time, as treatment practices change,
it was possible that some CMS DRGs that qualified for the policy will
no longer be discharged with great frequency to postacute care.
Similarly, we explained that there may be other CMS DRGs that at that
time had a low rate of discharges to postacute care, but which might
have very high rates in the future.
The regulations at Sec. 412.4 further specify that if a DRG did
not exist in Version 23.0 of the DRG Definitions Manual or a DRG
included in Version 23.0 of the DRG Definitions Manual is revised, the
DRG will be a qualifying DRG if it meets the following criteria based
on the version of the DRG Definitions Manual in use when the new or
revised DRG first became effective, using the most recent complete year
of MedPAR data:
The total number of discharges to postacute care in the
DRG must equal or exceed the 55th percentile for all DRGs; and
The proportion of short-stay discharges to postacute care
to total discharges in the DRG exceeds the 55th percentile for all
DRGs. A short-stay discharge is a discharge before the geometric mean
length of stay for the DRG.
A DRG also is a qualifying DRG if it is paired with another DRG
based on the presence or absence of a CC or MCV that meets either of
the above two criteria.
The MS-DRGs that we proposed to adopt (and are finalizing in this
final rule with comment period) for FY 2008 are a significant revision
to the current CMS DRG system. Because the new MS-DRGs are not
reflected in Version 23.0 of the DRG Definitions Manual, consistent
with Sec. 412.4, we proposed to recalculate the 55th percentile
thresholds in order to determine which MS-DRGs would be subject to the
postacute care transfer policy. Further, under the MS-DRGs, the
subdivisions within the base DRGs will be different than those under
the current CMS DRGs. Unlike the current CMS DRGs, the MS-DRGs are not
divided based on the presence or absence of a CC or MCV. Rather, the
MS-DRGs have up to three subdivisions based on: (1) The presence of a
MCC; (2) the presence of a CC; or (3) the absence of either an MCC or
CC. Consistent with our existing policy under which both DRGs in a CC/
non-CC pair are qualifying DRGs if one of the pair qualifies, we
proposed that each MS-DRG that shared a base MS-DRG would be a
qualifying DRG if one of the MS-DRGs that shared the base DRG
qualified. We proposed to revise Sec. 412.4(d)(3)(ii) to codify this
policy.
Similarly, we believe that the changes to adopt MS-DRGs also
necessitate a revision to one of the criteria used in Sec. 412.4(f)(5)
of the regulations to determine whether a DRG meets the criteria for
payment under the ``special payment methodology.'' Under the special
payment methodology, a case subject to the special payment methodology
that is transferred early to a postacute care setting will be paid 50
percent of the total IPPS payment plus the average per diem for the
first day of the stay. Fifty percent of the per diem amount will be
paid for each subsequent day of the stay, up to the full MS-DRG payment
amount. A CMS DRG is currently subject to the special payment
methodology if it meets the criteria of Sec. 412.4(f)(5). Section
412.4(f)(5)(iv) specifies that if a DRG meets the criteria specified
under Sec. 412.4(f)(5)(i) through (f)(5)(iii), any DRG that is paired
with it based on the presence or absence of a CC or MCV is also subject
to the special payment methodology. Given that this criterion would no
longer be applicable under the MS-DRGs, we proposed to add a new Sec.
412.4(f)(6) that includes a DRG in the special payment methodology if
it is part of a CC/non-CC or MCV/non-MCV pair. We proposed to update
this criterion so that it conforms to the proposed changes to adopt MS-
DRGs for FY 2008. The revision would make an MS-DRG subject to the
special payment methodology if it shares a base MS-DRG with an MS-DRG
that meets the criteria for receiving the special payment methodology.
Comment: One commenter urged CMS to ``suspend application of the
postacute care transfer policy for one year, until sufficient data is
available, and then apply the criteria anew to the MS-DRGs.'' As an
alternative to ceasing the application of the postacute care transfer
policy for one year, the commenter recommended that CMS limit the
application of the postacute care transfer policy as much as possible
until better data are available and not to increase the average length
of stay for less complicated DRGs over their current levels.
Response: Under both the CMS DRGs and MS-DRGs, there were two
criteria for making a DRG subject to the postacute care transfer
policy. These criteria are:
The total number of discharges to postacute care in the
DRG must equal or exceed the 55th percentile for all DRGs; and
The proportion of short-stay discharges to postacute care
to total discharges in the DRG must equal or exceed the 55th percentile
for all DRGs.
While these criteria are identical under the CMS DRGs and the MS-
DRGs, we needed to recalculate the 55th percentile thresholds in order
to determine which MS-DRGs would be subject to the postacute care
transfer policy to conform the existing policy to the new DRG system.
Further, we also needed to make a conforming change to our policy that
a DRG is subject to the postacute care transfer policy if it is one of
a paired set of DRGs based on the presence or absence of a CC or MCV
where one of the DRGs in the set meets the numerical criteria specified
above. As the MS-DRGs have subdivisions based on MCC, CCs and non-CCs
rather than MCVs, CCs and non-CCs, we needed to amend the regulatory
text to reflect the nomenclature of the MS-DRG system. Therefore, our
policy for making a DRG subject to the postacute care transfer policy
under the MS-DRGs is unchanged other than to make it

[[Page 47188]]

conform to the new DRG system. As our policy is unchanged, we do not
believe that either suspending or limiting application of the postacute
care transfer policy under the MS-DRGs is warranted.
Comment: One commenter opposed CMS' ``proposal to significantly
expand the list of the DRGs subject to the postacute care transfer
policy.'' The commenter, a hospital, noted that ``manual processes''
would have to take place in order to identify patients meeting the home
health criteria. Specifically, the commenter stated that, ``hospitals
[would] either have to contact patients to determine if they have
received home health services within 3 days after discharge or wait for
the fiscal intermediary to let the hospital know that a patient
received home care that was not planned at the time of discharge which
requires coders to review and correct the disposition and for the
Business Office to resubmit the claim.''
Response: We note that we did not propose to change or expand the
postacute care transfer policy provision in this year's proposed rule.
Rather, we applied existing post-acute transfer policy to the new MS-
DRG system. Thus, the criteria that would have made a CMS-DRG subject
to the postacute care transfer policy last year were the same as those
applied to the MS-DRGs for FY 2008. We note that in FY 2007, 190 CMS
DRGs of 538 CMS DRGs were subject to the postacute care transfer
policy, or about 35 percent. For FY 2008, 273 out of 745 MS-DRGs are
subject to the postacute care transfer policy or about 36 percent.
Therefore, the proportion of postacute care transfer MS-DRGs subject to
the policy is very similar to what it was last year under the CMS DRGs.
Thus, we disagree there has been a ``significant expansion'' of DRGs
subject to the postacute care transfer policy. Rather, we are simply
conforming the existing postacute care transfer policy to the new MS-
DRGs.
In response to the commenter's concern about it being
administratively burdensome to identify patients who received home
health care services subsequent to discharge from the acute care
hospital, we note that, under section 1886(d)(5)(J)(ii)(III) of the
Act, the term ``qualified discharge'' includes a discharge from an IPPS
hospital upon which the patient is provided home health services from a
home health agency if such services relate to the condition or
diagnosis for which the patient received hospital inpatient services.
The proposed rule did not make any change to application of the
postacute care transfer policy in this circumstance. We note that, in
most instances, patients are discharged from the acute hospital with a
written plan of care for the provision of home health services, so
hospitals would usually know if a patient was going to receive home
health care services at the time of discharge. Additionally, we do not
expect that the administrative burden of identifying patients
discharged to home for the provision of home health services within 3
days will be any greater under the MS-DRG system than it was under the
CMS DRG system because the proportion of DRGs subject to the postacute
care transfer policy is very similar under both systems.
Comment: One commenter stated that it is unreasonable to categorize
all three MS-DRGs in the same base DRG as subject to the postacute care
transfer policy if only one of the three meets the criteria. The
commenter suggested that, for base MS-DRGs where there are three base-
DRGs, two of the three base-DRGs should meet the postacute care
transfer criteria (on their own) for all of them to be subject to the
postacute care transfer policy and that if only one meets the criteria,
none should be subject to the postacute care transfer policy.
Response: Under the CMS DRG system, some DRGs were paired with
others (with CC or without CC). Under that system, if one DRG qualified
for the postacute care transfer policy, we included its paired DRG so
as not to create an incentive for hospitals not to include any code
that would identify a complicating or comorbid condition. The same
logic applies under the MS-DRG system: If one DRG in a set meets the
postacute care transfer criteria, we believe that it is appropriate to
include the paired or grouped DRGs so as not to create any coding
incentives to bypass the postacute care transfer payment. Therefore, we
disagree with the commenter that it is ``unreasonable'' to include a
group of MS-DRGs where only one MS-DRG in the group meets the postacute
care transfer criteria on its own. We also note that we apply the same
logic to the special-pay MS-DRGs. That is, if an MS-DRG qualifies to
receive the special payment methodology, any other MS-DRGs that share
the same base MS-DRG also qualify to receive the special payment
methodology.
In this final rule with comment period, we are adopting the
proposed postacute care transfer policy conforming changes as final.
In addition, Sec. 412.4(f)(3) states that the postacute care
transfer policy does not apply to CMS DRG 385 for newborns who die or
are transferred. We proposed to make a conforming change to this
paragraph to reflect that this CMS DRG would become MS-DRG 789
(Neonates, Died or Transferred to Another Acute Care Facility) under
our proposed DRG changes for FY 2008. We did not receive any comments
on this proposal and, therefore, are finalizing this conforming change
as proposed.
These revisions do not constitute a change to the application of
the postacute care transfer policy. Therefore, any savings attributed
to the postacute care transfer policy will be unchanged as a result of
adopting the MS-DRGs. Consistent with section 1886(d)(4)(C)(iii) of the
Act, aggregate payments from adoption of the MS-DRGs cannot be greater
or less than those that would have been made had we not made any DRG
changes.
We also proposed and are adopting as final technical changes to
Sec. Sec. 412.4(f)(5)(i) and (f)(5)(iv) to correct a cross-reference
and a typographical error, respectively.

E. Refinement of the Relative Weight Calculation

In the FY 2007 IPPS final rule (71 FR 47882), effective for FY
2007, we began to implement significant revisions to Medicare's
inpatient hospital rates by basing the relative weights on hospitals'
estimated costs rather than on charges. This reform was one of several
measured steps to improve the accuracy of Medicare's payment for
inpatient stays that include using costs rather than charges to set the
relative weights and making refinements to the current CMS-DRGs so they
better account for the severity of the patient's condition. Prior to FY
2007, we used hospital charges as a proxy for hospital resource use in
setting the relative weights. Both MedPAC and CMS have found that the
limitations of charges as a measure of resource use include the fact
that hospitals cross-subsidize departmental services in many different
ways that bear little relation to cost, frequently applying a lower
charge markup to routine and special care services than to ancillary
services. In MedPAC's 2005 Report to the Congress on Physician-Owned
Specialty Hospitals, MedPAC found that hospitals charge much more than
their costs for some types of services (such as operating room time,
imaging services and supplies) than others (such as room and board and
routine nursing care).\21\ Our analysis of the MedPAC report in the FY
2007 IPPS

[[Page 47189]]

proposed rule (71 FR 24006) produced consistent findings.
---------------------------------------------------------------------------

\21\ Medicare Payment Advisory Commission:Report to the
Congress: Physician-Owned Specialty Hospitals, March 2005, p. 26.
---------------------------------------------------------------------------

In the FY 2007 IPPS proposed rule, we proposed to implement cost-
based weights incorporating aspects of a methodology recommended by
MedPAC, which we called the hospital-specific relative value cost
center (HSRVcc) methodology. MedPAC indicated that an HSRVcc
methodology would reduce the effect of cost differences among hospitals
that may be present in the national relative weights due to differences
in case mix adjusted costs. After studying Medicare cost report data,
we proposed to establish 10 national cost center categories from which
to compute 10 national CCRs based upon broad hospital accounting
definitions. We made several important changes to the HSRVcc
methodology that MedPAC recommended using in its March 2005 Report to
the Congress on Physician-Owned Specialty Hospitals. We refer readers
to the FY 2007 IPPS proposed rule (71 FR 24007 through 24011) for an
explanation and our reasons for the modification to MedPAC's
methodology. In its public comments on the FY 2007 IPPS proposed rule,
MedPAC generally agreed with the adaptations we made to its
methodology. MedPAC further recommended that we expand the number of
distinct hospital department CCRs being used from 10 to 13, which we
subsequently adopted in the FY 2007 IPPS final rule.
We did not finalize the HSRVcc methodology for FY 2007 because of
concerns raised in the public comments on the FY 2007 IPPS proposed
rule (71 FR 47882 through 47898). Rather, we adopted a cost-based
weighting methodology without the hospital-specific relative weight
feature. In response to a comment from MedPAC, we also expanded the
number of distinct hospital departments with CCRs from 10 to 13. We
indicated our intent to study whether to adopt the HSRVcc methodology
after we had the opportunity to further consider some of the issues
raised in the public comments. In the interim, we adopted a cost-based
weighting methodology over a 3-year transition period, substantially
mitigating the redistributive payment impacts illustrated in the
proposed rule, while we engaged a contractor to assist us with
evaluating the HSRVcc methodology.
Some commenters raised concerns about potential bias in cost-based
weights due to ``charge compression,'' which is the practice of
applying a lower percentage markup to higher cost services and a higher
percentage markup to lower cost services. These commenters were
concerned that our proposed weighting methodology may undervalue high
cost items and overvalue low cost items if a single CCR is applied to
items of widely varying costs in the same cost center. The commenters
suggested that the HSRVcc methodology would exacerbate the effect of
charge compression on the final relative weights. One of the commenters
suggested an analytic technique of using regression analysis to
identify adjustments that could be made to the CCRs to better account
for charge compression. We indicated our interest in researching
whether a rigorous model should allow an adjustment for charge
compression to the extent that it exists. We engaged a contractor, RTI
International (RTI), to study several issues with respect to the cost-
based weights, including charge compression, and to review the
statistical model provided to us by the commenter for adjusting the
weights to account for it. We discuss RTI's findings in detail below.
Commenters also suggested that the cost report data used in the
cost methodology are outdated, not consistent across hospitals, and do
not account for the costs of newer technologies such as medical
devices. However, the relationship between costs and charges (not costs
alone) is the important variable in setting the relative weights under
this new system. Older cost reports also do not include the hospital's
higher charges for these same medical devices. Therefore, it cannot be
known whether the CCR for the more recent technologies will differ from
those we are using to set the relative weights. The use of national
average cost center CCRs rather than hospital-specific CCRs may
mitigate potential inconsistencies in hospital cost reporting.
Nevertheless, in the FY 2007 IPPS final rule, we agreed that it was
important to review how hospitals report costs and charges on the cost
reports and on the Medicare claims and asked RTI to further study this
issue as well.
In summary, we proposed to adopt HSRVcc relative weights for FY
2007 using national average CCRs for 10 hospital departments. Based on
public comments concerned about charge compression and the accuracy of
cost reporting, we decided not to finalize the HSRVcc methodology, but
adopted cost-based weights without the hospital specific feature. In
response to comments from MedPAC, we expanded the number of hospital
cost centers used in calculating the national CCRs from 10 to 13.
Finally, we decided to implement the cost-based weighting methodology
gradually, by blending the cost-based and charge-based weights over a
3-year transition period beginning with FY 2007, while we further
studied many of the issues raised in the public comments. We refer
readers to the FY 2007 IPPS final rule (71 FR 47882) for more details
on our final policy for calculating the cost-based DRG relative
weights.
1. Summary of RTI's Report on Charge Compression
In August 2006, we awarded a contract to RTI to study the effects
of charge compression in calculating DRG relative weights. The purpose
of the study was to develop more accurate estimates of the costs of
Medicare inpatient hospital stays that can be used in calculating the
relative weights per DRG. RTI was asked to assess the potential for
bias in relative weights due to CCR differences within the 13 CCR
groups used in calculating the cost-based DRG relative weights and to
develop an analysis plan that explored alternative methods of
estimating costs with the objective of better aligning the charges and
costs used in those calculations. RTI was asked to consider methods of
reducing the variation in CCRs across services within cost centers by:
Modifying existing cost centers and/or creating new
centers.
Using statistical methods, such as the regression
adjustment for charge compression. Some commenters on the FY 2007 IPPS
proposed rule suggested that we use a regression adjustment to account
for charge compression.
As part of its contract, RTI convened a Technical Expert Panel
composed of individuals representing academic institutions, hospital
associations, medical device manufacturers, and MedPAC. The members of
the panel met on October 27, 2006, to evaluate RTI's analytic plan, to
identify other areas that are likely to be affected by compression or
aggregation problems, and to propose suggestions for adjustments for
charge compression. We posted RTI's draft interim report on the CMS Web
site in March 2007. For more information, interested individuals can
view RTI's report at the following Web site: http://www.cms.hhs.gov/Reports/Reports/itemdetail.asp?itemID=CMS1197292. The report may also
be viewed on RAND's Web site at http://www.rand.org/pubs/online/health.
As the first step in its analysis, RTI compared the reported
Medicare program charge amounts from the cost reports to the total
Medicare charges summed across all claims filed by providers. Using
cost and charge data

[[Page 47190]]

from the most recent available Medicare cost reports and inpatient
claims from IPPS hospitals, RTI was charged with performing an analysis
to determine how well the MedPAR charges matched the cost report
charges used to compute CCRs. The accuracy of the DRG cost estimates is
directly affected by this match because MedPAR charges are multiplied
by CCRs to estimate cost. RTI found consistent matching of charges from
the Medicare cost report to charges grouped in the MedPAR claims for
some cost centers but there appeared to be problems with others. For
example, RTI found that the data between the cost report and the claims
matched well for total discharges, days, covered charges, nursing unit
charges, pharmacy, and laboratory. However, there appeared to be
inconsistent reporting between the cost reports and the claims data for
charges in several ancillary departments (medical supplies, operating
room, cardiology, and radiology). For example, the data suggested that
hospitals often include costs and charges for devices and other medical
supplies within the Medicare cost report cost centers for Operating
Room, Radiology or Cardiology, while other hospitals include them in
the Medical Supplies cost center.
RTI found that some charge mismatching results from the way in
which charges are grouped in the MedPAR file. Examples include the
intermediate care nursing charges being grouped with intensive care
nursing charges and electroencephalography (EEG) charges being grouped
with laboratory charges. RTI suggested that reclassifying intermediate
care charges from the intensive care unit to the routine cost center
could address the former problem.
As the second step in its analysis, RTI reviewed the existing cost
centers that are combined into the 13 groups used in calculating the
national average CCRs. RTI identified CCRs with potential aggregation
problems and considered whether separating the charge groups could
result in more accurate cost conversion at the DRG level. The analysis
led RTI to calculate separate CCRs for Emergency Room and Blood and
Blood Administration, both of which had been included in ``Other
Services'' in FY 2007.
During this second step, RTI noted that a variation of charge
compression is also present in inpatient nursing services because most
patients are charged a single type of accommodation rate per day that
is linked to the type of nursing unit (routine, intermediate, or
intensive), but not to the hours of nursing services given to
individual patients. Unlike the situation with charge compression in
ancillary service areas, there are virtually no detailed charge codes
that can distinguish patient nursing care use. Therefore, any potential
bias cannot be empirically evaluated or adjustments made without
additional data.
Next, RTI examined individual revenue codes within the cost centers
and used regression analysis to determine whether certain revenue codes
in the same cost center had significantly different markup rates. Those
revenue codes include devices, prosthetics, implants within the Medical
Supplies cost center, IV Solutions within the Drugs cost center, CT
scanning and MRI within the Radiology cost center, Cardiac
Catheterization within the Cardiology cost center, and Intermediate
Care Units within the Routine Nursing Care cost center. Devices,
prosthetics, and implants within the Medical Supplies cost center have
a lower markup and, as a result, a higher CCR than the remainder of the
medical supplies group according to RTI's analysis. Within the Drugs
CCR, IV Solutions have a much higher markup and much lower CCR than the
other drugs included in the category. Within the Radiology CCR, CT
scanning and MRI have higher markups and lower CCRs than the remaining
radiology services. RTI's results for Cardiac Catheterization and
Intermediate Care Units were ambiguous due to data problems.
RTI's analysis also determined the impact of the disaggregated CCRs
on the relative weights. Differences in CCRs alone do not necessarily
alter the DRG relative weights. The impact on the relative weights is
the result of the interaction of CCR differences and DRG differences in
the proportions of the services with different CCRs. In FY 2007, we
calculated relative weights using CCRs for 13 hospital departments. The
RTI analysis suggests expanding the number of distinct hospital
department CCRs from 13 to 19. Of the additional six CCRs, two would
result from separating the Emergency Department and Blood (Products and
Administration) from the residual ``Other Services'' category. Four
additional CCRs would result from applying a regression method similar
to a method suggested in last year's public comments to three existing
categories: supplies, radiology, and drugs. This method, as adapted by
RTI, used detailed coding of charges to disaggregate hospital cost
centers and derive separate, predicted alternative CCRs for the
disaggregated services. RTI's analysis suggests splitting Medical
Supplies into one CCR for Devices, Implants, and Prosthetics and one
CCR for Other Supplies; splitting Radiology into one CCR for MRIs, one
CCR for CT scans, and one CCR for Other Radiology; and splitting Drugs
into one CCR for IV Solutions and one CCR for Other Drugs.
RTI's draft report provides the potential impacts of adopting these
changes to the CCRs. We note that RTI's analysis was based on Version
24.0 of the CMS DRGs. Because the proposed MS-DRGs were under
development for the FY 2008 IPPS proposed rule, they were unavailable
to RTI for their analysis. The results of RTI's analysis may be
different if applied to the MS-DRGs. However, it seems reasonable to
believe that the impact of RTI's suggestions will be consistent using
Version 24.0 of the CMS DRGs and the MS-DRGs, as both systems generally
use the same base DRGs while applying different subdivisions to
recognize severity of illness. Of all the adjusted CCRs, the largest
impact on weights came from accounting for charge compression in
medical supplies for devices and implants. The impact on weights from
accounting for CCR differences among drugs was modest. The impact of
splitting MRI and CT scanning from the radiology CCR was greater than
the impact of modifying the Drugs CCRs, but less than the impact of
splitting the Medical supplies group. Separating Emergency Department
and Blood Products and Administration from the ``Other Services''
category would raise the CCR for other services in the group.
RTI found that disaggregating cost centers may have a mitigating
effect on the impact of transitioning from charge-based weights to
cost-based weights. That is, the changes being suggested by RTI will
generally offset (fully or more than fully in some cases or in part in
other cases) the impacts of fully implemented cost-based weights that
we are adopting over the FY 2007-FY 2009 transition period. Thus, RTI's
analysis suggests that expanding the number of distinct hospital
department CCRs used to calculate cost-based weights from 13 to 19 will
generally increase the relative weights for surgical DRGs and decrease
them for the medical DRGs compared to the fully implemented cost-based
weights to which we began transitioning in FY 2007.
2. RTI Recommendations
In its report, RTI provides recommendations for the short term,
medium term, and long term, to mitigate aggregation bias in the
calculation of relative weights. We summarize RTI's

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recommendations below and respond to each of them.
a. Short-Term Recommendations
Most of RTI's short-term recommendations have already been
described above. The most immediate changes that RTI recommends
implementing include expanding from 13 distinct hospital department
CCRs to 19 by:
Disaggregating ``Emergency Room'' and ``Blood and Blood
Products'' from the ``Other Services'' cost center;
Establishing regression-based estimates as a temporary or
permanent method for disaggregating the Medical Supplies, Drugs, and
Radiology cost centers; and
Reclassifying intermediate care charges from the intensive
care unit cost center to the routine cost center.
We believe these recommendations have significant potential to
address issues of charge compression and potential mismatches between
how costs and charges are reported in the cost reports and on the
Medicare claims.
RTI's recommendations show significant promise in the short term
for addressing issues raised in the public comments on the cost-based
weights in the FY 2007 IPPS proposed rule. However, in the time
available for the development of the proposed rule, we were unable to
investigate how RTI's recommended changes may interact with other
potential changes to the DRGs and to the method of calculating the DRG
relative weights. As we noted above, RTI's analysis was done on the
Version 24.0 of the CMS DRGs and not the MS-DRGs we proposed for FY
2008. For the proposed rule and this final rule with comment period, we
were not able to examine the combined impacts of the MS-DRGs and RTI's
recommendations. In addition, we believe it is also important to
consider that, in the FY 2007 IPPS final rule (71 FR 47897), we
anticipated undertaking further analysis of the HSRVcc methodology over
the next year in conjunction with the research we were to do on charge
compression. Analysis of the HSRVcc methodology will be part of the
second phase of the RAND study of alternative DRG systems to be
completed by September 1, 2007, that has not been completed in time for
this final rule with comment period. As a result, we have also been
unable to consider the effects of the HSRVcc methodology together with
the MS-DRGs and RTI's recommendations. Finally, we note that in order
to complete the analysis in time for the proposed rule or this final
rule with comment period, RTI's study used only hospital inpatient
claims. However, hospital ancillary departments typically include both
inpatient and outpatient services within the same department and only a
single CCR covering both inpatient and outpatient services can be
calculated from Medicare cost reports. Although we believe that
applying the regression method used by RTI to only inpatient services
is unlikely to have had much impact for the adjustments recommended by
RTI, the preferred approach would be to apply the regression method to
the combined inpatient and outpatient services. The latter approach
would ensure that any potential CCR adjustments in the IPPS would be
consistent with potential CCR adjustments in the OPPS. We hope to
expand their analysis to incorporate outpatient services during the
coming year.
Although we did not propose to adopt RTI's recommendations for FY
2008, we solicited public comments on expanding from 13 CCRs to 19
CCRs. Again, we noted that RTI's analysis suggests significant
improvements that could result in the cost-based weights from adopting
its recommendations to adjust for charge compression. Therefore, we
also expressed interest in public comments on whether we should proceed
to adopt the RTI recommended changes for FY 2008 in the absence of a
detailed analysis of how the relative weights would change if we were
to address charge compression while simultaneously adopting an HSRVcc
methodology together with the MS-DRGs. Given the change in the impacts
that were illustrated in last year's FY 2007 IPPS final rule (71 FR
47915-47916), going from a hospital-specific to a nonhospital-specific
cost-weighting methodology, we believe that sequentially adjusting for
charge compression and later adopting an HSRVcc methodology could
create the potential for instability in IPPS payments over the next 2
years (that is, payments for surgical DRGs would increase and payment
for medical DRGs would decrease if we were to adopt the RTI recommended
changes for FY 2008, but could potentially reverse direction if we were
to adopt an HSRVcc methodology for FY 2009). Again, we solicited public
comments on all of these issues before making a final decision as to
whether to proceed with the RTI's short-term recommendations in the
final rule for FY 2008.
Comment: Many commenters commented on whether we should proceed in
adopting the recommendations made by RTI in its January 2007 report,
particularly concerning changes in cost reporting practices and the
additional, regression-based CCRs. Several commenters focused on
problems highlighted by RTI with the inconsistent and varying methods
in which hospitals group their charges in MedPAR and report costs and
charges on the Medicare cost report, which can result in distortions in
the DRG weights. Some commenters asserted that mismatching is not
caused by the failure of hospitals to prepare their cost reports
correctly, as appeared to be suggested by the RTI study. Other
commenters noted that RTI recommends the incorporation of edits to
reject cost reports or require more intensive review by auditors to
resolve the lack of uniformity in cost reporting. However, the
commenters believed that such edits or audits will not solve the
mismatch problem because hospitals' reporting is consistent with the
cost reporting instructions. The commenters described that, currently,
cost report instructions included with the CMS Form-339 allow for three
methods of reporting Medicare charges. The method selected by each
hospital is specific to its information systems and based on the method
that most accurately aligns Medicare program charges on Cost Report
Worksheet D-4 (inpatient) and/or Worksheet D, Part IV (outpatient) with
the overall cost and charges reported on Worksheets A and C. Many
hospitals elect to allocate some or all of the Medicare program charges
from the Medicare Provider Statistical and Reimbursement (PS&R) data to
various lines in the cost report based on hospital-specific financial
system needs. Under this scenario, total hospital CCRs are aligned with
the hospital's program charges, but would not match the charge
groupings used in MedPAR.
Instead of increased edits or cost report rejections, the
commenters believed that hospitals must be educated to report costs and
charges, particularly for supplies, in a way that is consistent with
how MedPAR groups charges. The commenters are launching such an
educational campaign, which would encourage consistent reporting that
they believe would, in turn, produce consistent groupings of
departments within the 13 cost center groups that are currently used to
create the cost-based weights, or any future expansion of the
categories that may occur. The commenters stated that their educational
efforts will take time and CMS should recognize that some hospitals
will be in a better position to adopt certain cost report changes more
rapidly because the changes may be more expensive and time-consuming
for some hospitals to adopt relative to

[[Page 47192]]

others. The commenters requested that CMS communicate with its fiscal
intermediaries/MAC that such action is appropriate and encouraged for
improvements in Medicare's cost-based weights. The commenters were
concerned that, without direction from CMS, the fiscal intermediaries/
MAC may not allow hospitals to change how they report costs.
Although one commenter supported the education of hospitals in
better cost reporting, this commenter opposed mandating hospitals to
make these cost reporting changes. One commenter stated that ``it is
important to note that charge compression results from hospitals'
markup practices,'' and that the problem would be eliminated if
hospitals would use a single markup for all items and services included
within all revenue centers. Another commenter asserted that hospitals
are not consistent in their cost reporting and the first step should be
to issue cost report instructions. The next step would be to allocate
audit resources to the fiscal intermediary/MAC in order to determine
whether these instructions are properly implemented because reporting
of costs and charges does have an indirect effect on payments to
hospitals. Another commenter stated that CMS needs to place more
emphasis and audit resources toward ensuring that hospitals properly
complete their cost reports. However, while another commenter supported
scrutiny and auditing for extreme CCRs, the commenter also appreciated
that CMS has limited audit resources. One commenter stated that
adjustments to revenue codes reported on the standard UB-04 claims
forms may also be appropriate to better match charges on claims forms
with the charges (and costs) reported on the Medicare cost report.
Other commenters stated that the costing of the weights should be done
at the UB revenue code level. Given the variety of ways in which
hospitals report their costs and charges, it is impossible to make
assumptions related to revenue codes across all hospitals without the
assistance of the PS&R crosswalk, which is submitted with the filed
cost report as an attachment to the CMS-339 form. The commenters noted
that if CMS is going to continue a transition to cost-based weights,
hospitals will need time to align their mapping of cost centers into
departments or cost categories for purposes of cost reporting and
claims reporting. The accurate costing of claims would be in line with
the original MedPAC recommendations.
In light of the cost reporting and MedPAR mismatch problems, the
commenters did not believe that a temporary, regression-based
adjustment that does not fix the underlying concerns with cost
reporting is appropriate. The commenters are concerned that, for the
sake of expediency, the use of estimates (a regression analysis
approach), as opposed to efforts to collect accurate data at the
appropriate cost center level, would be insufficient. In addition, the
commenters expressed doubt that a regression model can be easily
validated, as the DRG weights are modified on an annual basis. One
commenter argued that CMS did not include details of the regression-
based adjustment in the proposed rule and, consequently, the commenter
could not assess the impact of implementing the adjustment. The
commenter agreed with CMS' assessment that RTI's adjustments might
change if they are implemented jointly with MS-DRGs, and if estimated
using both inpatient and outpatient costs and charges. This commenter,
along with others, believed that, at the very least, implementation of
the regression-based CCRs should be delayed, and once short-term
educational efforts and CMS' long-term cost report evaluation are
underway, it would be more appropriate to have an informed discussion
on which cost report changes are needed to alleviate the issue of
charge compression.
Response: In the FY 2008 IPPS proposed rule (72 FR 24715), we
stated that because we did not have sufficient time to investigate how
RTI's recommended changes might interact with other possible changes to
the DRGs and the DRG relative weights, and because RTI's regression
method was only applied to inpatient services and not also outpatient
services, we decided not to propose implementing RTI's recommendations
for FY 2008. However, we also stated that, despite these concerns, we
believe RTI's recommendations have the potential to significantly
address the issues of charge compression and potential mismatches
between how costs and charges are reported in the cost reports and on
the Medicare claims. Therefore, we solicited comments on whether we
should expand the 13 CCRs to 19 CCRs for FY 2008.
We have carefully considered all comments, ranging from those
urging us to adopt all 19 CCRs in FY 2008, to those believing that the
regression-based CCRs should be delayed for at least a year, if used at
all. Because of concerns that we and some commenters continue to have
about premature adoption of the regression-based CCRs without the
benefit of knowing how they will interact with other DRG changes, and
the arguments in the comments summarized above concerning cost and
claims reporting, we have decided to finalize our proposal to not
implement the four regression-based CCRs for medical supplies and
devices, IV drugs, and radiology (MRI and CT scans) for FY 2008.
However, as we explain in more detail in response to comments below, we
are adopting the two cost report-based CCRs for ``Emergency Room'' and
``Blood and Blood Products'' for a total of 15 national average CCRs
for FY 2008. We believe these changes to the relative weight
methodology do not have the disadvantages that are of concern to the
commenters. That is, recognizing these additional departments will
allow us to use information that is already being reported by hospitals
in their cost reports and adopt some of the changes being recommended
by RTI without going to a regression-based model at this time.
Many of the concerns in the comments summarized above related to
how hospitals' report costs and charges on the cost report and how
hospitals include charges on their bills for inpatient services or the
way the charges are grouped in the MedPAR. RTI indicated that more
precise cost reporting is the best solution to address the issue of
charge compression in the long term. Many commenters believed that
rather than rely on increased edits and audits to resolve the lack of
uniformity in cost reporting, hospitals must be educated to report
costs and charges in a manner that is consistent with the way in which
MedPAR groups charge, and the commenters were launching an educational
campaign accordingly. We agree with the educational initiative of these
commenters. Participation in these educational initiatives by hospitals
is voluntary. Hospitals are not required to change how they report
costs and charges if their current cost reporting practices are
consistent with rules and regulations and applicable instructions.
However, to the extent allowed under current regulations and cost
report instructions, we encourage hospitals to report costs and charges
consistently with how the data are used to determine relative weights.
We believe achieving this goal is of mutual benefit to both Medicare
and hospitals.
The commenters also suggested that CMS should inform the fiscal
intermediary/MAC that hospitals may be changing their cost reporting
and allocation methodologies in response to the educational initiative,
that such action is encouraged, and that more

[[Page 47193]]

audit resources should be allocated to fiscal intermediaries/MAC to
ensure that any new cost reporting instructions are being implemented
properly. First, we intend to notify the fiscal intermediaries/MAC of
this cost reporting educational initiative subsequent to the issuance
of this final rule with comment period, and provide both fiscal
intermediaries/MAC and hospitals with guidance on how to address
requests for changes in cost reporting practices from hospitals.
Second, each hospital that wishes to change its cost reporting
practices must follow the directives at Sec. 413.53(a)(1) of our
regulations and PRM-1, section 2203, regarding matching the charges to
the costs reported in each cost center. We recommend that the hospital
also disclose the changes made in a cover letter with the submission of
the cost report.
Commenters submitted suggestions about how MedPAR could be modified
to further distinguish categories of charges. As we stated in the
proposed rule, we will consider suggestions for adding additional
revenue codes to MedPAR in conjunction with other competing priorities
for our information systems. We cannot create additional revenue codes.
Requests for new revenue codes on hospital bills have to be made to and
approved by the National Uniform Billing Committee (NUBC).
Comment: Some commenters were uncertain whether RTI's
recommendations to expand certain cost categories through regression
analysis is the appropriate solution to address the issue of charge
compression and potential inconsistencies in how hospitals report costs
and charges. The commenters supported the expansion of categories to
include CCRs based on cost centers that already exist on the cost
report, such as emergency department and blood products, and possibly
others after further examination. Another commenter stated that
creating a CCR for blood and blood products will reflect more
accurately the cost of blood and will help ensure future IPPS updates
will account more adequately for these products. Although one commenter
understood that CMS has not been able to analyze the effect of
implementing the regression adjustments with the proposed MS-DRGs, the
commenter believed that CMS should adopt RTI's adjustment to the CCRs
for drugs and IV solutions for FY 2008, and subsequently analyze and
report on the effects of this adjustment on MS-DRGs. Another commenter
noted that while the RTI regression estimates provide a practical
short-term approach to address charge compression for drugs, supplies,
and radiology revenue cost centers, this method does not identify all
of the charge compression that occurs at each hospital in these revenue
centers, nor does it address charge compression that may be occurring
in other revenue centers such as cardiology, or the routine and
intensive care revenue cost centers where nursing costs per day are
currently treated as if they were uniform across patient categories.
Another commenter also asked that CMS remember that the primary use
of the cost report is to determine a hospital's costs of treating
Medicare patients. The commenter noted that the cost report is still
used for cost-based payment for many hospitals, such as CAHs, SCHs, and
MDHs, and many State Medicaid plans and other payers also rely on data
from the cost report to determine payment rates. Because of these uses,
the commenters asked CMS to proceed cautiously with changing the cost
report to avoid unintended consequences for hospitals where the cost
report determines a significant portion of current payment. The
commenter offered its services in reviewing and discussing cost report
changes that Medicare may propose. Another commenter recommended that
CMS work with hospital finance experts so the most appropriate and
accurate instructions are issued, with very specific instructions as to
where services are to be classified on the cost report and that
subcategories should be eliminated.
Another commenter did not support RTI's recommendations for
revising the cost reports to reduce cost and charge misalignment and to
create new cost centers because of ``the enormous amount of work
hospitals would have to perform'' to change internal operations and
data collection to accommodate the revisions. The commenter expressed
concern that this would lead to ``rising inefficiency and
administrative costs.'' This commenter, and others, believed that
``clear, detailed instructions from CMS'' would be needed to
differentiate between a ``device,'' ``implant,'' or ``IV solution,''
and other ``new nomenclature that distinguishes and separates tens of
thousands of items and drugs, for instance, implantable spinal screws,
bandages and bone cement, into specific cost centers'' would be
necessary.
Response: As we noted in the proposed rule and in response to
comments above, we believe that RTI's regression-based CCRs may be a
promising means for addressing charge compression in the short term.
However, because we do not yet know how the additional regression-based
CCRs would interact with the MS-DRGs or with the HSRV methodology, and
the significant concerns raised by a number of commenters about
adopting regression-based CCRs, we are not adopting the adjustments to
address charge compression in the FY 2008 IPPS final rule. We note
RTI's long-term recommendations suggest addressing charge compression
through adding new cost centers to the cost report and undertaking
additional activities such as improvements in how hospitals report
costs and charges. Thus, we believe that RTI and many of the public
comments conclude that ultimately improved and more precise cost
reporting is the best way to minimize charge compression. While we are
not adopting the regression-based adjustments to address charge
compression, we believe that the FY 2008 IPPS final rule relative
weights should take advantage of additional information that is already
reported on the cost report. Because the cost report currently allows
for the creation of specific CCRs for Emergency Room and Blood and
Blood Products, and some commenters expressed explicit support for
expanding the number of CCRs based on cost centers that already exist
on the cost report, we have decided to separate Emergency Room costs
and charges and Blood and Blood Products costs and charges from the
current ``Other Services'' CCR for the purposes of calculating the
cost-based portion of the FY 2008 relative weights. That is, in
accordance with RTI's short-term recommendation, for FY 2008, we are
adding two additional CCRs to the current list of 13 CCRs, for a total
of 15 CCRs. We are using line 61 on Worksheets C, Part I and D-4 to
create the Emergency Room CCR and lines 46 and 47 on Worksheets C, Part
I and D-4 to create a CCR for Blood and Blood Products. We are
modifying the table listing the 15 cost center groupings in section
II.H. of the preamble of this final rule with comment period
accordingly.
With respect to the commenters that asked CMS to remember that the
primary use of the cost report is to determine a hospital's costs of
treating Medicare patients, we intend to proceed cautiously as the
commenters suggest. To the extent that the cost report changes that we
make improve consistency and accuracy of cost reporting, these benefits
will extend to providers whose payments are based on reasonable costs
(CAHs) or otherwise use the cost report to determine hospital-specific
rates (SCHs and MDHs). As we stated above, we intend to work with
finance and cost report experts in the hospital community if we

[[Page 47194]]

decide to modify the cost report or its instructions to address issues
with the DRG relative weights. We also understand that hospitals may be
concerned about the resources that may be required to adapt to
potential cost report changes. Any changes that would be made to the
Medicare cost report would be done under the Paperwork Reduction Act
and, by law, could not be undertaken without considering the burden
that would be imposed on all hospitals.
Comment: Some commenters supported making adjustments to address
charge compression. These commenters noted that charge compression was
first identified in 2000 and MedPAC and other researchers have also
recognized this issue. The commenters recommended implementation of a
regression-based adjustment in the FY 2007 final rule and stated that
this methodology has been evaluated and validated through RTI's study.
Many commenters believe that RTI's results provide ample evidence of
charge compression that justifies the implementation of their
recommendations for the FY 2008 final rule. Furthermore, commenters
stated that RTI's regression-based adjustment is appropriate and can be
implemented immediately without any administrative burdens to the
hospital. Several commenters emphasized that CMS should make it a
priority to apply the regression methodology to the Medical supplies
CCR. These commenters noted that in the proposed rule, CMS stated: ``of
all the adjusted CCRs, the largest impact on weights came from
accounting for charge compression in medical supplies for devices and
implants,'' which demonstrates that a regression approach should be
applied at least to disaggregate the medical supplies category into one
CCR for ``Devices and Implants'' and a separate CCR for ``Other
Supplies.''
One commenter disagreed with the reasons CMS expressed in the
proposed rule for delaying implementation of RTI's recommendations, and
found them to be ``rather insubstantial.'' The commenter did not
believe that the combined impact of RTI's recommendations and the
proposed MS-DRGs need to be studied before CMS could proceed with
implementing the regression-based CCRs. The commenter noted that the
relative independence of RTI's recommendations from the proposed MS-DRG
changes was confirmed by a study commissioned by AdvaMed. The commenter
also stated that the fact that RTI's analysis only included inpatient
claims is relatively insignificant. The commenter believed that if
further adjustments need to be made to incorporate outpatient claims
into the regression estimate next year, they can be done with a fairly
minor impact. This commenter, and others, urged CMS to implement a
regression that uses both inpatient and outpatient claims when making
an adjustment for charge compression for the CY 2008 OPPS, and use the
same regression in subsequent years for both the IPPS and OPPS.
Another commenter stated that, although it understood that CMS
wishes to understand the various interactions of regression-based CCRs
with other aspects of the IPPS, the effect of charge compression is
``demonstrable and measurable'' and should be implemented in FY 2008
for the ``sake of payment accuracy.'' Another commenter stated that
CMS' concern about the interaction between addressing charge
compression and other proposed changes appeared ``disingenuous, as CMS
is proposing so many changes that the interaction of the various
components cannot be estimated.'' The commenter also questioned CMS'
hesitation to make changes to the cost report to accommodate RTI's
recommendation due to limited information system resources, time
constraints, and inconvenience. The commenter asserted that ``hospitals
find the defense of scarce resources, compressed implementation lead
times and cost justification vis-a-vis outcomes an interesting option
for CMS given the fact that it is manifestly unavailable to hospitals
who have similar issues.''
Response: We disagree with the notion of the commenter that found
us to be ``disingenuous'' because the ``interaction of various
components [of the IPPS] cannot be estimated.'' We refer the commenter
to the payment impact section of the IPPS proposed rule (72 FR 25119)
and this final rule with comment period as well as the FY 2007 IPPS
proposed rule (71 FR 24025) where we simulate the interaction of a
number of different payment reforms including the adoption of cost-
based weights, severity DRGs, and other changes. We note that for some
categories of hospitals, the impact of adopting MS-DRGs is significant.
The RTI work suggests that further changes to the relative weights will
also be significant and potentially result in additional
redistributions of Medicare payment. In our view, the ``interactions of
various components'' can be determined and before we adopt potential
policy options in a final rule, the public should be fully informed on
the potential impacts. As we discussed in the FY 2008 proposed rule, we
have concerns about implementing regression-based CCRs in the final
rule without specifically proposing them because of concerns about how
these changes would interact with the transition to MS-DRGs, the
calculation of cost-based relative weights, and possibly the HSRV
method.
Despite the commenters' support for the regression-based CCRs, we
are still concerned about the accuracy of using regression-based
estimates to determine relative weights rather than the Medicare cost
report. Many public commenters, including several national hospital
associations, shared these same concerns. However, we believe that more
specific CCRs will improve payment accuracy for several DRGs.
Therefore, as we stated above, we are implementing RTI's recommendation
to expand the current 13 CCRs to 15 CCRs without the use of a
regression-based adjustment.
In the proposed rule, we indicated there was insufficient time to
assess how RTI's recommendations may interact with other potential
changes to the DRGs and to the method of calculating the DRG relative
weights. We noted that RTI's study examined charge compression within
Version 24.0 of the CMS DRGs, and we could not examine their
interactive effects with the MS-DRGs and be able to timely publish the
FY 2008 proposed rule. For this reason, we requested public comment on
whether to adopt these changes in the final rule without having fully
analyzed them for the proposed rule. While there was strong support for
adopting the regression-based charge adjustments in these comments,
many other commenters believed that we should provide the public with
modeled payment impacts and an opportunity to comment before
implementing regression-based CCRs.
We are also continuing to consider whether to adopt an HSRV payment
methodology for FY 2009. We anticipate undertaking further analysis of
the HSRV methodology and would like to incorporate RTI's
recommendations into that analysis. Although its evaluation of
alternative severity DRG systems is complete, we are currently working
with RAND to study the HSRV methodology. Furthermore, we continue to
believe that adjusting for charge compression and later adopting the
HSRV methodology could create payment instability over the next 2 years
and it would be preferable to consider simultaneously adopting these
changes.
Finally, if we were to adopt adjustments for charge compression,
the preferred approach would be to apply

[[Page 47195]]

the regression method to the combined inpatient and outpatient
services. The RTI report discussed the notion that separating services
that are generally delivered in outpatient settings might improve the
accuracy of CCRs for inpatient services, and these areas include
therapeutic radiology, nuclear medicine, chemotherapy,
electroconvulsive therapy and outpatient surgery. RTI noted that while
these charges are not significant under the IPPS, aggregation bias may
be present in these outpatient services which would affect the overall
department CCR. Therefore, we will consider expanding our analysis to
include outpatient services.
Comment: One commenter urged CMS to separately distinguish
intermediate (step-down) level nursing care costs. Another commenter
argued that it is illogical that nursing costs are reflected in the
relative weights only through flat room and board charges, given that
nursing care is a variable, rather than a fixed cost. The commenter
asserted that, as a result, a significant amount of money is being
misallocated across hospitals for required nursing care. The commenter
urged CMS to give serious consideration to the RTI report's
recommendation to establish study groups and research options for
improving patient-level charging within nursing units, as the outcomes
could improve precision in relative resource weights without adding
substantial administrative costs to either Medicare or to hospitals.
Specifically, the commenter strongly supported the creation of a
separate direct and indirect cost center at each hospital and the
inclusion of these data in the annual Medicare cost report, the
reporting and collection of nursing intensity data, and adjustment of
the Medicare payment for severity of illness by modifying the proposed
APR DRG severity adjustment formula to incorporate nursing intensity
and cost within each diagnosis and severity category. The commenter
also mentioned the New York State Medicaid model, which was the first
prospective payment system to recognize and reimburse for relative
nursing resource consumption levels among DRGs through the use of
Nursing Intensity Weights (NIWs). The NIWs, which were developed by an
expert panel, have been reevaluated and updated periodically to
maintain consistency with changes in the DRG definitions. The commenter
recommended that, because this program has been successfully
implemented in a large state for a number of years, a Medicare
demonstration project based on this model should be launched.
Response: The commenters' raise interesting concerns related to
nursing costs that are variable but are reflected in the DRG weights
only as fixed costs through flat room and board charges. There are
currently no detailed charge codes that can be used to distinguish the
intensity in nursing services provided by type of patient. In its
report, RTI noted ``because intensity of nursing is likely correlated
with DRG assignment, this could be a significant source of bias in DRG
weights.'' Particularly because nursing comprises such a significant
portion of hospital costs and charges, we agree that this issue should
be further studied. We are interested in knowing whether the public has
any ideas for how the relative weight methodology can systematically
recognize and reimburse for differences in nursing resource consumption
provided across hospital inpatients. We will consider whether we should
study the possibility of using NIWs to recognize nursing intensity in
the DRG relative weights.
Comment: Commenters supported adopting the regression CCRs to
alleviate charge compression, but some commenters were concerned that
the application of this adjustment methodology to capital intensive
radiology services is premature and requires additional analysis. The
commenters noted that the RTI report found that within the Radiology
CCR, CT scanning and MRI have higher markups and lower CCRs than the
remaining radiology services. Implementing RTI's recommendation to
apply a regression method to split Radiology into one CCR each for
MRIs, CT scans and Other Radiology could potentially result in lower
CCRs for the CT and MRI categories. One commenter cited an analysis
conducted by Direct Research, LLC, that found that the majority of
hospitals do not allocate the capital costs of MRI and CT scan machines
to the radiology cost center. Rather, the capital costs could be
allocated more broadly across hospital services on a square footage
basis. However, the commenter noted that RTI's analysis for radiology
services assumes a detailed capital allocation for these services that
results in differential CCRs found in MRIs and CT scans, which the
commenter suggested is actually not found in the data. Therefore, the
commenters requested that the regression-based CCRs for radiology not
be adopted at this time.
Response: We appreciate the comment on the limitations of the
regression-based CCR on radiology. This is another example of how
changes to cost reporting can potentially improve the accuracy of CCRs
for radiology and other departments. In our view, the commenter raises
another issue that requires additional analysis before we adopt
regression-based adjustments to address charge compression.
Comment: One comment addressed our proposal to move cost report
line 54 for EEG out of the Cardiology cost center group into the
Laboratory cost center group. The commenter noted that where providers
elect to report EEG separately on line 54, this seems appropriate.
However, some providers combine EEG with EKG on line 53 (usually
because the EEG services are purchased as outside services and not a
separate cost center for the hospital). In those instances, moving only
the EEG costs would be impossible. The commenter noted that CMS did not
indicate what portion of providers separately report EEG services on
line 54, but the commenter was concerned that there will be continued
mismatching under either grouping. The commenter encouraged CMS to
consider expanding the MedPAR database to include separate fields for
all revenue codes so that detailed analyses and accurate matching of
costs and charges can be performed. The commenter also concurred with
CMS' recommendation to move radioisotope costs to the radiology
services grouping and out of ``other services.''
Response: We responded earlier that suggestions for adding
additional revenue codes to MedPAR will be considered in conjunction
with other competing priorities for our information systems. In the FY
2008 proposed rule, we decided to move the costs for cases involving
EEG from the Cardiology cost center group to the Laboratory Cost center
group to maintain consistency with their corresponding EEG MedPAR
claims, which are categorized under Laboratory charges. Although the
commenter indicated that hospitals may be combining EEG costs with EKG
costs on line 53 instead of reporting it as a separate cost on line 54,
we believe the MedPAR is clear in categorizing EEG claims under revenue
codes 0740 and 0749, and therefore, costs for EEG should be reported on
line 54 of the cost report as well. For this reason, we are finalizing
our proposal to move the costs for cases involving EEG from the
Cardiology cost center group to the Laboratory Cost center for purposes
of calculating the DRG relative weights. As described in the FY 2008
IPPS proposed rule, we will also calculate the DRG relative weights for
FY 2008 by moving radioisotype costs from the Other

[[Page 47196]]

Services CCR to the Radiology Services CCR.
Comment: One commenter was concerned that hospitals do not have
consistent charging and billing practices on an inpatient and
outpatient basis for the administration of medications by injection
and/or infusion at the bedside.
Response: We did not propose any changes on this issue. However, we
will consider this issue as we research potential improvements that can
be made to how hospitals report costs and charges.
Comment: One commenter stated that it believed it is important for
CMS to explicitly recognize the ``limitations'' of the cost-based
weighting methodology and its applicability to non-Medicare patients
because this is a ``major precedent setting change for the entire
hospital field.'' The commenter stated that in studies that it
conducted, it found that the use of departmental CCRs presents a bias
in that the higher unit costs of services provided to children that are
labor intensive in terms of nursing and respiratory therapy are not
reflected in the department-wide CCRs. The commenter requested that, at
a minimum, CMS recognize in the final rule that there are cost issues
in the Medicare CCR methodology that have implications for non-Medicare
patient populations.
Response: The cost-based relative weights were developed solely
using Medicare data. We do not have non-Medicare data that can be used
to set DRG relative weights. For this reason, we are concerned that
non-Medicare payers may be using our payment systems and rates without
making refinements to address the needs of their own populations. As
stated earlier, we encourage non-Medicare payers to adapt the MS-DRGs
and the relative weight methodology to better serve their needs.
Among its other short-term recommendations, RTI also suggested that
we incorporate edits to reject or require more intensive review of cost
reports from hospitals with extreme CCRs. This action would reduce the
number of hospitals with excluded data in the national CCR
computations, and would also improve the accuracy of all departmental
CCRs within problem cost reports by forcing hospitals to review and
correct the assignment of costs and charges before the cost report is
filed. Although we do not have a substantive disagreement with the
recommendation, we generally focus our audit resources on areas in
which cost report information directly affects payments to individual
providers.
RTI further suggested revising cost report instructions to reduce
cost and charge mismatching and program charge misalignment in its
short-term recommendations. Although RTI suggests such an action could
be immediately effective for correcting the reporting of costs and
charges for medical supply items that are now distributed across
multiple cost centers, we note that changes to improve cost reporting
now will not become part of the relative weights for several years
because of lags between the submission of hospital reports and our
ability to use them in setting the relative weights. Currently, we
expect there will continue to be a 3-year lag between a hospital's cost
report fiscal year and the year it is used to set the relative weights.
Thus, even if it were possible to issue instructions immediately
beginning for FY 2008, revised reporting would not affect the relative
weights until at least FY 2011. Nevertheless, we agree with this
recommendation, and in the proposed rule, we welcomed public input on
potential changes to cost reporting instructions to improve consistency
between how charges are reported on cost reports and in the Medicare
claims. We indicated that we would consider these changes to the cost
reporting instructions as we consider further changes to the cost
report below.
In the summary of the comments above, we stated that some
commenters believed that RTI's recommendation to incoporate edits to
reject cost reports or require more intensive audits will not solve the
mismatch problem because hospitals' reporting is consistent with cost
reporting instructions. The commenters instead recommended that
hospitals be educated to report costs and charges in a manner that is
consistent with how MedPAR groups charges. However, other commenters
supported more intensive auditiing of cost reports. In response to
these comments, we stated above that we agree with the initiative to
educate hospitals to improve cost reporting and that we intend to
inform the fiscal intermediaries/MAC of this educational initiative. We
also stated that we intend to provide the fiscal intermediaries/MAC of
this educational initiative. We also stated that we intend to provide
fiscal intermediaries/MAC and hospitals with guidance on how to address
requests for changes in cost reporting practices from hospitals.
Comment: Some commenters supported the use of the Standard Analytic
File (SAF) to calculate CCRs, as used by RTI in its study, as the SAF
provides more detailed charge data on supplies, drugs and radiology
services, which would improve the payment accuracy for those revenue
centers with significant charges.
Response: We appreciate the comment on the use of the SAF to
calculate national CCRs. The RTI study used the SAF to extract detailed
charge information for selected revenue codes with potential
aggregation bias and used this information in the creation of the
synthetic CCRs. However, because we are not expanding the CCRs using
regression adjustments for FY 2008, it is not necessary to use the SAF
to compute the relative weights in this final rule with comment period.
Rather, we are using the FY 2006 MedPAR file and FY 2005 hospital cost
reports to calculate the national CCRs.
Comment: Many commenters noted that, while the proposed rule seems
to suggest that methods of addressing charge compression should be
considered together with implementation of an HSRV methodology, these
two issues (charge compression and HSRV) need not and should not be
linked. The commenters reiterated their opposition to implementation of
the HSRV methodology, as previously expressed in comments on the FY
2007 proposed rule, arguing that the method is flawed and may even
introduce more bias into the relative weight calculations. Another
commenter (who also opposed implementation of the HSRV methodology)
stated that should the HSRV method be implemented, many DRG weights
could move in one direction if the charge compression adjustments were
implemented in FY 2008, and then move in the other direction if the
HSRV method were to be implemented in FY 2009. This commenter requested
that CMS delay both changes for at least one year, and implement the
HSRV method and the regression-based CCRs only after issuing a formal
proposal with a thorough analysis that is made available to the public
for review and comment. One commenter stated that the RTI revisions
should be reviewed in combination with the severity-based system
recommended by RAND and should not be adopted in FY 2008. The commenter
stated that CMS and the provider community should evaluate these
recommendations and implement them together in FY 2009. One commenter
stated that the combined use of hospital-specific charges and a
national CCR will result in a distortion of the DRG weights and a
shifting of Medicare payments among hospitals, not based on resource
utilization, but rather on a mathematical calculation. This commenter
recommended that CMS review the impact of using hospital-specific

[[Page 47197]]

charges and costs to determine whether the national CCR has created
inaccurate DRG weights.
MedPAC commented that adopting cost-based HSRV weights would result
in substantial additional improvements in payment accuracy. MedPAC
believed that the HSRV methodology removes all of the differences in
the level of costs across hospitals, and is preferable to CMS' current
method used for standardization, which is incomplete and introduces
avoidable errors into the computation of payment weights. Two other
commenters supported the adoption of the HSRV methodology and strongly
opposed the current methodology and believed it is flawed for the
following reasons: (1) The proposed formula derives a national average
charge based on all hospitals being weighted equally, which
disadvantages hospitals located in historically ``low charge'' States,
and results in small, rural hospitals carrying the same weight as
large, urban hospitals; (2) The data being used are outdated and do not
reflect the cost of new technology; (3) Costs in excess of 25 percent
are omitted by CMS from ``high cost'' hospitals in the cost base, while
leaving in all of the charges from those same ``high cost'' hospitals
and assigning a relative value on reduced costs. Since the costs are
being excluded, but not the charges, there is a corresponding
mismatching of revenues and costs; (4) The data contain only audited
data, and hospitals that have not been audited would not be included in
the data.
These two commenters stated that CMS should test the sensitivity of
weights using various methodological assumptions and share the
resulting data with the public. The commenters requested that CMS
should ``strive'' to create a system that improves payments and does
not include the ``obvious flaws'' listed above.
Response: Many commenters expressed their concerns and opposition
to the HSRV methodology last year. As we explained in response to those
comments in the FY 2007 IPPS final rule, we decided not to adopt the
HSRV methodology to standardize charges for FY 2007 but stated that we
would undertake further analysis of the method. As we indicated in the
FY 2008 IPPS proposed rule, we engaged RAND as the contractor to study
alternative DRG systems. The second phase of the RAND study will
include evaluating the HSRV methodology; the evaluation report will not
be available until after the issuance of this final rule with comment
period. Therefore, we will consider those results as we plan changes as
part of the FY 2009 IPPS rulemaking process. We intend to carefully
analyze how the relative weights would change if we were to adopt
regression-based CCRs to address charge compression while
simultaneously adopting an HSRV methodology using fully phased-in MS-
DRGs. Although many commenters do not believe that the HSRV methodology
and addressing charge compression should be linked, we believe, as did
one commenter, that sequentially adjusting for charge compression and
later adopting the HSRV methodology could create instability in IPPS
payments over the next 2 years. Accordingly, we intend to include a
detailed description and discussion of RAND's and any other analyses
that we may undertake on these issues in the FY 2009 IPPS proposed
rule.
In response to the commenters who supported adopting the HSRV
methodology and believed it superior to the method used by CMS
currently, in the FY 2007 IPPS final rule (71 FR 47883), we stated that
there are certain administrative difficulties with adjusting charges to
costs using hospital-specific CCRs. Therefore, at least until we have
the opportunity to analyze the results of RAND's analysis, we are
utilizing national average CCRs to determine cost. We also do not
believe that the use of hospital-specific charges together with
national average CCRs redistributes Medicare payments among hospitals
merely based on a mathematical calculation, as one commenter indicated.
On the contrary, a system that improves payment accuracy and moderates
the influence of individual hospital reporting practices on a national
payment system is not one which haphazardly redistributes payments. We
note that, in a report issued in July 2006, the GAO found that CMS's
system of national CCRs shows promise to improve payment accuracy
because it reduces the impact that individual hospital-reporting
practices has on the DRG relative weights (GAO-06-880, ``CMS's Proposed
Approach to Set Hospital Inpatient Payments Appears Promising''). With
respect to the commenters' concerns regarding inappropriate ``equal
weighting'' of hospitals, under CMS' current methodology for computing
national CCRs, these concerns were addressed in last year's IPPS final
rule. The national CCRs are the sum of all costs divided by the sum of
all charges. Thus, all hospitals are not weighted equally. Larger
hospitals will have more weight than smaller hospitals in the final CCR
calculation.
In response to the commenters' concerns that the data are outdated
and do not reflect the costs of new technology, there is an inevitable
lag between the availability of information from hospital claims or
cost reports and the time it can be used to determine relative weights.
We always use the most recent data available to set relative weights.
Furthermore, as we noted in the FY 2007 IPPS final rule, CMS' current
method of using national average CCRs eliminates the need to match
claims (for FY 2008, the 2006 MedPAR) to the time period of the CCRs
(for FY 2008, FY 2005 HCRIS), which would be necessary under an HSRV
method that uses hospital-specific CCRs. Thus, we can use claims data
from one year later under our cost-based weighting methodology. We also
note that add-on payments made for the latest advancements in medical
technologies may not be included in the 2-year-old hospital claims data
that are used to set the relative weights.
Regarding the comments stating that CMS mismatches revenues and
costs by omitting excessive costs from ``high cost'' hospitals in the
cost base, while leaving in the charges from those same ``high cost''
hospitals, we note that this is not actually the case. If a hospital's
costs are dropped from the national average CCR calculations, the
hospital's charges are also dropped from the national average CCR
calculations. Lastly, the commenters' assertion that the cost report
data used for CCRs include only audited data is incorrect. If the
commenters are referring to the cost report data that CMS uses to
calculate the national average CCRs, we note that in accessing data for
IPPS hospitals from HCRIS, we select all IPPS hospitals, and do not
only select hospitals whose cost reports are audited.
Comment: MedPAC submited comments on the method we use to calculate
the national CCRs for the cost-based relative weights. The methodology
to calculate the national CCRs is described in section II.H. of the
preamble of this final rule with comment period. MedPAC suggested that
we standardize the Medicare charges and costs used to calculate the
national CCRs from the Medicare cost reports to adjust for differences
in local wage levels, IME, and DSH. The standardization would be
consistent with the use of national standardized charges by revenue
center also used in the calculation of cost-based relative weights from
the MedPAR.
Response: While we did not propose any changes to the cost-based
relative weights methodology, we appreciate the comment on maintaining
consistency

[[Page 47198]]

among our data sources. Although we currently standardize charges from
the MedPAR file when calculating relative weights, we do not
standardize costs and charges from hospital cost reports, as MedPAC
recommended. We may consider this recommendation as we continue to
refine our methodology for calculating relative weights. However, we
note that there would be no need to standarize costs and charges from
hospital cost reports under an HSRV methodology.
b. Medium-Term Recommendations
RTI recommended that we expand the MedPAR file to include separate
fields that disaggregate several existing charge departments. For
compatibility with prior years' data, the new fields should partition
the existing ones rather than recombine charges. RTI recommended
including additional fields in the MedPAR file for the hospital
departments that it statistically disaggregated in its report, as well
as intermediate care, observation beds, other special nursing codes,
therapeutic radiation and EEG, and possibly others. As with some of
RTI's earlier recommendations with respect to cost reports, we will
examine this suggestion in conjunction with other competing priorities
CMS has been given for our information systems. We have limited
information systems resources, and we will need to consider whether the
time constraints we have to develop the IPPS final rule, in conjunction
with the inconvenience of using the SAF and accounting for charge
compression through regression, will justify the infrastructure cost to
our information systems of incorporating these variables into the
MedPAR.
Finally, RTI's medium-term recommendations include encouraging
providers to use existing standard cost centers, particularly those for
Blood and Blood Administration and for Therapeutic Radiology, in the
current Medicare cost report. We believe this is closely related to the
recommendation for improved cost reporting instructions. Therefore, we
will consider this recommendation as part of any further effort we may
undertake to revise cost reporting instructions or change the cost
report.
Comment: Some commenters supported expanding the MedPAR file to
include separate fields to disaggregate additional cost centers. One
commenter supported this recommendation and suggested that the
assignment of revenue codes and charges to revenue centers in MedPAR
should be reviewed and changed to better reflect hospital accounting
practices as reflected on the Medicare cost report.
Response: We will consider suggestions for modifying MedPAR in
conjunction with other competing priorities we have for our information
systems. Further, while we support the efforts of the national hospital
associations to streamline hospital's reporting practices, we note that
CMS does not instruct hospitals in the appropriate revenue codes to use
because hospitals have discretion as to where and how they allocate
charges based on their own financial system needs.
c. Long-Term Recommendations
RTI's long-term recommendations include adding new cost centers to
the Medicare cost report and/or undertaking the following activities:
Add ``Devices, Implants and Prosthetics'' under the line
for ``Medical Supplies Charged to Patients.'' Consider also adding a
similar line for IV Solutions as a subscripted line under the line for
``Drugs Charged to Patients.''
Add CT Scanning and MRI as subscripted lines under the
line for ``Radiology-Diagnostic.'' About one-third of hospitals that
offer CT Scanning and/or MRI services are already reporting these
services on nonstandard line numbers. More consistent reporting for
both cost centers would eliminate the need for statistical estimation
on the radiology CCRs.
In consultation with hospital industry representatives,
determine the best way to separate cardiology cost centers and add a
new standard cost center for cardiac catheterization and/or for all
other cardiac diagnostic laboratory services. About 20 percent of
hospitals already include a nonstandard line on their cost reports for
catheterization. Creating a new standard cost center could improve
consistency in reporting and substantially improve the program charge
mismatching that now occurs.
In consultation with hospital industry representatives,
consider establishing a new cost center to capture intermediate care
units as distinct from routine or intensive care.
Establish expert study groups or other research vehicles
to study options for improving patient-level charging within nursing
units. Nursing accounts for one-fourth of IPPS charges and 41 percent
of the computed costs from our claims analysis file. Historically,
nursing charges and costs have been assigned to patients without
relying on individual measures of service use. Consideration should be
given to finding ways to improve precision in nursing cost finding that
will improve relative resource weights without adding substantial
administrative costs to either the Medicare program or to hospitals.
We agree with RTI that attention should be paid to these issues as
we consider changes to the Medicare cost report. The cost report has
not been revised in nearly 10 years. During this time, there have been
significant changes to the Medicare statute and regulations that have
affected the Medicare payment policies. Necessary incremental changes
have been made to the Medicare cost report over the years to
accommodate the Medicare wage index, disproportionate share payments,
indirect and direct graduate medical education payments, reporting of
uncompensated care costs, among others. The adoption of cost-based
weights for the IPPS beginning in FY 2007 has brought further attention
to the importance of the Medicare cost report and how hospitals report
costs and charges. We recently began doing a comprehensive review of
the Medicare cost report and plan to make updates that will consider
its many uses. As we update the cost report, we will give strong
consideration to RTI's recommendations and potential long-term
improvements that could be made to the IPPS cost-based relative
weighting methodology.
Comment: Several commenters made recommendations for how the
relative weights would be calculated under a 3-year transition from the
current DRGs to the new MS-DRGs. Some commenters suggested three
options as follows:
(1) Use two GROUPERs (CMS DRGs and MS-DRGs) and then blend the
weights for each individual case.
(2) Blending current DRG weights with MS-DRG weights: To calculate
a blended cost-based weight, CMS could first calculate cost-based
weights using the current DRGs. CMS could then calculate cost-based
weights using the MS-DRGs. The blended weight for each MS-DRG would be
based on the weighted average relative weights (based on the current
DRGs from which cases group into the new MS-DRGs) and the MS-DRG
weight. Under this approach, CMS would continue to calculate cost-based
weights for the current DRGs during the first 2 years of the transition
period. This approach recognizes that a case has different relative
weights in the new system versus the current DRG system.
(3) Blending MS-DRG base and severity level weights: CMS would
blend the actual MS-DRG weight with the weight of the base MS-DRG. The
base MS-DRG weight is determined by

[[Page 47199]]

using expected case mix volume among severity levels. For example, if
an MS-DRG was subdivided into two subgroups: with the non-CC DRG
accounting for 90 percent of the cases and the other 10 percent in the
CC DRG, these ratios would be used to blend the base and the DRG-
specific weight. Under this approach, CMS would not have to calculate
weights using two different DRG systems. On the other hand, this
approach does not use the current system when calculating the blended
rates.
The commenters noted that while option 1 would provide the most
accurate blended weights, it is the most burdensome to implement
because it would require use of two GROUPERs, whereas under options 2
and 3, CMS would only use the blended relative weights, allowing
hospitals and Medicare contractors to use only one grouping software.
MedPAC suggested that CMS adopt a 2-year transition period for MS-
DRGs to coincide with the remainder of the current transition period
for implementing cost-based weights, so as to ``balance the payment
impacts of implementing severity refinements and cost-based weights.''
MedPAC suggested that a 2-year transition might work as follows: CMS
could group cases using the MS-DRG grouper beginning in FY 2008, but
then use a blended weight for each category. The blended weight for an
MS-DRG would reflect partly the weight that would have been assigned
under an MS-DRG system with fully implemented cost-based weights. The
weight for each MS-DRG in FY 2008 would be a blend of two parts:
50 percent of the average DRG weight that would have been
attached to cases in the MS-DRG from the 2006 MedPAR file under a
policy of \1/3\ charge-based weights and \2/3\ cost-based weights.
These DRG weights are the ones that would have applied to the same
cases under the FY 2008 policy if CMS simply continued the transition
to cost-based weights without changing the DRG definitions.
50 percent of the CMS refined weights for the MS-DRG for
FY 2008. In FY 2009, cases would be grouped in the MS-DRGs and the
weight for each MS-DRG would be a 100 percent cost-based weight.
Response: We have carefully considered each comment in determining
whether there should be a transition period for the relative weights
computed using MS-DRGs, the length of the transition and how to compute
weights during the transition. We also considered how to accommodate a
transition to MS-DRG relative weights with the continuing transition to
cost-based weights. Although we received strong general support for
adopting the MS-DRGs, we do believe that some transition is warranted
to mitigate the magnitude of potential changes in payment to hospitals
that could occur in one year. Furthermore, we agree with MedPAC that a
two-year transition period that coincides with the remainder of the
transition period for implementing cost-based weights is appropriate.
By having these changes occur simultaneously over the same transition
period, we can avoid having large changes in payment that would occur
with sequential implementation. Further, we can also accomplish all of
the payment reforms according to the same schedule. Accordingly, we are
implementing a 2-year transition to MS-DRGs. For FY 2008, the first
year of the transition, 50 percent of the relative weight for each MS-
DRG will be based on the CMS DRG relative weight and 50 percent will be
based on the MS-DRG relative weight. In FY 2009, the relative weights
will be based entirely on the MS-DRG relative weight. The blended
relative weights for FY 2008 are computed as follows:
First, using the Version 24.0 GROUPER, relative weights are
calculated based on 100 percent costs and 100 percent charges,
respectively (see section II.H. of the preamble of this final rule with
comment period for a description of the cost- and charge-based
calculations). Then these weights are blended using two-thirds of the
cost-based weights and one-third charge-based weights to establish the
CMS DRG portion of the transition weights.
Second, using the Version 25.0 GROUPER, relative weights are
calculated based on 100 percent costs and 100 percent charges,
respectively (see section II.H. of the preamble of this final rule with
comment period for a description of how we compute cost-based and
charge-based weights). These weights are then blended using two-thirds
of the cost-based weights and one-third charge-based weights to
establish the MS-DRG portion of the transition weights.
Under the transition blend we are adopting in this final rule with
comment period, we group cases to MS-DRGs (using the Version 25.0
GROUPER), but the payment weight for each DRG is a 50/50 blend of the
MS-DRG weight and the CMS DRG weight. Thus, we had to determine a
blended weight for each DRG. Using the claims in the FY 2006 MedPAR
database that we used to compute cost-based weights under the Version
24.0 GROUPER, we grouped each case to a CMS DRG (using the Version 24.0
GROUPER) and an MS-DRG (using the Version 25.0 GROUPER). Commonly, a
set of cases that grouped to a single MS-DRG grouped to two or more CMS
DRGs. Therefore, we determined an average CMS DRG weight for all cases
that grouped to each MS-DRG. Specifically, we summed the CMS DRG
weights of all the cases that grouped to each MS-DRG and then divided
that number by the transfer-adjusted case count. To establish the final
blended weight for each DRG, we added 50 percent of the MS-DRG weight
to 50 percent of the average CMS DRG weight for that MS-DRG. These
final blended relative weights are listed in Table 5 of this final rule
with comment period.
Comment: Some commenters expressed concern about the continued
transition from charge-based weights to cost-based weights, in light of
RTI's recommendations to alleviate charge compression on the relative
weights and the proposal to introduce MS-DRGs. For FY 2008, we proposed
that the relative weights would be based on one-third charges and two-
third costs. Some commenters suggested that this transition should be
delayed until the public comments associated with cost reporting and
charge compression can be addressed. We have also received comments
expressing concern on the potential fluctuations in hospital payment if
we were to implement both RTI's recommendations on charge compression
along with the MS-DRG system. In both cases, commenters suggested
delaying the transition from charge-based to cost-based weights by
maintaining the relative weights at two-third charges and one-third
costs. MedPAC also expressed concern about continuing the transition to
cost-based weights. However, unlike the commenter above, MedPAC
suggested that CMS discontinue the transition period to cost-based
weights and implement 100 percent cost-based weights in FY 2008.
MedPAC's recommendation to discontinue the transition to cost-based
weights presumed full introduction of the MS-DRGs in FY 2008. The
commenters believed the payment fluctuations that will occur with full
implementation of MS-DRGs can be mitigated by fully adopting cost
weights. However, as suggested above, MedPAC also suggested as an
alternative adopting MS-DRG weights according to the same schedule as
the cost-based weights.
Response: We appreciate the commenters' expressing concerns about
the continued transition to cost-based relative weights and the
potential changes in payment from the

[[Page 47200]]

application of this methodology. In the FY 2007 IPPS final rule, we
discussed our rationale for implementing cost-based weights over a 3-
year transition period. We stated that the 3-year transition would
mitigate the annual payment effects from the changes to the relative
weights while we further study whether to make adjustments to account
for charge compression. We believe that the cost-based methodology
reduces bias in the relative weights and makes Medicare's payments more
accurate for both medical and surgical DRGs. Therefore, any delays in
the transition would not further our goal of payment accuracy. We
believe that current efforts to improve cost reporting and our decision
not to implement regression-based CCRs will alleviate concerns about
additional fluctuations in hospital payments from further changes to
the relative weight methodology. Furthermore, we believe that, for some
types of hospitals (such as rural hospitals), the payment changes from
MS-DRGs are the opposite of those that will occur from the transition
to cost-based weights. For this reason, we believe a 2-year transition
of the MS-DRG system that coincides with the remaining two years of the
transition to cost-based weights will reduce the magnitude of annual
payment changes and achieve our long-term goal of improvements in
payment accuracy. Therefore, we are continuing with the 3-year
transition to cost-based weights. For FY 2008, the DRG relative weights
will be a blend of 33 percent of charge-based weights and 67 percent of
cost-based weights. For the first year of the MS-DRG transition, the
relative weights will be a blend of 50 percent of the CMS-DRG weight
and 50 percent of the MS-DRG weight.

F. Hospital-Acquired Conditions, Including Infections

1. General
Medicare's IPPS encourages hospitals to treat patients efficiently.
Hospitals receive the same DRG payment for stays that vary in length.
In many cases, complications acquired in the hospital do not generate
higher payments than the hospital would otherwise receive for other
cases in the same DRG. To this extent, the IPPS does encourage
hospitals to manage their patients well and to avoid complications,
when possible. However, complications, such as infections, acquired in
the hospital can lead to higher Medicare payments in two ways. First,
the treatment of complications can increase the cost of hospital stays
enough to generate outlier payments. However, the outlier payment
methodology requires that hospitals experience large losses on outlier
cases (for example, in FY 2007, the fixed-loss amount was $24,485
before a case qualified for outlier payments, and the hospital then
only received 80 percent of its estimated costs above the fixed-loss
cost threshold). Second, under the MS-DRGs we are adopting in this
final rule with comment period, there are 258 sets of DRGs that are
split into 2 or 3 subgroups based on the presence or absence of a major
CC (MCC) or CC. If a condition acquired during the beneficiary's
hospital stay is one of the conditions on the MCC or CC list, the
result may be a higher payment to the hospital under the MS-DRGs. (We
refer readers to section II.D. of this final rule with comment period
for a detailed discussion of DRG reforms.)
2. Legislative Requirement
Section 5001(c) of Pub. L. 109-171 requires the Secretary to
select, by October 1, 2007, at least two conditions that are (a) high
cost or high volume or both, (b) result in the assignment of a case to
a DRG that has a higher payment when present as a secondary diagnosis,
and (c) could reasonably have been prevented through the application of
evidence-based guidelines. For discharges occurring on or after October
1, 2008, hospitals will not receive additional payment for cases in
which one of the selected conditions was not present on admission. That
is, the case will be paid as though the secondary diagnosis was not
present. Section 5001(c) provides that we can revise the list of
conditions from time to time, as long as the list contains at least two
conditions. Section 5001(c) also requires hospitals to submit the
secondary diagnoses that are present at admission when reporting
payment information for discharges on or after October 1, 2007.
3. Public Input
In the FY 2007 IPPS proposed rule (71 FR 24100), we sought input
from the public regarding conditions with evidence-based guidelines
that should be selected in order to implement section 5001(c) of Pub.
L. 109-171. The comments that we received were summarized in the FY
2007 IPPS final rule (71 FR 48051 through 48053). In the FY 2008 IPPS
proposed rule (72 FR 24716), we again sought formal public comment on
conditions that we proposed to select under section 5001(c). As
discussed below, in this final rule with comment period, we first
summarize the comments we received on the FY 2007 IPPS proposed rule.
We then explain our detailed proposals included in the FY 2008 proposed
rule, followed by a summary of the public comments on each condition
proposed and our responses to those public comments.
In summary, the majority of the comments that we received in
response on the FY 2007 IPPS proposed rule addressed conceptual issues
concerning the selection, measurement, and prevention of hospital-
acquired infections. Many commenters encouraged CMS to engage in a
collaborative discussion with relevant experts in designing,
evaluating, and implementing this section. The commenters urged CMS to
include individuals with expertise in infection control and prevention,
as well as representatives from the provider community, in the
discussions.
Many commenters supported the statutory requirement for hospitals
to submit information regarding secondary diagnoses present on
admission beginning in FY 2008, and suggested that it would better
enable CMS and health care providers to more accurately differentiate
between comorbidities and hospital-acquired complications. MedPAC, in
particular, noted that this requirement was recommended in its March
2005 Report to Congress and indicated that this information is
important to Medicare's value-based purchasing efforts. Other
commenters cautioned us about potential problems with relying on
secondary diagnosis codes to identify hospital-acquired complications,
and indicated that secondary diagnosis codes may be an inaccurate
method for identifying true hospital-acquired complications.
A number of commenters expressed concerns about the data coding
requirement for this payment change and asked for detailed guidance
from CMS to help them identify and document hospital-acquired
complications. Other commenters expressed concern that not all
hospital-acquired infections are preventable and noted that sicker and
more complex patients are at greater risk for hospital-acquired
infections and complications. Commenters suggested that CMS include
standardized infection-prevention process measures, in addition to
outcome measures of hospital-acquired infections.
Some commenters proposed that CMS expand the scope of the payment
changes beyond the statutory minimum of two conditions. They noted that
the death, injury, and cost of hospital-acquired infections are too
high to limit this provision to only two conditions. Commenters also
recommended that CMS annually select additional hospital

[[Page 47201]]

acquired complications for the payment change. Conversely, a number of
commenters proposed that CMS initially begin with limited
demonstrations to test CMS' methodology before nationwide
implementation. One commenter recommended that CMS include appropriate
consumer protections to prevent providers from billing patients for the
nonreimbursed costs of the hospital-acquired complications and to
prevent hospitals from selectively avoiding patients perceived at risk
of complications.
In addition to the broad conceptual suggestions, some commenters
recommended specific conditions for possible inclusion in the payment
changes, which we discussed in detail in the preamble of the proposed
rule and in section II.D.4. of this final rule with comment period. We
also discuss throughout section II.D. of the preamble of this final
rule with comment period other comments that we have considered in
developing hospital-acquired conditions that would be subject to
reporting.
As it is not addressed elsewhere, we are responding here to the
comment about hospitals billing patients for costs of hospital-acquired
complications that are not counted as MCCs and CCs. Section 5001(c)
does not make the additional cost of a hospital acquired complication a
noncovered cost. The additional costs that a hospital would incur as a
result of a hospital-acquired complication remains a covered Medicare
cost that is included in the hospital's IPPS payment. Medicare's
payment to the hospital is for all inpatient hospital services provided
during the stay. The hospital cannot bill the beneficiary for any
charges associated with the hospital-acquired complication. With
respect to the concern about a hospital avoiding patients that are at
high risk of complications, we note that the policy is selecting only
those conditions that are ``reasonably preventable.'' Thus, we are only
selecting those conditions where, if hospital personnel are engaging in
good medical practice, the additional costs of the hospital-acquired
condition will, in most cases, be avoided and the risk of selectively
avoiding patients at high risk of complications will be minimized. We
further note that Medicare's high cost outlier policy is unaffected by
section 5001(c). The hospital's total charges for all inpatient
services provided during the stay will continue to be used to determine
whether the case qualifies for an outlier payment. Thus, there will
continue to be limitations on a hospital's financial risk of treating
high cost cases even if, despite the hospital maintaining good medical
practice to avoid complications, a reasonably preventable condition
occurs after admission. Finally, as stated further below, we are
continuing to work to identify exclusions for situations where the
policy should not apply for the selected condition.
4. Collaborative Effort
CMS worked with public health and infectious disease experts from
the Centers for Disease Control and Prevention (CDC) to identify a list
of hospital-acquired conditions, including infections, as required by
section 5001(c) of Pub. L. 109-171. As previously stated, the selected
conditions must meet the following three criteria: (a) high cost or
high volume or both; (b) result in the assignment of the case to a DRG
that has a higher payment when present as a secondary diagnosis; and
(c) could reasonably have been prevented through the application of
evidence-based guidelines. CMS and CDC staff also collaborated on
developing a process for hospitals to submit a Present on Admission
(POA) indicator with each secondary condition. The statute requires the
Secretary to begin collecting this information as of October 1, 2007.
The POA indicator is required in order for us to determine which of the
selected conditions developed during a hospital stay. The current
electronic format used by hospitals to obtain this information (ASC
X12N 837, Version 4010) does not provide a field to obtain the POA
information. We issued instructions requiring acute care IPPS hospitals
to submit the POA indicator for all diagnosis codes, effective October
1, 2007, through Change Request No. 5499, with a release date of May
11, 2007. The instructions specify how hospitals under the IPPS submit
this information in segment K3 in the 2300 loop, data element K301 on
the ASC X12N 837, Version 4010 claim. Specific instructions on how to
select the correct POA indicator for a diagnosis code are included in
the ICD-9-CM Official Guidelines for Coding and Reporting. These
guidelines can be found at the following Web site: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/ftpicd9.htm.
CMS and CDC staff also received input from a number of groups and
organizations on hospital-acquired conditions, including infections.
Many of these groups and organizations recommended the selection of
conditions mentioned in the FY 2007 IPPS final rule, including the
following because of the high cost or high volume (frequency) of the
condition, or both, and because in some cases preventable guidelines
already exist:
Surgical site infections. The groups and organizations
stated that there were evidence-based measures to prevent the
occurrence of these infections which are currently measured and
reported as part of the Surgical Care Improvement Program (SCIP).
Ventilator-associated pneumonias. The groups and
organizations indicated that these conditions are currently measured
and reported through SCIP. However, other organizations counseled
against selecting these conditions because they believed it was
difficult to obtain good definitions and that it was not always clear
which ones are hospital acquired.
Catheter associated bloodstream infections.
Pressure ulcers.
Hospital falls. The injury prevention groups included this
condition among a group referred to as ``serious preventable events,''
also commonly referred to as ``never events'' or ``serious reportable
events.'' A serious preventable event is defined as a condition which
should not occur during an inpatient stay.
Bloodstream infections/septicemia. Some commenters
suggested that we focus on one specific organism, such as staph aureus
septicemia.
Pneumonia. Some commenters recommended the inclusion of a
broader group of pneumonia patients, instead of restricting cases to
ventilator-associated pneumonias. Some commenters mentioned that while
prevention guidelines exist for pneumonia, it is not clear how
effective these guidelines may be in preventing pneumonia.
Vascular catheter associated infections. Commenters
indicated that there are CDC guidelines for these infections. Other
commenters stated that while this condition certainly deserves focused
attention by health care providers, there is not a unique ICD 9 CM code
that identifies vascular catheter-associated infections. Therefore,
these commenters suggested that there would be difficulty separately
identifying these conditions.
Clostridium difficile-associated disease (CDAD). Several
commenters identified this condition as a significant public health
issue. Other commenters indicated that, while prevalence of this
condition is emerging as a public health problem, there is not
currently a strategy for reasonably preventing these infections.
Methicillin-resistant staphylococcus aureus (MRSA).
Several commenters indicated that MRSA has

[[Page 47202]]

become a very common bacteria occurring both in and outside the
hospital environment. However, other organizations stated that the code
for MRSA (V09.0, Infection with microorganism resistant to penicillins
Methicillin-resistant staphylococcus aureus) is not currently
classified as a CC. Therefore, the commenters stated that MRSA does not
lead to a higher reimbursement when the code is reported.
Serious preventable events. As stated earlier, some
commenters representing injury prevention groups suggested including a
broader group of conditions than hospital falls which should not be
expected to occur during a hospital admission. They noted that these
conditions are referred to as ``serious preventable events,'' and
include events such as the following: (a) leaving an object in during
surgery; (b) operating on the wrong body part or patient, or performing
the wrong surgery; (c) air embolism as a result of surgery; and (d)
providing incompatible blood or blood products. Other commenters
indicated serious preventable events are so rare that they should not
be selected as a hospital condition that cannot result in a case being
assigned to a higher paying DRG.
5. Criteria for Selection of the Hospital-Acquired Conditions
CMS and CDC staff greatly appreciate the many comments and
suggestions offered by organizations and groups that were interested in
providing input into the selection of the initial hospital-acquired
conditions.
CMS and CDC staff evaluated each recommended condition under the
three criteria established by section 1886(d)(4)(D)(iv) of the Act. In
order to meet the higher payment criterion, the condition selected must
have an ICD-9-CM diagnosis code that clearly identifies the condition
and is classified as a CC, or as an MCC (as proposed for the MS DRGs in
the proposed rule). Some conditions recommended for inclusion among the
initial hospital-acquired conditions did not have codes that clearly
identified the conditions. Because there has not been national
reporting of a POA indicator for each diagnosis, there are no Medicare
data to determine the incidence of the reported secondary diagnoses
occurring after admission. To the extent possible, we used information
from the CDC on the incidence of these conditions. CDC's data reflect
the incidence of hospital-acquired conditions in 2002. We also examined
FY 2006 Medicare data on the frequency that these conditions were
reported as secondary diagnoses. We developed the following criteria to
assist in our analysis of the conditions. The conditions described were
those recommended for inclusion in the initial hospital-acquired
infection provision.
Coding--Under section 1886(d)(4)(D)(ii)(I) of the Act, a
discharge is subject to the payment adjustment if ``the discharge
includes a condition identified by a diagnosis code'' selected by the
Secretary under section 1886(d)(4)(D)(iv) of the Act. We only selected
conditions that have (or could have) a unique ICD-9-CM code that
clearly describes the condition. Some conditions recommended by the
commenters would require the use of two or more ICD-9-CM codes to
clearly identify the conditions. Although we did not exclude these
conditions from further consideration, the need to utilize multiple
ICD-9-CM codes to identify them may present operational issues. For
instance, the complexities associated with selecting septicemia as a
hospital-acquired condition subject to section 5001(c) of the DRA may
present operational issues in identifying whether or not the condition
was present upon admission. The vast number of clinical scenarios that
we would have to account for could complicate implementation of the
provision.
Burden (High Cost/High Volume)--Under section
1886(d)(4)(D)(iv)(I) of the Act, we must select cases that have
conditions that are high cost or high volume, or both.
Prevention guidelines--Under section 1886(d)(4)(D)(iv)(II)
of the Act, we must select codes that describe conditions that could
reasonably have been prevented through application of evidence-based
guidelines. We evaluated whether there is information available for
hospitals to follow to prevent the condition from occurring.
MCC or CC--Under section 1886(d)(4)(D)(iv)(III) of the
Act, we must select codes that result in assignment of the case to a
DRG that has a higher payment when the code is present as a secondary
diagnosis. The condition must be an MCC or a CC that would, in the
absence of this provision, result in assignment to a higher paying DRG.
Considerations--We evaluated each condition above
according to how it meets the statutory criteria in light of the
potential difficulties that we would face if the condition were
selected.
6. Selection of Hospital-Acquired Conditions
We discuss below our analysis of each of the conditions that were
raised as possible candidates for selection under section 5001(c) of
Pub. L. 109-171 according to the criteria described above in section
II.D.5. of the preamble of this final rule with comment period. We also
discuss any considerations, which would include any administrative
issues surrounding the selection of a proposed condition. For example,
the condition may only be able to be identified by multiple codes,
thereby requiring the development of special GROUPER logic to also
exclude similar or related ICD-9-CM codes from being classified as a
CC. Similarly, a condition acquired during a hospital stay may arise
from another condition that the patient had prior to admission, making
it difficult to determine whether the condition was reasonably
preventable. Following a discussion of each condition, we provide a
summary that describes how each condition was considered for the
proposed rule, whether we are selecting it to be subject to the
provision in this FY 2008 IPPS final rule or if it will continue to be
considered for the future. In the proposed rule, we presented 13
conditions. The summary discussion and table reflect changes to the
order of the conditions. The summary presents the conditions that best
meet the statutory criteria and which conditions we are selecting to be
subject to the payment adjustment for hospital-acquired conditions
beginning in FY 2009. In the proposed rule, we encouraged comments on
these conditions. We asked commenters to recommend how many and which
conditions should be selected in the FY 2008 IPPS final rule along with
justifications for these selections. We also encouraged additional
comments on clinical, coding, and prevention issues that may affect the
conditions selected. While, in this final rule with comment period, we
present these 13 conditions in the order they were proposed, we have
re-ranked these conditions based on how well they meet the statutory
criteria according to compelling public health reasons in addition to
public comment and internal analysis.
We received approximately 127 timely public comments on this
section from hospitals and health care systems, provider associations,
consumer groups, purchasers, medical device manufacturers,
pharmaceutical companies, information technology companies, and health
care research organizations.
Comment: Some commenters urged CMS to use discretion in selecting
hospital-acquired conditions that will be subject to the statutory
provision and suggested that CMS limit the number of conditions
selected. A large majority of

[[Page 47203]]

commenters strongly supported the inclusion of three of the serious
preventable events (object left in surgery, air embolism and blood
incompatibility) and generally commented that the remaining conditions
are not always preventable or may not have unique codes established.
A number of commenters both supported and opposed the conditions
other than the three serious preventable events mentioned above. The
commenters were generally optimistic about considering proposed
conditions for the future upon resolution of suggested issues. A few
commenters proposed that CMS initially begin with limited
demonstrations to test CMS' methodology before nationwide
implementation. These commenters specifically mentioned the Michigan
Hospital Association Keystone Center.
The commenters who suggested not including conditions other than
the three serious preventable events mentioned above noted that sicker
and more complex patients are at greater risk for hospital-acquired
infections and complications. In particular, the commenters believed
some of the conditions proposed are a biological inevitability at a
certain predictable rate regardless of safe practice. In addition, the
commenters expressed concern about the difficulty of distinguishing
between hospital-acquired and community-acquired infections. The
commenters also believed that CMS should use incentives to allow
hospitals to adopt innovative infection prevention technologies and
provide necessary treatments for infections. Finally, a few commenters
submitted additional conditions that were not included in the 13
conditions we considered in the proposed rule.
Response: In general, we discuss our responses to each of these
comments below in the context of the specific conditions they
reference. With respect to the general comment that we should only
select the three serious preventable events, we believe there is a
significant public health interest in selecting more than just these
conditions. According to the commenters, many of the other conditions
we considered are not always preventable and, therefore, should not be
selected. The statute indicates that the provision should apply to
conditions that ``could reasonably have been prevented through the
application of evidence-based guidelines.'' Therefore, for this reason,
we are selecting other conditions in addition to the serious
preventable events to be subject to this provision in this final rule
with comment period. We discuss the application of the statutory
criteria to each of the conditions we considered below and why we
believe the condition is ``reasonably preventable.''
(a) Catheter-Associated Urinary Tract Infections
Coding--ICD-9-CM code 996.64 (Infection and inflammatory reaction
due to indwelling urinary catheter) clearly identifies this condition.
The hospital would also report the code for the specific type of
urinary infection. For instance, when a patient develops a catheter
associated urinary tract infection during the inpatient stay, the
hospital would report code 996.64 and 599.0 (Urinary tract infection,
site not specified) to clearly identify the condition. There are also a
number of other more specific urinary tract infection codes that could
also be coded with code 996.64. These codes are classified as CCs. If
we were to select catheter-associated urinary tract infections, we
would implement the decision by not counting code 996.64 and any of the
urinary tract infection codes listed below when both codes are present
and the condition was acquired after admission. If only code 966.64
were coded on the claim as a secondary diagnosis, we would not count it
as a CC.
Burden (High Cost/High Volume)--CDC reports that there are 561,667
catheter-associated urinary tract infections per year. For FY 2006,
there were 11,780 reported cases of Medicare patients who had a
catheter associated urinary tract infection as a secondary diagnosis.
The cases had average charges of $40,347 for the entire hospital stay.
According to a study in the American Journal of Medicine, catheter-
associated urinary tract infection is the most common nosocomial
infection, accounting for more than 1 million cases in hospitals and
nursing homes nationwide.\22\ Approximately 11.3 million women in the
United States had at least one presumed acute community-acquired
urinary tract infection resulting in antimicrobial therapy in 1995,
with direct costs estimated at $659 million and indirect costs totaling
$936 million. Nosocomial urinary tract infection necessitates one extra
hospital day per patient, or nearly 1 million extra hospital days per
year. It is estimated that each episode of symptomatic urinary tract
infection adds $676 to a hospital bill. In total, according to the
study, the estimated annual cost of nosocomial urinary tract infection
in the United States ranges between $424 and $451 million.
Prevention guidelines--There are widely recognized guidelines for
the prevention of catheter-associated urinary tract infections.
Guidelines can be found at the following Web site: http://www.cdc.gov/ncidod/dhqp/gl_catheter_assoc.html.
---------------------------------------------------------------------------

\22\ Foxman, B.: ``Epidemiology of urinary tract infections:
incidence, morbidity, and economic costs,'' The American Journal of
Medicine, 113 Suppl 1A, pp. 5s-13s, 2002.
---------------------------------------------------------------------------

CC--Codes 996.64 and 599.0 are classified as CCs in the CMS DRGs as
well as in the MS-DRGs.
Considerations--The primary prevention intervention would be not
using catheters or removing catheters as soon as possible, both of
which are worthy goals because once catheters are in place for 3 to 4
days, most clinicians and infectious disease/infection control experts
do not believe urinary tract infections are preventable. While there
may be some concern about the selection of catheter associated urinary
tract infections, it is an important public health goal to encourage
practices that will reduce urinary tract infections. Approximately 40
percent of Medicare beneficiaries have a urinary catheter during
hospitalization based on Medicare Patient Safety Monitoring System
(MPSMS) data.
As stated above in the Coding section, this condition is clearly
identified through ICD-9-CM code 996.64. Code 996.64 is classified as a
CC. The hospital would also report the code for the specific type of
urinary infection. For instance, when a patient develops a catheter
associated urinary tract infection during the inpatient stay, the
hospital would report codes 996.64 and 599.0 or another more specific
code that clearly identifies the condition. These codes are classified
as CCs under the CMS DRGs as well as the MS-DRGs. To select catheter-
associated urinary tract infections as one of the hospital-acquired
conditions that would not be counted as a CC, we would not classify
code 996.64 as a CC if the condition occurred after admission.
Furthermore, we would also not classify any of the codes listed below
as CCs if present on the claim with code 996.64 because these
additional codes identify the same condition. The following codes
represent specific types of urinary infections. We did not include
codes for conditions that could be considered chronic urinary
infections, such as code 590.00 (Chronic pyelonephritis, without lesion
or renal medullary necrosis). Chronic conditions may indicate that the
condition was not acquired during the current stay. We would not count
code 996.64 or any of the following codes representing acute urinary

[[Page 47204]]

infections if they developed after admission and were coded together on
the same claim.
112.2 (Candidiasis of other urogenital sites)
590.10 (Acute pyelonephritis, without lesion of renal
medullary necrosis)
590.11 (Acute pyelonephritis, with lesion of renal
medullary necrosis)
590.2 (Renal and perinephric abscess)
590.3 (Pyeloureteritis cystica)
590.80 (Pyelonephritis, unspecified)
590.81 (Pyelitis or pyelonephritis in diseases classified
elsewhere)
590.9 (Infection of kidney, unspecified)
595.0 (Acute cystitis)
595.3 (Trigonitis)
595.4 (Cystitis in diseases classified elsewhere)
595.81 (Cystitis cystica)
595.89 (Other specified type of cystitis, other)
595.9 (Cystitis, unspecified)
597.0 (Urethral abscess)
597.80 (Urethritis, unspecified)
599.0 (Urinary tract infection, site not specified)
We believe the condition of catheter-associated urinary tract
infection meets all of our criteria for selection as one of the initial
hospital-acquired conditions. We can easily identify the cases with
ICD-9-CM codes. The condition is a CC under both the CMS DRGs and the
MS-DRGs. The condition meets our burden criterion with its high cost
and high frequency. There are prevention guidelines on which the
medical community agrees to avoid catheter-associated urinary tract
infections. We believe this condition best meets the criteria
discussed. Therefore, we proposed the selection of catheter-associated
urinary tract infections as one of the initial hospital-acquired
conditions.
We encouraged comments on both the selection of this condition and
the related conditions that we proposed to exclude from being counted
as CCs.
Comment: Most commenters suggested that a large number of
physicians believe urinary tract infections may not be preventable
after several days of catheter placement. A few commenters submitted
the following statement from the proposed rule (72 FR 24719): ``once
catheters are in place for 3-4 days, most clinicians and infection
control experts do not believe UTIs are preventable.'' The commenters
also noted the potential difficulty in identifying this condition at
admission.
Still other commenters believed this condition is difficult to code
because the ICD-9-CM codes do not distinguish between catheter-
associated inflammation and infection. The commenters asked CMS to
consider a new code for ``inflammatory reaction from indwelling
catheter'' distinct from ``catheter associated urinary tract
infection.''
In addition, the commenters noted that prevention guidelines are
still being debated. The commenters referenced the prevention guideline
published in 1981 and posted on the Web site at: http://www.cdc.gov/ncidod/dhqp/gl_catheter_assoc.html.
A few commenters also recommended exceptions for this condition,
including patients with immunosuppression, patients who have a catheter
placed for therapeutic installation of antimicrobial/chemotherapy
agent, patients with sustained urinary tract trauma, and patients in
need of permanent use of a catheter.
Commenters stated that Medicare reimbursement does not cover the
increased cost of antibiotic-coated catheters which have been shown to
reduce the incidence of catheter infections. These same commenters
asked CMS to change Medicare payment policy to encourage the
application of proven existing technology.
Commenters provided two potential examples of unintended
consequences if this condition is to be implemented. First, the
commenters believed that physicians and hospitals will increase
urinalysis testing to identify urinary tract infections prior to
admission. Second, the commenters suggested that physicians and
hospitals will use more antibiotics to ``clean'' the urine of bacteria
upon admission.
Response: CMS seeks to reduce the incidence of preventable catheter
associated urinary tract infections by reducing unnecessary and
inappropriate use of indwelling urinary catheters in hospitalized
Medicare patients. There is widespread evidence that catheters may lead
to an increased risk of infection if they are in place for several
days. In addition, there are prevention guidelines to assist physicians
in determining how long a urinary catheter should be left in place that
can prevent catheter-associated urinary tract infections. Therefore, we
believe that catheter-associated urinary tract infections are
reasonably preventable by following well-established prevention
guidelines, and we are selecting this condition.
Concerning the request for the creation of a new code for
``inflammatory reaction from indwelling catheter,'' we recommend the
commenter contact the CDC. The CDC is responsible for maintaining the
diagnosis part of the ICD-9-CM codes. We encourage commenters to send
specific requests for new or revised ICD-9-CM diagnosis codes to Donna
Pickett, CDC, at 3311 Toledo Road, Room 2402, Hyattsville, MD 20782, or
via e-mail to [email protected]. Additional information on requesting a new
ICD-9-CM diagnosis code may be obtained from the Web site at: http://www.cdc.gov/nchs/icd9.htm.
The commenters are correct that prevention guidelines for avoiding
catheter-associated urinary tract infections are scheduled to be
updated by CDC's Healthcare Infection Control Practices Committee
(HICPAC). The National Quality Forum (NQF) is currently working to
update hospital-acquired infection definitions. The effort currently
underway will update prevention guidelines that have been in place
since 1981. We believe the ongoing effort to update prevention
guidelines for avoiding catheter-associated urinary tract infections
provides further evidence that this condition is a strong candidate to
be selected because of how well it meets the statutory criteria.
We appreciate the many comments urging CMS to consider implementing
exceptions for catheter-associated urinary tract infections when it is
a hospital-acquired condition but is not preventable. We will carefully
consider these suggestions as we plan for the implementation of this
new requirement in FY 2009.
With respect to the comment about encouraging the use antibiotic-
coated catheters, we continue to work in cooperation with device
companies and other associations to ensure that Medicare beneficiaries
receive the most current therapeutic modalities. We annually update
Medicare inpatient hospital payment rates to reflect hospital resource
use for the latest medical technology and other innovations in how care
is delivered.
We do not agree there will be significant unintended consequences
of selecting catheter-associated urinary tract infections. As stated
earlier, we believe this condition is generally avoidable if medical
professionals carefully follow longstanding prevention guidelines. We
believe hospitals, physicians, and others that treat Medicare patients
will focus on taking medically appropriate steps to determine the
length of time a catheter is in place. We do not believe it is
inappropriate to perform a urinalysis upon admission to the hospital if
clinically indicated. We would not

[[Page 47205]]

consider doing so an unintended consequence.
We appreciate all the public comments on this condition, and have
considered all of these points of view. We believe this condition meets
the criteria of the DRA:
There are unique codes that identify catheter-associated
urinary tract infections that are currently considered to be a CC under
the MS-DRGs;
Prevention guidelines currently exist and will be updated
prior to the October 1, 2008 implementation date of this provision; and
As shown above, catheter-associated urinary tract
infections are high cost/high volume conditions.
Therefore, in this final rule with comment period, we are selecting
the condition of catheter-associated urinary tract infections to be
subject to the provision beginning October 1, 2008.
(b) Pressure Ulcers
Coding--Pressure ulcers are also referred to as decubitus ulcers.
The following codes clearly identify pressure ulcers.
707.00 (Decubitus ulcer, unspecified site)
707.01 (Decubitus ulcer, elbow)
707.02 (Decubitus ulcer, upper back)
707.03 (Decubitus ulcer, lower back)
707.04 (Decubitus ulcer, hip)
707.05 (Decubitus ulcer, buttock)
707.06 (Decubitus ulcer, ankle)
707.07 (Decubitus ulcer, heel)
707.09 (Decubitus ulcer, other site)
Burden (High Cost/High Volume)--This condition is both high-cost
and high volume. For FY 2006, there were 322,946 reported cases of
Medicare patients who had a pressure ulcer as a secondary diagnosis.
These cases had average charges for the hospital stay of $40,381.
Prevention guidelines--Prevention guidelines can be found at the
following Web sites: http://www.npuap.org/positn1.html and http://www.ncbi.nlm.nih.gov/books/bv.fcgi?rid=hstat2.chapter.4409.
CC--Decubitus ulcer codes are classified as CCs under the CMS DRGs.
Codes 707.00, 707.01, and 707.09 are CCs under the MS-DRGs. Codes
707.02 through 707.07 are considered MCCs under the MS-DRGs. As
discussed earlier, MCCs result in even larger payments than CCs.
Considerations--Pressure ulcers are an important hospital acquired
complication. Prevention guidelines exist (non-CDC) and can be
implemented by hospitals. Clinicians may state that some pressure
ulcers present on admission cannot be identified (skin is not yet
broken (Stage I) but damage to tissue is already done and skin will
eventually break down). However, by selecting this condition, we would
provide hospitals the incentive to perform careful examination of the
skin of patients on admission to identify decubitus ulcers. If the
condition is present on admission, the provision will not apply. In the
proposed rule, we proposed to include pressure ulcers as one of our
initial hospital-acquired conditions. This condition can be clearly
identified through ICD-9-CM codes. These codes are classified as a CC
under the CMS DRGs and as a CC or MCC under the MS-DRGs. Pressure
ulcers meet the burden criteria because they are both high cost and
high frequency cases. There are clear prevention guidelines. While
there is some question as to whether all cases with developing pressure
ulcers can be identified on admission, we believe the selection of this
condition will result in a closer examination of the patient's skin on
admission and better quality of care. We welcomed comments on the
proposed inclusion of this condition.
Comment: A majority of commenters supported the intent of selecting
the condition of pressure ulcers, but had concerns about how the
provision would be implemented in practice. A large majority of
commenters believed hospitals will more carefully examine the skin of
patients if this condition is selected. However, many commenters cited
difficulty in detecting stage 1 pressure ulcers on admission,
particularly in certain patient populations.
The commenters cited the Guidance to Surveyors for Long-Term Care
Facilities (CMS Manual System Pub. 100-07, State Operations Provider
Certification issued November 2004, page 5), noting CMS'' previous
acknowledgment that some pressure ulcers are ``unavoidable.'' The
commenters cited evidence of an increased risk of pressure ulcer
reoccurrence after a patient has had at least one stage IV ulcer.
The commenters expressed concern about how this condition will be
coded upon admission. The commenters also suggested that present-on-
admission coding of pressure ulcers will rely solely on physicians'
notes and diagnoses, according to Medicare coding rules. The commenters
were concerned that the current ICD-9-CM codes for pressure ulcers are
not precise enough to delineate differences in wound depth, which is an
important factor for determining the severity of an ulcer.
The commenters recommended that CMS supplement ICD-9-CM codes for
pressure ulcers with severity adjustments for complications and
comorbidities that are present on admission. Because patients with
pressure ulcers often have other complicating conditions, the
commenters stated that it is unlikely that pressure ulcers would
potentially be the only secondary diagnosis that would change the DRG
assignment from one without a CC to one with a CC. Lastly, the
commenters noted that accurate identification of a pressure ulcer
requires the education and expertise of a trained physician.
The commenters suggested that CMS should exclude patients enrolled
in the Medicare hospice benefit and patients with certain diagnoses
that make them more highly prone to pressure ulcers such as hemiplegia,
quadriplegia, wasting syndrome, with advanced AIDS and/or protein
malnutrition associated with a variety of serious end stage illnesses.
Response: We appreciate the overwhelming public support for the
intent of selecting this condition, provided we can address the
concerns raised in the public comments. We acknowledge the commenters'
concern that CMS previously stated some pressure ulcers are
``unavoidable.'' However, we believe improved screening to identify
pressure ulcers upon admission for inpatient care will increase the
quality of care. By screening patients entering the hospital for
pressure ulcers, the ulcers will be discovered earlier and improve
treatment of this preventable condition. We agree that the POA coding
of pressure ulcers will rely on the attending physician, who has
primary responsibility for documenting and diagnosing a patient's
clinical conditions. Pressure ulcers that are identified through
screening upon admission that are documented properly will continue to
be assigned to a higher paying DRG.
With respect to the comment about patients with pressure ulcers
having other complications and comorbidities, we note that many of the
new MS-DRGs are subdivided into two or more severity levels. We will
continue to evaluate the need for additional severity levels within
base MS-DRGs. On the specific issue of the MS-DRGs that include
pressure ulcers, we note that these MS-DRGs are already divided into
three severity levels as follows:
MS-DRG 573 (Skin Graft &/or Debridement for Skin Ulcer or
Cellulitis with MCC)

[[Page 47206]]

MS-DRG 574 (Skin Graft &/or Debridement for Skin Ulcer or
Cellulitis with CC)
MS-DRG 575 (Skin Graft &/or Debridement for Skin Ulcer or
Cellulitis without CC/MCC)
We are aware that many patients with pressure ulcers may also have
other comorbid and complicating conditions that will continue to assign
the patient to a higher paying DRG. We do not believe this fact should
preclude physicians and hospitals from screening patients for pressure
ulcers upon admission. As we indicated in the proposed rule (72 FR
24726), we believe only a minority of cases will have one of the
selected conditions as the only CC or MCC present on the claim.
However, we believe it will continue to lead to improvements in the
quality of care. We believe the selection of this condition will lead
the physician and hospital to perform a proper skin exam upon
admission, leading to earlier identification and treatment of pressure
ulcers.
With respect to the comment that accurate identification of a
pressure ulcer requires the education and expertise of a trained
physician, we agree. Hospitals should be using properly educated and
trained physicians to identify and treat pressure ulcers (as well as
all other medical conditions).
We appreciate all the public comment on this condition, and have
considered all of these points of view. We believe the condition of
pressure ulcers meets the criteria of the DRA:
There are unique codes that identify pressure ulcers that
are currently considered to be a CC or an MCC under the MS-DRGs;
Prevention guidelines to avoid pressure ulcers currently
exist; and
As shown above, pressure ulcers are high-cost/high-volume
conditions. Therefore, in this final rule with comment period, we are
selecting the condition of pressure ulcers to be subject to the payment
adjustment for hospital acquired conditions beginning October 1, 2008.
We referred the matter concerning the need for additional, detailed
ICD-9-CM codes to the CDC. We believe further specificity in the ICD-9-
CM codes will aid in distinguishing early from late stage pressure
ulcers prior to the implementation date of this provision on October 1,
2008.
Serious Preventable Events
Serious preventable events are events that should not occur in
health care. The injury prevention community has developed information
on serious preventable events. CMS reviewed the list of serious
preventable events and identified those events for which there was an
ICD-9-CM code that would assist in identifying them. We identified four
types of serious preventable events to include in our evaluation. These
include leaving an object in a patient; performing the wrong surgery
(surgery on the wrong body part, wrong patient, or the wrong surgery);
air embolism following surgery; and providing incompatible blood or
blood products. Three of these serious preventable events have unique
ICD-9-CM codes to identify them. There is not a clear and unique code
for surgery performed on the wrong body part, wrong patient, or the
wrong surgery. Each of these events is discussed separately.
(c) Serious Preventable Event--Object Left in during Surgery
Coding Retention of a foreign object in a patient after surgery is
identified through ICD-9-CM code 998.4 (Foreign body accidentally left
during a procedure).
Burden (High Cost/High Volume)--For FY 2006, there were 764 cases
reported of Medicare patients who had an object left in during surgery
reported as a secondary diagnosis. The average charges for the hospital
stay were $61,962. This is a rare event. Therefore, it is not high
volume. However, an individual case will likely have high costs, given
that the patient will need additional surgery to remove the foreign
body. Potential adverse events stemming from the foreign body could
further raise costs for an individual case.
Prevention guidelines--There are widely accepted and clear
guidelines for the prevention of this event. This event should not
occur. Prevention guidelines for avoiding leaving objects in during
surgery are located at the following Web site: http://www.qualityindicators.ahrq.gov/psi_download.htm.
CC--This code is a CC under the CMS DRGs as well as under the MS
DRGs.
Considerations--There are no significant considerations for this
condition. There is a unique ICD-9-CM code and wide agreement on the
prevention guidelines. We proposed to include this condition as one of
our initial hospital-acquired conditions. The cases can be clearly
identified through an ICD-9-CM code. This code is a CC under both the
CMS DRGs and the MS-DRGs. There are clear prevention guidelines. While
the cases may not meet the high frequency criterion, they do meet the
high-cost criterion. Individual cases can be high cost. In the proposed
rule, we welcomed comments on including this condition as one of our
initial hospital-acquired conditions.
Comment: A large majority of commenters supported CMS' efforts to
identify the condition of ``object left in surgery'' as one that should
not occur in the hospital setting. The commenters supported selecting
this condition in this year's IPPS rule.
The commenters applauded CMS for identifying a hospital acquired
condition that has discrete ICD-9-CM codes and known methods of
prevention. In addition, a few commenters noted that prevention
guidelines for this condition are fully identified and endorsed by the
NQF. MedPAC also complimented CMS for its efforts to identify ``object
left in surgery'' and stated that CMS should not allow a case to be
classified as a CC/MCC if this ``never event'' occurs during a
patient's stay.
The commenters urged CMS to make exceptions for objects
deliberately left in place in surgery as opposed to accidental retained
foreign objects. The commenters noted that a patient may return to the
hospital months or years after an object was left in during surgery,
and it is necessary to have POA codes to identify patients that return
to a different hospital to have the object removed. All of the
commenters recognized that this event can cause great harm to patients.
Response: We believe exceptions for this condition are not
necessary. The code that identifies this event, 998.4 (Foreign body
accidentally left during a procedure) specifically states that the
object was accidentally left in during the surgery. This code would not
be assigned if a device or implant was deliberately implanted into a
patient. In addition, as stated earlier, we recognize the important
role of the attending physician in designating whether or not the
serious preventable event occurred during the current admission. We
agree with the commenters that a patient may return to the hospital
months or years after the surgery to have the foreign object removed.
In this circumstance, the hospital would code the condition as present
on admission and the provision would not apply. By documenting the
event early, the correct POA code can be applied. We agree with the
commenters that this serious preventable event should be selected as a
hospital-acquired condition in this final rule with comment period.
Therefore, we are including this condition in the list of those to be
implemented in FY 2009.

[[Page 47207]]

(d) Serious Preventable Event--Air Embolism
Coding--An air embolism is identified through ICD-9-CM code 999.1
(Complications of medical care, NOS, air embolism).
Burden (High Cost/High Volume)--This event is rare. For FY 2006,
there were 45 reported cases of air embolism for Medicare patients. The
average charges for the hospital stay were $66,007.
Prevention guidelines--there are clear prevention guidelines for
air embolisms. This event should not occur. Serious preventable event
guidelines can be found at the following Web site: http://www.qualityindicators.ahrq.gov/psi_download.htm.
CC--This code is a CC under the CMS DRGs and is an MCC under the
MS-DRGs.
Considerations--There are no significant considerations for this
condition. There is a unique ICD-9-CM code and wide agreement on the
prevention guidelines. In addition, as stated earlier, the condition is
a CC under the CMS DRGs and an MCC under the MS-DRGs. While the
condition is rare, it does meet the cost burden criterion because
individual cases can be expensive. Therefore, air embolism is a high-
cost condition because average charges per case are high. In the
proposed rule, we welcomed comments on the proposal to include this
condition.
Comment: A large number of commenters supported CMS' efforts to
select this condition as one that should not occur in the hospital
setting. The commenters considered this an appropriate condition to
include for the final rule. The commenters applauded CMS for
identifying a hospital acquired condition that has discrete ICD-9-CM
codes and known methods of prevention.
In addition, the commenters noted that prevention guidelines for
this condition are fully identified and endorsed by the NQF. MedPAC
also complimented CMS for its efforts to identify ``air embolism'' and
stated that CMS should not allow a case to be classified as a CC/MCC if
this ``never event'' occurs during a patient's stay.
The commenters urged CMS to make exceptions for situations when air
embolism is technically unavoidable because of a special surgical
procedure. All of the commenters recognized that this event can cause
great harm to patients.
Response: We appreciate the support for the selection of this
condition. We also welcome specific recommendations that would clearly
define an appropriate exception to this condition, including any
appropriate ICD-9-CM diagnosis and procedure codes which the commenter
believes clearly define such an occurrence and the justification for an
exception. At this point, we do not believe such an exception is
necessary.
We agree with commenters that this serious preventable event should
be included in the FY 2008 final rule. Therefore, we are including the
condition of air embolism in the list of those to be implemented in FY
2009.
(e) Serious Preventable Event--Blood Incompatibility
Coding--Delivering ABO-incompatible blood or blood products is
identified by ICM-9-CM code 999.6 (Complications of medical care, NOS,
ABO incompatibility reaction).
Burden (High Cost/High Volume)--This event is rare. Therefore, it
is not high volume. For FY 2006, there were 33 reported cases of blood
incompatibility among Medicare patients, with average charges of
$46,492 for the hospital stay. Therefore, individual cases have high
costs.
Prevention guidelines--There are prevention guidelines for avoiding
the delivery of incompatible blood or blood products. The event should
not occur. Serious preventable event guidelines can be found at the
following Web site: http://www.qualityindicators.ahrq.gov/psi_download.htm
CC--This code is a CC under the CMS DRGs as well as the MS-DRGs.
Considerations--There are no significant considerations for this
condition. There is a unique ICD-9-CM code which is classified as a CC
under the CMS DRGs as well as the MS-DRGs. There is wide agreement on
the prevention guidelines. While this may not be a high-volume
condition, average charges per case are high. Therefore, we believe
this condition is a high-cost condition and, therefore, meets our
burden criterion. We proposed to include this condition as one of our
initial hospital acquired conditions.
Comment: A large number of commenters supported CMS' efforts to
identify ``blood incompatibility'' as one condition that should not
occur in the hospital setting. The commenters considered this an
appropriate condition to include for FY 2009. The commenters applauded
CMS for identifying a hospital acquired condition that has discrete
ICD-9-CM codes and known methods of prevention. In addition, the
commenters noted that prevention guidelines for this condition are
fully identified and endorsed by the NQF. MedPAC also complimented CMS
for its efforts to identify ``blood incompatibility'' and stated that
CMS should not allow a case to be classified as a CC/MCC if this
``never event'' occurs during a patient's stay.
The commenters urged CMS to make exceptions for situations when
blood incompatibility is technically unavoidable in emergencies when
patients deliberately receive unmatched blood. All of the commenters
recognized that this event can cause great harm to patients.
Response: As suggested by commenters, hospitals should not be
transfusing incompatible blood. The condition meets the criteria for
being selected. It is a potential hospital acquired condition that has
discrete ICD-9-CM codes and known methods of prevention. Prevention
guidelines for this condition are fully identified and endorsed by the
NQF. We acknowledge that there may a rare emergency where a hospital
does not have compatible blood available for transfusion. We welcome
specific recommendations that would define circumstances where blood
incompatibility is unavoidable, including any appropriate ICD-9-CM
diagnosis and procedure codes, which the commenters believe clearly
define such an occurrence. If providers can provide such a clinical
scenario that can be identified by existing or new ICD-9-CM codes, we
will consider excluding this situation from the provision. We agree
with the commenters that this serious preventable event should be
included in the FY 2008 final rule. Therefore, we are including the
condition of blood incompatibility in the list of those to be
implemented in FY 2009.
(f) Staphylococcus Aureus Bloodstream Infection/Septicemia
Coding--ICD-9-CM Code 038.11 (Staphylococcus aureus septicemia)
identifies this condition. However, the codes selected to identify
septicemia are somewhat complex. The following ICD-9-CM codes may also
be reported to identify septicemia:
995.91 (Sepsis) and 995.92 (Severe sepsis). These codes
are reported as secondary codes and further define cases with
septicemia.
998.59 (Other postoperative infections). This code
includes septicemia that develops postoperatively.
999.3 (Other infection). This code includes but is not
limited to sepsis/septicemia resulting from infusion, injection,
transfusion, and vaccination (ventilator-associated pneumonia is also
included here).

[[Page 47208]]

Burden (High Cost/High Volume)--CDC reports that there are 290,000
cases of staphylococcus aureus infection annually in hospitalized
patients of which approximately 25 percent are bloodstream infections
or sepsis. For FY 2006, there were 29,500 cases of Medicare patients
who had staphylococcus aureus infection reported as a secondary
diagnosis. The average charges for the hospital stay were $82,678.
Inpatient staphylococcus aureus result in an estimated 2.7 million days
in excess length of stay, $9.5 billion in excess charges, and
approximately 12,000 inpatient deaths per year.
Prevention guidelines--CDC guidelines are located at the following
Web site: http://www.cdc.gov/ncidod/dhqp/gl_intravascular.html.
CC--Codes 038.11, 995.91, 998.59, and 999.3 are classified as CCs
under the CMS DRGs and as MCCs under the MS-DRGs.
Considerations--Preventive health care associated bloodstream
infections/septicemia that are preventable are primarily those that are
related to a central venous/vascular catheter, a surgical procedure
(postoperative sepsis) or those that are secondary to another
preventable infection (for example, sepsis due to catheter-associated
urinary tract infection). Otherwise, physicians and other public health
experts may argue whether septicemia is reasonably preventable. The
septicemia may not be simply a hospital acquired infection. It may
simply be a progression of an infection that occurred prior to
admission. Furthermore, physicians cannot always tell whether the
condition was hospital-acquired. We examined whether it might be better
to limit the septicemia cases to a specific organism (for example, code
038.11 (Staphylococcus aureus septicemia)). CDC staff recommended that
we focus on staphylococcus aureus septicemia because this condition is
a significant public health issue. As stated earlier, there is a
specific code for staphylococcus aureus septicemia, code 038.11.
Therefore, the cases would be easy to identify. However, as stated
earlier, while this type of septicemia is identified through code
038.11, coders may also provide sepsis code 995.91 or 995.92 to more
fully describe the staphylococcus aureus septicemia. Codes 995.91 and
995.92 are reported as secondary codes and further define cases with
septicemia. Codes 995.91 and 995.92 are CCs under the CMS DRGs and MCCs
under the MS-DRGs.
998.59 (Other postoperative infections). This code
includes septicemia that develops postoperatively.
999.3 (Other infection). This code includes but is not
limited to sepsis/septicemia resulting from infusion, injection,
transfusion, and vaccination (ventilator-associated pneumonia is also
indexed here).
To implement this condition as one of our initial ones, we would
have to exclude the specific code for staphylococcus aureus septicemia,
038.11, and the additional septicemia codes, 995.91, 995.92, 998.59,
and 999.3.
We acknowledge that there are additional issues involved with the
selection of this condition that may involve developing an exclusion
list of conditions present on admission for which we would not apply a
CC exclusion to staphylococcus aureus septicemia. For example, a
patient may come into the hospital with a staphylococcus aureus
infection such as pneumonia. The pneumonia might develop into
staphylococcus aureus septicemia during the admission. It may be
appropriate to consider excluding cases such as those of patients
admitted with staphylococcus aureus pneumonia that subsequently develop
staphylococcus aureus septicemia from the provision. In order to
exclude cases that did not have a staphylococcus aureus infection prior
to admission, we would have to develop a list of specific codes that
identified all types of staphylococcus aureus infections such as code
482.41 (Pneumonia due to staphylococcus aureus). We likely would not
apply the new provision to cases of staphylococcus aureus septicemia if
a patient were admitted with staphylococcus aureus pneumonia. However,
if the patient had other types of infections, not classified as being
staphylococcus aureus, and then developed staphylococcus aureus
septicemia during the admission, we would apply the provision and
exclude the staphylococcus aureus septicemia as a CC. We were not able
to identify any other specific ICD-9-CM codes that identify specific
infections as being due to staphylococcus aureus.
Other types of infections, such as urinary tract infections, would
require the reporting of an additional code, 041.11 (Staphylococcus
aureus), to identify the staphylococcus aureus infection. This
additional coding presents administrative issues because it will not
always be clear which condition code 041.11 (Staphylococcus aureus) is
describing. We do not believe it would be appropriate to make code
041.11, in combination with other codes, subject to the hospital-
acquired conditions provision until we better understand how to address
the administrative issues that would be associated with their
selection. Therefore, we would exclude staphylococcus aureus septicemia
cases with code 482.41 reported as being subject to the hospital-
acquired conditions provision. Stated conversely, we would allow
staphylococcus aureus septicemia to count as a CC if the patient was
admitted with staphylococcus aureus pneumonia.
We recognize that there may be other conditions which we should
consider for this type of exclusion. We proposed to include
staphylococcus aureus bloodstream infection/septicemia (code 038.11) as
one of our initial hospital-acquired conditions. We also proposed to
exclude codes 995.91, 998.59, and 999.3 from counting as an MCC/CC when
they were reported with code 038.11. The condition can be clearly
identified through ICD 9 CM codes that are classified as CC under the
CMS DRGs and MCCs under the MS-DRGs. The condition meets our burden
criterion by being both high cost and high volume. There are prevention
guidelines which we acknowledge are subject to some debate among the
medical community. We also acknowledge that we would have to exclude
this condition if a patient were admitted with a staphylococcus aureus
infection of a more limited location, such as pneumonia. In the
proposed rule, we encouraged commenters to make suggestions on this
issue and to recommend any other appropriate exclusion for
staphylococcus aureus septicemia. We also encouraged comments on the
appropriateness of selecting staphylococcus aureus septicemia as one of
our proposed initial hospital acquired conditions.
Comment: Many commenters opposed CMS' proposed selection of this
condition as part of the FY 2008 final rule. There were a minority of
commenters who strongly supported the selection of this condition.
These commenters noted the existence of technologies that allow the
physician to determine the presence of Staphylococcus Aureus upon
admission. Many more commenters stated that accurately identifying
staphylococcus aureus septicemia on admission will be difficult,
particularly in patients who may have a staphylococcus aureus infection
in a limited location. Several commenters referenced the FY 2008 IPPS
proposed rule, which stated ``physicians cannot always tell whether the
condition was hospital acquired.'' Other commenters also noted that
there is still debate

[[Page 47209]]

among physicians regarding the prevention guidelines for staphylococcus
aureus septicemia. The proliferation of changes in coding guidelines
presents coding problems for hospitals to accurately identify present-
on-admission status according to some comments. Specifically, the
commenters noted that codes to identify sepsis are very complex and
have had recent changes. For instance, there is a code that currently
includes septicemia that develops postoperatively, but does not clearly
distinguish between intravascular and catheter-associated sources of
septicemia. The commenters also suggested that additional coding may be
necessary to accurately identify this condition in the many forms it
often presents upon admission. Some commenters suggested that the
addition of codes may create a challenge for coding staff to identify
the correct code.
A large majority of commenters urged CMS to narrow the category for
staphylococcus aureus septicemia to include only patients for whom it
is reasonably clear that the hospital was the source of the infection
and that it could have been reasonably prevented.
Response: We appreciate the plethora of comments regarding
staphylococcus aureus septicemia. The commenters were very insightful
and presented the challenges of selecting this condition in the FY 2008
final rule.
We agree that the recent proliferation of ICD-9-CM codes for this
condition will make it difficult to code and could present an
administrative burden on hospitals. In addition, we are sensitive to
the difficulty of identifying when a disease has progressed to sepsis
or septicemia. Given the course of progression to septicemia, it can be
very difficult for a clinician to appropriately diagnose staphylococcus
aureus septicemia as present on admission.
While we acknowledge the many concerns raised by the commenters, we
continue to believe that hospital acquired staphylococcus aureus
septicemia remains a significant public health issue. We are aware of
the continued need to prevent Staphylococcus Aureus septicemia in the
hospital setting. Therefore, we plan to engage in a collaborative
discussion with relevant experts to identify the circumstances when
staphylococcus aureus septicemia is preventable. If we can identify
when staphylococcus aureus septicemia is a reasonably preventable
condition and have codes to distinguish those situations, we will
consider this condition for future years. We appreciate the many
comments and suggestions as we consider staphylococcus aureus
septicemia for selection in the future, and look forward to receiving
more public input to identify only instances when this condition is
preventable.
Therefore, we are not selecting this condition in this final rule
with comment period. We plan to collaborate with the public on this
important public health issue and continue to consider the condition
for selection in the FY 2009 final rule. We encourage and welcome
public comment to further evaluate this condition.
(g) Ventilator Associated Pneumonia (VAP) and Other Types of Pneumonia
Coding--Pneumonia is identified through the following codes:
073.0 (Ornithosis with pneumonia)
112.4 (Candidiasis of lung)
136.3 (Pneumocystosis)
480.0 (Pneumonia due to adenovirus)
480.1 (Pneumonia due to respiratory syncytial virus)
480.2 (Pneumonia due to parainfluenza virus)
480.3 (Pneumonia due to SARS-associated coronavirus)
480.8 (Pneumonia due to other virus not elsewhere
classified)
480.9 (Viral pneumonia, unspecified)
481 (Pneumococcal pneumonia [Streptococcus pneumoniae
pneumonia])
482.0 (Pneumonia due to Klebsiella pneumoniae)
482.1 (Pneumonia due to Pseudomonas)
482.2 (Pneumonia due to Hemophilus influenzae [H.
influenzae])
482.30 (Pneumonia due to Streptococcus, unspecified)
482.31 (Pneumonia due to Streptococcus, Group A)
482.32 (Pneumonia due to Streptococcus, Group B)
482.39 (Pneumonia due to other Streptococcus)
482.40 (Pneumonia due to Staphylococcus, unspecified)
482.41 (Pneumonia due to Staphylococcus aureus)
482.49 (Other Staphylococcus pneumonia)
482.81 (Pneumonia due to Anaerobes)
482.82 (Pneumonia due to Escherichia coli [E. coli])
482.83 (Pneumonia due to other gram-negative bacteria)
482.84 (Pneumonia due to Legionnaires' disease)
482.89 (Pneumonia due to other specified bacteria)
482.9 (Bacterial pneumonia unspecified)
483.0 (Pneumonia due to Mycoplasma pneumoniae)
There is not a unique code that identifies ventilator-associated
pneumonia. The creation of a code for ventilator-associated pneumonia
was discussed at the September 29, 2006 meeting of the ICD-9-CM
Coordination and Maintenance Committee meeting. Many issues and
concerns were raised at the meeting concerning the creation of this
proposed new code. It has been difficult to define ventilator-
associated pneumonia. We plan to continue working closely with the CDC
to develop a code that can accurately describe this condition for
implementation in FY 2009. CDC will address the creation of a unique
code for this condition at the September 28-29, 2007 ICD-9-CM
Coordination and Maintenance Committee meeting.
While we list 27 pneumonia codes above, our clinical advisors do
not believe that all of the codes mentioned could possibly be
associated with ventilator-associated pneumonia. Our clinical advisors
specifically question whether the following codes would ever represent
cases of ventilator-associated pneumonia: 073.0, 480.0, 480.1, 480.2,
480.3, 480.8, 480.9, and 483.0. Therefore, we have a range of pneumonia
codes, all of which may not represent cases that could involve
ventilator-associated pneumonia. In addition, we do not have a specific
code that uniquely identifies cases of ventilator-associated pneumonia.
Burden (High Cost/High Volume)--CDC reports that there are 250,205
ventilator-associated pneumonias per year. Because there is not a
unique ICD-9-CM code for ventilator-associated pneumonia, there is not
accurate data for FY 2006 on the number of Medicare patients who had
this condition as a secondary diagnosis. However, we did examine data
for FY 2006 on the number of Medicare patients who listed pneumonia as
a secondary diagnosis. There were 92,586 cases with a secondary
diagnosis of pneumonia, with average charges of $88,781. According to
the journal Critical Care Medicine, patients with ventilator-associated
pneumonia have statistically significantly longer intensive care
lengths of stay (mean = 6.10 days) than those who do not (mean = 5.32-
6.87 days). In addition, patients who develop ventilator-associated
pneumonia incur, on average, greater than or equal to $10,019 in
additional hospital costs compared to those who do not.\23\

[[Page 47210]]

Therefore, we believe that this is a high-volume condition.
---------------------------------------------------------------------------

\23\ Safdar N.: Clinical and Economic Consequences of
Ventilator-Associated Pneumonia: a Systematic Review, Critical Care
Medicine, 2005, 33(10), pp. 2184-2193.
---------------------------------------------------------------------------

Prevention guidelines--Prevention guidelines are located at the
following Web site: http://www.cdc.gov/ncidod/dhqp/gl_hcpneumonia.html. However, it is not clear how effective these
guidelines are in preventing pneumonia. Ventilator-associated pneumonia
may be particularly difficult to prevent.
CC--All of the pneumonia codes listed above are CCs under the CMS
DRGs and under the MS-DRGs, except for the following pneumonia codes
which are non-CCs: 073.0, 480.0, 480.1, 480.2, 480.3, 480.8, 480.9,
483.0. However, as mentioned earlier, there is not a unique ICD-9-CM
code for ventilator-associated pneumonia. Therefore, this condition
does not currently meet the statutory criteria for being selected.
Considerations--Hospital-acquired pneumonias, and specifically
ventilator-associated pneumonias, are an important problem. However,
based on our work with the medical community to develop specific codes
for this condition, we have learned that it is difficult to define what
constitutes ventilator-associated pneumonia. Although prevention
guidelines exist, it is not clear how effective these are in preventing
pneumonia. Clinicians cannot always tell which pneumonias are acquired
in a hospital. In addition, as mentioned above, there is not a unique
code that identifies ventilator-associated pneumonia. There are a
number of codes that capture a range of pneumonia cases. It is not
possible to specifically identify if these pneumonia cases are
ventilator-associated or arose from other sources. Because we cannot
identify cases with ventilator-associated pneumonia and there are
questions about its preventability, we did not propose to select this
condition as one of our initial hospital-acquired conditions. However,
we welcomed public comments on how to create an ICD-9-CM code that
identifies ventilator-associated pneumonia, and we encouraged
participation in our September 28-29, 2007 ICD-9-CM Coordination and
Maintenance Committee meeting where this issue will be discussed. We
indicated that we would reevaluate the selection of this condition in
FY 2009.
Comment: Some commenters urged CMS to select ventilator-associated
pneumonia at this time. Most commenters recommended that CMS delay
selecting this condition until a unique code is established.
Some commenters submitted an evidence-based peer-reviewed American
Association for Respiratory Care (AARC) Clinical Practice Guideline
(CPG) on strategies that should be disseminated and available to
hospitals for the prevention of ventilator associated pneumonia. The
CPG can be found at http://www.rcjournal.com/cpgs/09.03.0869.html.
Concurrently, the AARC acknowledges that more research needs to be done
in this area.
A majority of commenters believed this condition can be reasonably
prevented through evidence-based medicine guidelines. These commenters
noted that current unique codes for this condition are absent. These
commenters urged CMS to consider the development of an explicit ICD-9-
CM code for this ventilator-associated pneumonia and to select it at a
later date.
Response: At the time of publication of this final rule with
comment period, there is not a code associated with ventilator-
associated pneumonia. Therefore, this condition does not currently meet
the statutory criteria for being selected. However, the ICD-9-CM
Coordination and Maintenance Committee will meet September 27-28, 2007,
to discuss the creation of a unique ICD-9-CM code for this condition.
Further information of the Committee's activities on diagnosis code
issues can be found at the Web site: http://www.cdc.gov/nchs/icd9.htm.
We believe that once this condition has a unique code, it should be
further considered for selection beginning in FY 2009.
We believe that ventilator-associated pneumonia meets some of the
criteria for being selected. There are guidelines for prevention of
ventilator-associated pneumonia within CDC evidence based guidelines
for healthcare associated pneumonia. More information can be found at:
http://www.cdc.gov/ncidod/dhqp/gl_hcpneumonia.html. Furthermore, we
are aware that the American Thoracic Society and the Infectious Disease
Society of America collaborated to produce guidelines on the prevention
of ventilator-associated pneumonia. As indicated above, most pneumonias
are CCs. Therefore, it is reasonable to believe that ventilator-
associated pneumonia will also be classified as a CC once a new code is
created to identify it. At that time, we can further consider whether
the condition is reasonably preventable and should be subject to this
provision.
We appreciate all the public comment on this condition, and
considered all of the respondents' point of view. While we acknowledge
the clinical challenge of clearly identifying ventilator-associated
pneumonia, we believe that once this condition has a unique ICD-9-CM
code, coupled with well-known prevention guidelines that are the result
of evidence-based medicine, we will give strong consideration for
selecting this condition for FY 2009, and including it in the FY 2009
IPPS proposed rule.
(h) Vascular Catheter-Associated Infections
Coding--The proposed rule noted that the code used to identify
vascular catheter associated infections is ICD-9-CM code 996.62
(Infection due to other vascular device, implant, and graft). This code
includes infections associated with all vascular devices, implants, and
grafts. It does not uniquely identify vascular catheter associated
infections. Therefore, there was not a unique ICD-9-CM code for this
infection at the time of the proposed rule. CDC and CMS staff requested
that the ICD-9-CM Coordination and Maintenance Committee discuss the
creation of a unique ICD-9-CM code for vascular catheter associated
infections because the issue is important for public health. The
proposal to create a new ICD-9-CM was discussed at the March 22 23,
2007 meeting of the ICD-9-CM Coordination and Maintenance Committee. A
summary of this meeting can be found at: http://www.cdc.gov/nchs/icd9.htm. In the proposed rule, we indicated that coders would have to
assign code 996.62 plus an additional code for the infection such as
septicemia to identify vascular catheter-associated infections.
Therefore, a list of specific infection codes would have to be
developed to go along with code 996.62 if CDC did not create a code for
vascular catheter-associated infections. If the vascular catheter-
associated infection was hospital-acquired, the DRG logic would have to
be modified so that neither the code for the vascular catheter
associated infection along with the specific infection code would count
as a CC. However, even if these actions were taken, we were concerned
that code 996.62 is not specific to vascular catheter-associated
infections.
Burden (High Cost/High Volume)--CDC reports that there are 248,678
central line associated bloodstream infections per year. It appears to
be both high cost and high volume. However, we were not able to
identify Medicare data on these cases because there is no existing
unique ICD-9-CM code.
Prevention guidelines--CDC guidelines are located at the following
Web site: http://www.cdc.gov/ncidod/dhqp/gl_intravascular.html.
CC--Code 996.62 is a CC under the CMS DRGs and the MS-DRGs.
However, as stated earlier, this code is broader than vascular catheter
associated infections. Therefore, at the time of the

[[Page 47211]]

proposed rule, there was not a unique ICD-9-CM code to identify the
condition, and it did not meet the statutory criteria to be selected.
However, the proposed rule indicated that we will be seeking to create
a code(s) to identify this condition and may select it as a condition
under the provision beginning in FY 2009.
Considerations--There was not yet a unique ICD-9-CM code to
identify this condition at the time of the proposed rule. In the
proposed rule, we indicated that if a code were created prior to
October 1, 2007, we would be able to specifically identify these cases.
Some patients require long-term indwelling catheters, which are more
prone to infections. Ideally catheters should be changed at certain
time intervals. However, circumstances might prevent such practice (for
example, the patient has a bleeding diathesis). In addition, a patient
may acquire an infection from another source which can colonize the
catheter. As mentioned earlier, coders would also assign an additional
code for the infection, such as septicemia. Therefore, a list of
specific infection codes would have to be developed to go along with
code 996.62. If the vascular catheter-associated infection was
hospital-acquired, the DRG logic would have to be modified so that
neither the code for the vascular catheter-associated infection along
with the specific infection code would count as a CC. Without a
specific code for infections due to a catheter, it would be difficult
to identify these patients. Given the current lack of an ICD-9-CM code
for this condition, we did not propose to include it as one of our
initial hospital-acquired conditions. However, we believed it showed
merit for inclusion in future lists of hospital acquired conditions
once we had resolved the coding issues and were able to better identify
the condition in the Medicare data. We indicated that we would
reevaluate the selection of this condition in FY 2009.
We encouraged comments on this condition which was identified as an
important public health issue by several organizations that provided
recommendations on hospital-acquired conditions. We indicated that we
were particularly interested in receiving comments on how we should
handle additional associated infections that might develop along with
the vascular catheter-associated infection.
Comment: Some commenters stated there was not a unique ICD-9-CM
code for vascular catheter-associated infection. Therefore, the
condition does not meet the criteria for being selected. These
commenters requested that CMS consider creating an explicit code for
catheter-associated infections and selecting the condition at that
time. One commenter recommended that CMS examine selecting vascular-
catheter associated infections and identify the condition using the CPT
codes for insertion of a central venous catheter. Other commenters
recommend selecting the condition and rely on the use of specific codes
for the insertion of catheters to supplement the existing code 996.62
(Infection and inflammatory reaction due to other vascular device,
implant, and graft). The commenters believed that this alternative
approach may reduce the need to rely on a unique code for catheter
associated blood stream infection (CA-BSI). Some commenters noted that
it is possible to screen for bloodstream infections upon admission.
Other commenters suggested that CMS exempt vascular surgery,
implantable device codes, and other obvious sources of existing
conditions that cause blood stream infection prior to catheter
placement. Finally, the commenters suggested that CMS exclude long-term
catheter insertions such as the tunneled central venous catheter using
codes 365.57 through 365.66.
Response: Since the publication of the FY 2008 IPPS proposed rule,
CDC has created a new code for vascular catheter-associated infection.
The new code 999.31, (Infection due to central venous catheter) will
become effective on October 1, 2007. It is available for public viewing
along with other new codes listed on the CMS Web site at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/Downloads/new_diagnosis_codes_2007.pdf. This new code will address commenters concerns
regarding coding for this condition.
We appreciate all the public comment on this condition, and have
considered all of these points of view. For the proposed rule, our only
barrier to selecting vascular catheter-associated infections was the
absence of a unique code to identify the condition. As CDC has since
created a code to identify vascular catheter-associated infections, we
believe the condition meets the criteria for being selected:
There are unique codes that identify vascular catheter-
associated infections as a CC under the MS-DRGs;
Prevention guidelines exist to avoid vascular catheter-
associated infections; and
As shown above, vascular catheter-associated infections
are high-volume conditions.
At this time, we have not decided whether there are specific
clinical situations where a vascular catheter associated infection
would not be considered preventable. We will consider exceptions to the
policy in the circumstances provided in the public comments. We will
consider these suggestions before the provision becomes effective in FY
2009.
(i) Clostridium Difficile-Associated Disease (CDAD)
Coding--This condition is identified by ICD-9-CM code 008.45
(Clostridium difficile).
Burden (High Cost/High Volume)--CDC reports that there are 178,000
cases per year in U.S. hospitals. For FY 2006, there were 110,761
reported cases of Medicare patients with CDAD as a secondary diagnosis,
with average charges for the hospital stay of $52,464. Therefore, this
is a high-cost and high-volume condition.
Prevention guidelines--Prevention guidelines are not available.
Therefore, we do not believe this condition can reasonably be prevented
through the application of evidence-based guidelines.
CC--Code 008.45 is a CC under the CMS DRGs and the MS-DRGs.
Considerations--CDAD is an emerging problem with significant public
health importance. If found early CDAD cases can easily be treated.
However, cases not diagnosed early can be expensive and difficult to
treat. CDAD occurs in patients on a variety of antibiotic regiments,
many of which are unavoidable, and therefore preventability is an
issue. We did not propose to include CDAD as one of our initial
hospital acquired conditions at this time, given the lack of prevention
guidelines. We welcomed public comments on CDAD, specifically on its
preventability and whether there is potential to develop guidelines to
identify it early in the disease process and/or diminish its incidence.
We indicated that we would reevaluate the selection of this condition
in FY 2009.
Comment: Commenters noted the current clinical debate surrounding
this condition reveals that it is very difficult to prevent in all
cases; it can be prevalent within the hospital setting. In addition,
some commenters noted this condition may be caused by the treatment
protocol prescribed for a principal diagnosis; it can also occur if the
patient is immune-compromised. Finally, some commenters stated that a
significant percentage of CDAD is unavoidable, and it is difficult to
distinguish community acquired from hospital acquired CDAD. Commenters

[[Page 47212]]

also urged CMS to delay selection of this condition because there is a
lack of unique codes, complication codes, and guidelines for prevention
of this condition.
Response: This condition meets two of the three statutory criteria.
There is an ICD-9-CM code for CDAD. The code is 008.45 (Clostridium
difficile). Therefore, the condition can be clearly identified through
the use of ICD-9-CM codes. Code 008.45 is also a CC under the CMS DRGs
and the MS-DRGs. Also, as shown above, CDAD occurs with significant
frequency in the Medicare population and is a high cost condition.
However, prevention guidelines for this condition are currently
unavailable. As suggested by the commenters, leading clinicians believe
this condition may not be reasonably preventable because it can occur
as a result of broad spectrum antibiotic administration, which is often
unavoidable. Although we agree with these commenters, we are also aware
of the public interest in this issue and will continue to be interested
in selecting this condition if treatment protocols evolve to the point
where CDAD is a preventable condition and prevention guidelines are
developed.
We are not selecting this condition for implementation in the FY
2008 final rule. It does not currently meet the statutory guidelines
for being selected because there are no prevention guidelines.
Nevertheless, we will consider adopting this condition in the future if
prevention guidelines to avoid CDAD are developed.
(j) Methicillin-Resistant Staphylococcus Aureus (MRSA)
Coding--MRSA is identified by ICD-9-CM code V09.0 (Infection with
microorganisms resistant to penicillins). One would also assign a
code(s) to describe the exact nature of the infection.
Burden (High Cost/High Volume)--For FY 2006, there were 95,103
reported cases of Medicare patients who had MRSA as a secondary
diagnosis. The average charges for these cases were $31,088. This
condition is a high-cost and high-volume infection. MRSA has become a
very common bacterium occurring both in and outside of the hospital
environment.
Prevention guidelines--CDC guidelines are located at the following
Web site: http://www.cdc.gov/ncidod/dhqp/pdf/ar/mdroGuideline2006.pdf.
CC--Code V09.0 is not a CC under the CMS DRGs and the MS-DRGs. The
specific infection would be identified in a code describing the exact
nature of the infection, which may be a CC.
Considerations--As stated earlier, preventability may be hard to
ascertain since the bacteria have become so common both inside and
outside the hospital. There are also considerations in identifying MRSA
infections because hospitals would report the code for MRSA along with
additional codes that would describe the exact nature of the infection.
We would have to develop a list of specific infections that could be
the result of MRSA. We did not propose to include MRSA as one of our
initial hospital-acquired conditions because the condition is not a CC.
We recognize that associated conditions may be a CC. In the proposed
rule, we welcomed comments on the proposal not to include this
condition. Should there be support for including this condition, we
requested recommendations on what codes might be selected to identify
the specific types of infections associated with MRSA.
Comment: Commenters displayed a high level of interest in this
condition, not only as a hospital-acquired condition, but also as a
broader public health problem that continues to affect Medicare
beneficiaries. Commenters noted that MRSA is both high volume and high
cost, referring to the language in the proposed rule. For this reason,
many commenters believed this condition should be given a unique ICD-9-
CM code to be tracked in FY 2008. Furthermore, the commenters urged CMS
to include it on the list of conditions for FY 2009 for which
reimbursement may be withheld. Medical device companies that provide
products to screen for MRSA commented in support of selecting the
condition.
However, a large number of commenters had reservations about
selecting this condition because MRSA is not a CC or MCC under the new
MS-DRGs. Most commenters acknowledged the clear prevention guidelines
for MRSA. However, they contend that there remains debate on whether
MRSA is reasonably preventable. These commenters indicated MRSA is
ubiquitous and may be colonizing in so many potential patients that it
is difficult to determine if it is acquired in a hospital. The
commenters also noted current literature reveals a strain of community
acquired MRSA that may be difficult to detect upon admission to the
hospital.
Response: We acknowledge the strong public health interest in
reducing the number of MRSA related infections. However, MRSA does not
currently meet the statutory criteria to be selected. Although there is
an ICD-9-CM code to identify MRSA and CDC has prevention guidelines to
reduce its incidence, we do not believe that there is a consensus among
public health experts that MRSA is preventable. The public comments and
the literature on this condition reveal a vigorous debate over whether
MRSA is really community-acquired rather than hospital acquired given
the significant potential number of patients that can be colonized with
MRSA prior to admission. While this concern may be possible to address
through screening patients for MRSA upon admission, the condition is
not currently identified as a CC or MCC under the MS-DRGs. If present
as a secondary diagnosis, the presence of MRSA alone does not lead to
higher Medicare payment. Our data do not suggest that presence of MRSA
alone will lead to higher hospital costs that would justify classifying
it as a CC or MCC. Therefore, as the condition is not an MCC or CC, it
does not meet the statutory criteria for being selected at this time.
Although we are not selecting MRSA at this time, we believe it is a
precursor to several other conditions that we have selected. MRSA may
be a precursor to catheter associated urinary tract infections,
vascular catheter-associated infections, and mediastinitis after
coronary artery bypass graft (CABG) surgery--a surgical site infection
that we have selected and is discussed in more detail below.
(k) Surgical Site Infections
Coding--Surgical site infections are identified by ICD-9-CM code
998.59 (Other postoperative infection). The code does not tell the
exact location or nature of the postoperative wound infection. The code
includes wound infections and additional types of postoperative
infections such as septicemia. The coding guidelines instruct the coder
to add an additional code to identify the type of infection. To
implement this condition we would have to remove both code 998.59 and
the specific infection from counting as a CC if they occurred after the
admission. We would have to develop an extensive list of possible
infections that would be subject to the provision. We may also need to
recommend the creation of a series of new ICD-9-CM codes to identify
various types of surgical site infections, should this condition merit
inclusion among those that are subject to the proposed hospital-
acquired conditions provision.
Burden (High Cost/High Volume)--CDC reports that there are 290,485
surgical site infections each year. As stated earlier, there is not a
unique code for surgical site infection. Therefore, we examined
Medicare data on patients

[[Page 47213]]

with any type of postoperative infection. For FY 2006, there were
38,763 reported cases of Medicare patients who had a postoperative
infection. These patients had average charges for the hospital stay of
$79,504. We are unable to determine how many of these patients had
surgical site infections.
Prevention guidelines--CDC guidelines are available at the
following Web site: http://www.cdc.gov/ncidod/dhqp/gl_surgicalsite.html.
CC--Code 998.59 is a CC under the CMS DRGs and the MS-DRGs.
Considerations--As mentioned earlier, code 998.59 is not exclusive
to surgical site infections. It includes other types of postoperative
infections. Therefore, code 998.59 does not currently meet the
statutory criteria for being subject to the provision because it does
not uniquely identify surgical site infections. To identify surgical
site infections, we would need new codes that provide more detail about
the type of postoperative infection as well as the site of the
infection. In addition, one would report both code 998.59 as well a
more specific code for the specific type of infection, making
implementation difficult. While there are prevention guidelines, it is
not always possible to identify the specific types of surgical
infections that are preventable. Therefore, we did not propose to
select surgical site infections as one of our proposed hospital-
acquired conditions at this time. However, we welcomed public comments
on whether we can develop criteria and codes to identify preventable
surgical site infections that would assist us in reducing their
incidence. We indicated that we were exploring ways to identify
surgical site infections and would reevaluate this condition in FY
2009.
Comment: A number of commenters specifically requested that CMS
consider selecting mediastinitis after coronary artery bypass graft
(CABG) surgery. Commenters noted that mediastinitis is a postoperative
infection that can arise after CABG.
Commenters stated that the condition meets the criteria set forth
in the DRA. According to the comments, mediastinitis is a frequently
occurring and costly infection that will develop after CABG surgery.
The commenters noted that there are unique codes to identify
mediastinitis and prevention guidelines that are backed by evidence
based medicine have been developed.
Response: We agree that mediastinitis meets the statutory criteria
for being selected.
Coding--There are unique ICD-9-CM codes to identify the condition.
The ICD-9-CM code for mediastinitis is 519.2.
Burden (High Cost/High Volume)--We examined Medicare data on
patients who received a CABG operation (with codes 36.10-36.19) and
also had mediastinitis (ICD-9-CM code 519.2) as a secondary diagnosis.
For FY 2006, there were 108 reported cases of Medicare patients who had
this postoperative infection after CABG. These patients had average
charges for the hospital stay of $304,747. Therefore, mediastinitis is
a high-cost condition.
Prevention guidelines--The CDC surgical site infection prevention
guidelines are backed by evidence based medicine. Further information
can be found at: http://www.cdc.gov/ncidod/dhqp/gl_surgicalsite.html.
We are selecting this condition because it meets the statutory
criteria and was suggested in the public comments. We would identify
the coronary artery bypass graft procedures through procedure codes
36.10 through 36.19. Therefore, when a patient has a coronary artery
bypass graft performed (code 36.10 through 36.19), and a secondary
diagnosis of mediastinitis (code 519.2) is reported that was not
present on admission, we will not count mediastinitis as an MCC
beginning October 1, 2009.
``Surgical site infections'' is a broad category, and we were
looking for assistance from the public for ways to identify specific
surgical site infections. We appreciate the suggestion to select
mediastinitis after CABG surgery when it is a hospital acquired
condition. We are selecting this condition for implementation in this
FY 2008 final rule. We welcome additional recommendations for other
types of surgical site infections that could also be selected and look
forward to working with stakeholders and the public as we consider
additional surgical site infections in the future.
(l) Serious Preventable Event--Surgery on Wrong Body Part, Patient, or
Wrong Surgery
Coding--Surgery performed on the wrong body part, wrong patient, or
the wrong surgery would be identified by ICD-9-CM code E876.5
(Performance of inappropriate operation). This diagnosis code does not
specifically identify which of these events has occurred.
Burden (High Cost/High Volume)--As stated earlier, there are not
unique ICD-9-CM codes which capture surgery performed on the wrong body
part or the wrong patient, or the wrong surgery. Therefore, we examined
Medicare data on the code for performance of an inappropriate
operation. For FY 2006, there was one Medicare case reported with this
code, and the patient had average charges for the hospital stay of
$24,962. This event is rare. Therefore, it is not high volume.
Individual cases could have high costs. However, we were unable to
determine the impact with our limited data.
Prevention guidelines--There are guidelines to ensure that the
correct surgery was performed on the correct patient or correct
patient's body part. This event should not occur. Further information
and prevention guidelines can be found at: http://www.ahrq.gov/clinic/ptsafety/.
CC--This code is not a CC under the CMS DRGs and the MS-DRGs.
Therefore, it does not meet the criteria for selection under section
1886(d)(4)(D)(iv) of the Act. However, Medicare does not pay for
performing surgery on the wrong body part or patient, or performing the
wrong surgery. These services are not considered to be reasonable and
necessary and are excluded from Medicare coverage.
Considerations--There are significant considerations for the
selection of this condition. There is not a unique ICD-9-CM code that
would describe the nature of the inappropriate operation. All types of
inappropriate operations are included in code E876.5. Unlike other
conditions, performance of an inappropriate operation is not a
complication of a prior medical event that was medically necessary.
Rather, in this case, there was a needed intervention but it was done
to either the wrong body part or the wrong patient, or was not the
correct operation. Thus, a service was completed that was not
reasonable and necessary and Medicare does not pay for any inpatient
service associated with the wrong surgery. It is not necessary for us
to select this condition because Medicare does not pay for it under any
circumstances.
Comment: A majority of commenters agreed that there are not unique
codes to identify wrong surgery. In addition, these commenters pointed
out that there are guidelines to ensure that the correct surgery is
being performed on the correct patient or correct patient's body part.
These commenters stated that wrong surgery is a serious preventable
event that should not occur.
One commenter urged CMS to rank the condition--surgery on wrong
body part, wrong patient, or wrong surgery (wrong site surgery)--higher
in our list of hospital-acquired conditions. This commenter stated that
wrong site surgery may not be rare, but rather may be quite prevalent.
The commenter disagreed with CMS' belief that wrong

[[Page 47214]]

site surgery should not be considered as a complication because it is a
risk of being in a hospital. The commenter recommended the development
of specific codes for wrong site surgery.
Response: With respect to this latter comment, the commenter may
have misunderstood our discussion of this issue in the proposed rule.
We never asserted wrong site surgery is not a complication because it
is a risk of being in a hospital. Rather, we stated the event itself is
wrong and should never occur. Unlike CCs and MCCs, wrong surgery is not
a complication of a prior medical event that was medically necessary.
Wrong surgery is not a CC or an MCC because the entire event itself
should never occur, is not reasonable and necessary and should not
result in any payment to the hospital or physician. We are not
selecting wrong surgery because it is not an event for which Medicare
should pay less; it is an event for which Medicare should pay nothing
at all.
As stated in the proposed rule, there is not a unique ICD-9-CM code
that identifies surgery performed on the wrong body part or the wrong
patient, or the wrong surgery. Code E876.5 (Performance of
inappropriate operation) does not describe what specifically was wrong
with the surgery, such as whether it was performed on the wrong side,
the wrong patient, or if the wrong surgery were performed. In examining
Medicare data on the code for performance of an inappropriate
operation, we found only one case reported in FY 2006. We agree this is
a serious issue that requires close examination and monitoring.
The proposed rule indicated that wrong surgery (right patient,
wrong surgery, right surgery, wrong patient, etc.) is not a reasonable
and necessary service. Therefore, it is not covered by Medicare and
should not be paid. Wrong surgery is not a CC and does not meet the
criteria of the statute. As stated above, there are generally
recognized guidelines hospitals and physicians must follow to ensure
that the correct surgery was performed on the correct patient or
correct patient's body part. This event should not occur. If hospitals
fail to ensure the correct surgery is performed, there are other
provisions in the regulations to address this alarming event. For
instance, a hospital must meet the CoPs in order to participate in
Medicare. If wrong surgery was performed, the hospital could be out of
compliance with the Surgical Services CoP, the Quality Assessment and
Performance Improvement CoP, or potentially others. Performance of
wrong surgery may suggest a systems failure or systems that do not
comply with the CoPs that should be further investigated. We are
interested in promoting a culture of safety and are interested in
helping hospitals improve their performance. The hospital would have an
opportunity to develop and present a plan of correction to avoid
termination of its participation in Medicare by addressing the
deficiencies that resulted in an incorrect surgery being performed. The
final action that would be taken would depend on the individual
circumstances and whether the hospital has addressed the problem to
reduce the chance of a similar occurrence in the future. In any event,
we reiterate that the way for Medicare to address wrong surgery is not
through this provision that does not pay extra for preventable hospital
complications when we should be paying nothing at all, but instead
through Medicare's regulations that ensure that every Medicare provider
meets basic quality of care standards.
(m) Falls and Fractures, Dislocations, Intracranial Injury, Crushing
Injury, and Burns
Coding--There is no single code that shows that a patient has
suffered a fall in the hospital. Codes would be assigned to identify
the nature of any resulting injury from the fall such as a fracture,
contusion, concussion, etc. There is a code to indicate that a patient
fell from bed, code E884.4 (Fall from bed). One would then assign a
code that identifies the external cause of the injury (the fall from
the bed) and an additional code(s) for any resulting injury (a
fractured bone).
Burden (High Cost/High Volume)--As stated earlier, there is not a
code to identify all types of falls. Therefore, in the FY 2008 IPPS
proposed rule, we examined Medicare data on the number of Medicare
beneficiaries who fell out of bed. For FY 2006, there were 2,591 cases
reported of Medicare patients who fell out of bed. These patients had
average charges of the hospital stay of $24,962. However, depending on
the nature of the injury, costs may vary in specific cases.
Prevention guidelines--Falls may or may not be preventable. Serious
preventable event guidelines can be found at the following Web site:
http://www.qualityindicators.ahrq.gov/psi_download.htm.
CC--Code E884.4 is not a CC under the CMS DRGs or the MS-DRGs.
Considerations--There are not clear codes that identify all types
of falls. Hospitals would also have to use additional codes for
fractures and other injuries that result from the fall. In addition,
depending on the circumstances, the falls may or may not be
preventable. We did not propose the inclusion of falls as one of our
initial hospital-acquired conditions because we could only identify a
limited number of these cases, and they were not classified as CCs.
However, we welcomed public comments on how to develop codes or coding
logic that would allow us to identify injuries that result from falls
in the hospital so that Medicare would not recognize the higher costs
associated with treating patients who acquire these conditions in the
hospital.
Comment: Several commenters stated that the category of falls is
not appropriate for inclusion as one of the hospital-acquired
conditions. Specifically, the commenters noted that it is impossible to
prevent all falls, and the definition of what constitutes a
``preventable fall'' is not well-defined. Several commenters strongly
recommended the inclusion of falls for the final rule because falls and
their resulting injuries are an important public health safety issue.
However, these commenters did not give further details or
recommendations to CMS regarding how to identify falls and related
injuries as a hospital-acquired condition that would be subject to this
provision.
Response: With respect to the comment that not all falls are
preventable, we reiterate that the statutory provision authorizes the
Secretary to select conditions that ``could reasonably have been
prevented through the application of evidence based guidelines.'' We
believe that injuries that occur in the hospital due to falls are
preventable. As discussed earlier, we received a couple of comments
urging us to include falls as one of our hospital acquired conditions.
We recognize that preventable injuries are an important patient safety
issue. Therefore, we considered additional ways to identify patients
who had preventable injuries that occurred in the hospital. We examined
the use of a combination of External cause of injury codes and the
specific injury to identify these cases. We identified five external
causes of injury codes that would identify falls in a hospital. These
include:
E884.2 Fall from chair
E884.3 Fall from wheelchair
E884.4 Fall from bed
E884.5 Fall from other furniture
E884.6 Fall from commode
These codes clearly identify certain types of falls. If coded for
an inpatient, they could identify that the fall occurred in the
hospital. If these codes appeared

[[Page 47215]]

on a claim along with a fracture or trauma code that did not reflect
that the condition was present on admission, we could conclude that the
injury was a result of a fall in the hospital that should not be
counted as an MCC or CC. However, we identified potential problems in
using the external cause of injury codes. There is a separate field on
the electronic claim to report one external cause of injury code.
However, hospitals do not report the POA indicator with this field.
Therefore, we will not be able to tell if the external cause of injury
code is identifying an event that occurred before or after admission.
Hospitals can also report external cause of injury codes as a
secondary diagnosis. If the hospital lists the external cause of injury
code among the secondary diagnoses, the hospital would be assigning a
Present on Admission indicator to the external cause of injury code. In
these cases, we would be able to identify that one of the five types of
falls indicated above occurred after admission. We could use this
information along with the ICD-9-CM diagnosis code for the specific
type of injury, such as a fracture, to not allow the specific injury to
count as a MCC or CC, since it would be the result of a preventable
injury. In our analysis of the use of an external cause of injury code,
we believe this approach is too complicated to identify preventable
injuries. Therefore, we focused on simply identifying injuries that
should not occur during a hospitalization. If a preventable injury
occurs during a hospitalization, it should be included on our list of
hospital acquired conditions.
We reviewed diagnosis codes contained in the Injury and Poisoning
Chapter of ICD-9-CM and attempted to develop a list of codes that could
identify potential adverse events that may or may not have been the
result of a fall occurring in the hospital setting. After reviewing
each category of diagnosis codes, we identified the following injuries
that should not occur during a patient's hospitalization. The generic
categories of injuries are as follows:
Fractures--ICD-9-CM code range 800 through 829
Dislocations--ICD-9-CM code range 830 through 839
Intracranial injury--ICD-9-CM code range 850 through 854
Crushing injury--ICD-9-CM code range 925 through 929
Burns--ICD-9-CM code range 940 through 949
Other and unspecified effects of external causes--ICD-9-CM
code range 991 through 994
In our view, the above conditions should not occur after admission
to the hospital. That is, if the patient is admitted to the hospital
without a crushing injury, a burn, fracture, dislocation, among others,
we can see no reason why such an event would not be preventable while
the patient is in the hospital. None of these injuries should occur
after admission. We believe this range of conditions offers a
relatively uncomplicated method to determine if an injury or trauma is
acquired in the hospital. This range of conditions meets the statutory
criteria for being selected when they are MCCs or CCs. First, they are
identifiable with ICD-9-CM codes. Second, injuries that occur as a
result of a fall in the hospital complicate the care and treatment of
the patient. Fractures and dislocations and other injuries are common
in the Medicare population. There were more than 175,000 fractures and
other traumatic injuries in the above range of codes for FY 2006.
Third, hospital acquired injuries included in this range of codes
should not occur and are preventable. Although we have not identified
specific prevention guidelines for the conditions described by the
above range of codes, we believe these types of injuries and trauma
should not occur in the hospital, and we look forward to working with
CDC and the public in identifying research that has or will occur that
will assist hospitals in following the appropriate steps to prevent
these conditions from occurring after admission.
We welcome public comments on additions and deletions to this
injury list as well as our findings on the use of a combination of
external cause of injury codes and injury codes to identify patients
that acquired an injury in the hospital due to a fall. We also welcome
any additional suggestions to identify cases where preventable
injuries, such as falls, occur during hospitalization. We will review
all recommendations in the FY 2009 IPPS rule in order to further refine
our policy to identify preventable injuries and ensure that Medicare
does not pay extra by counting them as MCC or CCs.
(n) Other Conditions Suggested Through Comment: Deep Vein Thrombosis
(DVT)/ Pulmonary Embolism (PE)
Comment: A number of commenters encouraged CMS to select Venous
Thromboembolism (VTE), which includes both Deep Vein Thrombosis (DVT)
and Pulmonary Embolism (PE), as a preventable condition. The commenters
noted that prophylactic measures exist to avoid these conditions and
they are preventable if these steps are followed.
The commenters asserted that this condition meets the DRA criteria
requirements for a condition eligible for a payment adjustment in that
it involves high cost and high volume (according to the 2006 MedPAR
data, DVT resulted in more than 180,000 discharges with a mean
standardization cost of $17,410 and PE in more than 100,000 discharges
with a mean standardization cost of $20,742), and results in assignment
to a higher paying DRG if present as a secondary diagnosis. The
commenters also noted that both DVT and PE have ICD-9-CM codes that are
on the MCC and CC lists. In addition, this condition can be prevented
in accordance with evidence-based guidelines. These commenters cited
Geerts, et al., Prevention of Venous Thromboembolism: The Seventh ACCP
Conference on Antithrombotic and Thrombolytic Therapy, Chest, 126:
338S-400S (2004). The commenters acknowledged DVT and PE are identified
by multiple codes, but asserted that administrative issues surrounding
the selection of this condition could be resolved. They requested that
CMS consider selecting DVT and PE as preventable complications for
which hospitals will not receive additional payments.
Response: We appreciate these comments suggesting that we add DVT
and PE to our list of conditions that would be subject to the hospital
acquired conditions provision. A DVT is a blood clot that forms in a
vein, most commonly in the lower extremity. It can arise secondary to a
number of clinical circumstances, including prolonged inactivity or
bedrest, or from extended periods of time with the lower extremity in a
bent position. It can also arise in the setting of a hypercoagulable
state such as that which occurs with a number of malignancies, where
the blood has an increased propensity to form clots, and it is also
more common in patients taking oral contraceptives, particularly in
conjunction with regular tobacco use. A PE is a clot that occurs in one
of the pulmonary arteries that supplies a portion of the lung, most
commonly when part or all of a DVT migrates to the pulmonary vessels
from its original location, although it can also occur in the absence
of a DVT, and it is a particularly serious event that is often life
threatening. We refer readers to the current medical literature to
further define DVT and PE.
We agree that there are circumstances where these conditions are
preventable,

[[Page 47216]]

and where the condition meets the statutory criteria to be selected.
These conditions can be identified by unique ICD-9-CM codes. DVT can be
identified through codes 453.40 (Venous embolism and thrombosis of
unspecified deep vessels of lower extremity), 453.41 (Venous embolism
and thrombosis of deep vessels of proximal lower extremity), and 453.42
(Venous embolism and thrombosis of deep vessels of distal lower
extremity). All three codes are on the CC list. PE is identified
through codes 415.10 (Iatrogenic pulmonary embolism and infarction) and
415.19 (Other pulmonary embolism and infarction). Both of these codes
are on the MCC list. The commenters provided Medicare data showing that
these conditions are both frequent and high cost in the Medicare
population. Finally, the commenters have identified prevention
guidelines backed by evidence based medicine to avoid DVTs and PEs.
Therefore, at least in some circumstances, these conditions meet the
statutory criteria for being selected.
We appreciate the collaborative efforts of other organizations to
further define the prevention guidelines for this condition. We
recognize that routine admission physical examinations should include
efforts to detect a DVT. Although we believe DVTs and PEs may be
preventable in certain circumstances (such as when an otherwise healthy
patient is having elective surgery on a lower extremity), it is
possible that a patient may have a DVT upon admission that goes
unidentified, and it is also possible that DVT may occur because of
other circumstances, such as an occult malignancy. If a DVT is
clinically suspected upon admission to the hospital, the definitive
diagnosis of a DVT can be made with a Doppler ultrasound examination or
intravenous venogram, or both. We anticipate that it is not feasible to
perform these studies on every hospitalized patient. In the case of a
patient who is admitted with a clinically unapparent DVT that is not
detected, the hospital will have followed all typical patient care
protocols yet the DVT went undiagnosed upon admission. It may remain
undetected until the patient exhibits symptoms of either the DVT or a
PE that is unrelated to the patient's principal diagnosis. In these
circumstances, we believe the DVT or PE should continue to be counted
as an MCC or CC because, in our view, the condition either was
unidentifiable prior to admission or did not likely occur as a result
of poor management of the patient while they were in the hospital. We
believe it is very important to select DVTs and PEs only when they are
preventable through following standard prevention guidelines. We will
seek to identify clearly defined instances of preventable DVT and PE
that should not occur in the hospital setting which will help to
further increase hospital quality of care.
We appreciate suggestions on how to identify DVTs and PEs that are
preventable hospital acquired conditions. If we can identify only those
circumstances where DVTs and PEs are preventable and meet the statutory
criteria for being selected, we likely would make them subject to the
provision in the FY 2009 IPPS final rule. We welcome comments on this
issue and look forward to working with stakeholders to identify
instances of preventable DVTs and PEs prior to implementation of this
provision on October 1, 2008.
(o) Other Conditions Suggested Through Public Comment: Legionnaires'
Disease
Comment: One commenter suggested that CMS select Legionnaire's
disease. The commenter asserted that this condition is high cost/high
volume: CDC estimates between 8,000 and 18,000 cases per year. Due to
underreporting and underdiagnosis, only 2 to 10 percent of cases are
reported. Death occurs in 10 to 15 percent of cases. In addition, the
commenter cited established prevention guidelines: CDC prevention
guidelines are available and widely distributed. Finally, the commenter
stated that Legionnaires' disease is identified by ICD-9-CM code
482.84.
Response: While there may be a discrete ICD-9-CM code to identify
Legionnaires' disease, it is not typically a hospital acquired
condition. Legionnaires' disease is usually acquired outside of a
hospital from a contaminated water supply that may or may not have any
relation to a particular institution. Any outbreak of Legionnaires'
disease suggests a significant public health emergency that should be
addressed by public health resources rather than by a particular
Medicare payment policy.
(p) CMS Response to Additional Comments
We welcomed any comments on the clinical aspects of the conditions
and on which conditions should be selected for implementation on
October 1, 2008. We also solicited comments on any problematic issues
for specific conditions that may support not selecting them as one of
the initial conditions. We encouraged comments on how some of the
administrative problems can be overcome if there is support for a
particular condition.
Commenters did not raise any general administrative concerns.
Rather, a number of commenters addressed the potential for an appeals
process and POA coding issues. We have included the comment and
response for each issue below:
Appeals Process:
Comment: A large number of commenters requested clarification from
CMS on how hospitals appeal CMS decisions that a particular patient may
fall under the hospital-acquired conditions policy and, therefore, is
not eligible for higher payment through assignment to the higher CC/MCC
level of the MS-DRG. They asked CMS to provide specific instructions
for hospitals to follow for appealing a decision.
Response: We do not believe a separate appeals process is necessary
for the payment adjustment for hospital-acquired conditions because
existing procedures provide adequate opportunity for review. Under 42
CFR Sec. 412.60(d), a hospital has 60 days after the date of the
notice of the initial assignment of a discharge to a DRG to request a
review of that assignment. The hospital may submit additional
information as a part of its request. A hospital that believes a
discharge was assigned to the incorrect DRG as a result of the payment
adjustment for hospital-acquired conditions may request review of the
DRG assignment by its fiscal intermediary or MAC.
However, we note that section 1886(d)(7)(B) of the Act, as amended
by section 5001(c)(2) of the DRA, provides that there shall be no
administrative or judicial review of the establishment of DRGs,
including the selection and revision of codes under the payment
adjustment for hospital acquired conditions. Therefore, although a
hospital may request review of a DRG assignment in a particular case,
the statute does not provide for review of the codes we select to be
subject to the payment adjustment for hospital-acquired conditions.
POA Coding
Comment: Commenters suggested that all secondary diagnoses coded as
present on admission be used to support the development of new
complication rate measures and other quality indicators in the future.
They suggested that CMS should develop special Grouper logic to exclude
similar ICD-9-CM codes. The commenters stated that reducing hospital
payments for a condition present upon admission, but not documented, is
too punitive.

[[Page 47217]]

Many commenters submitted the experiences of two States that
already use present-on-admission coding. They believed it takes several
years and intense educational efforts to achieve reliable data and
therefore there must be a strong clinical training component.
The commenters recommended that CMS implement the collection of the
POA indicator but delay the implementation of any conditions that are
dependent on its use until physicians and hospitals have an appropriate
level of experience.
Response: We refer commenters to the Change Request No. 5499
released on May 11, 2007, for answers to additional questions regarding
present-on-admission coding. We remind commenters that the DRG payment
adjustment based on the POA indicator is not applicable until October
1, 2008. It is important to note that hospitals will gain experience in
reporting POA information during FY 2008 prior to it having a payment
impact in FY 2009.
Prevention Guidelines
Comment: A small number of commenters questioned the feasibility
and reliability of current prevention guidelines. The commenters
supported CMS' goal of encouraging improvements in health care and
reducing the number of preventable infections, but believed that
hospitals must be reimbursed appropriately for providing the care
patients need. The commenters believed that CMS should be sure that
hospitals are not penalized for infections that originated outside the
hospital or that are caused by factors beyond the hospital's control.
The commenters suggested that CMS should recognize that, even with
the best infection control practices, some infections will occur
anyway. They added that reducing payments for all cases in which those
infections occur could harm hospitals' ability to purchase and provide
advanced drugs and treatment modalities or invest in other infection
control technologies.
Response: We address each concern regarding prevention guidelines
in the respective response for each condition. We are committed to
improving quality and decreasing the number of hospital-acquired
conditions. In that goal, we have chosen these specific conditions
because they fulfill the criteria outlined in the DRA: the conditions
have unique codes that are MCCs or CCs; the conditions are high volume,
high cost or both; and the conditions can be reasonably prevented
through the application of evidence-based guidelines.
Academic Centers/Hospitals with high risk patients:
Comment: Commenters representing academic centers and hospitals
with high risk patient populations urged CMS to consider excluding
patients considered to be high risk such as those that are more
susceptible to infections.
Response: As indicated above, we are selecting conditions that are
``reasonably preventable'' through application of evidence-based
guidelines and meet the other statutory criteria. In response to
comments on each of the conditions considered, we indicated that we are
researching whether to establish exceptions to the conditions for
specific clinical circumstances where the condition may not be
preventable. The determination of whether a patient is ``high risk''
will depend on the specific circumstances of the patient and the
condition under consideration. We do not believe it is possible to
classify a patient generally as ``high risk'' in all the circumstances
where the provision could potentially apply. As we indicated above, we
welcome public comments on clinical scenarios where a specific
condition may not be reasonably preventable in the hospital and how to
identify and distinguish those circumstances from other situations
where the condition is preventable.
7. Other Issues
Under section 1886(d)(4)(D)(vi) of the Act, ``[a]ny change
resulting from the application of this subparagraph shall not be taken
into account in adjusting the weighting factors under subparagraph
(C)(i) or in applying budget neutrality under subparagraph (C)(iii).''
Subparagraph (C)(i) refers to DRG classifications and relative weights.
Therefore, the statute requires the Secretary to continue counting the
conditions selected under section 5001(c) of the DRA as MCCs or CCs
when updating the relative weights annually. Thus, the higher costs
associated with a case with a hospital-acquired MCC or CC will continue
to be assigned to the MCC or CC DRG when calculating the relative
weight but payment will not be made to the hospital at one of these
higher-paying DRGs. Further, subparagraph (C)(iii) refers to the budget
neutrality calculations that are done so aggregate payments do not
increase as a result of changes to DRG classifications and relative
weights. Again, the higher costs associated with the cases that have a
hospital-acquired MCC or CC will be included in the budget neutrality
calculation but Medicare will make a lower payment to the hospital for
the specific cases that includes a hospital-acquired MCC or CC. Thus,
to the extent that the provision applies and cases with an MCC or CC
are assigned to a lower-paying DRG, section 5001(c) of the DRA will
result in cost savings to the Medicare program. We note that the
provision will only apply when the selected conditions are the only
MCCs and CCs present on the claim. Therefore, if a nonselected MCC or
CC is on the claim, the case will continue to be assigned to the higher
paying MCC or CC DRG, and there will be no savings to Medicare from the
case. We believe the provision will apply in a small minority of cases
because it is rare that one of the selected conditions will be the only
MCC or CC present on the claim.
To summarize, we appreciate all of the comments on hospital-
acquired conditions and look forward to continued input as we plan to
implement these hospital-acquired conditions. Below is the list of
conditions that we are selecting in this FY 2008 final rule. These
conditions will be made subject to the provision beginning on October
1, 2008 (FY 2009).
Serious Preventable Event--Object Left in Surgery
Serious Preventable Event--Air Embolism
Serious Preventable Event--Blood incompatibility
Catheter-Associated Urinary Tract Infections
Pressure Ulcers (Decubitus Ulcers)
Vascular Catheter-Associated Infection
Surgical Site Infection--Mediastinitis After Coronary
Artery Bypass Graft (CABG) Surgery
Hospital Acquired Injuries--Fractures, Dislocations,
Intracranial Injury, Crushing Injury, Burn, and Other Unspecified
Effects of External Causes
We will also propose the following conditions for consideration in
the FY 2009 IPPS proposed rule. We will work diligently to address
issues surrounding these conditions and propose to select these
conditions in the FY 2009 IPPS final rule.
Ventilator Associated Pneumonia (VAP)
Staphylococcus Aureus Septicemia
Deep Vein Thrombosis (DVT)/ Pulmonary Embolism (PE)
Finally, we list below the set of conditions that signal further
analysis for future implementation.
Methicillin Resistant Staphylococcus Aureus (MRSA)
Clostridium Difficile-Associated Disease (CDAD)
Wrong Surgery--Provision not applicable because Medicare
should not pay less; it should not pay at all.

[[Page 47218]]

Table 1.--Hospital-Acquired Conditions
(in rank order)
----------------------------------------------------------------------------------------------------------------
May be considered
Condition Considered in NPRM Proposed in NPRM Selected in FY in future
2008 final rule rulemaking
----------------------------------------------------------------------------------------------------------------
1. Serious Preventable Event-- Yes............... Yes............... Yes............... N/A.
Object left in surgery.
2. Serious Preventable Event-- Yes............... Yes............... Yes............... N/A.
Air embolism.
3. Serious Preventable Event-- Yes............... Yes............... Yes............... N/A.
Blood incompatibility.
4. Catheter-Associated Urinary Yes............... Yes............... Yes............... N/A.
Tract Infections.
5. Pressure Ulcers (Decubitus Yes............... Yes............... Yes............... N/A.
Ulcers).
6. Vascular Catheter-Associated Yes............... No (No FY 2008 Yes (Code Created N/A.
Infection. code). for FY 2008).
7. Surgical Site Infection-- Yes (All surgical No (No unique Yes (Comments N/A.
Mediastinitis after Coronary site infections, codes). suggested
Artery Bypass Graft (CABG) not just Mediastinitis
surgery. Mediastinitis). which has unique
code).
8. Falls........................ Yes............... No (Coding not Yes (Operational Expand to all
unique). difficulties will hospital acquired
be overcome by FY injuries, adverse
2009). events.
9. Ventilator Associated Yes............... No (Coding not No (Coding not Yes--FY 2009 IPPS
Pneumonia (VAP). unique). unique). final rule
(Pursuing code
with CDC).
10. Staphylococcus Aureus Yes............... Yes............... No (Must identify Yes--FY 2009 IPPS
Septicemia. subset where final rule.
preventable).
11. Deep Vein Thrombosis (DVT)/ No................ No................ No................ Yes--FY 2009 IPPS
Pulmonary Embolism (PE). final rule (Work
to identify
situations where
it should be
preventable).
12. Methicillin Resistant Yes............... No................ No................ Yes.
Staphylococcus Aureus (MRSA).
13. Clostridium Difficile-- Yes............... No................ No................ Yes.
Associated Disease (CDAD).
Other: Medicare Does not Pay
For:
14. Wrong Surgery............... Yes............... No................ No................ Provision not
Applicable.
Medicare should
not pay at all.
----------------------------------------------------------------------------------------------------------------

G. Changes to Specific DRG Classifications

1. Pre-MDCs: Intestinal Transplantation
In the FY 2005 IPPS final rule (69 FR 48976), we reassigned
intestinal transplant cases from CMS DRG 148 (Major Small and Large
Bowel Procedures with CC) and CMS DRG 149 (Major Small and Large Bowel
Procedures without CC) to CMS DRG 480 (Liver Transplant and/or
Intestinal Transplantation). In the FY 2006 IPPS final rule (70 FR
47286), we continued to evaluate these cases to see if a further DRG
change was warranted. While we found that intestinal only transplants
and combination liver-intestine transplants have higher average charges
than other cases in CMS DRG 480, these cases are extremely rare (there
were only 4 cases in FY 2004) and the insufficient number of cases did
not warrant creating a separate DRG.
For FY 2008, we examined the September 2006 update of the FY 2006
MedPAR file and found 1,208 cases assigned to CMS DRG 480. In section
II.C. of the preamble of the FY 2008 IPPS proposed rule, we proposed to
split CMS DRG 480 into two severity levels: MS-DRG 005 (Liver
Transplant and/or Intestinal Transplant with MCC) and MS-DRG 006 (Liver
Transplant and/or Intestinal Transplant without MCC). The following
table displays our results:

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 006--All cases............ 446 10.05 $129,519
MS-DRG 006--Intestinal transplant 3 34 354,793
cases only......................
MS-DRG 005--All cases............ 762 22.25 243,271
MS-DRG 005--Intestinal transplant 9 40.22 460,089
cases only......................
MS-DRG 005--Intestinal and liver 1 56 1,179,425
transplant......................
------------------------------------------------------------------------

Under the MS-DRGs, 10 of 13 intestinal transplant cases are
assigned to proposed MS-DRG 005 based on the secondary diagnosis of the
patient. The three remaining intestinal transplant cases do not have an
MCC and would

[[Page 47219]]

be assigned to MS-DRG 006, absent further changes to the DRG logic.
These three intestinal transplants have average charges of
approximately $354,793 and an average length of stay of 34 days.
Average charges and length of stay for these three cases are more
comparable to the average charges of approximately $243,271 and average
length of stay of 22.25 days for all cases assigned to proposed MS-DRG
005. For this reason, we proposed to move all intestinal transplant
cases to MS-DRG 005. As part of the proposal, we proposed to redefine
proposed MS-DRG 005 as ``Liver Transplant with MCC or Intestinal
Transplant.'' The presence of a liver transplant with MCC or an
intestinal transplant would assign a case to the higher severity level.
We also proposed to redefine proposed MS-DRG 006 as ``Liver Transplant
without MCC''.
Comment: Two commenters supported the proposed reassignment of
intestinal transplants to MS-DRG 005. One commenter stated that CMS
should continue to evaluate the frequency of this procedure and
reassign it to an appropriate DRG reflective of its high resource
utilization.
Response: We appreciate the support of the commenters and agree
that when we receive sufficient data, we will again consider a separate
intestinal transplant DRG.
Comment: One commenter supported separate MS-DRGs for intestinal
transplants and combination liver-intestine transplants. The commenter
cited that the data from the Milliman 2005 U.S. Organ and Tissue
Transplant Cost Estimates and Discussion Research Report supports
separate MS-DRGs. This report provided data for 58 intestine only
transplants with estimated first year billed charges of $813,600 and 47
liver-intestine transplants with estimated first year billed charges of
$830,200.
Response: The report submitted by the commenter does not indicate
whether the patients cited in the study were Medicare. Further, it is
not clear whether the identified costs were hospital inpatient only or
total. For these reasons, we are not using these data to make an MS-DRG
assignment. However, we are open to considering, to the extent
feasible, reliable, validated data other than MedPAR data in annually
recalibrating and reclassifying the DRGs.
In this final rule with comment period, we are adopting as final
our proposal to reassign intestinal transplantation cases to MS-DRG
005. We are also redefining MS-DRG 005 as ``Liver Transplant with MCC
or Intestinal Transplant'' and MS-DRG 006 as ``Liver Transplant without
CC''.
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Implantable Neurostimulators
We received a joint request from three manufacturers to review the
DRG assignment for cases involving neurostimulators. The commenters are
concerned that:
Neurostimulator cases may be assigned to 30 different DRGs
in 12 different MDCs depending upon the patient's principal diagnosis.
Neurostimulator cases represent a small proportion of the
total cases in their assigned DRG and have higher costs.
The 11 new ICD-9-CM codes created beginning in FY 2007
that identify pain are assigned to MDC 23 (Factors Influencing Health
Status and Other Contacts With Health Services) rather than MDC 1
(Diseases and Disorders of the Nervous System). The manufacturers were
concerned that these pain codes will be a common principal diagnosis
for patients who receive a neurostimulator and will be assigned to MDC
23, which contains a wide variety of dissimilar diagnoses. The new ICD-
9-CM codes are: 338.0 (Central pain syndrome), 338.11 (Acute pain due
to trauma), 338.12 (Acute post-thoracotomy pain), 338.18 (Other acute
postoperative pain), 338.19 (Other acute pain), 338.21 (Chronic pain
due to trauma), 338.22 (Chronic post-thoracotomy pain), 338.28 (Other
chronic postoperative pain), 338.29 (Other chronic pain), 338.3
(Neoplasm related pain (acute)(chronic)), and 338.4 (Chronic pain
syndrome).
The manufacturers recommended that we:
Reroute all spinal and peripheral neurostimulator cases
into a common set of base DRGs.
Reclassify ICD-9-CM pain codes 338.0 through 338.4
currently assigned to MDC 23 into MDC 1 when reported as the principal
diagnosis.
Revise surgical CMS DRGs in MDC 1 based on whether the
patient received a major device.
Split the single surgical CMS DRG in MDC 19 (Mental
Diseases and Disorders) and MDC 23 into two CMS DRGs: one CMS DRG for
minor procedures as defined by CMS DRGs 477 (Non-Extensive O.R.
Procedure Unrelated to Principal Diagnosis) and CMS DRG 468 (Extensive
O.R. Procedure Unrelated to Principal Diagnosis) and one CMS DRG for
major procedures.
Create a new CMS DRG in MDC 1 for major devices.
The manufacturers recognized that implementing a re-routing feature
in the CMS DRG system would be a major undertaking and, alternatively,
suggested reassigning the pain codes to MDC 1 as an interim step. In
the FY 2008 IPPS proposed rule, we noted that we agreed with this
suggestion. With respect to the suggestion to split the single surgical
CMS DRG in MDCs 19 and 23 into two CMS DRGs and create a major device
CMS DRG within MDC 1, in the FY 2008 IPPS proposed rule, we encouraged
commenters to examine the assignment of neurostimulator cases under the
MS-DRGs to determine whether the changes we proposed to adopt to better
recognize severity in the CMS DRG system would address these concerns.
The implantation of a neurostimulator requires two types of
procedures. First, the surgeons implant leads containing electrodes
into the targeted section of the brain, spine, or peripheral nervous
system. Second, a neurostimulator pulse generator is implanted into the
pectoral region and extensions from the neurostimulator pulse generator
are tunneled under the skin and connected with the proximal ends of the
leads. Hospitals stage the two procedures required for a full system
neurostimulator implant.
There are separate ICD-9-CM procedure codes that identify the
implant of the leads and the insertion of the pulse generator. The
three codes for the leads insertion are: 02.93 (Implantation or
replacement of intracranial neurostimulator lead(s)); 03.93
(Implantation or replacement of spinal neurostimulator lead(s)); and
code 04.92 (Implantation or replacement of peripheral neurostimulator
lead(s). The five codes for the insertion of the pulse generator are:
86.94 (Insertion or replacement of single array neurostimulator pulse
generator, not specified as rechargeable); 86.95 (Insertion or
replacement of dual array neurostimulator pulse generator, not
specified as rechargeable); 86.96 (Insertion or replacement of other
neurostimulator pulse generator); 86.97 (Insertion or replacement of
single array rechargeable neurostimulator pulse generator); and 86.98
(Insertion or replacement of dual array rechargeable neurostimulator
pulse generator).
The patient's principal diagnosis determines the MDC assignment.
Implant of a cranial, spinal or peripheral neurostimulator will result
in assignment of the case to a surgical DRG within that MDC. Although
the manufacturers are correct that neurostimulator cases can
potentially be assigned to many different CMS DRGs

[[Page 47220]]

based on the patient's principal diagnosis, they also provided data
that showed that nearly 90 percent are assigned to 6 different CMS DRGs
that cross two MDCs. In MDC 1, neurostimulator cases are assigned to
four CMS DRGs: CMS DRG 7 (Peripheral and Cranial Nerve and Other
Nervous System Procedures with CC); CMS DRG 8 (Peripheral and Cranial
Nerve and Other Nervous System Procedures without CC); CMS DRG 531
(Spinal Procedures with CC); and CMS DRG 532 (Spinal Procedures without
CC). In MDC 8 (Disease and Disorders of the Musculoskeletal System and
Connective Tissue), neurostimulator cases are assigned to two CMS DRGs:
CMS DRG 499 (Back and Neck Procedures Except Spinal Fusion with CC);
and CMS DRG 500 (Back and Neck Procedures Except Spinal Fusion without
CC).
With very limited exceptions, such as tracheostomies and certain
types of transplants, the principal diagnosis is fundamental to the
assignment of a case to an MDC within the DRG system. By relying on the
patient's principal diagnosis, the DRG system will group together
patients who are clinically similar. As indicated in the proposed rule,
for this reason, we were concerned about adopting the suggestion that
all neurostimulator cases be rerouted to a common DRG irrespective of
the patient's principal diagnosis. We believe such a step would be
fundamentally inconsistent with the idea of creating common groups of
patients who are clinically similar based on diagnosis and procedures.
For this reason, we do not believe that a rerouting step should be
adopted that would group together all neurostimulator cases.
However, in the FY 2008 IPPS proposed rule, we agreed with the
manufacturers' suggestion that the new ICD-9-CM codes created in FY
2007 for central and chronic pain syndrome and chronic pain (codes
338.0, 338.21 through 338.29, and 338.4) should be assigned to MDC 1
when present as the principal diagnosis. The manufacturers requested
that we reclassify the pain codes (338.0 through 338.4) from MDC 23 to
MDC 1. Our medical consultants advised that the acute pain codes (codes
338.11 through 338.19) should remain in MDC 23 because the acute pain
is not a neurological condition. According to the manufacturers, the
National Center for Health Statistics' (NCHS) choice in locating the
pain codes within ICD-9-CM's Nervous System chapter has much clinical
validity, particularly for chronic pain. The manufacturers further
noted that acute pain is typically self-limited, a symptomatic response
to an immediate insult that serves the body as a warning sign. However,
chronic pain is unrelenting and serves no warning or protective
function. It is a disease process of its own accord, according to the
commenters.
The manufacturers described pain as follows. Broadly, there are two
main categories of pain: Nociceptive and neuropathic. Nociceptive pain
is caused by sensory neurons, called nociceptors, responding to tissue
damage. This type of pain is the body's normal response to injury. The
pain is usually localized and time-limited. That is, when the tissue
damage heals, the pain typically resolves. Acute pain is typically
nociceptive. In general, nociceptive pain is typically treated with
anti-inflammatories and, in more severe cases, with opioids via a
morphine pump for example.
In contrast, neuropathic pain is caused by malfunctioning or
pathologically altered nervous pathways stemming from injury to the
nervous system, either as a direct result of trauma to a nerve (phantom
limb syndrome, reflex sympathetic dystrophy/complex regional pain
syndrome after injury) or due to other medical conditions that cause
damage to the nerve such as herpes (postherpetic neuralgia), diabetes
(diabetic neuropathy), and peripheral vascular disease (critical limb
ischemia). Failed back surgery syndrome (FBSS) is another common source
of neuropathic pain. Typically, neuropathic pain is chronic and may
persist for months or years beyond the healing of damaged tissue.
Because the nerves themselves have been damaged, neuropathic pain can
be considered its own disease process. Neuropathic pain may be more
difficult to treat than nociceptive pain and has been shown to be more
responsive to neurostimulation.
The pain codes, created effective October 1, 2006, are currently
assigned to MDC 23. The neurostimulator cases with a principal
diagnosis using the pain codes were assigned to CMS DRG 461 (O.R.
Procedure with Diagnoses of Other Contact with Health Services) for the
first time in FY 2007. As explained above, prior to our adoption of the
new pain codes in FY 2007, these cases had historically been assigned
to CMS DRGs 7 and 8 (Peripheral and Cranial Nerve and Other Nervous
System Procedure with and without CC, respectively) in MDC 1. Adopting
the commenters' recommendation would result in the neurostimulator
cases being assigned to their historic CMS DRGs.
Our medical officers agreed that cases that use the new pain
diagnosis codes for central and chronic pain syndrome and chronic pain
(codes 338.0, 338.21 through 338.29, and 338.4) as a principal
diagnosis should be assigned to MDC 1. For this reason, in the FY 2008
IPPS proposed rule, we proposed to assign cases with a principal
diagnosis of central pain syndrome (code 338.0), chronic pain due to
trauma (code 338.21), chronic post-thoracotomy pain (code 338.22),
other chronic postoperative pain (code 338.28), other chronic pain
(code 338.29), or chronic pain syndrome (code 338.4) to MDC 1, although
we explained that we planned to monitor their use and may reassign them
if needed.
Comment: Several commenters supported our proposal to assign
diagnosis codes for central and chronic pain syndrome and chronic pain
as a principal diagnosis to MDC 1. One commenter stated that this
proposal recognizes the fundamentally neurologic nature of these cases.
Response: We appreciate the support of the commenters. Accordingly,
in this final rule with comment period, we are adding diagnosis codes
338.0, 338.21, 338.22, 338.28, 338.29, and 338.4 when assigned as a
principal diagnosis to MDC 1.
b. Intracranial Stents
Effective October 1, 2004, the ICD-9-CM Coordination and
Maintenance Committee created procedure code 00.62 (Percutaneous
angioplasty or atherectomy of intracranial vessel(s)). At the same
time, we created code 00.65 (Percutaneous insertion of intracranial
vascular stent(s)). It is our customary practice to assign new codes to
the same DRG as their predecessor codes. The service described by code
00.62 was removed from code 39.50 (Angioplasty or atherectomy of other
noncoronary vessel(s)), which is assigned to CMS DRG 533 (Extracranial
Procedures with CC) and CMS-DRG 534 (Extracranial Procedures without
CC) (MS-DRGs 37, 38, and 39 (Extracranial Procedures with MCC, with CC,
and without CC/MCC, respectively, in this final rule with comment
period) when the patient has a principal diagnosis in MDC 1. Therefore,
we assigned code 00.62 to CMS DRGs 533 and 534 in MDC 1 beginning in FY
2005. In addition, we made code 00.65 a non-O.R. procedure for DRG
assignment. We also assigned code 00.62 to the Non-Covered Procedure
edit of the MCE, as Medicare had a national non-coverage determination
for intracranial angioplasty and atherectomy with stenting.
Effective November 6, 2006, Medicare covers percutaneous
transluminal angioplasty (PTA) and stenting of intracranial arteries
for the treatment of

[[Page 47221]]

cerebral artery stenosis in cases in which stenosis is 50 percent or
greater in patients with intracranial atherosclerotic disease when
furnished in accordance with FDA-approved protocols governing Category
B Investigational Device Exemption (IDE) clinical trials. CMS
determined that coverage of intracranial PTA and stenting is reasonable
and necessary under these circumstances. All other indications for PTA
without stenting to treat obstructive lesions of the vertebral and
cerebral arteries remain noncovered. This decision can be found online
in the CMS Coverage Manual (Publication 100.3): http://www.cms.hhs.gov/Manuals/IOM/itemdetail.asp at section 20.7.B.5.
A manufacturer recently met with CMS to request that code 00.62 be
reassigned to CMS DRGs 1 and 2 (Craniotomy Age > 17 with and without
CC, respectively) (MS-DRGs 025 (Craniotomy and Endovascular
Intracranial Procedures with MCC), 026 (Craniotomy and Endovascular
Intracranial Procedures with CC), and 027 (Craniotomy and Endovascular
Intracranial Procedures without CC/MCC) in this final rule with comment
period) and CMS-DRG 543 (Craniotomy with Major Device Implant or Acute
Complex Central Nervous System Principal Diagnosis) (MS-DRGs 023 and
024 (Craniotomy with Major Device Implant or Acute Complex Central
Nervous System Principal Diagnosis with MCC and without MCC,
respectively, in this final rule with comment period). The manufacturer
noted that other similar endovascular intracranial procedures that
treat a cerebrovascular blockage are currently assigned to the
craniotomy CMS DRGs. These endovascular-approach cases already assigned
to the craniotomy CMS DRGs are identified by procedure codes 39.72
(Endovascular repair or occlusion of head and neck vessels), 39.74
(Endovascular removal of obstruction from head and neck vessel(s)), and
39.79 (Other endovascular repair (of aneurysm) of other vessels). Under
the MS-DRGs in the FY 2008 IPPS proposed rule, we proposed the
assignment of procedure codes 39.72, 39.74, and 39.79 to MS-DRGs 025,
026, and 027 and MS-DRGs 023 and 024. Although we have concerns about
the assignment of additional endovascular procedures to an open
surgical DRG, we agreed that there is clinical consistency between
procedure codes 39.72, 39.74, and 39.79 and procedure code 00.62. For
this reason, we agreed that procedure code 00.62 should be assigned to
MS-DRGs 025, 026, and 027, and MS-DRGs 023 and 024, which are divided
by the presence or absence of specific CCs.
In order to assure appropriate DRG assignment as described above,
we proposed to make conforming changes to the MCE by removing code
00.62 from the Non-Covered Procedure edit. However, as intracranial PTA
is only covered when performed in conjunction with insertion of a
stent, we proposed to redefine the edit by specifying that code 00.62
must be accompanied by code 00.65 (Percutaneous insertion of
intracranial vascular stent(s)). Should code 00.65 not be reported on
the claim, the case would fail the MCE edit. For a full discussion of
this change, we refer readers to the MCE discussion in section II.F.6.
of the preamble of this final rule with comment period.
Although we proposed to assign endovascular intracranial procedures
to the same MS-DRGs as craniotomy, we remained concerned that
endovascular intracranial procedures are clinically different than open
craniotomy surgical procedures and may have very different resource
requirements. At the current time, there are an insufficient number of
cases to warrant creation of a separate base DRG for endovascular
intracranial procedures. However, as we indicated in the proposed rule,
we intend to revisit the assignment of intracranial endovascular
procedures at a later date when more data are available to analyze
these cases.
Comment: Several commenters supported the proposal to assign
endovascular procedure codes to open surgical DRGs. One commenter
commended CMS for the proposal and stated that the reassignment places
these cases in DRGs of more appropriate clinical and resource
homogeneity (than their previous assignments to the extracranial
procedure DRGs).
Response: We continue to have reservations about the classification
of open craniotomy surgeries and endovascular cranial procedures within
the same DRGs. However, we note that there is clinical consistency
between procedure codes 39.72, 39.74, 39.79 (endovascular procedures on
the head and neck), which are assigned to open surgical DRGs, and code
00.62 (an intracranial endovascular procedure). We will continue to
monitor these DRGs for uniformity both from a clinical as well as a
resource-consumption standpoint as more data become available.
In this final rule with comment period, for FY 2008, we are
assigning code 00.62 to MS-DRGs 25, 26, and 27 as well as MS-DRGs 23
and 24, as we proposed and describe above. We note that the claims
containing code 00.62 must be accompanied by code 00.65 in order to
qualify as a covered procedure. As previously stated, the lack of code
00.65 on the claim will cause the claim to fail the MCE edit, and the
claim will be denied.
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat)--
Cochlear Implants
Cochlear implants were first covered by Medicare in 1986 and were
assigned to CMS DRG 49 (Major Head and Neck Procedures) in MDC 3
(Diseases and Disorders of the Ear, Nose, Mouth, and Throat). CMS DRG
49 is the highest weighted DRG in that MDC. However, two manufacturers
of cochlear implants contend that this DRG assignment is clinically and
economically inappropriate and have requested that cochlear implant
cases be reassigned from CMS DRG 49 to CMS DRG 543 (Craniotomy with
Major Device Implant or Acute Complex Central Nervous System Principal
Diagnosis).
The manufacturers stated that procedures assigned to CMS DRG 49 are
performed mostly for diseases such as head and neck cancers, while
procedures in CMS DRG 543 include operations on and inside the skull
and implantation of complex devices, including intracranial
neurostimulators. The manufacturers described the cochlear implant
procedure as requiring incisions behind the ear to remove a section of
the temporal bone, followed by microscopic neurotologic surgery under
general anesthesia, and is typically completed in 2 to 4 hours to
restore hearing to the profoundly deaf. For these reasons, these
manufacturers believe cochlear implant procedures are similar to open
craniotomies.
Based on their analysis of the FY 2005 MedPAR data, the
manufacturers identified a total of 139 cochlear implant cases using
ICD-9-CM procedure codes 20.96 (Implantation or replacement of cochlear
prosthetic device NOS), 20.97 (Implantation or replacement of cochlear
prosthetic device, single channel), and 20.98 (Implantation or
replacement of cochlear prosthetic device, multiple channel). The
manufacturers reported 121 out of 139 cochlear implant cases were
assigned to CMS DRG 49 with average standardized charges of
approximately $58,078.
When we reviewed the FY 2006 MedPAR data, we identified 104
cochlear implant cases assigned to CMS DRG 49. In the MS-DRGs in the FY
2008 IPPS proposed rule, CMS-DRG 49 is subdivided into two severity
levels: MS-DRG 129 (Major Head and Neck

[[Page 47222]]

Procedures with CC or MCC) and MS DRG 130 (Major Head and Neck
Procedures without CC). The following table displays our results:

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 130--All cases............ 1,095 3.04 $23,928
MS-DRG 130--Code 20.96 cases only 38 1.63 51,740
MS-DRG 130--Code 20.97 cases only 2 1.50 38,855
MS-DRG 130--Code 20.98 cases only 45 1.24 50,219
MS-DRG 129--All cases............ 1,244 5.35 34,169
MS-DRG 129--Code 20.96 cases only 10 2.70 81,351
MS-DRG 129--Code 20.97 cases only 1 5.00 95,441
MS-DRG 129--Code 20.98 cases only 8 3.13 53.510
------------------------------------------------------------------------

Under the proposed MS-DRGs, 19 out of 104 cochlear implant cases
are assigned to MS-DRG 129 based on the secondary diagnosis of the
patient. The 85 remaining cochlear implant cases do not have a CC or
MCC and were proposed to be assigned to MS-DRG 130, absent further
changes to the DRG logic.
The average charges of approximately $54,238 for cochlear implant
cases are higher than the average charges of approximately $29,375 for
the other cases in CMS DRG 49. However, the average charges are not as
high as the average charges of approximately $78,118 for cases assigned
to CMS DRG 543. Further, our medical advisors do not believe that
surgery to implant a cochlear implant is clinically similar to an open
craniotomy in MDC 1 because typically a craniotomy involves removing
and then replacing a section of the skull in order to perform a
procedure on or within the brain, whereas a cochlear implant involves
drilling a hole in the mastoid bone in order to insert the implant into
the inner ear.
We have been unable to address this issue under the current DRGs
because there are not enough inpatient cochlear implant cases to
warrant creation of a separate DRG. Although these cases will continue
to have higher charges than other cases in their assigned DRG, in the
FY 2008 proposed rule, we proposed to move the cochlear implant cases
to the higher DRG severity level within CMS DRG-49. As part of this
proposal, we indicated that we would redefine MS-DRG 129 as ``Major
Head and Neck Procedures with CC or MCC or Major Device.'' The presence
of a major head and neck procedure with a CC or MCC or major device
would assign the case to the higher severity level within CMS-DRG 49.
Comment: Some commenters supported the proposed reassignment of
cochlear implant cases to MS-DRG 129.
Response: We appreciate the commenters' support for the proposed
MS-DRG assignment for these cases.
Comment: Two commenters expressed appreciation for CMS's
recognition of the payment issues facing cochlear implants by proposing
to classify these cases to MS-DRG 129. However, one of the commenters
stated that, even with the proposed reassignment, the costs of these
cases are nearly 60 percent higher than all cases within MS-DRG 129.
The commenters contended that these procedures should be assigned
to MS-DRG 24 (Craniotomy with Major Device Implant or Acute Complex
Central Nervous System Principal Diagnosis with MCC). They pointed out
that cases that have been assigned to DRG 543 in the CMS-DRGs are
assigned to MS-DRGs 23 and 24 (Craniotomy with Major Device Implant or
Acute Complex Central Nervous System Principal Diagnosis with and
without MCC) in the MS-DRGs. The commenters stated that cochlear
implant procedures are clinically and resource coherent with other
craniotomy procedures such as Kinetra[supreg] dual array deep brain
stimulator and should be assigned to MS-DRG 024. One of the commenters
indicated that the principal diagnosis codes for hearing loss are
currently assigned to MDC 3, not MDC 1. They believed that this MDC
assignment prevents cochlear implants from being assigned to MS-DRG
024. The commenters suggested that sensorineural hearing loss (codes
389.10-389.18) is a nervous system disorder that should be assigned to
MDC 1. One commenter stated that cochlear implantation cases should be
assigned as a pre-MDC based on complexity and should be assigned to a
separate or different DRG that involves implantation of a complex
neural stimulation device. Another commenter recommended that CMS
develop a third level of complexity for major head and neck procedures
and assign cochlear implants to the highest severity level.
Response: Our medical advisors do not believe that surgery to
implant a cochlear implant is clinically similar to an open craniotomy
in MDC 1. Typically, a craniotomy involves removing and then replacing
a section of the skull in order to perform a procedure on or within the
brain, whereas a cochlear implant involves entering the mastoid bone,
not the intracranial space.
With regard to the MDC assignment, we believe that sensorineural
hearing loss is due to a defect in the inner ear or the acoustic nerve
and is a disorder of the ear that is appropriately assigned to MDC 3.
As the low volume of cochlear implant cases does not justify a new
MS-DRG, the current base DRG assignment for cochlear implants is
appropriate. In addition, MS-DRG 129 does not meet the criteria for a
three-level split. Therefore, we do not believe there is a better
alternative to the policy we proposed. Accordingly, in this final rule
with comment period, we are assigning all cochlear implant cases to MS-
DRG 129. MS-DRG 129 is redefined as ``Major Head and Neck Procedures
with CC or MCC or Major Device.''
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. Hip and Knee Replacements
In the FY 2006 IPPS final rule (70 FR 47303), we deleted DRG 209
(Major Joint and Limb Reattachment Procedures of Lower Extremity) and
created two new DRGs: 544 (Major Joint Replacement or Reattachment of
Lower Extremity) and 545 (Revision of Hip or Knee Replacement). The two
new DRGs were created because revisions of joint replacement procedures
are significantly more resource intensive than original hip and knee
replacement procedures. DRG 544 includes the following procedure code
assignments:
81.51, Total hip replacement
81.52, Partial hip replacement
81.54, Total knee replacement

[[Page 47223]]

81.56, Total ankle replacement
84.26, Foot reattachment
84.27, Lower leg or ankle reattachment
84.28, Thigh reattachment
DRG 545 includes the following procedure code assignments:
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
Further, we created a number of new ICD-9-CM procedure codes
effective October 1, 2005, that better distinguish the many different
types of joint replacement procedures that are currently being
performed. In the FY 2006 IPPS final rule (70 FR 47305), we indicated a
commenter had requested that, once we receive claims data using the new
procedure codes, we closely examine data from the use of the codes
under the two new DRGs to determine if future additional DRG
modifications are needed.
Further, the American Association of Hip & Knee Surgeons (AAHKS)
recommended that we make further refinements to the DRGs for knee and
hip arthroplasty procedures. AAHKS previously presented data to CMS on
the important differences in clinical characteristics and resource
utilization between primary and revision total joint arthroplasty
procedures. AAHKS stated that CMS' decision to create a separate DRG
for revision of total joint arthroplasty (TJA) in October 2005 resulted
in more equitable reimbursement for hospitals that perform a
disproportionate share of complex revision of TJA procedures,
recognizing the higher resource utilization associated with these
cases. AAHKS stated that this important payment policy change led to
increased access to care for patients with failed total joint
arthroplasties, and ensured that high volume TJA centers could continue
to provide a high standard of care for these challenging patients.
AAHKS further stated that the addition of new, more descriptive
ICD-9-CM diagnosis and procedure codes for TJA in October 2005 gave it
the opportunity to further analyze differences in clinical
characteristics and resource intensity among TJA patients and
procedures. Inclusive of the preparatory work to submit its
recommendations, the AAHKS compiled, analyzed, and reviewed detailed
clinical and resource utilization data from over 6,000 primary and
revision TJA procedure codes from 4 high volume joint arthroplasty
centers located within different geographic regions of the United
States: University of California, San Francisco, CA; Mayo Clinic,
Rochester, MN; Massachusetts General Hospital, Boston, MA; and the
Hospital for Special Surgery, New York, NY. Based on its analysis,
AAHKS recommended that CMS examine Medicare claims data and consider
the creation of separate DRGs for total hip and total knee arthroplasty
procedures. CMS DRG 545 currently contains revisions of both hip and
knee replacement procedures. AAHKS stated that based on the differences
between patient characteristics, procedure characteristics, resource
utilization, and procedure code payment rates between total hip and
total knee replacements, separate DRGs were warranted. Furthermore,
AAHKS recommended that CMS create separate base DRGs for routine versus
complex joint revision or replacement procedures as shown below.

Routine Hip Replacements

00.73, Revision of hip replacement, acetabular liner and/
or femoral heal only
00.85, Resurfacing hip, total, acetabulum and femoral head
00.86, Resurfacing hip, partial, femoral head
00.87, Resurfacing hip, partial, acetabulum
81.51, Total hip replacement
81.52, Partial hip replacement
81.53, Revision of hip replacement, not otherwise
specified

Complex Hip Replacements

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

Routine Knee Replacements and Ankle Procedures

00.83, Revision of knee replacement, patellar component
00.84, Revision of knee replacement, tibial insert (liner)
81.54, Revision of knee replacement, not otherwise
specified
81.55, Revision of knee replacement, not otherwise
specified
81.56, Total ankle replacement

Complex Knee Replacements and Other Reattachments

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
84.26, Foot reattachment
84.27, Lower leg or ankle reattachment
84.28, Thigh reattachment
AAHKS also recommended the continuation of CMS DRG 471 (Bilateral
or Multiple Major Joint Procedures of Lower Extremity) without
modifications. CMS DRG 471 includes any combination of two or more of
the following procedure codes:
00.70, Revision of hip replacement, both acetabular and
femoral components
00.80, Revision of knee replacement, total (all
components)
00.85, Resurfacing hip, total, acetabulum and femoral head
00.86, Resurfacing hip, partial, femoral head
00.87, Resurfacing hip, partial, acetabulum
81.51, Total hip replacement
81.52, Partial hip replacement
81.54, Total knee replacement
81.56, Total ankle replacement
As discussed in section II.C. of the preamble of this final rule
with comment period, we proposed, and are adopting in this final rule
with comment period, MS-DRGs to better recognize severity of illness
for FY 2008. The MS-DRGs include two new severity of illness levels
under the current base DRG 544. We also proposed to add three new
severity of illness levels to the base DRG for Revision of Hip or Knee
Replacement (currently DRG 545). The new MS-DRGs are as follows:
MS-DRG 466 (Revision of Hip or Knee Replacement with MCC)
MS-DRG 467 (Revision of Hip or Knee Replacement with CC)
MS-DRG 468 (Revision of Hip or Knee Replacement without
CC/MCC)
MS-DRG 469 (Major Joint Replacement or Reattachment of
Lower Extremity with MCC)

[[Page 47224]]

MS-DRG 470 (Major Joint Replacement or Reattachment of
Lower Extremity without MCC)
We found that the MS-DRGs greatly improved our ability to identify
joint procedures with higher resource costs. The following table
indicates the average charges for each new MS-DRG for the joint
procedures.

MS-DRGs That Replace DRGs 544 and 535 With New Severity Levels
------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 466....................... 3,886 9.55 $69,649.08
MS-DRG 467....................... 10,078 6.06 48,575.01
MS-DRG 468....................... 26,718 4.06 38,720.28
MS-DRG 483....................... 28,211 8.46 53,676.09
MS-DRG 484....................... 390,344 4.03 33,465.85
------------------------------------------------------------------------

AAHKS analyzed Medicare data under the CMS DRG system and was
unaware of how its analysis would change under the proposed MS-DRGs.
Under the CMS DRGs, the AAHKS recommendation would replace 2 DRGs with
4 new ones. However, under the proposed MS- DRGs, the AAHKS
recommendation would result in 5 DRGs becoming 12. Because AAHKS is
recommending four new joint replacement DRGs (two for knees and two for
hips), each would need to be subdivided into severity levels under our
proposed MS-DRG system. Therefore, the four new joint DRGs could be
subdivided into three levels each, leading to 12 new DRGs. For the
proposed rule, we indicated that the changes we proposed to adopt are
sufficiently better for recognizing severity of illness among the hip
and knee replacement cases. We did not believe that there would be
significant improvements in the proposed MS-DRGs' recognition of
severity of illness from creating an additional 7 DRGs. However, we
acknowledged the valuable assistance the AAHKS had provided to CMS in
creating the new joint replacement procedure codes and modifying the
joint replacement DRGs beginning in FY 2006. These efforts greatly
improved our ability to categorize significantly different groups of
patients according to severity of illness. In the proposed rule, we
welcomed comments from AAHKS on whether the proposed MS-DRGs recognize
patient complexity and severity of illness in the hip and knee
replacement DRGs consistent with the concerns it expressed to us in
previous comments. We also welcomed public comments from others on
whether the proposed changes to the hip and knee replacement DRGs
better recognize severity of illness and complexity of these operations
in the Medicare patient population.
Comment: Two commenters supported CMSs' efforts to refine the DRG
system to better identify costs associated with different joint
procedures. The commenters encouraged CMS to continue working with the
orthopedic community, including AAHKS, to monitor the need for
additional new DRGs. The commenters stated that proposed MS-DRGs 466
through 470 are a good first step. However, they stated that CMS should
continue to evaluate the data for these procedures and consider
additional refinements to the MS-DRGs, including the need for
additional severity levels.
Response: We agree that MS-DRGs better identify resource costs for
joint procedures than do the CMS DRGs. The AAHKS and others are welcome
to suggest additional refinements to us if they believe further
improvements are needed.
Comment: One commenter (AAHKS) stated that it was pleased that CMS
decided to recognize both surgical complexity and medical severity of
illness in the MS-DRGs. The commenter stated that MS-DRGs are more
reflective of procedural complexity than the CS-DRGs proposed last
year. In addition, the commenter believed that the process is fairly
straightforward, making it easier to understand, with the grouping
logic available in the public domain. However, the commenter raised
several concerns about the proposed joint replacement and revision MS-
DRGs. AAHKS stated that its data suggest that all three base DRGs
(primary replacement, revision of major joint replacement, and
bilateral joint replacement) should be separated into three severity
levels (that is, MCC, CC, and non-CC). We proposed three severity
levels for revision of hip and knee replacement (MS-DRGs 466, 467, and
468). The commenter agreed with this 3-level subdivision.
The commenter recommended that the base DRG for the proposed two
severity subdivision MS-DRGs for major joint replacement or
reattachment of lower extremity with and without CC/MCC (MS-DRGs 483
and 484) be subdivided into three severity levels, as was the case for
the revision of hip and knee replacement MS-DRGs. The commenter also
recommended that the two severity subdivision MS-DRGs for bilateral or
multiple major joint procedures of lower extremity with and without MCC
(MS-DRGs 461 and 462) be subdivided three ways for this base DRG. The
commenter acknowledged that the three-way split would not meet all five
of the criteria for establishing a subgroup, and stated that these
criteria were too restrictive, lack face validity, and create perverse
admission selection incentives for hospitals by significantly
overpaying for cases without a CC and underpaying for cases with a CC.
The commenter recommended that the existing five criteria be modified
for low volume subgroups to assure materiality. For higher volume MS-
DRG subgroups, the commenter recommended that two other criteria be
considered, particularly for nonemergency, elective admissions:
Is the per-case underpayment amount significant enough to
affect admission vs. referral decisions on a case-by-case basis?
Is the total level of underpayments sufficient to
encourage systematic admission vs. referral policies, procedures, and
marketing strategies?
The commenter also recommended refining the five existing criteria
for MCC/CC without subgroups as follows:
Create subgroups if they meet the five existing criteria,
with cost difference between subgroups ($1,350) substituted for charge
difference between subgroups ($4,000);
If a proposed subgroup meets criteria number 2 and 3 (at
least 5 percent and at least 500 cases) but fails one of the others,
then create the subgroup if either of the following criteria are met:
At least $1,000 cost difference per case between
subgroups; or
At least $1 million overall cost should be shifted to
cases with a CC (or

[[Page 47225]]

MCC) within the base DRG for payment weight calculations.
Response: In section II.B.3. of this preamble, we respond to the
recommendation that we modify our five criteria for creating severity
subgroups and state we do not believe it is appropriate to do so at
this time. At this time, we believe the criteria we established to
create subdivisions within a base DRG are reasonable and establish the
appropriate balance between better recognition of severity of illness,
sufficient differences between the groups, and a reasonable number of
cases in each subgroup. However, we may consider further modifications
to the criteria at a later date once we have had some experience with
MS-DRGs created using the proposed criteria. We examined data for the
base DRGs for MS-DRGs 461 and 462 (Bilateral or Multiple Major Joint
Procedures of Lower Extremity with MCC and without MCC, respectively)
as well as the base DRGs for MS-DRGs 469 and 470 (Major Joint
Replacement or Reattachment of Lower Extremity with CC and without CC,
respectively) for the proposed rule.
Our data did not support creating additional subdivisions based on
the criteria we proposed.
Comment: Another commenter (AAHKS) continued to support the
separation of routine and complex joint procedures. The commenter
believed that certain joint replacement procedures have significantly
lower average charges than do other joint replacements. The commenter's
data suggest that more routine joint replacements are associated with
substantially less resource utilization than other more complex
revision procedures. The commenter stated that leaving these procedures
in the revision MS-DRGs results in substantial overpayment for these
relatively simple, less costly revision procedures, which in turn
results in a relative underpayment for the more complex revision
procedures.
Response: We examined data on this issue and identified two
procedure codes for partial knee revisions that had significantly lower
average charges than did other joint revisions. The two codes are as
follows:
00.83 Revision of knee replacement, patellar component
00.84 Revision of total knee replacement, tibial insert
(liner)
The following table illustrates our findings for MS-DRG 466
(Revision of Hip or Knee Replacement with MCC), MS-DRG 467 (Revision of
Hip or Knee replacement with CC), and MS-DRG 468 (Revision of Hip or
Knee Replacement without CC/MCC):

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 466--All cases............ 3,886 9.55 $69,649.08
MS-DRG 466 with code 00.83 or 258 10.53 54,141.72
00.84 only......................
MS-DRG 467--All cases............ 10,078 6.06 48,575.01
MS-DRG 467 with code 00.83 or 955 5.47 31,191.04
00.84 only......................
MS-DRG 468--All cases............ 26,718 4.06 38,720.28
MS-DRG 468 with code 00.83 or 2,718 3.45 22,799.31
00.84 only......................
------------------------------------------------------------------------

Cases with codes 00.83 and 00.84 have significantly lower charges
than do other cases in these DRGs. For cases in MS-DRG 466, those with
codes 00.83 or 00.84 have average charges of $54,141.72 compared to
average charges of $69,646.08 for all cases within the DRG, a
difference of $15,507.36. There is a difference of $17,383.97 for MS-
DRG 467 and $15,920.97 for MS-DRG 468. The data suggest that these less
complex partial knee revisions are less resource intensive than other
cases assigned to MS-DRGs 466, 467, or 468. We examined other
orthopedic DRGs to which these two codes could be assigned. As can be
seen in the table below, these cases have very similar average charges
to those in MS-DRG 485 (Knee Procedures with Principal Diagnosis of
Infection with MCC), MS-DRG 486 (Knee Procedures with Principal
Diagnosis of Infection with CC), MS-DRG 487 (Knee Procedures with
Principal Diagnosis of Infection without CC), MS-DRG 488 (Knee
Procedures without Principal Diagnosis of Infection with CC or MCC),
and MS-DRG 489 (Knee Procedures without Principal Diagnosis of
Infection without CC).

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 485--All cases............ 916 12.69 $59,722.69
MS-DRG 485 with code 00.83 or 174 11.71 57,649.86
00.84 only......................
MS-DRG 486--All cases............ 1,461 8.39 37,730.19
MS-DRG 486 with code 00.83 or 336 7.73 37,315.10
00.84 only......................
MS-DRG 487--All cases............ 1,139 5.84 27,184.41
MS-DRG 487 with code 00.83 or 262 7.73 29,142.35
00.84 only......................
MS-DRG 488--All cases............ 1,462 5.66 30,073.21
MS-DRG 488 with code 00.83 or 703 4.24 30,138.06
00.84 only......................
MS-DRG 489--All cases............ 3,687 3.11 18,865.79
MS-DRG 489 with code 00.83 or 2,456 3.18 22,122.64
00.84 only......................
------------------------------------------------------------------------

Given the very similar resource requirements of MS-DRG 485 and the
fact that these DRGs also contain knee procedures, we will move codes
00.83 and 00.84 out of MS-DRGs 466, 467, and 468 and into MS-DRGs 485,
486, 487, 488, and 489. We will continue to monitor the revision DRGs
to determine if additional modifications are needed.
Comment: One commenter expressed concern about the grouper logic
for assigning cases to MS-DRG 471 (Bilateral or Multiple Major Joint
Procedures of Lower Extremity (current CMS-DRG 471)). Specifically, the
commenter stated that the following bilateral joint replacements should
be,

[[Page 47226]]

but are not, assigned to MS-DRGs 461 and 462.
A patient receives identical acetabular revisions of both
hips (00.71 and 00.71).
A patient receives a total revision of one hip (00.70) and
an acetabular revision of the other hip (00.71).
A patient receives both a total hip replacement (81.51)
and a total knee replacement (81.54).
A patient receives both a total revision of one hip
(00.70) and a total replacement of the other hip (81.51).
Response: We addressed this issue in the FY 2007 final rule and do
not believe additional modifications are needed. We are providing the
following summary of the previous action. After publication of the FY
2006 IPPS final rule, a number of hospitals and coding personnel
advised us that the DRG logic for CMS DRG 471 (Bilateral or Multiple
Major Joint Procedures of Lower Extremity), which utilizes the new and
revised hip and knee procedure codes under CMS DRGs 544 and 545, also
includes codes that describe procedures that are not bilateral or that
do not involve multiple major joints. CMS DRG 471 was developed to
include cases where major joint procedures such as revisions or
replacements were performed either bilaterally or on two joints of one
lower extremity. We changed the logic for CMS DRG 471 in FY 2006 for
the first time when we added the new and revised codes. The commenters
indicated that, by adding the more detailed codes that do not include
total revisions or replacements to the list of major joint procedures
to CMS DRG 471, we were assigning cases to CMS DRG 471 that did not
have bilateral or multiple joint procedures. For example, when a
hospital reported a code for revision of the tibial component (code
00.81) and patellar component of the right knee (code 00.83), the FY
2006 DRG logic assigned the case to CMS DRG 471. The commenters
indicated that this code assignment was incorrect because only one
joint has undergone surgery, but two components were used. One
commenter indicated that ICD-9-CM did not identify left/right
laterality. Therefore, it was difficult to use the current coding
structure to determine if procedures were performed on the same leg or
on both legs. The commenters raised concern about whether CMS intended
to pay hospitals using CMS DRG 471 for procedures performed on one
joint. The commenters indicated that the DRG assignments for these
codes would also make future data analysis misleading. The commenters
recommended removing codes from CMS DRG 471 that do not specifically
identify bilateral or multiple joint procedures so that it would only
include cases involving the more resource intensive cases of bilateral
or multiple total joint replacements and revisions.
We agreed that the new and revised joint procedure codes should not
be assigned to CMS DRG 471 unless they include bilateral and multiple
joints. Therefore, in the FY 2007 IPPS final rule, we removed the
following codes from CMS DRG 471 that did not identify bilateral and
multiple joint revisions or replacements:
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
00.81, 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 total knee replacement, tibial insert
(liner)
81.53, Revision of hip replacement, not otherwise
specified
81.55, Revision of knee replacement, not otherwise
specified
DRG 471 contains the following codes:
00.70, Revision of hip replacement, both acetabular and
femoral components
00.80, Revision of knee replacement, total (all
components)
00.85, Resurfacing hip, total, acetabulum and femoral head
00.86, Resurfacing hip, partial, femoral head
00.87, Resurfacing hip, partial, acetabulum
81.51, Total hip replacement
81.52, Partial hip replacement
81.54, Total knee replacement
81.56, Total ankle replacement
As a result of the removal of the identified codes from CMS DRG 471
in FY 2007, the reporting of one or more of the following hip or knee
revision codes would be assigned to DRG 545: 00.71, 00.72, 00.73,
00.81, 00.82, 00.83, 00.84, 81.53, and 81.55. This list included
partial revisions of the knee and hip as well as unspecified joint
procedures such as code 81.55 where it was not clear if the revision is
total or partial.
Given this historical information of the changes we made in FY
2007, we will address the current commenter's concerns. The commenter's
first scenario in which a patient received identical acetabular
revisions of both hips 00.71 and 00.71 would not be assigned to CMS DRG
471 (Bilateral or Multiple Major Joint Procedures of Lower Extremity),
which becomes MS-DRGs 461 and 462. Even though this scenario identified
revisions to two joints, they were both partial revisions that were
less resource intensive than full bilateral or multiple joint revisions
or replacements. In our view, the decision not to assign these cases to
CMS DRG 471 was consistent with the public comments we received on the
FY 2007 IPPS rule to ensure that CMS DRG 471 includes only full
bilateral or multiple joint replacements or revisions. Similarly, the
second scenario in which a patient receives a total revision of one hip
(00.70) and a partial acetabular revision of the other hip (00.71)
would not lead to the assignment of CMS DRG 471 for the same reason. As
with the first scenario, code 00.71 was not included in CMS DRG 471.
There was only one total and one partial joint revision in this
scenario. Again, we believe that our decision not to assign these cases
to CMS DRG 471 was consistent with the public comments to only include
bilateral or multiple full revisions or replacements in this DRG. The
third and fourth scenarios in which a patient received both a total hip
replacement (81.51) and a total knee replacement (81.54) and another
patient received both a total revision of one hip (00.70) and a total
replacement of the other hip (81.51) would be assigned to CMS DRG 471.
These are either full replacements or revisions on multiple joints. As
we adopted the same logic to assign cases under the MS-DRGs as under
the CMS DRGs, only full replacements or revisions of multiple joints
will be included in MS-DRGs 461 and 462 (the MS-DRG analog to CMS DRG
471). Therefore, we are not making any revisions to the bilateral or
multiple major joint procedures of lower extremity DRGs, MS DRG 461 and
462. The same procedure code DRG logic used in CMS DRG 471 will be
applied to MS DRGs 461 and 462.
b. Spinal Fusions
In the FY 2007 IPPS final rule (71 FR 47947), we discussed a
request that urged CMS to consider applying a severity concept to all
of the back and spine surgical cases, similar to the approach that was
used in the FY 2006 final rule in refining the cardiac DRGs with an
MCV. Specifically, the commenter recommended that the use of spinal
devices be uniquely identified within the spine DRGs. The commenter's
suggestion involved the development of 10 new spine DRGs as

[[Page 47227]]

well as additional modifications. One of these modifications included
revising CMS DRG 546 (Spinal Fusions Except Cervical with Curvature of
the Spine or Malignancy). The commenter stated CMS DRG 546 did not
adequately recognize clinical severity or the resource differences
among spinal fusion patients whose surgeries include fusing multiple
levels of their spinal vertebrae.
We agreed with the commenter that it was important to recognize
severity when classifying groups of patients into specific DRGs. In
addition, in response to recommendations from MedPAC's March 2005
Report to Congress, we stated that we were conducting a comprehensive
analysis of the entire DRG system to determine if we could better
identify severity of illness. We further stated that until results from
our analysis were available, it would be premature to implement a
severity concept for the spine DRGs. Therefore, we did not make any
adjustments to those DRGs at that time.
Under the MS-DRGs described in section II.D. of the preamble of the
proposed rule, we proposed a number of refinements that would better
recognize severity for FY 2008. The proposed MS-DRGs, which we are
adopting in this final rule with comment period, included several
refinements to the spine DRGs. These refinements are described in
detail below.
In the FY 2006 IPPS final rule, we noted that there are numerous
innovations occurring in spinal surgery such as artificial spinal disc
prostheses, kyphoplasty, vertebroplasty and the use of spine
decompression devices. As part of our analysis of the DRG system for
the proposed rule, we did a comprehensive review of the DRGs for spinal
fusion and other back and neck procedures to determine whether
additional refinements beyond the proposed MS-DRGs were necessary. We
studied data from the FY 2006 MedPAR file for the entire group of spine
DRGs. This group included DRG 496 (Combined Anterior/Posterior Spinal
Fusion), DRGs 497 and 498 (Spinal Fusion Except Cervical with and
without CC, respectively), DRGs 499 and 500 (Back and Neck Procedures
Except Spinal Fusion with and without CC, respectively), DRGs 519 and
520 (Cervical Spinal Fusion with and without CC, respectively), and DRG
546 (Spinal Fusion Except Cervical with Curvature of the Spine or
Malignancy).
As indicated earlier, we proposed a two or three-way split for each
of these spine DRGs to better recognize severity of illness, complexity
of service, and resource utilization. In addition, we examined the
procedure codes that identify multiple fusion or refusion of the
vertebrae (codes 81.62 through 81.64) to determine if the data
supported further refinement when a greater number of vertebrae are
fused.
In applying the proposed MS-DRG logic, CMS DRG 497 and 498 were
collapsed and the result was a split with two severity levels: proposed
MS-DRG 459 (Spinal Fusion Except Cervical with MCC) and proposed MS-DRG
460 (Spinal Fusion Except Cervical without MCC). There were a total of
51,667 cases in proposed MS-DRGs 459 and 460. We identified 288 cases
where nine or more (T1-S1) vertebrae were fused (code 81.64) that we
proposed to assign to MS-DRGs 459 and 460. The average charges and
length of stay for cases in these MS-DRGs were closer to the average
charges and length of stay for cases in proposed MS-DRGs 456 through
458 (Spinal Fusion Except Cervical with Curvature of the Spine or
Malignancy with MCC, with CC, and without CC, respectively). For
example, in proposed MS-DRG 460, there were 238 cases with an average
length of stay of 6.20 days and average charges of $110,908 when nine
or more noncervical (T1-S1) vertebrae are fused. There were an
additional 50 cases in which nine or more vertebrae were fused in
proposed MS-DRG 459 with average charges of $171,839. Without any
further modification to the proposed MS-DRGs, these cases would be
assigned to proposed MS-DRGs 459 and 460 that have average charges of
$59,698 and $99,298, respectively. However, we believe that the average
charges for these cases ($142,871, $95,489, and $77,528, respectively)
are more comparable to the average charges for cases in proposed MS-
DRGs 456 through 458. We believe these data support assigning cases
where nine or more noncervical (T1-S1) vertebrae are fused from MS-DRG
459 and 460 into MS-DRG 456 through 458. The table below represents our
findings.

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 459 (Spinal Fusion Except 3,186 10.10 $99,298
Cervical with MCC)--All Cases...
MS-DRG 459 (Spinal Fusion Except 50 13.00 171,839
Cervical with MCC)--Cases with
Procedure Code 81.64 (Fusion or
refusion of 9 or more vertebrae)
MS-DRG 460 (Spinal Fusion Except 48,481 4.36 59,698
Cervical without MCC)--All Cases
MS-DRG 460 (Spinal Fusion Except 238 6.20 110,908
Cervical without MCC)--Cases
with Procedure Code 81.64
(Fusion or refusion of 9 or more
vertebrae)......................
MS-DRG 456 (Spinal Fusion Except 548 14.79 142,871
Cervical with Curvature of the
Spine or Malignancy with MCC)--
All Cases.......................
MS-DRG 456 (Spinal Fusion Except 61 13.34 170,655
Cervical with Curvature of the
Spine or Malignancy with MCC)--
Cases with Procedure Code 81.64
(Fusion or refusion of 9 or more
vertebrae)......................
MS-DRG 457 (Spinal Fusion Except 1,500 8.14 95,489
Cervical with Curvature of the
Spine or Malignancy with CC)--
All Cases.......................
MS-DRG 457 (Spinal Fusion Except 146 8.88 125,722
Cervical with Curvature of the
Spine or Malignancy with CC)--
Cases With Procedure Code 81.64
(Fusion or refusion of 9 or more
vertebrae)......................
MS-DRG 458 (Spinal Fusion Except 1,340 4.58 77,528
Cervical with Curvature of the
Spine or Malignancy without CC)--
All Cases.......................
MS-DRG 458 (Spinal Fusion Except 81 6.21 123,823
Cervical with Curvature of the
Spine or Malignancy without CC)--
Cases with Procedure Code 81.64
(Fusion or refusion of 9 or more
vertebrae)......................
------------------------------------------------------------------------

Therefore, we proposed to move those cases that include fusing or
refusing nine or more noncervical (T1-S1) vertebrae from MS-DRGs 459
and 460 into MS DRGs 456 though 458. This modification would include
revising the MS-DRG title to reflect the fusion or refusion of nine or
more noncervical (T1-S1) vertebrae. The revised titles for proposed MS-
DRGs 456 through 458 would be as follows:

[[Page 47228]]

MS-DRG 456 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or 9+ Fusions with MCC)
MS-DRG 457 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or 9+ Fusions with CC)
MS-DRG 458 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or 9+ Fusions without CC/MCC)
In the FY 2008 IPPS proposed rule, we invited public comment on
this topic as well as on the additional changes we proposed to the
spine MS-DRGs discussed below.
Further analysis demonstrated that spinal fusion cases with a
principal diagnosis of tuberculosis or osteomyelitis also have higher
average charges than other cases in CMS DRG 497 (MS-DRGs 459 and 460 in
this final rule with comment period) that were more similar to the
cases assigned to CMS DRG 546 (MS-DRGs 456 through 458 in this final
rule with comment period). Although the volume of cases is relatively
low, the data show very high average charges for these patients. The
following tables display our results:

------------------------------------------------------------------------
Average
MS-DRGs Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 459 (Spinal Fusion Except 3,186 10.10 $99,298
Cervical with MCC)..............
MS-DRG 460 (Spinal Fusion Except 48,481 4.36 59,698
Cervical without MCC)...........
MS-DRG 456 (Spinal Fusion Except 548 14.79 142,870
Cervical with Spinal Curvature
or Malignancy or 9+ Fusions with
MCC)............................
MS-DRG 457 (Spinal Fusion Except 1,500 8.14 95,489
Cervical with Spinal Curvature
or Malignancy or 9+ Fusions with
CC).............................
MS-DRG 458 (Spinal Fusion Except 1,340 4.58 77,528
Cervical with Spinal Curvature
or Malignancy or 9+ Fusions
without CC/MCC).................
------------------------------------------------------------------------

Tuberculosis and Osteomyelitis
------------------------------------------------------------------------
Average
Principal diagnosis Number of length of Average
cases stay charges
------------------------------------------------------------------------
Codes 015.02, 015.04, 015.05, 194 24.8 $128,073
730.08, 730.18 and 730.28.......
------------------------------------------------------------------------

For this reason, we proposed to add the following diagnoses to the
principal diagnosis list for MS-DRGs 456 through 458:
015.02, Tuberculosis of bones and joints, vertebral
column, bacteriological or histological examination unknown (at
present)
015.04, Tuberculosis of bones and joints, vertebral
column, tubercle bacilli not found (in sputum) by microscopy, but found
by bacterial culture
015.05, Tuberculosis of bones and joints, vertebral
column, tubercle bacilli not found by bacteriological examination, but
tuberculosis confirmed histologically
730.08, Acute osteomyelitis of other specified sites
730.18, Chronic osteomyelitis of other specified sites
730.28, Unspecified osteomyelitis of other specified
sites.
For the complete list of principal diagnosis codes that lead to
assignment of CMS DRG 546 (MS-DRGs 496 through 498 in this final rule
with comment period), we refer readers to section II.D.4.b. of the
preamble of the FY 2007 IPPS final rule (71 FR 47947).
Comment: One commenter expressed support of CMS' refinement of the
DRGs for spinal procedures, and noted that it had made several
recommendations in the past. Specifically, this commenter was pleased
with the refinements to address multiple level procedures such as those
in proposed MS-DRGs 456-458 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or 9+ Fusions with MCC/with CC/and without CC/
MCC, respectively), as well as the proposal to add specified diagnoses
of tuberculosis and osteomyelitis to the list of principal diagnoses
for MS-DRGs 456-458. The commenter also supported the proposal to move
cases involving the use of motion-preserving spine devices into the
higher severity level of MS-DRG 490.
This commenter suggested that MS-DRG 460 (Spinal Fusion Except
Cervical without MCC) should include severity levels that distinguish
with CC and without CC cases. The commenter urged CMS to create a CC
split for this MS-DRG.
Response: We appreciate the commenter's support for the refinements
proposed to the spine DRGs. The data analysis conducted in developing
the MS-DRGs did not support a CC split for proposed MS-DRG 460. As
stated in the FY 2008 proposed rule, in order to warrant creation of a
CC or major CC subgroup within a base MS-DRG, the subgroup had to meet
all five criteria. We refer readers to the FY 2008 proposed rule (72 FR
24705) and section II.D.3 of this final rule with comment period for a
complete listing of the criteria. As stated in the proposed rule, the
data did support a split for proposed MS-DRG 460 with two severity
levels of with MCC and without MCC. Therefore, in this final rule with
comment period we are implementing MS-DRG 460 as final policy.
Comment: One manufacturer requested that CMS reassign newly created
procedure code 84.82 (Insertion or replacement of pedicle-based dynamic
stabilization device(s)), effective October 1, 2007, from proposed MS-
DRG 490 to MS-DRG 460. The commenter stated the surgical procedure
requirements for code 84.82 are very similar to other procedures that
were proposed for assignment to MS-DRG 460 as a result of the
complexity and resources utilized. The commenter further noted that in
the FY 2008 proposed rule (72 FR 24734) CMS reported a total of 83
cases identified by code 84.59 (Insertion of other spinal devices) a
predecessor code to 84.82 and it is unknown whether the cases reported
with code 84.59 truly reflect dynamic stabilization procedures.
Response: In developing the MS-DRGs, we conducted a comprehensive
review of the entire group of spine DRGs and proposed a number of
revisions to account for differences in level of severity, complexity,
and resource utilization. We believe the proposed spinal MS-DRGs more
appropriately classify the variety of emerging spinal technologies. In
response to the uncertainty of correct coding and

[[Page 47229]]

accurate charge information for the reporting of pedicle-based dynamic
stabilization devices by code 84.59, we refer the commenter to the ICD-
9-CM Coordination and Maintenance Committee Meeting's September 28-29,
2006 and March 22-23, 2007 interim coding advice regarding these
devices, which was to continue using code 84.59 to describe this
technology.
Effective October 1, 2007, new code 84.82 will be available to
identify and describe procedures using pedicle-based dynamic
stabilization devices more accurately. Our practice has been to assign
a new code to the same MS-DRG as its predecessor code unless we have
clinical information or cost data that demonstrates a different MS-DRG
assignment is warranted. At this time, we have no information to
suggest that ICD-9-CM code 84.82 should be reassigned from MS-DRG 490.
As final policy for FY 2008, code 84.82 will be assigned to MS-DRG 490.
Comment: Two commenters indicated that they supported the
reassignment of spinal fusion cases with a principal diagnosis of
tuberculosis or osteomyelitis to MS-DRGs 456-458 (Spinal Fusion Except
Cervical with Spinal Curvature or Malignancy or 9+ Fusions with MCC/
with CC/and Without CC/MCC, respectively) to better recognize the
utilization of resources involved with these cases, however they
recommended that the MS-DRG titles be modified to reflect these
conditions. One of the commenters suggested the following title
modifications:
MS-DRG 456 (Spinal Fusion Except Cervical with Spinal
Curvature, Malignancy, Tuberculosis, or Osteomyelitis or 9+ Fusions
with MCC)
MS-DRG 457 (Spinal Fusion Except Cervical with Spinal
Curvature, Malignancy, Tuberculosis, or Osteomyelitis or 9+ Fusions
with CC)
MS-DRG 458 (Spinal Fusion Except Cervical with Spinal
Curvature, Malignancy, Tuberculosis, or Osteomyelitis or 9+ Fusions
without CC/MCC)
Response: We appreciate the commenter's support of the proposal to
reassign cases with a principal diagnosis of tuberculosis or
osteomyelitis to MS-DRGs 456-458. We also appreciate the suggestion for
revising the DRG titles to better classify these patients. While we
recognize the creative approach to modifying the code titles, we must
limit the DRG titles to 68 characters.
We have reviewed the MS-DRG titles and are revising them as
follows:
MS-DRG 456 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or 9+ Fusions with MCC)
MS-DRG 457 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or 9+ Fusions with CC)
MS-DRG 458 (Spinal Fusion Except Cervical with Spinal
Curvature or Malignancy or 9+ Fusions without CC/MCC)
Therefore, effective October 1, 2007, the new titles for MS-DRGs
456-458 will be implemented as above.
c. Spinal Disc Devices
Over the past several years, manufacturers of spinal disc devices
have requested reassignment of DRGs for their products and applied for
new technology add-on payment. CHARITE^TM is one of these
devices. CHARITE^TM is a prosthetic intervertebral disc. On
October 26, 2004, the FDA approved the CHARITE^TM Artificial
Disc for single level spinal arthroplasty in skeletally mature patients
with degenerative disc disease between L4 and S1. On October 1, 2004,
we created new procedure codes for the insertion of spinal disc
prostheses (codes 84.60 through 84.69). We provided the CMS DRG
assignments for these new codes in Table 6B of the FY 2005 IPPS
proposed rule (69 FR 28673). We received comments on the FY 2005
proposed rule recommending that we change the assignments for these
codes from CMS DRG 499 (Back and Neck Procedures Except Spinal Fusion
with CC) and CMS DRG 500 (Back and Neck Procedures Except Spinal Fusion
without CC) to the CMS DRGs for spinal fusion, CMS DRG 497 (Spinal
Fusion Except Cervical with CC) and CMS DRG 498 (Spinal Fusion Except
Cervical without CC), for procedures on the lumbar spine and to CMS
DRGs 519 and 520 for procedures on the cervical spine. In the FY 2005
IPPS final rule (69 FR 48938), we indicated that CMS DRGs 497 and 498
are limited to spinal fusion procedures. Because the surgery involving
the CHARITE^TM Artificial Disc is not a spinal fusion, we
decided not to include this procedure in these CMS DRGs. However, we
stated that we would continue to analyze this issue and solicited
further public comments on the DRG assignment for spinal disc
prostheses.
In the FY 2006 final rule (70 FR 47353), we noted that, if a
product meets all of the criteria for Medicare to pay for the product
as a new technology under section 1886(d)(5)(K) of the Act, there is a
clear preference expressed in the statute for us to assign the
technology to a DRG based on similar clinical or anatomical
characteristics or costs. However, for FY 2006, we did not find that
the CHARITE^TM Artificial Disc met the substantial clinical
improvement criterion and, thus, did not qualify as a new technology.
Consequently, we did not address the DRG classification request made
under the authority of this provision of the Act.
We did evaluate whether to reassign the CHARITE^TM
Artificial Disc to different CMS DRGs using the Secretary's authority
under section 1886(d)(4) of the Act (70 FR 47308). We indicated that we
did not have Medicare charge information to evaluate CMS DRG changes
for cases involving an implant of a prosthetic intervertebral disc like
the CHARITE^TM and did not make a change in its CMS DRG
assignments. We stated that we would consider whether changes to the
CMS DRG assignments for the CHARITE^TM Artificial Disc were
warranted for FY 2007, once we had information from Medicare's data
system that would assist us in evaluating the costs of these patients.
As we discussed in the FY 2007 IPPS proposed rule (71 FR 24036), we
received correspondence regarding the CMS DRG assignments for the
CHARITE^TM Artificial Disc, code 84.65 (Insertion of total
spinal disc prosthesis, lumbosacral). The commenter had previously
submitted an application for the CHARITE^TM Artificial Disc
for new technology add-on payments for FY 2006 and had requested a
reassignment of cases involving CHARITE^TM implantation to
CMS DRGs 497 and 498. The commenter asked that we examine claims data
for FY 2005 and reassign procedure code 84.65 from CMS DRGs 499 and 500
into CMS DRGs 497 and 498. The commenter again stated the view that
cases with the CHARITE^TM Artificial Disc reflect comparable
resource use and similar clinical indications as do those in CMS DRGs
497 and 498. If CMS were to reject reassignment of the
CHARITE^TM Artificial Disc to CMS DRGs 497 and 498, the
commenter suggested creating two separate DRGs for lumbar disc
replacements.
On February 15, 2006, we posted a proposed national coverage
determination (NCD) on the CMS Web site seeking public comment on our
proposed finding that the evidence is not adequate to conclude that
lumbar artificial disc replacement with the CHARITE^TM
Artificial Disc is reasonable and necessary. The proposed NCD stated
that lumbar artificial disc replacement with the CHARITE^TM
Artificial Disc is generally not indicated in patients over 60 years
old. Further, it stated that there is insufficient evidence among
either the aged or disabled Medicare population to make a

[[Page 47230]]

reasonable and necessary determination for coverage. With an NCD
pending to make spinal arthroplasty with the CHARITE^TM
Artificial Disc noncovered, we indicated in the FY 2007 IPPS proposed
rule that we did not believe it was appropriate at that time to
reassign procedure code 84.65 from CMS DRGs 499 and 500 to CMS DRGs 497
and 498.
After considering the public comments and additional evidence
received, we made a final NCD on May 16, 2006, that Medicare would not
cover the CHARITE^TM Artificial Disc for the Medicare
population over 60 years of age. For Medicare beneficiaries 60 years of
age and under, local Medicare contractors have the discretion to
determine coverage for lumbar artificial disc replacement procedures
involving the CHARITE^TM Artificial Disc. The final NCD can
be found on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewncd.asp:ncd_id-150.10&ncd_version1&basket=ncd%3A150%2E10%3A1%3ALumbar+Artificial+Disc+Replacement%280ADR%29.
We agreed with a commenter on the FY 2007 IPPS proposed rule that
it was not appropriate to consider a DRG revision at that time for the
CHARITE^TM Artificial Disc, given the recent decision to
limit coverage for surgical procedures involving this device. Although
we had reviewed the Medicare charge data, we were concerned that there
were a very small number of cases for patients under 60 years of age
who had received the CHARITE^TM Artificial Disc. We believed
it appropriate to base the decision of a DRG change on charge data only
on the population for which the procedure is covered. We had an
extremely small number of cases for Medicare beneficiaries under 60 on
which to base such a decision. For this reason, we did not believe it
was appropriate to modify the CMS DRGs in FY 2007 for
CHARITE^TM cases.
For FY 2008, we proposed to collapse CMS DRGs 499 and 500 (Back and
Neck Procedures Except Spinal Fusion With and Without CC, respectively)
and identified a total of 74,989 cases. Under the proposed MS-DRGs
(which we are adopting in this final rule with comment period), the
result of the analysis of the data supports that these CMS DRGs split
into two severity levels: MS-DRG 490 (Back and Neck Procedures Except
Spinal Fusion with CC or MCC) and MS-DRG 491 (Back and Neck Procedures
Except Spinal Fusion Without CC or MCC). We found a total of 53 cases
that used the CHARITE^TM Artificial Disc. Without any further
modification to the proposed MS-DRGs, average charges are $26,481 for 6
cases with a CC or MCC and $37,324 for 47 CHARITE^TM cases
without a CC or MCC. (We find it counterintuitive that average charges
for cases in the higher severity level are lower but checked our data
and found it to be correct).
We also analyzed data for other spinal disc devices. Average
charges for the X Stop Interspinous Process Decompression Device (code
84.58) are $31,400 for cases with a CC or MCC and $28,821 for cases
without a CC or MCC. Average charges for other specified spinal devices
described by code 84.59 (Coflex, Dynesys, M-Brace) are $34,002 for 18
cases with a CC or MCC and $33,873 for 65 cases without a CC or MCC. We
compared these average charges to data in the proposed spinal fusion
MS-DRGs 453 (Combined Anterior/Posterior Spinal Fusion With MCC), 454
(Combined Anterior/Posterior Spinal Fusion with CC), 455 (Combined
Anterior/Posterior Spinal Fusion without CC/MCC), 459 (Spinal Fusion
Except Cervical with MCC), and 460 (Spinal Fusion Except Cervical
without MCC). These cases have lower average charges than the spinal
fusion MS-DRGs. The following tables display the results:

------------------------------------------------------------------------
Average
MS-DRGs 490 and 491 Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 490--All Cases............ 17,493 5.13 $29,656
MS-DRG 490--Cases with Procedure 6 3.33 26,481
Code 84.65 (CHARITE\TM\)........
MS-DRG 491--All Cases............ 57,496 2.27 17,789
MS-DRG 491--Cases with Procedure 47 2.43 37,324
Code 84.65 (CHARITE\TM\)........
MS-DRG 491--Cases without 57,449 2.27 17,773
Procedure Code 84.65
(CHARITE\TM\)...................
MS-DRG 490--All Cases............ 17,493 5.13 29,656
MS-DRG 490--Cases with Procedure 179 2.65 31,400
Code 84.58 (X Stop).............
MS-DRG 490--Cases without 17,314 5.15 29,638
Procedure Code 84.58 (X Stop)...
MS-DRG 491--All Cases............ 57,496 2.27 17,789
MS-DRG 491--Cases with Procedure 1,174 1.34 28,821
Code 84.58 (X Stop).............
MS-DRG 491--Cases without 56,322 2.29 17,559
Procedure Code 84.58 (X-Stop)...
MS-DRG 490--All Cases............ 17,493 5.13 29,656
MS-DRG 490--Cases with Procedure 18 5.56 34,002
Code 84.59 (Coflex/Dynesys/M-
Brace)..........................
MS-DRG 490--Cases without 17,475 5.13 29,651
Procedure Code 84.59 (Coflex/
Dynesys/M-Brace)................
MS-DRG 491--All Cases............ 57,496 2.27 17,789
MS-DRG 491--Cases with Procedure 65 2.35 33,873
Code 84.59 (Coflex/Dynesys/M-
Brace)..........................
MS-DRG 491--Cases without 57,431 2.27 17,770
Procedure Code 84.59 (Coflex/
Dynesys/M-Brace)................
------------------------------------------------------------------------

------------------------------------------------------------------------
Average
MS-DRGs 453, 454, 455, 459 and Number of length of Average
460 cases stay charges
------------------------------------------------------------------------
MS-DRG 453--Combined Anterior/ 792 15.84 $180,658
Posterior Spinal Fusion With MCC
MS-DRG 454--Combined Anterior/ 1,411 8.69 116,402
Posterior Spinal Fusion With CC.
MS-DRG 455--Combined Anterior/ 1,794 4.84 85,927
Posterior Spinal Fusion Without
CC/MCC..........................
MS-DRG 459--Spinal Fusion Except 3,186 10.10 99,298
Cervical with MCC...............
MS-DRG 460--Spinal Fusion Except 48,481 4.36 59,698
Cervical without MCC............
------------------------------------------------------------------------

The data demonstrate that the average charges for
CHARITE^TM and the other devices are higher than other cases
in proposed MS-DRGs 490 and 491 but lower than proposed MS-DRGs 453
through 455 and 459 and 460. For this reason, we do not believe that
any of the cases that use these spine devices should be assigned to the
spinal fusion

[[Page 47231]]

MS-DRGs. However, we do believe that the average charges for cases
using these spine devices are more similar to the higher severity level
in MS-DRG 490.
As such, in the FY 2008 IPPS proposed rule, we proposed to move
cases with procedure codes 84.58, 84.59, and 84.65 into proposed MS-DRG
490 and revise the title to reflect disc devices. The proposed modified
MS-DRG title would be: MS-DRG 490 (Back and Neck Procedures Except
Spinal Fusion with CC or MCC or Disc Devices).
We believe these proposed changes to the spine DRGs are appropriate
to recognize the similar utilization of resources, differences in
levels of severity, and complexity of the services performed for
various types of spinal procedures described above. We encouraged
commenters to provide input on this approach to better recognize the
types of patients these procedures are being performed upon and their
outcomes.
Comment: Several commenters supported our proposal to recognize
utilization of resources, differences in levels of severity, and the
complexity of spinal procedures in proposed MS-DRGs 490 and 491. The
commenters were pleased with the proposal to reassign cases identified
by procedure codes 84.58 \24\, 84.59 and 84.65 to proposed MS-DRG 490
(Back and Neck Procedures Except Spinal Fusion with CC or MCC or Disc
Devices). One commenter stated that the proposed refinements to MS-DRG
490 result in Medicare payment that better recognizes patient
conditions and procedural complexity. Another commenter believed that
the proposals will provide more appropriate payment and ensure patient
access to spine technologies. This commenter commended CMS for its
responsiveness in considering resource use associated with new
technologies, such as spine motion preservation devices, and stated the
proposal to assign higher payment rates will enable hospitals to
provide Medicare patients with access to these technologies.
---------------------------------------------------------------------------

\24\ Effective October 1, 2007, procedure code 84.58
(Implantation of interspinous process decompression device) has been
deleted and replaced by new procedure code 84.80 (Insertion or
replacement of interspinous process device(s)).
---------------------------------------------------------------------------

Two commenters suggested CMS also consider moving cases with
procedure code 84.62 (Insertion of total spinal disc prosthesis,
cervical) into MS-DRG 490. The commenters stated that this procedure is
clinically coherent with the other cases proposed for reassignment to
this DRG. Many commenters also recommended that CMS continue analyzing
claims data in the future to ensure appropriate DRG assignment for all
spinal related procedures.
Response: We greatly appreciate the commenters' support of our
proposal. We analyzed data for procedure code 84.62 and found 23 cases
with an average length of stay of 1.48 days and average charges of
$30,114 in MS-DRG 491. We also identified 4 cases in MS-DRG 490 with an
average length of stay of 10.5 days and average charges of $104,313.
The table below displays our results.

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 490--All cases............ 17,493 5.13 $29,655
MS-DRG 490--Cases with code 84.62 4 10.50 104,313
MS-DRG 490--Cases without code 17,484 5.13 29,633
84.62...........................
MS-DRG 491--All cases............ 57,496 2.27 17,788
MS-DRG 491--Cases with code 84.62 23 1.48 30,114
MS-DRG 491--Cases without code 57,470 2.27 17,783
84.62...........................
------------------------------------------------------------------------

We agree that cases with procedure code 84.62 appear to require
greater utilization of resources than other cases in MS-DRG 491 and
they are clinically similar to other spine disc prostheses cases we are
assigning to MS-DRG 490. Therefore, in this FY 2008 final rule, we are
moving cases identified by procedure code 84.62 from MS-DRG 491 to MS-
DRG 490.
Comment: One commenter urged CMS to reconsider the placement of
procedure code 84.65 (Insertion of total spinal disc prosthesis,
lumbosacral) into MS-DRG 490. The commenter indicated this code
represents technology that is a significant alternative to spinal
fusion for a number of patients diagnosed with degenerative disc
disease. The commenter noted that a total disc replacement is different
from the other procedures included in MS-DRG 490 and is more complex.
For example, excision of an intervertebral disc (code 80.51) represents
only one component of a total disc replacement surgery; however, both
procedures are assigned to the same DRG and receive the same payment.
The commenter further noted that other procedures included in MS-DRG
490 do not involve the removal of a disc and including all of these
procedures together is not an accurate reflection of clinical
coherence.
According to the commenter, a variety of new artificial discs are
leading to improvements in the area of total disc replacement
procedures, including the ProDisc-L\TM\ Total Disc Arthroplasty. In
addition, the commenter stated, ``appropriate Medicare payment is
essential to ensure access to this alternative treatment and the
diffusion of an innovative new technology.'' The commenter believed
that the most appropriate MS-DRG assignment for code 84.65 is MS-DRG
460 (Spinal Fusion Except Cervical without MCC) and requested that CMS
reassign procedure code 84.65 to MS-DRG 460 and modify the title to
``Spinal Fusion Except Cervical without MCC and Artificial Disc
Replacement.''
Response: We disagree with the commenter that cases identified by
procedure code 84.65 should be reassigned to MS-DRG 460 with a revised
title. We provided the analysis in the FY 2008 IPPS proposed rule that
demonstrated the average charges for code 84.65 were substantially
lower than the average charges for the spinal fusion MS-DRGs but higher
than the average charges for other cases in proposed MS-DRGs 490 and
491. As a result, we proposed to move cases identified by procedure
code 84.65 into the higher severity level and modify the proposed title
to reflect disc devices. We agree with the above statement,
``appropriate Medicare payment is essential to ensure access to this
alternative treatment and the diffusion of an innovative new
technology'' made by the commenter. The charge data do not support
moving cases with procedure code 84.65 into the spinal fusion DRGs at
this time. As a result, effective October 1, 2007, cases

[[Page 47232]]

identified by procedure code 84.65 will remain assigned to MS-DRG 490
(Back and Neck Procedures Except Spinal Fusion with CC or MCC or Disc
Devices) with the modified title as proposed.
d. Other Spinal DRGs
We did not identify any data to support moving cases in or out of
CMS DRGs 496 (Combined Anterior/Posterior Spinal Fusion), 519 (Cervical
Spinal Fusion with CC), or 520 (Cervical Spinal Fusion without CC)).
Under the proposed MS-DRG system, we proposed to split CMS DRG 496 into
three severity levels: MS-DRG 453 (Combined Anterior/Posterior Spinal
Fusion with MCC), MS-DRG 454 (Combined Anterior/Posterior Spinal Fusion
with CC), and proposed MS-DRG 455 (Combined Anterior/Posterior Spinal
Fusion without CC). We also proposed to split CMS DRG 519 into three
severity levels: MS-DRG 471 (Cervical Fusion with MCC), MS-DRG 472
(Cervical Fusion with CC), and MS-DRG 473 (Cervical Fusion without CC).
In the FY 2008 IPPS proposed rule, we did not propose changes to these
DRGs.
We did not receive any public comments on the above proposals to
refine the remaining spinal DRGs. Therefore, in this final rule with
comment period, we are adopting as final MS-DRGs 453, 454, 455, 471,
472, and 473.
5. MDC 17 (Myeloproliferative Diseases and Disorders, Poorly
Differentiated Neoplasm): Endoscopic Procedures
Between last year's final rule and this year's proposed rule, we
received a request from a manufacturer to review the DRG assignment of
codes 33.71 (Endoscopic insertion or replacement of bronchial
valve(s)), 33.78 (Endoscopic removal of bronchial device(s) or
substances), and 33.79 (Endoscopic insertion of other bronchial device
or substances) with the intent of moving these three codes out of CMS
DRG 412 (History of Malignancy With Endoscopy) (MS-DRGs 843, 844, and
845 in this final rule with comment period). The requestor noted that
CMS DRG 412 is titled to be a DRG for cases with a history of
malignancy, and none of the three codes (33.71, 33.78, or 33.79)
necessarily involve treatment for malignancies. In addition, the
requestor believed the integrity of the DRG is compromised because the
other endoscopy codes assigned to CMS DRG 412 are all diagnostic in
nature, while codes 33.71, 33.78, and 33.79 represent therapeutic
procedures.
The requestor also stated that while the diagnostic endoscopies in
CMS DRG 412 do not have significant costs for equipment or
pharmaceutical agents beyond the basic endoscopy, the therapeutic
procedures described by codes 33.71, 33.78, and 33.79 involve
substantial costs for devices or substances in relation to the cost of
the endoscopic procedure itself. The requestor was concerned that, if
these three codes continue to be assigned to CMS DRG 412, payment will
be so inadequate as to constitute a substantial barrier to Medicare
beneficiaries for these treatments.
ICD-9-CM procedure codes 33.71, 33.78, and 33.79 were all created
for use beginning October 1, 2006. In the proposed rule, we stated that
these codes have been in use only for a few months, and we had no data
to make a different DRG assignment. We assigned these codes based on
the advice of our medical officers to a DRG that included similar
clinical procedures.
On the matter of codes 33.71, 33.78, and 33.79 being therapeutic in
nature while all other endoscopies assigned to CMS DRG 412 are
diagnostic, we disagreed with the commenter in the proposed rule. CMS
DRG 412 includes procedure codes for therapeutic endoscopic destruction
of lesions of the bronchus, lung, stomach, anus, and duodenum, as well
as codes for polypectomy of the intestine and rectum. In addition, we
note that there are codes for insertion of therapeutic devices
currently located in this DRG.
In the proposed rule, we stated that it would be premature to
assign these codes to another DRG without any supporting data. We
indicated that we would reconsider our decision for these codes if we
had data suggesting that a DRG reassignment was warranted. Therefore,
aside from the proposed changes to the MS-DRGs, in the FY 2008 IPPS
proposed rule, we did not propose to change the current DRG assignment
for codes 33.71, 33.78, and 33.79.
Comment: We did not receive any specific comments addressing the
published proposal. We did receive comments asking CMS to use external
data to make DRG assignments until Medicare data are available.
Response: We reiterate that the new codes under discussion were
created for use beginning October 1, 2006. Commenters did not provide
any external data for us to evaluate. We have no data that would
support a different DRG assignment for these codes. Therefore, codes
33.71 (Endoscopic insertion or replacement of bronchial valve(s)),
33.78 (Endoscopic removal of bronchial device(s) or substances), and
33.79 (Endoscopic insertion of other bronchial device or substances)
will remain assigned to MS-DRGs 843, 844, and 845 (Other
Myeloproliferative Disease or Poorly Differentiated Neoplasm Diagnosis
w/MCC, w/CC or w/o CC/MCC respectively) until we have data that suggest
a different DRG assignment would be warranted.
6. Medicare Code Editor (MCE) Changes
As explained under section II.B.1. of the preamble of this final
rule with comment period, the Medicare Code Editor (MCE) is a software
program that detects and reports errors in the coding of Medicare
claims data. Patient diagnoses, procedure(s), and demographic
information are entered into the Medicare claims processing systems and
are subjected to a series of automated screens. The MCE screens are
designed to identify cases that require further review before
classification into a DRG. For FY 2008, we proposed to make the
following changes to the MCE edits.
a. Non-Covered Procedure Edit: Code 00.62 (Percutaneous angioplasty or
atherectomy of intracranial vessel(s))
As discussed in II.G.2. of the preamble of this final rule with
comment period, under MDC 1, code 00.62 is a covered service when
performed in conjunction with code 00.65 (Percutaneous insertion of
intracranial vascular stent(s)). Effective November 6, 2006, Medicare
covers PTA and stenting of intracranial arteries for the treatment of
cerebral artery stenosis in cases in which stenosis is 50 percent or
greater in patients with intracranial atherosclerotic disease when
furnished in accordance with the FDA-approved protocols governing
Category B Investigational Device Exemption (IDE) clinical trials. CMS
determined that coverage of intracranial PTA and stenting is reasonable
and necessary under these circumstances. Therefore, we proposed to make
a conforming change and to add the following language to this edit:
Procedure code 00.62 (PTA of intracranial vessel(s)) is identified as a
noncovered procedure except when it is accompanied by procedure code
00.65 (Intracranial stent).
We did not receive any public comments on this proposal. Therefore,
for FY 2008, we are adopting as final our proposed revision of the
coverage edit, recognizing procedure code 00.62 (Percutaneous
angioplasty or atherectomy of intracranial vessel(s)) as a covered
procedure when reported in conjunction with procedure code 00.65
(Intracranial stent).

[[Page 47233]]

b. Non-Specific Principal Diagnosis Edit 7 and Non-Specific O.R.
Procedures Edit 10
When MCE Non-Specific Principal Diagnosis Edit 7 and Non-Specific
O.R. Procedures Edit 10 were created at the beginning of the IPPS, it
was with the intent that they were to encourage hospitals to code as
specifically as possible. While the codes on both edits are valid
according to the ICD-9-CM coding scheme, more precise codes are
preferable to give a more complete understanding of the services
provided on the Medicare claims. When the MCE was created, we had
intended that these specific edits would allow educational contact
between the provider and the contractor. It was never the intention
that these edits would be used to deny/reject or return-to-provider
those claims submitted with non-specific codes. However, we found these
two edits to be misunderstood, and found that claims were erroneously
being denied, rejected, or returned. On November 11, 2006, CMS issued a
Joint Signature Memorandum that instructed all fiscal intermediaries
and all Part A and Part B Medicare Administrative Contractors (A/B
MACs) to deactivate the Fiscal Intermediary Shared System Edits W1436
through W1439 and W1489 through W1491 which edited for Non-Specific
Diagnoses and the Non-Specific Procedures.
Therefore, in the FY 2008 IPPS proposed rule, we proposed to make a
conforming change to the MCE by removing the following codes from Edit
7:
00320
01590
01591
01592
01593
01594
01596
0369
0399
0528
05310
0538
05440
0548
0558
05600
0568
06640
07070
07071
0728
0738
07420
08240
0979
09810
09830
09950
0999
1009
1109
1129
1149
1279
129
1309
13100
1319
1329
1369
1370
1371
1372
1373
1374
138
1390
1391
1398
1409
1419
1429
1439
1449
1469
1479
1509
1519
1529
1539
1543
1579
1589
1590
1609
1619
1629
1639
1649
1709
1719
1729
1739
1749
1769
179
1809
1839
1874
1879
1889
1899
1909
1929
1949
1969
1991
20490
20491
20590
20591
20690
20691
20890
20891
2129
2139
2149
2159
2169
2189
2199
2229
2239
2249
2259
2279
22800
2299
2306
2319
2329
2349
23690
23770
23875
2390
2391
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9989

In addition, we proposed to make a conforming change to the MCE by
removing the following codes from Edit 10:

0650
0700
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8153
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8400
8440
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8469
8660
8670

Comment: Several commenters commended CMS for simplifying what they
considered to be a burdensome edit that has ceased to serve its
intended purpose.
Response: We appreciate the commenters' support for the removal of
the specified codes from Edit 7 and Edit 10.
Comment: One commenter pointed out that code 015.95 (Tuberculosis
of unspecified bones and joints, tubercle bacilli not found by
bacteriological examination, but tuberculosis confirmed histologically)
was included on the list of nonspecific principal diagnoses in the MCE,
but was not included in the list of codes to be deleted in the proposed
rule.
Response: The commenter is correct; code 015.95 should have been
included in the list of codes to be deleted from Edit 7. We have
modified the list to include deletion of this code as part of the
deletion of the edit in the MCE software.
After consideration of the public comments received, in this final
rule with comment period, we are finalizing our deletion of the
specified listed codes in Edit 7 (Non-Specific Principal Diagnosis)
(including code 015.95) and in Edit 10 (Non-Specific O.R. Procedures)
of the MCE.
c. Limited Coverage Edit 17
Edit 17 in the MCE contains ICD-9-CM procedure codes describing
medically complex procedures, including lung volume reduction surgery,
organ transplants, and implantable heart assist devices which are to be
performed only in certain pre-approved medical centers. CMS has
established, through regulation (CMS-3835-F: Medicare Conditions of
Participation: Requirements for Approval and Reapproval of Transplant
Centers to Perform Organ Transplants, published in the Federal Register
on March 30, 2007 (72 FR 15198)), a survey and certification process
for organ transplant programs. The organs covered in this transplant
regulation are heart, heart and lung combined, intestine, kidney,
liver, lung, pancreas, and multivisceral. Historically, kidney
transplants have been regulated under the End-Stage Renal Disease
(ESRD) conditions for coverage. Other types of organ transplant
facilities have been regulated under various NCDs.
The regulation becomes effective on June 28, 2007. Organ transplant
programs will have 180 days from the June 28, 2007 effective date of
the regulation to apply for participation in the Medicare program under
the new survey and certification process. After these programs apply,
we will survey and approve programs that meet the new Medicare
conditions of participation. Until transplant facilities are surveyed
and approved, kidney transplant facilities will continue to be
regulated under the ESRD conditions for coverage, and other types of
organ transplant facilities will continue to be regulated under the
NCDs.
In the FY 2008 IPPS proposed rule, we proposed to add conforming
Medicare Part A payment edits to the MCE, consistent with the
requirements of the organ transplant regulation (CMS-3835-F), to ensure
that Medicare covers only those organ transplants performed in Medicare
approved facilities. We proposed to add the following procedure codes
to the existing list of limited coverage procedures under Edit 17:
55.69, Other kidney transplantation
52.80, Pancreatic transplant, not otherwise specified
52.82, Homotransplant of pancreas
We did not receive any public comments on this portion of the
proposed MCE revisions. Therefore, we will implement the changes as
stated above by adding procedure codes 55.69, 52.80, and 52.82 to the
list of limited coverage procedures in the MCE.
d. Revision to Part 1, Pancreas Transplant Edit A
Effective for services performed on or after April 26, 2006, we
published an NCD for Pancreas Transplants in section 260.3 of the
Coverage Manual, stating that pancreas alone transplants are reasonable
and necessary for Medicare beneficiaries in facilities that are
Medicare-approved for kidney transplantation. In addition, patients
must have a diagnosis of Type I diabetes mellitus. The complete NCD can
be found at the following CMS Web site: http://www.cms.hhs.gov/mcd/
viewncd

[[Page 47239]]

.asp?ncd--id=260.3&ncd--version=
3&basket=ncd%3A260%2E3%3A3%3APancreas+Transplants.
Edit A in the MCE currently includes the following language and
codes.
Procedure codes 52.80 (Pancreatic transplant, not otherwise
specified) and 52.82 (Homotransplant of pancreas) are identified as
non-covered procedures except for the following two conditions:
When either 52.80 or 52.82 are combined with the procedure code in
Procedure list 2 and there is at least one principal or secondary
diagnosis code present from both Diagnosis List 1 and Diagnosis List 2.

Procedure List 1:
Code 52.80
Code 52.82
Procedure List 2:
Code 55.69
Diagnosis List 1:
Codes 250.00 through 250.93

Diagnosis List 2:
Code 403.01
Code 403.11
Code 403.91
Code 404.02
Code 404.03
Code 404.12
Code 404.13
Code 404.92
Code 404.93
Codes 585.1 through 585.6
Code 585.9
Code V42.0
Code V43.89''

This technical correction was not included in the FY 2008 IPPS
proposed rule because of the timing of the release of the NCD. However,
we need to make a revision to Edit A in the MCE to conform to the
changes in our national coverage of the pancreas alone (PA) procedure.
This NCD was implemented on July 3, 2006, which prevented us from
addressing the MCE edit in the FY 2007 IPPS final rule. However,
because the MCE changes for FY 2007 are retroactive to April 26, 2006,
both procedure codes 52.80 and 52.82 will still trigger a limited
coverage edit when coverage criteria have been met. Therefore, we are
removing Edit A in its entirety from the MCE.
7. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different 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 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.
For FY 2008, we did not propose any revisions of the surgical
hierarchy for any MDC. In general, the MS DRGs that we proposed (and
are adopting in this final rule with comment period) for use in FY 2008
and discussed in section II.D. of the preamble of this final rule with
comment period follow the same hierarchical order as the CMS DRGs they
are replacing, except for DRGs that were deleted and consolidated.
Comment: Two commenters supported no changes in the surgical
hierarchy for FY 2008. However, one commenter stated that CMS should
continue to revisit this issue on an annual basis.
Response: We will continue to conduct annual analysis of the
surgical hierarchy in the MS-DRGs as we have with the CMS-DRGs and
propose revisions when necessary. For FY 2008, there will no changes to
the surgical hierarchy.
8. CC Exclusions List
a. Background
As indicated earlier in the preamble of this final rule with
comment period, under the IPPS DRG classification system, we have
developed a standard list of diagnoses that are considered CCs.
Historically, we developed this list using physician panels that
classified each diagnosis code based on whether the diagnosis, when
present as a secondary condition, would be considered a substantial
complication or

[[Page 47240]]

comorbidity. A substantial complication or comorbidity was defined as a
condition that, because of its presence with a specific principal
diagnosis, would cause an increase in the length of stay by at least 1
day in at least 75 percent of the patients. We refer readers to section
II.D.2. and 3. of the preamble of this final rule with comment period
for a discussion of the refinement of CCs in relation to the MS-DRGs we
proposed and are adopting in this final rule with comment period for FY
2008.
b. CC Exclusions List for FY 2008
In the September 1, 1987 final notice (52 FR 33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered valid CCs in combination with a particular principal
diagnosis. We created the CC Exclusions List for the following reasons:
(1) to preclude coding of CCs for closely related conditions; (2) to
preclude duplicative or inconsistent coding from being treated as CCs;
and (3) to ensure that cases are appropriately classified between the
complicated and uncomplicated DRGs in a pair. As we indicated above, we
developed a list of diagnoses, using physician panels, to include those
diagnoses that, when present as a secondary condition, would be
considered a substantial complication or comorbidity. In previous
years, we have made changes to the list of CCs, either by adding new
CCs or deleting CCs already on the list.
In the May 19, 1987 proposed notice (52 FR 18877) and the September
1, 1987 final notice (52 FR 33154), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another.
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for the same condition should not be considered
CCs for one another.
Codes for the same condition that cannot coexist, such as
partial/total, unilateral/bilateral, obstructed/unobstructed, and
benign/malignant, should not be considered CCs for one another.
Codes for the same condition in anatomically proximal
sites should not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. We have continued to review the remaining
CCs to identify additional exclusions and to remove diagnoses from the
master list that have been shown not to meet the definition of a
CC.\25\
---------------------------------------------------------------------------

\25\ See the FY 1989 final rule (53 FR 38485, September 30,
1988), for the revision made for the discharges occurring in FY
1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for
the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September
4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR
43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final
rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the
FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994
revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994),
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782,
September 1, 1995), for the FY 1996 revisions; the FY 1997 final
rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the
FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998
revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August
1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR
39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final
rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the
FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004
revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004),
for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640,
August 12, 2005), for the FY 2006 revisions; and the FY 2007 final
rule (71 FR 47870) for the FY 2007 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.
---------------------------------------------------------------------------

For FY 2008, as we proposed, we are making limited revisions to the
CC Exclusions List to take into account the changes that will be made
in the ICD-9-CM diagnosis coding system effective October 1, 2007. (See
section II.G.10. of the preamble of this final rule with comment period
for a discussion of ICD-9-CM changes.) We are making these changes in
accordance with the principles established when we created the CC
Exclusions List in 1987. In addition, as discussed in section II.D.3.
of the preamble of this final rule with comment period, we are
indicating on the CC exclusion list some updates to reflect the
exclusion of a few codes from being an MCC under the MS-DRG system that
we are adopting for FY 2008.
Tables 6G and 6H, Additions to and Deletions from the CC Exclusion
List, respectively, which are included in the Addendum to this final
rule with comment period, will be effective for discharges occurring on
or after October 1, 2007. Each of these principal diagnoses for which
there is a CC exclusion is shown with an asterisk, and the conditions
that will not count as a CC are provided in an indented column
immediately following the affected principal diagnosis.
A complete updated MCC, CC, and Non-CC Exclusions List is available
through the Internet on the CMS Web site at: http:/www.cms.hhs.gov/
AcuteInpatientPPS. Beginning with discharges on or after October 1,
2007, the indented diagnoses will not be recognized by the GROUPER as
valid CCs for the asterisked principal diagnosis.
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 24.0, is available for $225.00,
which includes $15.00 for shipping and handling. Version 25.0 of this
manual, which will include the final FY 2008 DRG changes, will be
available in hard copy for $250.00. Version 25.0 of the manual is also
available on a CD for $200.00; a combination hard copy and CD is
available for $400.00. 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.
9. Review of Procedure Codes in CMS DRGs 468, 476, and 477
Each year, we review cases assigned to CMS DRG 468 (Extensive O.R.
Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic
O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477
(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to
determine whether it would be appropriate to change the procedures
assigned among these CMS DRGs. Under the MS-DRGs that we are adopting
for FY 2008, discussed in section II.D. of the preamble of this final
rule with comment period, CMS DRG 468 has a three-way split and becomes
MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to
Principal Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 476
becomes proposed MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/
MCC). CMS DRG 477 becomes MS-DRGs 987, 988, and 989 (Nonextensive O.R.
Procedure Unrelated to Principal Diagnosis with MCC, with CC, and
without CC/MCC).
MS-DRGs 981 through 983, 984 through 986, and 987 through 989
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for
those cases in which none of the O.R. procedures performed are related
to the principal diagnosis. These CMS DRGs are

[[Page 47241]]

intended to capture atypical cases, that is, those cases not occurring
with sufficient frequency to represent a distinct, recognizable
clinical group. MS-DRGs 984 through 986 (previously CMS DRG 476) are
assigned to those discharges in which one or more of the following
prostatic procedures are performed and are unrelated to the principal
diagnosis:
60.0, Incision of prostate.
60.12, Open biopsy of prostate.
60.15, Biopsy of periprostatic tissue.
60.18, Other diagnostic procedures on prostate and
periprostatic tissue.
60.21, Transurethral prostatectomy.
60.29, Other transurethral prostatectomy.
60.61, Local excision of lesion of prostate.
60.69, Prostatectomy, not elsewhere classified.
60.81, Incision of periprostatic tissue.
60.82, Excision of periprostatic tissue.
60.93, Repair of prostate.
60.94, Control of (postoperative) hemorrhage of prostate.
60.95, Transurethral balloon dilation of the prostatic
urethra.
60.96, Transurethral destruction of prostate tissue by
microwave thermotherapy.
60.97, Other transurethral destruction of prostate tissue
by other thermotherapy.
60.99, Other operations on prostate.
All remaining O.R. procedures are assigned to MS-DRGs 981 through
983 and 987 through 989 (previously CMS DRGs 468 and 477), with MS-DRGs
987 through 989 (previously CMS DRG 477) assigned to those discharges
in which the only procedures performed are nonextensive procedures that
are unrelated to the principal diagnosis.\26\
---------------------------------------------------------------------------

\26\ 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. In the FY
2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned
it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and
assigned it to DRGs 479, 553, and 554.
---------------------------------------------------------------------------

In the FY 2008 IPPS proposed rule, we did not propose to change the
procedures assigned among these DRGs. We did not receive any public
comments on this subject. Therefore, for FY 2008, we are not changing
the procedures assigned among these DRGs.
a. Moving Procedure Codes From CMS DRG 468 (MS-DRGs 981 Through 983) or
CMS DRG 477 (MS-DRGs 987 through 989) to MDCs
We annually conduct a review of procedures producing assignment to
CMS DRG 468 (MS-DRGs 981 through 983 in this final rule with comment
period) or CMS DRG 477 (MS-DRGs 987 through 989 in this final rule with
comment period) 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 in two ways for comparison purposes. We
look at a frequency count of each major operative procedure code. We
also compare procedures across MDCs by volume of procedure codes within
each MDC.
We identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical DRGs for the MDC in which the diagnosis falls. In
the FY 2008 IPPS proposed rule, we did not propose to remove any
procedures from CMS DRG 468 (MS-DRGs 981 through 983 in this final rule
with comment period) or CMS DRG 477 (MS-DRGs 987 through 989). We did
not receive any public comments on this subject. Therefore, based on
this year's review, we are not removing any procedures from these DRGs.
b. Reassignment of Procedures Among CMS DRGs 468, 476, and 477 (MS-DRGs
981 through 983, 984 through 986, and 987 through 989)
We also annually review the list of ICD-9-CM procedures that, when
in combination with their principal diagnosis code, result in
assignment to CMS DRGs 468, 476, and 477 (MS-DRGs 981 through 983, 984
through 986, and 987 through 989, respectively, in this final rule with
comment period), to ascertain whether 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.
We did not propose to move any procedure codes among these DRGs. We
did not receive any public comments on this subject. Therefore, we are
not moving any procedure codes from CMS DRG 476 (MS-DRGs 984, 985, and
986 in this final rule with comment period) to CMS DRG 468 (MS-DRGs
981, 982, and 983 in this final rule with comment period) or to CMS DRG
477 (MS-DRGs 987, 988, and 989 in this final rule with comment period),
or from CMS DRG 477 (MS-DRGs 987, 988, and 989 in this final rule with
comment period) to CMS DRGs 468 (MS-DRGs 981, 982, and 983 in this
final rule with comment period) or to CMS DRG 476 (MS-DRGs 984, 985,
and 986 in this final rule with comment period) for FY 2008.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on our review this year, as we proposed, we are not adding
any diagnosis codes to MDCs for FY 2008. We did not receive any public
comments on this subject.
10. Changes to the ICD-9-CM Coding System
As described in section II.B.1. of the preamble of this final rule
with comment period, 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), the Centers for
Disease Control and Prevention, and CMS, charged with maintaining and
updating the ICD-9-CM system. The Committee is jointly responsible for
approving coding changes, and developing errata, addenda, and other
modifications to the ICD-9-CM to reflect newly developed procedures and
technologies and newly identified diseases. The Committee is also
responsible for promoting the use of Federal and non Federal
educational programs and other communication techniques with a view
toward

[[Page 47242]]

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 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, 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 2008 at a public meeting held on September 28-29,
2006, and finalized the coding changes after consideration of comments
received at the meetings and in writing by December 4, 2006. Those
coding changes are announced in Tables 6A through 6F in the Addendum to
this proposed rule. The Committee held its 2007 meeting on March 22-23,
2007. Proposed new codes for which there was a consensus of public
support and for which complete tabular and indexing changes can be made
by May 2007 will be included in the October 1, 2007 update to ICD-9-CM.
Code revisions that were discussed at the March 22-23, 2007 Committee
meeting could not be finalized in time to include them in the Addendum
to the proposed rule. These additional codes are included in Tables 6A
through 6F of this final rule with comment period and are marked with
an asterisk (*).
Copies of the minutes of the procedure codes discussions at the
Committee's September 28-29, 2006 meeting can be obtained from the CMS
Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes discussions at the
September 28-29, 2006 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, 2007. 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
final rule with comment period. As we stated above, the code numbers
and their titles were presented for public comment at the ICD-9-CM
Coordination and Maintenance Committee meetings. Both oral and written
comments were considered before the codes were approved. In the FY 2008
IPPS proposed rule, we only solicited comments on the proposed
classification of these new codes.
Comment: One commenter expressed concern that the 2-month timeframe
between adoption of new ICD-9-CM codes and the effective date of new
codes creates a disadvantage for the coding community because updating
of facility-specific and industry information, such as education/
training materials and code books, is based on the final codes. The
commenter noted that ICD-9-CM code changes discussed at the March 22-
23, 2007 ICD-9-CM Coordination and Maintenance Committee meeting were
not listed in the FY 2008 IPPS proposed rule, so the coding community
has 2 months, rather than 5 months, to update its coding products. The
commenter recommended that CMS consider implementation of codes
discussed at the spring meeting in April of the following year, rather
than forcing the new codes into the October release.
Response: We are sympathetic to the commenter's concern that the
short timeframe between adoption of new codes and the effective date of
new codes may make it challenging to update coding products. However,
this short time period has proven to be invaluable for collecting
MedPAR data on new technologies as soon as possible. Therefore, we will
continue our current process of attempting to expedite the creation of
new ICD-9-CM codes.
For codes that have been replaced by new or expanded codes, and 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, 2007. 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, 2007. 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 2008.
In the September 7, 2001 final rule implementing the IPPS new
technology add on payments (66 FR 46906), we indicated we would attempt
to include proposals for procedure codes that would describe new
technology discussed and approved at the Spring meeting as part of the
code revisions effective the following October. As stated previously,
ICD -9-CM codes discussed at the March 22-23, 2007 Committee meeting
that received consensus and that were finalized by May 2007, are
included in Tables 6A through 6F of the Addendum to this final rule
with comment period.
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

[[Page 47243]]

year. This requirement was included as part of the amendments to the
Act relating to recognition of new technology under the IPPS. Section
503(a) amended section 1886(d)(5)(K) of the Act by adding a clause
(vii) which states that the ``Secretary shall provide for the addition
of new diagnosis and procedure codes on April 1 of each year, but the
addition of such codes shall not require the Secretary to adjust the
payment (or diagnosis related group classification) * * * until the
fiscal year that begins after such date.'' This requirement improves
the recognition of new technologies under the IPPS system by providing
information on these new technologies at an earlier date. Data will be
available 6 months earlier than would be possible with updates
occurring only once a year on October 1.
While section 1886(d)(5)(K)(vii) of the Act states that the
addition of new diagnosis and procedure codes on April 1 of each year
shall not require the Secretary to adjust the payment, or DRG
classification, under section 1886(d) of the Act until the fiscal year
that begins after such date, we have to update the DRG software and
other systems in order to recognize and accept the new codes. We also
publicize the code changes and the need for a mid year systems update
by providers to identify the new codes. Hospitals also have to obtain
the new code books and encoder updates, and make other system changes
in order to identify and report the new codes.
The ICD-9-CM Coordination and Maintenance Committee holds its
meetings in the spring and fall in order to update the codes and the
applicable payment and reporting systems by October 1 of each year.
Items are placed on the agenda for the ICD-9-CM Coordination and
Maintenance Committee meeting if the request is received at least 2
months prior to the meeting. This requirement allows time for staff to
review and research the coding issues and prepare material for
discussion at the meeting. It also allows time for the topic to be
publicized in meeting announcements in the Federal Register as well as
on the CMS Web site. The public decides whether or not to attend the
meeting based on the topics listed on the agenda. Final decisions on
code title revisions are currently made by March 1 so that these titles
can be included in the IPPS proposed rule. A complete addendum
describing details of all changes to ICD-9-CM, both tabular and index,
is published on the CMS and NCHS Web sites in May of each year.
Publishers of coding books and software use this information to modify
their products that are used by health care providers. This 5 month
time period has proved to be necessary for hospitals and other
providers to update their systems.
A discussion of this timeline and the need for changes are included
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance
Committee minutes. The public agreed that there was a need to hold the
fall meetings earlier, in September or October, in order to meet the
new implementation dates. The public provided comment that additional
time would be needed to update hospital systems and obtain new code
books and coding software. There was considerable concern expressed
about the impact this new April update would have on providers.
In the FY 2005 IPPS final rule, we implemented section
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Pub. L.
108-173, by developing a mechanism for approving, in time for the April
update, diagnosis and procedure code revisions needed to describe new
technologies and medical services for purposes of the new technology
add-on payment process. We also established the following process for
making these determinations. Topics considered during the Fall ICD-9-CM
Coordination and Maintenance Committee meeting are considered for an
April 1 update if a strong and convincing case is made by the requester
at the Committee's public meeting. The request must identify the reason
why a new code is needed in April for purposes of the new technology
process. The participants at the meeting and those reviewing the
Committee meeting summary report are provided the opportunity to
comment on this expedited request. All other topics are considered for
the October 1 update. Participants at the Committee meeting are
encouraged to comment on all such requests. There were no requests for
an expedited April l, 2007 implementation of an ICD-9-CM code at the
September 28-29, 2006 Committee meeting. Therefore, there were no new
ICD-9-CM codes implemented on April 1, 2007.
We believe that this process captures the intent of section
1886(d)(5)(K)(vii) of the Act. 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 identify 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 site at: www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along
with the Official ICD-9-CM Coding Guidelines, can be found on the Web
site at: 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. The code titles are adopted as
part of the ICD-9-CM Coordination and Maintenance Committee process.
Thus, although we publish the code titles in the IPPS proposed and
final rules, they are not subject to comment in the proposed or final
rules. We will continue to publish the October code updates in this
manner within the IPPS proposed and final rules. For codes that are
implemented in April, we will assign the new procedure code to the same
DRG in which its predecessor code was assigned so there will be no DRG
impact as far as DRG assignment. Any midyear coding updates will be
available through the Web sites indicated above and through the Coding
Clinic for ICD-9-CM. Publishers and software vendors currently obtain
code changes through these sources in order to update their code books
and software systems. We will strive to have the April 1 updates
available through these Web sites 5 months prior to implementation
(that is, early November of the previous year), as is the case for the
October 1 updates.
11. Other DRG Issues Addressed in the FY 2008 IPPS Proposed Rule
a. Seizures and Headaches
After publication of the FY 2007 IPPS final rule (71 FR 47928), we
received correspondence expressing concerns about the revisions we made
to the seizure and headache DRGs effective on October 1, 2006. We
created new DRGs

[[Page 47244]]

562 (Seizure Age > 17 With CC), DRG 563 (Seizure Age > 17 Without CC),
and DRG 564 (Headaches Age > 17) as an interim step to better recognize
severity of illness among seizure and headache patients for FY 2007.
Although national Medicare utilization data supported the revised DRGs,
the commenter indicated that the change did not appropriately recognize
hospital resources associated with the patients treated in the
hospital's inpatient headache program. The commenter stated that
patients who are admitted to the hospital's inpatient headache program
suffer from chronic headache pain and require inpatient treatment that
can last up to 12 days. The commenter noted that these patients are
referred from around the country after several months of unsuccessful
pain relief and treatment. The commenter indicated that the majority of
patients treated at the hospital's inpatient headache program are drug
dependent from being administered increasing dosages of pain relievers
that have been unsuccessful in resolving chronic headache pain.
Further, the commenter noted that the patients require detoxification
before any headache treatment begins. The commenter urged CMS to
subdivide the headache DRG to better recognize the higher level of
severity associated with treating chronic headache patients in the
hospital's program.
Although we are sympathetic to the commenter, it is not feasible to
design a DRG system that addresses concerns that may be unique to one
facility. Other than this one commenter, we did not receive any concern
about our decision to create separate DRGs for seizures and headaches.
However, we agreed to review this issue as part of our effort to
redesign the DRG system to better recognize severity of illness for FY
2008.
As discussed in section II.C. of the preamble of this final rule
with comment period, we are adopting MS-DRGs for FY 2008. While the CMS
DRG structure did not support splitting the headache DRG based on the
presence or absence of a CC, the MS-DRGs support the creation of a
split for the headache DRGs based on whether the patient has a MCC as
shown below:

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 102 (Headaches with MCC).. 1,268 5.04 $19,077
MS-DRG 103 (Headaches without 14,277 3.22 11,989
MCC)............................
------------------------------------------------------------------------

(The criteria for determining whether to subdivide a DRG are
described in detail earlier in section II.D. of the preamble of this
final rule with comment period.) Thus, we proposed to create two MS-
DRGs for headaches under the MS-DRGs as shown below:
MS-DRG 102 (Headaches with MCC).
MS-DRG 103 (Headaches without MCC).
We believe this proposed structure would better recognize those
headache patients who are severely ill and require more resources as
described by the commenter. We refer the readers to section II.D. of
the preamble of this final rule with comment period for a detailed
discussion of the MS-DRGs.
Comment: Three commenters supported a DRG system that accounts for
the severity of illness, intensity of service, and differences in the
cost of care in treating headache patients. They strongly support CMS'
proposal to revise its current headache classification, CMS DRG 564
(Headaches Age > 17), that was effective as of October 1, 2006 (FY
2007). One of the commenters stated that CMS DRG 564 does not
adequately classify headache cases based on the presence or absence of
complicating conditions and assumes a relatively short length of stay,
resulting in inadequate payments to cover the costs of treating
severely complex chronic headache patients that are referred to
specialized treatment centers such as theirs. The commenters also
agreed with the use of secondary diagnoses to improve payments and
better account for severity within a DRG that is defined by the
diagnosis of headache. However, the commenters indicated that certain
secondary diagnoses related to medication overuse and dependency are
not considered MCCs for headache cases. According to one of the
commenters, the common secondary diagnosis codes used for patients with
medication overuse and dependency are identified by the following ICD-
9-CM codes (a fifth digit representing the drug dependence as
unspecified (0), continuous (1), episodic (2), or in remission (3)
would be applied according to the physician documentation):
304.0x, Opioid type dependence.
304.1x, Sedative, hypnotic or anxiolytic dependence.
304.2x, Cocaine dependence.
304.3x, Cannabis dependence.
304.4x, Amphetamine and other psychostimulant dependence.
304.5x, Hallucinogen dependence.
304.6x, Other specified drug dependence.
304.7x, Combinations of opioid type drug with any other.
304.8x, Combinations of drug dependence excluding opioid
type drug.
304.9x, Unspecified drug dependence.
The commenters recognize that most of the above listed conditions
were included on the proposed CC list; however, none of them were
included on the proposed MCC list. Therefore, the majority of patients
treated in the commenter's specialized headache program will not
qualify to be assigned to proposed MS-DRG 102 (Headache with MCC) and
will be paid using proposed MS-DRG 103 (Headache without MCC)--the
lower severity level. The commenter further noted that, in contrast to
patients who primarily exhibit substance abuse, the headache patient
does not primarily exhibit addictive disease, but is a desperate
individual who takes increasing amounts of medication to control pain
that has not successfully been controlled. In addition, the patient
experiences withdrawal phenomena (sweating, shaking, crawling skin,
sleeplessness, changes to blood pressure and pulse) as he or she
attempts to reduce the drugs at the recommendation of the physician.
The commenter noted that a chronic headache patient with a narcotics
addiction is more costly to treat because, to ensure a successful
treatment outcome, the patient must be effectively withdrawn from the
offending medication, while simultaneously addressing the escalating
pain and controlling it which requires inpatient hospitalization that
can last up to 2 weeks.
Another commenter suggested that according to the MCCs identified,
there appeared to be a significant variance in cost for headache
patients whose stay involved an additional two days. This commenter
encouraged CMS to examine the creation of a CC split under the current
CMS DRG classification if the adoption of the MS-DRG system does not
take place. The commenter stated the determination should consider
whether the MCCs used in the MS-DRG

[[Page 47245]]

analysis are on the current CMS DRG CC list.
One of the commenters provided several suggestions for how the
proposed MS-DRG classification could more accurately identify case
complexity for inpatient headache cases. The suggestions are described
below.
1. Include the ICD-9-CM codes (304.00-304.93) on the list of MCCs.
These conditions are true indicators of case complexity and patients
with these complications should be paid at the higher severity level if
there are only these two adult headache DRGs.
2. If the above suggestion of moving those codes to the MCC list
has unintended consequences for a large number of the other (non-
headache) DRGs, another approach would be to add a modifier to the CC
list recognizing these codes as MCCs for cases in which the principal
diagnosis is headache.
3. Add a third headache MS-DRG specifically for the opioid and
other medication overuse codes.
The commenter indicated a preference for the third option stating
that based on the data available and medical judgment, this MS-DRG
would be the most clinically appropriate method to better recognize
severity among headache cases. In addition, the commenter noted it is
most consistent with efforts already underway in the ICD-10
classification system to identify medication overuse in patients with a
principal diagnosis of headache, although ICD-10 is not yet available.
Response: We appreciate the commenter's support of the proposed MS-
DRG classification system to better recognize severity of illness,
intensity of service, and differences in the cost of care in treating
headache patients. The commenters are correct that the drug dependency
diagnosis codes (304.0x-304.9x) are not considered MCCs in the proposed
MS-DRG system. As we discussed in the proposed rule (72 FR 24702), we
categorized diagnoses as MCCs, CCs, and non-CC based on an iterative
approach in which each diagnosis was evaluated to determine the extent
to which its presence as a secondary diagnosis resulted in increased
hospital resources.
We examined the MedPAR data for headache patients with drug
dependency (codes 304.00-304.93). Our medical advisors also analyzed
clinical issues surrounding patients who have these codes reported as a
secondary diagnosis. After evaluation of the data and clinical issues,
our medical advisors recommend that we not change the CC status for the
drug dependency codes. Our analysis demonstrated approximately 254
cases in MS DRG 103 with an average length of stay of 4.9 days and
average charges approximately $2,500 higher than without drug
dependency. There were 25 cases in MS DRG 102 with an average length of
stay of 7 days and average charges approximately $5,000 higher than all
cases in MS-DRG 102. The results are shown in the table below.

Headaches
------------------------------------------------------------------------
Average
DRG Number of length of Average
cases stay charges
------------------------------------------------------------------------
MS-DRG 102 with MCC--All cases... 1,268 5.04 $19,077
MS-DRG 102 with MCC--With 25 7 24,061
secondary diagnosis of drug
dependency codes 304.00-304.93..
MS-DRG 103 without MCC--all cases 14,277 3.22 11,989
MS-DRG 103 with MCC--With 254 4.9 14,447
secondary diagnosis of drug
dependency codes 304.00-304.93..
------------------------------------------------------------------------

The process used to subdivide a MS-DRG into severity levels based
upon the presence of a CC or MCC included five criteria. All five
criteria had to be met to satisfy the requirement of creating severity
levels. We refer readers to section II.D.3. of the preamble to this
final rule with comment period for a complete discussion of these
criteria.
In studying the data for headaches, the number of cases that
include secondary diagnoses of drug dependency does not meet the
minimum requirement of 500 cases to create another subdivision.
Therefore, only the ``with MCC'' and ``without MCC'' severity levels
were established and proposed for headache cases.
We agree with the commenter that headache patients who suffer from
medication overuse are not identical to substance abuse patients.
However, if a headache patient presents to the hospital with withdrawal
phenomena and it is the drug withdrawal symptoms that require attention
and resolution prior to directing treatment towards the headache
symptoms, the reason for the patient's admission (or principal
diagnosis) appears to be the drug withdrawal. The Official ICD-9-CM
Guidelines for Coding and Reporting instruct that the principal
diagnosis is defined in the Uniform Hospital Discharge Data Set (UHDDS)
as ``that condition established after study to be chiefly responsible
for occasioning the admission of the patient to the hospital for
care.'' Therefore, these headache patients are being admitted to
address their drug dependency and drug withdrawal before any headache
treatment can begin.
As discussed above, at this time, analysis of the data does not
support assigning the drug dependency codes as MCCs. Secondly, there is
not justification to warrant adding modifiers to the drug dependency
codes that are currently on the CC list to consider those diagnoses as
MCCs for headache cases only. (Further, modifiers are not used in ICD-
9-CM.) Lastly, the data does not support subdividing the proposed MS-
DRGs for headaches into another severity level.
In this FY 2008 final rule, we are adopting the MS-DRGs. Therefore,
effective October 1, 2007, the MS-DRGs for headache cases will be as
follows:
MS-DRG 102 (Headaches with MCC)
MS-DRG 103 (Headaches without MCC).
Comment: One commenter applauded CMS for the changes in the DRG
structure to better recognize differences in patient severity. This
commenter recommended further refinements to proposed MS-DRG 100
(Seizures with MCC) and MS-DRG 101 (Seizures without MCC). According to
the commenter, most Medicare patients who are assigned to the seizure
DRGs are admitted to receive acute treatment that is typically provided
in the general medical setting. Alternatively, the commenter stated
that patients who suffer from uncontrolled seizures or intractable
epilepsy are admitted to an epilepsy center for a comprehensive
evaluation to identify the epilepsy seizure type, the cause of the
seizure, and the location of the seizure. The commenter added that
these patients are admitted to the hospital for 4 to 6 days with 24-
hour monitoring that includes the use of EEG video monitoring along
with cognitive testing and brain imaging procedures. The commenter
noted that

[[Page 47246]]

patients treated in an epilepsy center receive highly technical care
that is comparable to the care received in a hospital's intensive care
unit, and these patients are more costly to treat.
With the assistance of an outside reviewer, the commenter analyzed
cost data for proposed MS-DRGs 100 and 101, which focused on a target
group of patients identified with a diagnosis of epilepsy (diagnosis
codes 345.0 through 345.9) or convulsions (diagnosis code 780.39) and
the presence of EEG video monitoring (vEEG) (procedure code 89.10) or a
Wada test (procedure code 89.19). The commenter stated that the
patients identified with those codes are treated in specialized
epilepsy centers. The commenter recommended that CMS further refine
proposed MS-DRGs 100 and 101 by subdividing cases with the combination
of a diagnosis of epilepsy and one of the diagnostic tests performed
into separate DRGs defined as follows:
MS-DRG XXX (Epilepsy Evaluation with MCC)
MS-DRG XXX (Epilepsy Evaluation without MCC)
The commenter acknowledged that the target group of cases
constitutes a small portion of the total cases found in MS-DRGs 100 and
101. However, the commenter noted that the diagnostic procedures
described above (codes 89.10 and 89.19) are performed by a small
minority of hospitals in the United States. The commenter believed that
the recommendation to refine these DRGs would result in a minimal
impact on other hospitals, while substantially improving the accuracy
of payment to those hospitals specializing in epilepsy treatment.
Response: We appreciate the commenter's support of our efforts to
better recognize severity in the DRG system and its recommendation to
further refine the proposed seizure DRGs. Epilepsy is currently
identified by ICD-9-CM diagnosis codes 345.0x through 345.9x. There are
two fifth-digits that may be assigned to a subset of the epilepsy
codes, depending on the physician documentation:
0--without mention of intractable epilepsy.
1--with intractable epilepsy.
According to the commenter, the specialized epilepsy centers focus
on treating patients who suffer from intractable epilepsy. The data
that the commenter reviewed included the range of epilepsy codes (345.0
through 345.9), the code for convulsions (780.39) and the codes for the
diagnostic tests (89.10 and 89.19). The data that were submitted by the
commenter did not clearly identify the specific epilepsy codes reviewed
or the combination of the diagnostic procedures performed along with
specified epilepsy codes. It was also unclear what secondary codes were
reviewed in the analysis. As a result, we were unable to conduct our
own analysis to evaluate the commenter's recommendation. In addition,
we do not believe that we should make further changes to the MS-DRG
assignments based on combinations of selected diagnoses. These types of
analyses could be done with virtually any MS-DRG and would add
significant complexity to the DRG system that we do not believe is
warranted at this time. We encourage the commenter to provide the
specific codes used in its analysis so we can examine this issue as we
continue to make further refinements to the DRGs for FY 2009.
We also note that the topic of epilepsy has been discussed over the
last couple of years at the ICD-9-CM Coordination and Maintenance
Committee meetings due to confusion with physician documentation and
the implications of coding a patient as having a one-time seizure
versus ``labeling'' the patient as having the diagnosis of epilepsy. It
is unclear if the data identifying these conditions are accurate and
reliable as a result of this confusion.
In conclusion, as final policy for FY 2008, effective October 1,
2007, the following seizure DRGs are adopted as proposed:
MS-DRG 100 (Seizures with MCC).
MS-DRG 101 (Seizures without MCC).
b. Devices That Are Replaced Without Cost or Where Credit for a
Replaced Device Is Furnished to the Hospital
(1) Background
We addressed the topic of Medicare payment for devices that are
replaced without costs or where credit for a replaced device is
furnished to the hospital in the FY 2007 IPPS final rule (71 FR 47962).
In that final rule, we included the following background information:
In recent years, there have been several field actions and recalls
with regard to failure of implantable cardiac defibrillators (ICDs) and
pacemakers. In many of these cases, the manufacturers have offered
replacement devices without cost to the hospital or credit for the
device being replaced if the patient required a more expensive device.
In some circumstances, manufacturers have also offered, through a
warranty package, to pay specified amounts for unreimbursed expenses to
persons who had replacement devices implanted. Nonetheless, we believe
that incidental device failures that are covered by manufacturer
warranties occur routinely. While we understand that some device
malfunctions may be inevitable as medical technology grows increasingly
sophisticated, we believe that early recognition of problems would
reduce the number of people who would be potentially adversely affected
by these device problems. The medical community needs heightened and
early awareness of patterns of device failures, voluntary field
actions, and recalls so that it can take appropriate corrective action
to care for patients. Systematic efforts must be undertaken by all
interested and involved parties, including manufacturers, insurers, and
the medical community, to ensure that device problems are recognized,
and are addressed as early as possible so that patients' quality of
health care is protected and high quality medical care, equipment, and
technologies are provided. We are taking several steps to assist in the
early recognition and analysis of patterns of device problems to
minimize the potential for harm from device related defects to Medicare
beneficiaries and the public in general.
In recent years, CMS has recognized the importance of data
collection as a condition of Medicare coverage for selected services.
In 2005, we issued an NCD that expanded coverage of ICDs and also
required registry participation when the devices were implanted for
certain clinical indications. The NCD included this requirement in
order to ensure that the medical care received by Medicare
beneficiaries was reasonable and necessary and, therefore, that the
provider or supplier would be appropriately paid. Presently, the
American College of Cardiology [mu] National Cardiovascular Data
Registry (ACC NCDR) collects these data and maintains the registry.
In addition to ensuring appropriate payment of claims, collection,
and ongoing analysis of ICD implantation, registry data can facilitate
public response to the quality of health care issues in the event of
future device recalls. Analysis of registry data may uncover patterns
of device malfunction, device related infection, or early battery
depletion that would trigger a more specific investigation. Patterns
found in registry data may identify problems in patient outcomes
earlier than the currently available mechanisms, which do not
systematically collect detailed information about each patient who
receives an ICD.
We encourage the medical community to work to develop additional
registries

[[Page 47247]]

for implantable devices, so that timely and comprehensive information
is available regarding devices, recipients of those devices, and
patients' quality of health care status and medical outcomes. While
participation in an ICD registry is required as a Medicare condition of
coverage for ICD implantation for certain clinical conditions, we
believe that the potential benefits of other data collection extend
well beyond their application in Medicare's specific NCDs. As medical
technology continues to advance swiftly, data collection regarding the
short term and long term medical outcomes of new technologies,
especially concerning implanted devices that may remain in the bodies
of patients for their lifetimes, will be essential to the timely
recognition of any specific device related problems, patterns of
complications, and health-related outcomes. This information will
facilitate early interventions to mitigate any harm potentially imposed
upon Medicare beneficiaries and the public, and to improve the quality
and efficiency of health care services provided.
Moreover, published data from registries may further help the
development of high quality, evidence based clinical practice
guidelines for the care of patients who may receive device implants. In
turn, widespread use of evidence based guidelines may reduce variation
in medical practice, leading to improved personal care and overall
public health. Registry information may also contribute to the
development of more comprehensive and refined quality metrics that may
be used to systematically assess the collected data, and then improve
the safety and quality of health care provided to Medicare
beneficiaries. Such improvements in the quality of care that result in
better personal health will require the sustained commitment of
industry, payers, health care providers, and others to progressively
work towards that goal, and to ensure excellent and open communication
and rapid system wide responses.
One strategy for this data collection involves adding information
to the claims forms. CMS has a long history of collecting hemoglobin or
hematocrit data from ESRD patients on the claims form. Modification of
claims forms was necessary to do that. CMS is exploring the use of
claims data to collect other types of clinical or technical data such
as device manufacturer and model number. The systematic recording of
model numbers can enhance knowledge of device-related outcomes and
complications. We look forward to further discussions with the public
about new strategies to both recognize device related problems early as
well as recognize health-related outcomes of new technologies.
In addition, we believe that the routine identification of Medicare
claims for certain device implantation procedures in situations where a
payment adjustment is appropriate may enhance the medical community's
recognition of device related problems, potentially leading to more
timely improvements in medical device technologies. This systematic
approach, which enables hospitals to identify and then appropriately
report selected services when devices are replaced without cost to the
hospital, or with full or partial credit to the hospital for the cost
of the replaced device, should provide comprehensive information
regarding the hospitals' experiences with Medicare beneficiaries who
have specific medical devices that are being replaced. Because Medicare
beneficiaries are common recipients of implanted devices, the claims
information may be particularly helpful in identifying patterns of
device related problems early in their natural history, so that
appropriate strategies to reduce future problems may be developed. One
possible strategy would be for the Medicare program to use information
obtained through the use of bar coding of medical devices. The FDA
issued a final rule in the Federal Register on February 26, 2004 (69 FR
9119), that required bar codes for human drugs and biological product
labels effective April 26, 2006. In the final rule, FDA deferred action
on requiring bar codes for medical devices, noting the difficulty in
standardizing medical devices, as compared to drugs and biologicals,
which have the unique NDC numbering system. This rule can be reviewed
on the Federal Register's Web site at: http://www.docket.access.gpo.gov/2004/04-4249.htm.
We intend to monitor FDA's work in this area to determine how this
technology could help CMS promote higher quality through better
clinical decision making and, as discussed below, assist in improving
the accuracy of the Medicare payment system.
In addition to our concern for overall public health, we also have
a fiduciary responsibility to the Medicare Trust Fund to ensure that
Medicare pays only for covered services. Therefore, in the FY 2007 IPPS
final rule, we indicated that we believe we need to consider whether it
is appropriate to reduce the Medicare payment in cases in which an
implanted device is replaced at reduced or no cost to the hospital or
with partial or full credit for the removed device. Such consideration
could cover certain devices for which credit for the replaced medical
device is given, or medical devices that are replaced as a result of or
pursuant to a warranty, field action, voluntary recall, or involuntary
recall, and medical devices that are provided free of charge. We
indicated that conveying this information to the Medicare beneficiary
could provide for a reduction in the IPPS payment if we determine that
the device is replaced without cost to the provider or beneficiary or
when the provider receives full credit for the cost of a replaced
device.
In FY 2007 IPPS final rule, we indicated a need to develop a
methodology to determine the amount of the reduction to the otherwise
payable IPPS payment for medical devices furnished to Medicare
beneficiaries. We believe that this policy is appropriate because, in
these cases, the full cost of the replaced device is not incurred and,
therefore, an adjustment to the payment is necessary to remove the cost
of the device.
(2) Current and Proposed Policies
In the CY 2007 OPPS final rule (71 FR 68071 through 68077), we
adopted a policy that requires a reduced payment to a hospital or
ambulatory surgical center when a device is provided to them at no
cost. From our experience with the OPPS, we understand that a
manufacturer will often provide a credit or partial credit for the
recalled device rather than a free replacement. In other situations, a
manufacturer will provide either a full or partial credit for a device
that needs to be replaced only during the manufacturer's warranty
period. In either of these situations, the original implantation of the
device was paid for either by Medicare, another third party on behalf
of the beneficiary by making payment directly to the hospital, or the
implantation was paid for directly by the beneficiary. Therefore, we
believe that Medicare should not pay the hospital for the full cost of
the replacement if the hospital is receiving a partial or full credit,
either due to a recall or service during the warranty period. The
device was already paid for at the time of initial implantation, and
Medicare should retain the credit that is being provided to the
hospital for service to a Medicare beneficiary.
Moreover, we also believe that a proposed adjustment is consistent
with section 1862(a)(2) of the Act, which excludes from Medicare
coverage an item or service for which neither the beneficiary, nor
anyone on his or her behalf, has an obligation to pay.

[[Page 47248]]

Payment of the full IPPS payment amount in cases in which the device
was replaced under warranty or in which there was a full or partial
credit for the price of the recalled or failed device effectively
results in Medicare payment for a noncovered item. Therefore, in the FY
2008 IPPS proposed rule, we proposed to adjust the IPPS payment amount
in these circumstances under the authority of section 1886(d)(5)(I) of
the Act, which permits the Secretary to make ``exceptions and
adjustments to such payment amounts * * * as the Secretary deems
appropriate.''
Under the OPPS, we currently only apply the reduced payment amount
in situations where the hospital received a replacement device at no
cost or at full credit for the replacement device. Unlike the current
OPPS policy, we proposed for purposes of the IPPS to apply the policy
for partial as well as full credit for a replacement device. As we
indicated above, our experience with the OPPS suggests that the policy
should be applied beyond full replacement of a recalled device. We
proposed to reduce the amount of the Medicare IPPS payment when a full
or partial credit towards a replacement device is made or the device is
replaced without cost to the hospital or with full credit for the
removed device. However, we do not believe that the IPPS policy should
apply to all DRGs and all situations in which a device is replaced
without cost to the hospital for the device or with full or partial
credit for the removed device. We recognize that, in many cases, the
cost of the device is a relatively modest part of the IPPS payment. In
other situations, we believe the amount of the credit will also be
nominal. In these cases, we believe that the averaging nature of
payments under the IPPS would incorporate any significant savings from
a warranty replacement, field action, or recall into the payment rate
for the associated DRG, and that no specific adjustment would be
necessary or appropriate. For this reason, we proposed to apply the
policy only to those DRGs under the IPPS where the implantation of the
device determines the base DRG assignment and situations where the
hospital received a credit equal to 20 percent or more of the cost of
the device. We believe a credit that is equal to or more than this
percentage is substantial, and Medicare should not pay for the full
cost of these replacement devices because hospitals have received
significant savings from the manufacturer for its replacement costs. In
the proposed rule, we sought comment on the application of this
percentage amount. We further believe that it is appropriate to limit
application of the policy only to those DRGs where implantation of the
device determines the DRG assignment. In making a decision to assign a
case based on whether a device was implanted, we recognized that the
device cost was a significant portion of the overall costs faced by the
hospital that treats the case. Therefore, we believe that Medicare
should not make full payment for those DRGs where the assignment of the
case is made based on implantation of the device when the hospital is
receiving either a full or significant partial credit for the device.
In the proposed rule, we included a listing of the CMS DRGs (including
the proposed new MS-DRG title) that would be subject to this policy.
CMS has requested and received new condition codes from the
National Uniform Billing Committee (NUBC) to describe claims where a
provider has received a device or product without cost. We will use
these condition codes to reduce payment when the hospital used a device
for which full or partial credit is given, or the item was replaced as
a result of or under a warranty, field action, voluntary recall,
involuntary recall, or otherwise provided free of charge. On November
4, 2005, we issued Change Request 4058, Transmittal 741, in the
Medicare Claims Processing Manual. The effective date of this
transmittal was April 1, 2006, and the implementation date was April 3,
2006. This transmittal specifies that the following two new condition
codes have been created. They are defined below:
Condition Code 49--Product Replacement within Product
Lifecycle. Replacement of a product earlier than the anticipated
lifecycle due to an indication that the product is not functioning
properly.
Condition Code 50--Product Replacement for Known Recall of
a Product. The manufacturer or the FDA has identified the product for
recall and therefore replacement.
This transmittal can be accessed at the following Web site: http://www.cms.hhs.gov/Transmittals/downloads/R741CP.pdf.
Hospitals must report these codes on any claim for IPPS services
that includes a replacement device or product for which they received
full or partial credit. Hospital billing offices would report one of
these condition codes in addition to the specific code for the type of
procedure performed (for example, replacement of a defibrillator). We
proposed to require the hospital to provide invoices or other
information indicating its normal cost of the device and the amount of
the credit it received.
Under our policy, the fiscal intermediary (or, if applicable, the
MAC) would process claims involving DRGs that are subject to this
policy that include a device that is replaced without cost to the
hospital for the device or with full or partial credit for the removed
device as identified by condition codes 49 or 50. For a device provided
to the hospital without cost, the fiscal intermediary (or, if
applicable, the MAC) would subtract the cost of the device from the DRG
payment. For a device for which the hospital received a full or partial
credit, the fiscal intermediary (or, if applicable, the MAC) would
subtract the amount credited from the DRG payment. CMS will issue
specific claims processing instructions to Medicare contractors and
hospitals on implementing this policy. We proposed to require the
hospital to provide invoices or other information indicating the cost
of the device and the amount of credit it received. In the proposed
rule, we sought comment on the best approach to making this payment
adjustment and what types of documentation hospitals should provide to
the fiscal intermediary or MAC.
We proposed to invoke our special exceptions and adjustment
authority under section 1886(d)(5)(I)(i) of the Act to make this
adjustment. The special exceptions and adjustment authority authorizes
us to provide ``for such other exceptions and adjustments to [IPPS]
payment amountsm * * * as the Secretary deems appropriate.'' We believe
it would be appropriate to adjust payments for surgical procedures to
replace certain devices by providing payments to hospitals only for the
non-device-related procedural costs when such a device is replaced
without cost to the hospital for the device or with full credit for the
removed device.
Comment: Many commenters addressed this proposal. Some commenters
suggested that CMS rescind the implementation of the proposed policy.
Other commenters supported ``the goal of accurate payment for services
provided and * * * the concept of a payment offset for devices that are
replaced without cost or where a credit is furnished to the hospital
for a replaced device.'' However, most commenters also suggested that,
if CMS were to implement the policy, CMS reconsider the process.
The commenters believed that blanket implementation of the proposal
ignores the underlying concept of the DRG payment system. They stated
that DRG payments are fundamentally based on averages of historical
costs and charges.

[[Page 47249]]

They added that to reduce the payment for cases involving replacement
of a medical device assumes that either these types of cases have not
occurred in the past or are occurring at such a dramatic increase as to
materially skew the averages used to develop the DRG weights. The
commenters reiterated that CMS has stated that we believe device
failures that are covered by manufacturers' warranties occur routinely.
The commenter noted that this statement acknowledges that incidental
device failure has occurred in the past and was likely covered by the
manufacturer warranty. The commenter stated that, if so, this practice
is part of the historical cost and charge data used to develop the
current DRG weights for cases involving implantation, and that
reduction of payment of certain cases involving a reimplantation would
ignore the average DRG weight for those cases that already implicitly
include this reduction.
Another commenter suggested that CMS develop a proxy to the full
cost of the device by using a percentage of the DRG, based on
historical data because Medicare does not reimburse providers at full
cost. One commenter recommended that, if adopted, CMS include in this
policy that these claims will not be included in the calculation of
relative weights, as this will reduce payment of services for
procedures with non-replacement devices.
Several commenters suggested that CMS should consider raising the
proposed threshold from 20 percent to greater than 50 percent of the
cost of the device. Given the administrative burden of manually
processing these claims, the commenters believed that it is not worth
the burden on the hospitals' or fiscal intermediaries' part if only a
nominal portion of the cost of the device is at issue. Commenters
further suggested that if CMS implements this policy, estimated costs
should be calculated from the charges on the claims and the DRG payment
only reduced by the device cost if the payment is greater than the cost
of the case less the cost of the device.
Several commenters cited the administrative burden that would
result with implementation of this policy. One commenter stated that
the proposal would result in significant operational burden and would
essentially delay payment for otherwise clean claims. The commenter
encouraged CMS to obtain invoice cost information from hospitals by
having the hospitals report returned devices with a specific code
similar to the use of HCPCS code C9399 (outpatient reporting for new
drugs without HCPCS codes). The commenter indicated that hospitals are
able to report the HCPCS code and the NCD number for drugs in the
remarks section of the claim form in form locator field 84. The
commenter believed a similar approach can be used in the inpatient
setting when either Condition Code 49 or 50 is present on the claim.
This would trigger the hospital to report the percentage of the device
credit in the remarks field. The commenter suggested that this approach
would provide CMS with the data it needs while eliminating the need for
hard copy invoices, which will significantly reduce the hospital
reporting burden. Another commenter suggested using a similar
approach--applying an average adjustment based on the previous year's
experience with credits to arrive at an aggregate method for making
payment adjustments rather than a claim-by-claim approach.
Some commenters raised concerns about the use of condition code 49
with devices that are returned within the warranty period. These
commenters explained that the time from explant of a device, receipt of
the device by the manufacturer, subsequent device analysis and issuance
of the warranty results can often be eight weeks or longer. According
to the commenters, a hospital will be unaware during this time whether
a full, partial, or even zero credit will be made. The commenter
suggested that hospitals be either: (1) Allowed to submit the claims
immediately without condition code 49 and submit a claim adjustment
with condition code 49 at a later date once the credit determination is
made; or (2) allow hospitals to hold the claim until a determination is
made on the level of the credit. Another commenter who suggested that
CMS adopt this approach raised a concern about ``unintended
consequences.'' The commenter expressed a concern that hospitals may
not return a nonworking device to avoid the payment offset resulting in
the manufacturer being unable to identify defects that need to be
corrected. This commenter suggested that ``discouraging device return
from hospitals'' would be ``detrimental to industry efforts at
identifying trends and improving the long-term reliability of current
and future products.'' The commenter suggested that allowing hospitals
to submit a bill without Condition Code 49 and later submitting an
adjustment claim with the code could avoid discouraging hospitals from
returning devices that are replaced.
Other commenters raised concerns about the nomenclature that is
used to describe Condition Code 49. These commenters were concerned
that Condition Code 49 describes ``replacement of a product earlier
than the anticipated lifecycle due to an indication that the product is
not functioning properly.'' One commenter was concerned that submitting
a bill immediately with Condition Code 49 would indicate a premature
determination that a device was replaced due to improper functioning.
Like the commenter above, this commenter was concerned that the
manufacturer may make a later determination that the device was
functioning properly or the warranty period had expired and hospital
will have already billed using Condition Code 49. Another commenter
suggested that a device may be replaced during a warranty period even
though it is functioning properly (for example, the patient depleted a
battery prematurely because of higher than normal energy needs). In
this case, the commenter was concerned that Condition Code 49 will
label the replacement as being due to a malfunction when it actually
results from higher than normal use but proper functioning of the
device. The commenter suggested alternative nomenclature for Condition
Code 49 that focuses on the product being replaced earlier than its
anticipated lifecycle as a result of either a product malfunction or
higher than normal use.
Finally, some commenters raised concerns about the use of invoices
to determine the level of the reduction in Medicare's payment. One
commenter indicated that credits are derived using the original and
current contract prices for the device being explained and the product
price for the replacement device. According to this commenter,
manufacturers can provide hospitals with the credit dollar amount and
the percentage the credit represents of the full cost of the device.
Based on that information, hospitals will easily be able to determine
whether they need to submit a claim with Condition Code 49 (that is,
the credit is equal to or greater than the threshold reduction where
the policy applies) and can furnish Medicare without the dollar amount
of the credit that is due.
Response: We disagree with the commenters who suggested that our
proposal assumes that either device recalls or replacements have not
occurred in the past or are occurring at such a dramatic increase as to
materially skew the averages used to develop the DRG weights. Our
policy assumes that hospital charges include the full cost of the
device. Although the relative weights are based on estimated costs,
charges are an important element of the relative weight methodology. We
apply hospital cost-to-charge ratios to hospital

[[Page 47250]]

charges to determine the DRG relative weight. If hospitals have uniform
charging practices for all cases irrespective of whether they receive a
device at no cost or with a partial credit, the CCR will be applied to
a hospital charge that does not reflect that the hospital did not pay
the full cost of the device. Under these circumstances, we believe it
is appropriate that Medicare's payment should recognize a hospital's
reduced cost for a device that it receives either at no or a
substantially reduced cost.
We agree with the commenters who suggested that the proposed
threshold should be raised from 20 percent to 50 percent or greater of
the cost of the device. The commenters have raised valid issues about
potential administrative burden and delays that could occur when
determining whether a device was replaced due to a malfunction or due
to higher than normal use. We agree that the policy should not apply if
only a nominal portion of the cost of the device is at issue.
With respect to the suggestion that the policy should only apply if
Medicare's payment is greater than estimated costs of the case (less
the device) calculated from the charges on the claims, we believe the
policy we have adopted to recognize the lower costs of replaced devices
that are either replaced at no cost or partial cost is reasonable.
However, we may consider this idea in the future as we continue to make
refinements to our policy for full or partial credit devices.
We understand the commenters' concerns about potential delays that
could occur while a returned device is being evaluated during a
warranty service period. Of the suggestions we received to address this
concern, we agree that hospitals should have the options of either: (1)
Submitting the claims immediately without Condition Code 49 and a claim
adjustment with Condition Code 49 at a later date once the credit
determination is made or (2) holding the claim until a determination is
made on the level of the credit. We believe that giving hospitals these
options would address the concern of the commenter that hospitals may
not return a non-working device for a replacement. Further, these ideas
would facilitate more efficient administration of the policy by
allowing the hospital to be provided with all of the information it
needs to be paid correctly by Medicare without the need to suspend
claims or delay payment. However, hospitals should note that if
choosing option 1 above, the rules for submitting adjustment claims
still apply and can be found at: http://www.cms.hhs.gov/manuals/downloads/clm104c01.pdf, section 130.2.
The commenters raise a valid point concerning the nomenclature for
Condition Code 49 that only describes device malfunctions when the
policy may apply to other situations. We will bring the concerns of the
commenter to the National Uniform Billing Committee (NUBC) for further
consideration. The NUBC is a committee brought together by the American
Hospital Association and includes the participation of all major
national provider and payer organizations. Their major role is to
maintain the integrity of the UB 92 and (now UB 04) data set and to be
a forum for discussions that lead to mutually agreed data elements for
the claim as well as the data elements for other claim-related
transactions.
With respect to the comments about using invoice information as
documentation for the credit due to Medicare, we provided invoices as
an example of the type of documentation a fiscal intermediary or MAC
may require to determine the percentage credit. Our fiscal
intermediaries (or MAC if applicable) are in the best position to
evaluate and determine matters regarding the adequacy of documentation
to determine Medicare payment. In this final rule with comment period,
we are not requiring any specific documentation to determine whether
the percentage credit will apply. Invoices or the documentation
(including those suggested in the public comments) would be at the
discretion of the fiscal intermediary or MAC.
Therefore, after consideration of the public comments received, for
FY 2008, we are implementing the following decisions regarding returned
devices. We are applying the policy to the MS-DRGs listed in the chart
below; those cases being MS-DRGs where the implantation of the device
determines the base DRG assignment. Further, we are applying the policy
in situations where the hospital received a credit equal to 50 percent
or more of the cost of the device. Hospitals have the option of either:
(1) Submitting the claims immediately without condition code 49 and a
claim adjustment with condition code 49 at a later date once the credit
determination is made or (2) holding the claim until a determination is
made on the level of the credit. Should hospitals choose option 1, we
note that the rules for submitting adjustment claims do apply, and can
be found at the Web site noted above. CMS will issue specific claims
processing instructions to Medicare contractors and hospitals on
implementing this policy.

DRGs Subject to Final Policy
----------------------------------------------------------------------------------------------------------------
MDC MS-DRG Narrative description of DRG
----------------------------------------------------------------------------------------------------------------
PRE.................................. 1 and 2............... Heart Transplant or Implant of Heart Assist
System with and without MCC, respectively
(former CMS-DRG 103, Heart Transplant or
Implant of Heart Assist System).
1.................................... 25 and 26............. Craniotomy and Endovascular Intracranial
Procedure with MCC or with CC, respectively
(former CMS-DRG 1, Craniotomy Age > 17 with
CC).
1.................................... 26 and 27............. Craniotomy and Endovascular Intracranial
Procedure with CC or without CC/MCC,
respectively (former CMS-DRGs 2, Craniotomy Age
> 17 without CC).
1.................................... 40 and 41............. Peripheral & Cranial Nerve & Other Nervous
System Procedure with MCC; or with CC or
Peripheral Neurostimulator, respectively
(former CMS-DRG, 7 Peripheral & Cranial Nerve &
Other Nervous System Procedures with CC).
1.................................... 42.................... Peripheral & Cranial Nerve & Other Nervous
System Procedure without CC/MCC (former CMS-DRG
8, Peripheral & Cranial Nerve & Other Nervous
System Procedures without CC).
1.................................... 23 and 24............. Craniotomy with Major Device Implant or Acute
Complex Central Nervous System Principal
Diagnosis with MCC or Chemotherapy Implant; and
without MCC [or Chemotherapy Implant],
respectively (former CMS-DRG 543, Craniotomy
with Major Device Implant or Acute Complex
Central Nervous System Principal Diagnosis).
3.................................... 129 and 130........... Major Head & Neck Procedures with CC/MCC or
Major Device; or without CC/MCC, respectively
(former CMS-DRG 49, Major Head & Neck
Procedures).

[[Page 47251]]

5.................................... 216, 217, and 218..... Cardiac Valve & Other Major Cardiothoracic
Procedure with Cardiac Catheterization With
MCC; or with CC; or without CC/MCC,
respectively (former CMS-DRG 104, Cardiac Valve
& Other Major Cardiothoracic Procedures with
Cardiac Catheterization).
5.................................... 219, 220, and 221..... Cardiac Valve & Other Major Cardiothoracic
Procedure without Cardiac Catheterization with
MCC; or with CC, or without CC/MCC,
respectively (former CMS-DRG 105, Cardiac Valve
& Other Major Cardiothoracic Procedures without
Cardiac Catheterization).
5.................................... 237................... Major Cardiovascular Procedures with MCC or
Thoracic Aortic Aneurysm Repair (former CMS-DRG
110, Major Cardiovascular Procedures with CC).
5.................................... 238................... Major Cardiovascular Procedures without MCC
(former CMS-DRG 111, Major Cardiovascular
Procedures without CC).
5.................................... 260, 261, and 262..... Cardiac Pacemaker Revision Except Device
Replacement with MCC, or with CC, or without CC/
MCC, respectively (former CMS-DRGs 117, Cardiac
Pacemaker Revision Except Device Replacement).
5.................................... 258 and 259........... Cardiac Pacemaker Device Replacement with MCC,
and Without MCC, respectively (former CMS-DRG
118, Cardiac Pacemaker Device Replacement).
5.................................... 226 and 227........... Cardiac Defibrillator Implant without Cardiac
Catheterization with MCC and without MCC,
respectively (former CMS-DRG 515, Cardiac
Defibrillator Implant without Cardiac
Catheterization).
5.................................... 215................... Other Heart Assist System Implant (former CMS-
DRG 525, Other Heart Assist System Implant).
5.................................... 222 and 223........... Cardiac Defibrillator Implant with Cardiac
Catheterization with Acute Myocardial
Infarction/Heart Failure/Shock with MCC and
without MCC, respectively (former CMS-DRGs 535,
Cardiac Defibrillator Implant with Cardiac
Catheterization with Acute Myocardial
Infarction/Heart Failure/Shock).
5.................................... 224 and 225........... Cardiac Defibrillator Implant with Cardiac
Catheterization without Acute Myocardial
Infarction/Heart Failure/Shock with MCC and
without MCC, respectively (former CMS-DRG 536,
Cardiac Defibrillator Implant with Cardiac
Catheterization without Acute Myocardial
Infarction/Heart Failure/Shock).
5.................................... 242, 243, and 244..... Permanent Cardiac Pacemaker Implant with MCC,
with CC, and without CC/MCC, respectively (MS-
DRG 551, Permanent Cardiac Pacemaker Implant
with Major Cardiovascular Diagnosis or AICD
Lead or Generator.
5.................................... 242, 243, and 244..... Permanent Cardiac Pacemaker Implant with MCC,
with CC, and without CC/MCC, respectively
(former CMS-DRG 552, Other Permanent Cardiac
Pacemaker Implant without Major Cardiovascular
Diagnosis).
8.................................... 461 and 462........... Bilateral or Multiple Major Joint Procedures of
Lower Extremity with MCC, or without MCC,
respectively (former CMS-DRG 471, Bilateral or
Multiple Major Joint Procedures of Lower
Extremity).
8.................................... 469 and 470........... Major Joint Replacement or Reattachment of
Lower Extremity with MCC or without MCC,
respectively (former CMS-DRG 544, Major Joint
Replacement or Reattachment of Lower
Extremity).
8.................................... 466, 467, and 468..... Revision of Hip or Knee Replacement with MCC,
with CC, or without CC/MCC, respectively
(former CMS-DRG 545, Revision of Hip or Knee
Replacement).
----------------------------------------------------------------------------------------------------------------

To codify in regulations the policies for the IPPS discussed above,
we are adding a new paragraph (g) to Sec. 412.2 and a new Sec. 412.89
to 42 CFR part 412, Subpart F. We are also making a technical,
conforming change to the heading of Subpart F and adding an uncoded
center heading before the proposed new Sec. 412.89.
12. Other MS-DRG Issues Raised in the Public Comments on the Proposed
Rule
a. Heart Transplants or Implants of Heart Assist System and Liver
Transplants (Pre-MDC)
In our analysis of heart transplant or implant of heart assist
system base DRGs and liver transplant base DRGs, we found that each
warranted two subdivisions based on our five criteria for establishing
the MS-DRGs discussed in section II.D. of this final rule with comment
period. We proposed two MS-DRGs for heart transplant or implant of
heart assist system: MS-DRG 001 (Heart Transplant or Implant of Heart
Assist System with MCC) and MS-DRG 002 (Heart Transplant or Implant of
Heart Assist System without MCC). We also proposed two MS-DRGs for
liver transplant: MS DRG 005 (Liver Transplant with MCC or Intestinal
Transplant) and MS-DRG 006 (Liver Transplant without MCC).
Comment: Two commenters responded to our proposal on the
subdivision of heart transplant or implant of heart assist system. One
commenter representing one of the manufacturers of left ventricular
assist devices (LVAD) stated that this change seems to appropriately
identify severity of illness based upon mean length of stay days and
charges associated with implantable LVADs as long as hospitals
accurately report and document complications.
Another commenter representing transplant surgeons recommended that
CMS defer implementation of separate severity levels for heart
transplant and liver transplants pending further study. The commenter
stated that payment for the uncomplicated procedures--the without MCC
group--are too low, resulting in financial instability for many centers
and the creation of inappropriate patient selection incentives. The
commenter submitted an analysis showing that of the 37 heart transplant
centers for which data were available, 10 (27 percent) would undergo
DRG payment reductions of more than 10 percent while, of the 52 liver
transplant centers, 11 (19 percent) would experience reductions of more
than 10 percent, with many experiencing reductions over 20 percent. The
commenter indicated that transplant cases are relatively low volume
which makes these DRGs more vulnerable to fluctuations.
The commenter stated that while the concept of dividing DRGs based
on severity is conceptually sound in the context of admissions for many
medical conditions and perhaps for certain surgical admissions,
transplantation as a whole is an extremely complex process that
generally involves patients with life threatening conditions. The
commenter stated that the presence or absence of a condition on the MCC
list is not a good predictor of inpatient hospital costs for liver and
heart transplants. The commenter stated that one factor that

[[Page 47252]]

influences hospital costs and lengths of stay is the characteristics of
the donor organ. The commenter stated that the donor risk index and the
model for end-stage liver disease (MELD) system which prioritizes
patients waiting for liver transplants by severity of illness are two
important factors for any severity index for transplant DRGs. This
information is not identified in the MedPAR data.
Several commenters also stated that the use of certain donor organs
increase in hospital costs for transplantation. A category of donor
called DCD (donor after cardiac death) generally represents a donor
with a severe brain injury who is taken to the operating room, removed
from the ventilator, and who dies a cardiac, rather than a brain,
death. Another category of donor called ECD (extended or expanded
criteria donor) is generally older and sicker than a standard donor.
Use of organs from DCD or ECD donors permits transplantations that may
be more expensive, as the organs may not be optimal. The commenters
suggested that we take these issues into consideration when making DRG
assignments.
In addition, two commenters stated that a separate DRG may be
needed to address the significantly higher costs associated with
combined liver/kidney transplants. One of the commenters stated that
the recent increases in volume justify creation of a separate DRG.
Another commenter stated that the Milliman 2005 U.S. Organ and Tissue
Transplant Cost Estimates and Discussion Research Report indicates a
separate MS-DRG is warranted at a higher level. However, the commenter
did not provide data on combined liver/kidney transplants from the
report.
Response: We cannot use the factors suggested in the commenters to
subdivide the transplant DRGs because they are not distinctly
identified in the current ICD-9-CM coding system. The National Center
for Health Statistics is responsible for the maintenance of the
diagnosis codes. We have advised representatives from the transplant
industry to approach the National Center for Health Statistics in order
to request unique codes to identify cases that include factors such as
a DCD or ECD donor or the patient's MELD score. Without specific data
that show how these factors affect patient costs, we cannot use them to
subdivide the transplant DRGs. Suggestions on coding issues involving
diagnosis codes should be directed 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].
The table below illustrates our findings on heart and liver
transplant MS-DRGs:

The data support the current MCC split for heart and liver
transplants. Therefore, we disagree with the commenter who suggested
that diagnosis codes do not explain patient resource cost for these
DRGs. In addition, the MCC split was supported by another commenter
that manufactures LVADs. In response to the comments about the impact
on transplant centers, we note that the change to the MS-DRGs is
redistributive within each base DRG. Payment for the high severity
cases will increase, and it will decrease for other cases. In total,
Medicare payments for transplants likely will be unchanged. Rather,
Medicare's payment will be better directed to reflect patient severity
of illness. In response to the comment about combined liver/kidney
transplants, we believe these patients would have a secondary diagnosis
that is an MCC that would result in the patient being assigned to MS-
DRG 005. For instance, a common cause of combined liver and kidney
failure is hepatorenal syndrome, in which the liver failure actually
causes the kidney failure. In this case, the principal diagnosis is
liver failure. The second diagnosis--kidney failure--is an MCC.
Patients with combined liver/kidney failure are very sick patients, and
we believe it is highly likely that if they are properly coded, all
patients would be assigned to MS-DRG 005 and be paid the maximum amount
for a patient receiving a liver transplant. At this time, we do not
believe that a separate MS-DRG is needed for combined liver-kidney
transplants.
With respect to the Milliman 2005 US Organ and Tissue Transplant
Cost Estimates and Discussion Research Report discussed by the
commenter, we are open to considering, to the extent feasible,
reliable, validated data other than MedPAR data in annually
recalibrating and reclassifying the DRGs. Because the commenter did not
provide data on combined liver/kidney transplants from the report, we
could not fully evaluate the commenter's claims.
b. Gliadel[supreg] Wafer (MDC 1)
Gliadel[supreg] Wafer is the only implantable chemotherapy agent
approved by FDA for the treatment of malignant brain tumors. This
treatment is approved for newly diagnosed patients with high-grade
malignant glioma and for patients with recurrent glioblastoma
multiforme, which is the most fatal form of primary brain tumor. ICD-9-
CM procedure code 00.10 (Implantation of chemotherapeutic agent) was
created October 1, 2002 to uniquely identify this technology. In the FY
2008 IPPS proposed rule, we proposed to assign the technology to MS-DRG
23 (Craniotomy with Major Device Implant or Acute Complex Central
Nervous System Principal Diagnosis with MCC) and MS-DRG 24 (Craniotomy
with Major Device Implant or Acute Complex Central Nervous System
Principal Diagnosis without MCC).
Comment: One commenter, the manufacturer of the Gliadel[supreg]
Wafer technology, recommended that CMS recognize the complexity and
costs associated with implantation of Gliadel[supreg] Wafer and
reassign all cases that use it to MS-DRG 23. The commenter also
recommended that the MS-DRG titles for MS-DRG 23 and 24 be revised to:
MS-DRG 023, ``Craniotomy with Acute Complex Central
Nervous System Principal Diagnosis with MCC or Major Device Implant'';
and
MS-DRG 024, ``Craniotomy with Acute Complex Central
Nervous System Principal Diagnosis without MCC.''
The commenter provided data showing a total of 502 cases receiving
the Gliadel[supreg] Wafer. The majority of the patients, 84 percent
(423 cases), were assigned to MS-DRG 24. For MS-DRG

[[Page 47253]]

24, the commenter reported that the standardized average charges for
Gliadel[supreg] cases were approximately $74,069, which is 27 percent
greater than the average charges for non-Gliadel cases in MS-DRG 24 of
approximately $58,181. Many commenters encouraged CMS to reassign these
cases to MS-DRG 23.
Response: Based on our review on the FY 2006 MedPAR data, we found
73 Gliadel[supreg] cases assigned to MS-DRG 23 and 398 cases assigned
to MS-DRG 24. The following table displays our results:

Under the MS-DRGs, 73 out of 471 Gliadel[supreg] cases are assigned
to MS-DRG 023. The 398 remaining Gliadel[supreg] cases do not have an
MCC and would be assigned to MS-DRG 024, absent further changes to the
DRG logic.
The average charges of approximately $75,482 for Gliadel[supreg]
cases are higher than the average charges of approximately $61,865 for
the overall cases in MS-DRG 024 and are approximately midway between
the with and without MCC severity levels. In this final rule with
comment period, we are assigning all Gliadel[supreg] cases to MS-DRG
23. The title for MS-DRG 023 is changed to ``Craniotomy with Major
Device Implant or Acute Complex Central Nervous System Principal
Diagnosis with MCC or Chemo Agent Implant''. The presence of craniotomy
with major device implant or acute complex central nervous system
principal diagnosis with MCC or implantation of chemotherapeutic agent
would assign a case to the higher severity level.
c. Myasthenia Gravis and Acute and Chronic Inflammatory Demyelinating
Neuropathies (AIDP-CIDP) (MDC 1)
Comment: One comment, a national association that represents
neurologists and neuroscience professionals, was concerned that there
are no separate DRGs for Myasthenia Gravis and Acute and Chronic
Inflammatory Demyelinating Neuropathies (AIDP-CIDP). Myasthenia gravis
is an autoimmune disease caused by antibodies that block receptors at
the neuromuscular junction resulting in decreased activation of muscles
by nerves, leading to varying degrees of muscle weakness. Acute
inflammatory demyelinating neuropathy, also known as Guillain-Barre
Syndrome, is caused by an autoimmune process that attacks the myelin
sheaths around nerves, causing defective nerve transmission that leads
to sensory loss and muscle weakness. Chronic inflammatory demyelinating
neuropathy is a chronic, relapsing form of the acute syndrome.
We proposed to assign these conditions to MS-DRGs 56 and 57
(Degenerative Nervous System Disorders With and Without MCC,
respectively). According to the commenter, cases with these conditions
should not be assigned to an MS-DRG for degenerative nervous system
disorders.
The commenter stated that a separate DRG needs to be established to
recognize the substantially higher costs of treating patients with an
acute exacerbation of myasthenia gravis. There are two ICD-9-CM
diagnosis codes for myasthenia gravis: code 358.00 (Myasthenia gravis
without (acute) exacerbation) and code 358.01 (Myasthenia gravis with
exacerbation). According to the commenter, in addition to
plasmapheresis, acute myasthenia gravis patients often require
respiratory support, intensive care unit stays, and IVIG
administration. The commenter requested that CMS review cost data for
admissions under this diagnosis and determine whether these cases had
costs that were substantially higher than other cases assigned to the
same DRG.
The commenter stated that, similar to myasthenia gravis, AIDP and
CIDP are highly likely to require respiratory support and intensive
care unit stays with plasmapheresis or IVIG administration, or both,
when presenting acutely or in acute exacerbation. The ICD-9-CM
diagnosis code that is reported for AIDP is code 357.0 (Acute infective
polyneuritis), and the appropriate diagnosis code for CIDP is code
357.81 (Chronic inflammatory demyelinatng polyneuritis). The commenter
stated that the data on AIDP and CIDP are unavailable at this time.
Therefore, the commenter requested that CMS track these cases in
consideration of a separate DRG for AIDP/CIDP for next year.
Response: The commenter raised a concern that myasthenia gravis
cases are being assigned to the degenerative nervous system disorders
DRG, and did not believe that the condition should be assigned to that
DRG. However, we would point out that myasthenia gravis cases are
currently assigned to CMS-DRG 12 (Degenerative Nervous System
Disorders). Moving to the MS-DRGs did not alter this DRG logic. We
simply subdivided this DRG into two severity levels. Given the
extensive changes we are making in moving to MS-DRGs we believe it is
premature to consider refinements to this base DRG for myasthenia
gravis cases. Rather, we will wait to gain experience under the MS-DRGs
and determine whether further refinements are needed to the base DRGs.
d. Peripheral and Spinal Neurostimulators (MDC 1 and MDC 8)
In our analysis of spinal procedures and peripheral and cranial
nerve and other nervous system procedures based DRGs in MDC 1, we found
that each warranted three subdivisions based on our five criteria.
There are three MS-DRGs for spinal procedures: MS-DRG 28 (Spinal
Procedures with MCC), MS-DRG 29 (Spinal Procedures with CC), and MS-DRG
30 (Spinal Procedures without CC). There are three MS-DRGs for
peripheral and cranial nerve and other nervous system procedures: MS-
DRG 40 (Peripheral and Cranial Nerve and Other Nervous System
Procedures with MCC), MS-DRG 41 (Peripheral and Cranial Nerve and Other
Nervous System Procedures with CC), and MS-DRG 42 (Peripheral and
Cranial Nerve and Other Nervous System Procedures without CC).
For back and neck procedures based DRGs in MDC 8, we found that the
base DRG warranted two subdivisions based on our five criteria. There
are two MS-DRGs for back and neck procedures except spinal fusion: MS-
DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or
Disc Devices) and MS-DRG 491 (Back and Neck Procedures Except Spinal
Fusion without CC/MCC).
Comment: Several commenters analyzed the effects of the MS-DRGs and
contended that the payment levels for cases with implantable

[[Page 47254]]

neurostimulator devices are, in many instances, inadequate to cover the
cost of the device and the hospital procedure to implant it. The
commenters stated that most neurostimulator cases are assigned to the
lowest severity level in these DRGs and concluded that the average
charges of these cases are more similar to the higher severity levels.
The commenters recommended that CMS:
For spinal cord nonrechargeable stimulator cases in MDC 1:
Reassign all full system implants which includes cases reported with
ICD-9-CM procedure codes 03.93 (Implantation or replacement of spinal
neurostimulator lead(s)) and 86.94 (Insertion or replacement of single
array neurostimulator pulse generator, not specified as rechargeable),
or 86.95 (Insertion or replacement of dual array neurostimulator pulse
generator, not specified as rechargeable), to MS-DRG 29 and revise the
title to ``Spinal Procedure with CC or Major Device Implant.''
For spinal cord rechargeable neurostimulator cases in MDC
1: Reassign all full-system implant cases reported with ICD-9-CM
procedure codes 03.93 and 86.97 (Insertion or replacement of single
array rechargeable neurostimulator pulse generator) or 86.98 (Insertion
or replacement of dual array rechargeable neurostimulator pulse
generator) to MS-DRG 28, and revise the title to ``Spinal Procedure
with MCC or Major Device Implant.''
For spinal cord rechargeable neurostimulator cases in MDC
8: Reassign all full-system implant cases reported with ICD-9-CM
procedure codes 03.93 and 86.97 (Insertion or replacement of single
array rechargeable neurostimulator pulse generator) or 86.98 (Insertion
or replacement of dual array rechargeable neurostimulator pulse
generator) to MS-DRG 490.
For peripheral nonrechargeable neurostimulator cases in
MDC 1: Reassign all full-system implant cases reported with ICD-9-CM
procedure codes 04.92 (Implantation or replacement of peripheral
neurostimulator lead(s)) and 86.94 or 86.95 to MS-DRG 041 and revise
the title to ``Peripheral and Cranial Nerve and Other Nervous System
Procedures with CC or Major Device Implant.''
For peripheral rechargeable neurostimulator cases in MDC
01: Reassign all full-system implant cases reported with ICD-9-CM
procedure codes 04.92 and 86.97 or 86.98 to MS-DRG 040 and revise the
title to ``Peripheral and Cranial Nerve and Other Nervous System
Procedures with MCC or Major Device Implant.''
Two commenters recommended device-dependent surgical DRGs for these
cases. Several commenters also provided an alternative option to the
recommendations listed above:
Assign all full-system spinal cord stimulator cases
(rechargeable and non-rechargeable) in MDC 1 to MS-DRG 029.
Assign all full-system Spinal cord stimulator cases
(rechargeable and non-rechargeable) in MDC 8 to MS-DRG 490.
Assign all full-system peripheral neurostimulator cases
(rechargeable and non-rechargeable) in MDC 1 to MS-DRG 041.
Maintain the new-technology add-on payment for
rechargeable neurostimulators for one additional year because of
limited data.
Response: We analyzed the FY 2006 MedPAR data for full system
spinal and peripheral neurostimulators, both nonrechargeable and
rechargeable, using the procedure codes listed above. We found that the
majority of spinal neurostimulator cases in MDC 1 (113 cases) were
assigned to MS-DRG 030. The majority of the peripheral neurostimulator
cases (44 cases) were assigned to MS-DRG 042. The majority of the
spinal neurostimulator cases (253 cases) in MDC 8 were assigned to MS-
DRG 491. The following table displays our results:

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRG cases of stay charges
----------------------------------------------------------------------------------------------------------------
Spinal Procedures
----------------------------------------------------------------------------------------------------------------
MS-DRG 028--With MCC............................................ 1,531 14.67 $88,392.05
MS-DRG 029--With CC............................................. 2,699 7.63 46,223.20
MS-DRG 030--Without MCC or CC................................... 3,540 3.67 27,081.14
----------------------------------------------------------------------------------------------------------------
Spinal Neurostimulators
----------------------------------------------------------------------------------------------------------------
MS-DRG 028--With MCC............................................ 7 2.57 81,208.14
MS-DRG 029--With CC............................................. 29 3.10 68,090.03
MS-DRG 030--Without MCC/CC...................................... 113 1.81 57,399.84
----------------------------------------------------------------------------------------------------------------

The average charges for the 113 spinal neurostimulator cases
assigned to MS DRG 030 of approximately $57,400 are much higher than
the average charges of approximately $27,081 for the overall charges in
MS-DRG 030. The charges for these cases more closely approximate the
charges for the other cases in the CC level, MS-DRG 029.

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRG cases of stay charges
----------------------------------------------------------------------------------------------------------------
Peripheral and Cranial Nerve Procedures
----------------------------------------------------------------------------------------------------------------
MS--DRG 040-With MCC............................................ 4,300 13.59 $64,354.13
MS-DRG 041--With CC............................................. 7,388 7.53 37,421.99
MS-DRG 042--Without MCC/CC...................................... 5,112 3.65 30,600.18
----------------------------------------------------------------------------------------------------------------
Peripheral Neurostimulators
----------------------------------------------------------------------------------------------------------------
MS-DRG 040--With MCC............................................ 12 8.92 63,170.42
MS-DRG 041--With CC............................................. 24 4.96 45,118.04
MS-DRG 042--Without MCC/CC...................................... 44 1.71 50,716.25
----------------------------------------------------------------------------------------------------------------

[[Page 47255]]

The average charges for the 44 peripheral neurostimulator cases
assigned to MS-DRG 042 of approximately $50,716 are much higher than
the average charges of approximately $30,600 for the overall charges in
MS-DRG 042. Further, they are even higher than the 24 MS-DRG 041 cases
with a peripheral neurostimulator and a CC. The relationship between
average charges for neurostimulator cases and the MS-DRG where they are
assigned does not appear to be monotonic in this case. We believe the
low volume of cases for this technology may explain this unusual
pattern in average charges. One or a few cases with aberrant charges
could potentially be skewing the data. Nevertheless, we do believe the
data for the MS-DRG 042 peripheral neurostimulator cases does
illustrate that their average charges should be reassigned to a higher
severity level. Although average charges for peripheral neurostimulator
cases without an MCC or CC appear to be midway between average charges
for cases in MS-DRGs 040 and 041, we do not believe these cases should
be assigned to the ``with MCC'' MS-DRG at this time. Before deciding
whether further MS-DRG assignment is warranted, we prefer to have more
data that demonstrates monotonicity in the average charges.

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRG in MDC 8 cases of stay charges
----------------------------------------------------------------------------------------------------------------
MS-DRG 490--All cases........................................... 17,493 5.13 $29,656.66
MS-DRG 490--Spinal neurostimulator cases........................ 49 3.69 62,385.33
MS-DRG 491--All cases........................................... 57,496 2.27 17,788.59
MS-DRG 491--Spinal neurostimulator cases........................ 253 1.62 56,238.72
----------------------------------------------------------------------------------------------------------------

The average charges for the 253 spinal neurostimulator cases
assigned to MS-DRG 491 in MDC 8 of approximately $56,239 are much
higher than the average charges of approximately $17,789 for the
overall charges in MS-DRG 491. The charges for these cases are also
higher than the average charges of $29,656 for MS-DRG 490. We believe
these cases should be assigned to MS-DRG 490 at this time.
In this final rule with comment period, we are assigning full
system spinal cord nonrechargeable and rechargeable neurostimulator
cases in MS-DRG 030 to MS-DRG 029 in MDC 1. ICD 9 CM procedure codes
03.93 and 86.94 or 86.95 or 86.97 or 86.98 must be reported in order
for the spinal neurostimulator cases to be assigned to MS-DRG 029. We
are defining MS-DRG 029 as ``Spinal Procedures with CC or
Neurostimulator.'' The presence of a spinal procedure with CC or
neurostimulator would assign the case to the second severity level.
We are also assigning full system peripheral nonrechargeable and
rechargeable neurostimulator cases in MS-DRG 042 to MS-DRG 041 in MDC
1. ICD-9-CM procedure codes 04.92 and 86.94 or 86.95 or 86.97 or 86.98
must be reported in order for the peripheral neurostimulator cases to
be assigned to MS-DRG 041. We are defining MS-DRG 041 as ``Peripheral
and Cranial Nerve and Other Nervous System Procedures with CC or
Neurostimulator.'' The presence of a peripheral and cranial nerve
procedure with CC or neurostimulator would assign the case to the
second severity level.
The full system spinal cord nonrechargeable and rechargeable
neurostimulator cases in MS-DRG 491 are being assigned to MS-DRG 490.
ICD-9-CM procedure codes 03.93 and 86.94 or 86.95 or 86.97 or 86.98
must be reported in order for the spinal neurostimulator cases to be
assigned to MS-DRG 490. We are defining MS-DRG 490 as ``Back and Neck
Procedures Except Spinal Fusion with CC/MCC or Disc Devices or
Neurostimulator.'' The presence of a back and neck except spinal fusion
procedure with CC/MCC or disc devices or neurostimulator would assign
the case to the second severity level.
We refer readers to section II.J. of the preamble to this final
rule with comment period for new technology discussions about
rechargeable neurostimulators. We will continue to monitor these low
volume full system neurostimulator cases for further refinements if
warranted.
e. Stroke and Administration of Tissue Plasminogen Activator (tPA) (MDC
1)
In FY 2006, CMS created CMS DRG 559 (Acute Ischemic Stroke with Use
of Thrombolytic Agent) by assigning diagnosis codes for embolic stroke
codes plus procedure code 99.10 (Injection or infusion of thrombolytic
agent) to this new CMS DRG. The coding content of CMS DRGs 14
(Intracranial Hemorrhage or Cerebral Infarction) was not modified--
cases that included a diagnosis code for embolic stroke but the patient
was not administered a thrombolytic agent continued to be assigned to
this DRG. CMS DRG 15 (Nonspecific CVA and Precerebral Occlusion without
Infarct) also remained unchanged. Under the new MS-DRGs, the former CMS
DRG 559 will have three severity levels: MS-DRG 061 (Acute Ischemic
Stroke with Use of Thrombolytic Agent with MCC), MS-DRG 062 (Acute
Ischemic Stroke with Use of Thrombolytic Agent with CC), and MS-DRG 063
(Acute Ischemic Stroke with Use of Thrombolytic Agent w/o CC/MCC).
Comment: One commenter agreed with CMS' proposal to take the
severity of a patient's illness into account when establishing payment
rates. The commenter noted that severely ill or complex patients
require more intensive evaluation, treatment, and monitoring, resulting
in higher costs. The commenter added that it is logical to reimburse
hospitals at a higher rate for those patients who require more care.
However, the commenter expressed some concerns with the proposed
payment rates for stroke patients with a CC or without a CC/MCC who are
treated with tPA, noting that according to its calculations,
reimbursement rates for MS-DRGs 062 and 063 will decrease. The
commenter believed that this decrease could create a financial
disincentive for hospitals if payment for MS-DRGs 062 and 063 fails to
provide adequate reimbursement for those costs incurred by facilities
that administer tPA.
Response: The cost of treating patients with tPA continues to be
represented in MS-DRGs 061, 062, and 063, but the cases have been
distributed according to the presence of an MCC, or a CC, or the lack
of either an MCC or CC in MS-DRG 063 according to the historical data
represented by MedPAR. Medicare likely will continue to pay the same
amount for all patients treated with tPA. However, our payments will
better reflect patient severity of illness by paying higher amounts for
those cases where the patient has an MCC or CC than if they do not.
Comment: One commenter urged CMS to create a process that allows
for periodic evaluation and updating of the MCC and CC lists, noting
that CMS must

[[Page 47256]]

institute a process that allows for the addition of other conditions
that create a special concern for one set of patients, including stroke
patients, to the MCC and CC lists.
Response: As described in section II.D.3. of this preamble, we
reviewed more than 13,000 diagnosis codes in order to establish the MCC
and CC lists. This review activity is an ongoing, annual process, as
CMS has reviewed portions of the diagnosis codes every year with regard
to placement on the CC list. The difference is that this year more than
13,000 diagnosis codes were reviewed, and the designation has changed
from simply ``CC'' to major comorbidity or complication (MCC) or
comorbidity or complication (CC). We believe these lists to be
comprehensive and we will continue to evaluate their content with
regard to all patients.
Comment: One commenter expressed concern about the so-called ``drip
and ship'' cases where tPA is administered in the emergency department
at Hospital A, but the patient is immediately transferred to Hospital
B, which has a stroke center. The commenter pointed out that many
community hospitals do not have the necessary resources, including
neurology expertise, to care for the critically ill stroke patient.
However, the commenter added, with the support of a nearby stroke
center, they are able to diagnose ischemic stroke and institute
reperfusion (tPA) treatment within the critical three hour window. The
commenter stated that transfer after administration of tPA is required
by the need to closely monitor patients after reperfusion treatment.
Given the critical need to minimize brain damage by immediately
administering the tPA when indicated, the commenter stated that the
original hospital where the patient presented with stroke symptoms must
not delay treatment until after the patient is transferred.
When a patient is treated with reperfusion therapy in a local
emergency department, but transferred and admitted to another hospital
with the necessary stroke services, it is the understanding of the
commenter that CMS' current policy, as implemented through the DRG
GROUPER, requires that those cases be assigned to a stroke DRG that
does not recognize the reperfusion therapy. The hospital to which the
patient was ultimately admitted did not administer the reperfusion
therapy, and the hospital which administered the thrombolytic drug did
not admit the patient. The commenter noted that these patients are in
the severely ill category and require the same high level of resources
as any other patient who receives reperfusion therapy and who would
normally be assigned to CMS DRG 559.
The commenter made the following suggestion: ``When a patient has
been started on reperfusion therapy [tPA] at another hospital, as an
outpatient, and is transferred to a hospital with a stroke center, the
case should be assigned to one of the ``stroke-with-thrombolytic agent
DRGs'' (MS-DRGs 061, 062, or 063).
Response: We previously considered this situation in 2005 when we
created DRG 559 that separately distinguished stroke patients
administered a thrombolytic agent. The commenter is suggesting that it
is not the thrombolytic agent itself that raises the hospital's costs
(although in our view, it is certainly an element of higher costs) but
all of the other services that are provided by the receiving hospital
to such a patient. Although we recognize the concerns of the commenter,
the emergency room is already being compensated for the administration
of the tPA. Therefore, we do not believe it would be appropriate for
Medicare to pay for the same service at another facility.
f. Gliasite [supreg] Radiation Therapy System (RTS) (MDC 1)
Comment: One commenter, the manufacturer of Gliasite [reg]
Radiation Therapy System (RTS), wrote that this technology is used in
the treatment of malignant brain cancer. The commenter indicated that
patients who undergo this treatment require two admissions. The first
admission includes tumor debulking and a special catheter is implanted.
The following ICD-9-CM procedures are assigned to report the procedures
performed: Code 01.59 (Other excision or destruction of lesion or
tissue of brain) and code 01.27 (Insertion of catheter(s) into cranial
cavity or tissue). Under the proposed MS-DRGs, the case for this
admission with a principal diagnosis of glioblastoma and procedure
codes 01.59 and 01.27 would be assigned to MS-DRGs 26 and 27
(Craniotomy and Endovascular Intracranial Procedures with and without
MCC/CC, respectively).
The commenter added that the second admission usually occurs in a
week or 10 days and entails liquid radioisotope infused into the
special catheter. The patient is monitored for a few days and then the
radioisotope is removed. ICD-9-CM procedure code 92.20 (Infusion of
liquid brachytherapy radioisotope) and code 01.27 (Removal of
catheter(s) from cranial cavity or tissue) would be assigned to
identify the procedures performed in the second admission. Under the
proposed MS-DRGs, for the second admission, the case with a principal
diagnosis of glioblastoma and procedure codes 92.20 and 01.27 would be
assigned to medical MS-DRGs 54 and 55 (Nervous System Neoplasm with and
without MCC, respectively).
The commenter requested that CMS recognize the resources associated
with infusion of radioisotope and establish two new surgical MS-DRGs
for these admissions/treatments:
Liquid radiotherapy infusion for glioblastoma without
tumor debulking.
Liquid radiotherapy infusion for glioblastoma with
craniotomy, tumor debulking, and implantation of infusion catheter.
The commenter stated that the costs of the implant can be
considered equivalent to the cost of an MCC and should be recognized in
a surgical MS-DRG descriptor.
Response: The refinement of the DRGs is not based on the creation
of any new logic under the MS-DRGs. We believe that it is not
appropriate to make DRG revisions of this nature as part of the final
rule since the base DRG has not changed for these cases. However, we
will examine the need for further DRG refinements as we gain experience
under the MS DRGs.
g. Noninvasive Ventilation (MDC 4)
Comment: One commenter representing a national association
requested the creation of a new DRG for noninvasive positive pressure
ventilation (NPPV). According to the commenter, NPPV is an effective
and preferred treatment in the management of patients with acute
exacerbations of chronic obstructive pulmonary disease and other forms
of respiratory failure.
Currently, this treatment is identified in ICD-9-CM by procedure
code 93.90 (Continuous positive airway pressure (CPAP)) and does not
require the use of mechanical ventilation via an endotracheal tube or
tracheotomy. The commenter indicated that NPPV is a valuable and
clinically appropriate option for patients who may require short term
(<96 hours) ventilatory support when presenting with an acute
respiratory failure condition. The commenter noted that results have
demonstrated improved outcomes and less risk associated with less
invasive devices. Therefore, the commenter stated, the selection of
treatment for ventilatory support does not solely rely on patient
acuity. To better recognize NPPV as an appropriate treatment in acute
respiratory conditions and ensure proper reimbursement, the commenter
also proposed that CMS consider

[[Page 47257]]

including NPPV (code 93.90) in proposed MS-DRG 207 (Respiratory System
Diagnosis with Ventilatory Support 96+hours) if the creation of a new
MS-DRG was not a viable option.
Response: We met with the commenter on June 13, 2007, regarding the
above requests to create a new MS-DRG for patients who receive NPPV or
reassign cases to a different MS-DRG. After discussing the clinical and
coding issues surrounding NPPV, we advised the commenter to request a
new procedure code to distinguish between the various treatments that
are currently included in code 93.90. We informed the commenter about
the ICD-9-CM Coordination and Maintenance Committee and the process for
requesting a new procedure code.
h. Heart Assist Devices (MDC 5)
Comment: One commenter requested that CMS create an additional
severity level in MS-DRG 215 that would be titled ``Other Heart Assist
Implant without Major Complications.'' The commenter indicated that CMS
should have a consistent number of severity levels between this MS-DRG
and MS-DRGs 001 or 002 (Heart Transplant or Implant of Heart Assist
System with MCC or without MCC, respectively). In the proposed rule,
MS-DRG 215 (formerly CMS DRG 525, and still titled ``Other Heart Assist
System Implant'') had no severity levels. The commenter stated that, by
capturing the severity of the cases with devices coded to 37.65
(Implant of external heart assist system), hospitals will be more
appropriately reimbursed and CMS will be consistent in its policy.
The commenter added that without a severity breakdown in MS-DRG
215, it feared the integrity of the MS-DRG will be distorted, causing
an unwarranted financial windfall for some cases. The commenter
indicated that Medicare will be overpaying less severe cases and
underpaying cases with major complications if MS-DRG 215 is not
subdivided into with MCC and without MCC severity levels.
Response: We reviewed the following data specifically in light of
this comment. Our findings are represented in the table below.

In the proposed rule (72 FR 24705), we explained that we developed
a set of criteria to facilitate the decision-making process surrounding
the subdivision of a DRG into subgroups based on the presence of a CC
or MCC. We specified that in order to warrant creation of a CC or MCC
subgroup within a base MS-DRG, the subgroup had to meet all of the five
criteria listed. One of the criteria was that the subgroup contained at
least 500 cases. In this instance, there are only 142 cases in the
MedPAR data. Therefore, there are too few cases to warrant a
subdivision of the base DRG into severity levels. We will continue to
monitor this DRG, and should future data prove that a subdivision of
MS-DRG 215 is warranted, we will consider revision of its structure.
i. Automatic Implantable Cardioverter-Defibrillators (ACID) Lead and
Generator Procedures (MDC 5)
Comment: One commenter commended CMS for creating a separate, stand
alone DRG for automatic implantable cardioverter-defibrillator (AICD)
generator replacements and defibrillator lead replacements. The new DRG
is MS-DRG 245 (AICD lead and generator procedures). The MS-DRG contains
the following codes:
00.52, Implantation or replacement of transvenous lead
[electrode] into left ventricular coronary venous system.
00.54, Implantation or replacement of cardiac
resynchronization defibrillator pulse generator device only [CRT-D].
37.95, Implantation of automatic cardioverter/
defibrillator leads(s) only.
37.96, Implantation of automatic cardioverter/
defibrillator pulse generator only.
37.97, Replacement of automatic cardioverter/defibrillator
leads(s) only.
37.98, Replacement of automatic cardioverter/defibrillator
pulse generator only.
The commenter indicated that under the current CMS DRGs, the
defibrillator generator and defibrillator lead replacements were
included in DRG 551 with pacemaker implants. The commenter supported
this new MS-DRG, which recognizes the distinct differences in resource
utilization between pacemaker and defibrillator generators and leads.
The commenter stated that CMS should consider additional refinements
for the defibrillator generator and leads. In reviewing the
standardized charges for the AICD leads, the commenter believed that
the leads may be more appropriately assigned to another DRG such as MS-
DRG 243 (Permanent Cardiac Pacemaker Implant with CC) or MS-DRG 258
(Cardiac Pacemaker Device Replacement with MCC). The commenter
recommended that CMS consider moving the defibrillator leads back into
a pacemaker DRG, either MS-DRG 243 or MS-DRG 258.
Response: We appreciate the commenter's support for the refinements
made through the MS-DRGs to better identify differences in patient care
costs associated with pacemakers and defibrillators. In our view, the
data support separate DRGs for these very different devices. The
commenter supported the proposed DRG change we made that removed both
the defibrillator generators and leads from the pacemaker MS DRG and
then recommended that we move the defibrillator leads only back into a
pacemaker DRG. The commenter, as stated, had supported this change
because the commenter believed that it better identified devices that
were quite different. We proposed separating defibrillator and
pacemaker devices because they are such different devices. Moving the
defibrillator leads back into a pacemaker MS-DRG defeats the purpose of
creating separate MS-DRGs for defibrillators and pacemakers. Therefore,
we are finalizing MS DRG 245 as proposed with the leads and generator
codes listed above.
j. Artificial Heart (MDC 5)
Comment: One commenter requested that ICD-9-CM code 37.52
(Implantation of total replacement heart system) [which includes
artificial heart] be moved from CMS DRG 525 (Other Heart Assist System
Implant) to CMS DRG 103 (Heart Transplant or Implant of Heart Assist
System). These CMS DRGs would be renumbered and renamed in the proposed
MS-DRG system, with CMS DRG 525 becoming

[[Page 47258]]

MS-DRG 215 (Other Heart Assist System Implant) and CMS DRG 103 becoming
MS-DRGs 001 (Heart Transplant or Implant of Heart Assist System with
MCC) and 002 (Heart Transplant or Implant of Heart Assist System
without MCC). The commenter stated that the change of MS-DRG assignment
from MS-DRG 215 to MS-DRGs 001 or 002 will more accurately reflect the
grouping of procedures for the implantation of a total replacement
heart system with heart transplantation and other heart assist systems
intended as destination therapy to more accurately recognize hospital
resources for the treatment of end-stage heart failure. We received a
similar comment from another manufacturer.
Response: Medicare does not currently cover artificial heart
implants. ICD-9-CM procedure code 37.52 (Implantation of total
replacement heart system) was created for potential use for discharges
on or after October 1, 2003. However, code 37.52 was immediately put on
the noncovered procedure list of the MCE as no device then existed that
was deemed safe and effective as an artificial heart. The technology
remains noncovered by Medicare. For this reason, we currently have no
data to suggest that the DRG assignment for procedure code 37.52 needs
to be changed.
Our review of the second manufacturer's product shows it to be a
bi-ventricular device, not an artificial heart as described in their
marketing literature. This commenter also is currently in the process
of requesting coverage for its device. We recommend that the
manufacturer of this device request to be added to the agenda of the
ICD-9-CM Coordination and Maintenance Committee meeting of September
27, 2007. An ICD-9-CM procedure code will help us to determine whether
a Medicare patient treated with this new technology should be assigned
to a DRG other than the one that includes the predecessor code used to
describe the service.
Comment: One commenter suggested that CMS reevaluate the
appropriateness of including ICD-9-CM procedure code 37.62 (Insertion
of nonimplantable heart assist system) in CMS DRG 525 (Other Heart
Assist System Implant), which will become MS-DRG 215 (Other Heart
Assist System Implant), and reassign code 37.62 to more accurately
reflect hospital resource consumption of services involving mechanical
support for cardiovascular failure. The commenter suggested that
patients treated with a nonimplantable heart assist system are less
costly than other patients in MS-DRG 215 and should be reassigned to a
different DRG that would reflect its lower costs. Further, the
commenter suggested that hospitals may not be using code 37.62
consistent with its intended purpose.
Response: The commenter has not provided a compelling justification
for changing the placement of code 37.62. Our understanding is that
this code describes use of a nonimplantable heart assist system to
temporarily replace the heart's function. The function of the device to
replace the heart means that there are only three potential MS-DRGs
where code 37.62 could be assigned: MS-DRG 215 (Other Heart Assist
System Implant) and MS-DRGs 001 and 002 (Heart Transplant or Implant of
Heart Assist System with and without MCC, respectively). The commenter
suggested that the code should be assigned to a lower paying MS-DRG
than MS-DRG 215. However, the only other MS-DRGs to which the code
could be assigned have even higher payment weights. Therefore, we are
making no changes to the DRG assignment for code 37.62 for FY 2008.
Although the commenter suggested potential problems with use of the
code, the commenter did not suggest any potential solutions for how to
address this problem. Therefore, we have no information upon which to
take further action to address the commenter's concern.
k. Vascular Procedures (MDC 5)
We proposed three MS-DRGs for vascular procedures: MS-DRG 252
(Other Vascular Procedures with MCC), MS-DRG 253 (Other Vascular
Procedures with CC) and MS-DRG 254 (Other Vascular Procedures without
CC/MCC).
Comment: One commenter evaluated the diagnoses associated with MS-
DRGs 252, 253, and 254 to assess whether patients with diagnoses not on
the CC or MCC lists were more costly to treat. The commenter selected
the following 30 diagnosis codes:

250.70, Diabetes with peripheral circulatory disorders, type II or
unspecified type, not stated as uncontrolled.
263.9, Unspecified protein-calorie malnutrition.
276.1, Hyposmolality and/or hyponatremia.
276.2, Acidosis.
276.51, Dehydration.
276.7, Hyperpotassemia.
276.8, Hypopotassemia.
280.0, Secondary to blood loss (chronic).
285.1, Acute posthemorrhagic anemia.
287.5, Thrombocytopenia, unspecified.
410.71, Subendocardial infarction, initial episode of care.
427.1, Paroxysmal ventricular tachycardia.
427.31, Atrial fibrillation.
440.1, Atherosclerosis of renal artery.
440.24, Atherosclerosis of the extremities with gangrene.
444.22, Arterial embolism and thrombosis, lower extremity.
458.9, Hypotension, unspecified.
491.21, Obstructive chronic bronchitis with (acute) exacerbation.
496, Chronic airway obstruction, not elsewhere classified.
511.9, Unspecified pleural effusion.
518.0, Pulmonary collapse.
599.0, Urinary tract infection, site not specified.
682.6, Other cellulitis and abscess, leg, except foot.
682.7, Other cellulitis and abscess, foot, except toes.
707.15, Ulcer of other part of foot.
785.4, Gangrene.
790.7, Bacteremia.
996.62, Infection and inflammatory reaction due to vascular device,
implant and graft.
997.1, Cardiac complications.
998.11, Hemorrhage complicating a procedure.

[[Page 47259]]

The commenter recommended that CMS should:
Reassign vascular procedure cases containing two or more
of the identified diagnosis codes from MS-DRG 253 to MS-DRG 252.
Reassign vascular procedure cases containing two or more
of the identified diagnosis codes from MS-DRG 254 to MS-DRG 253.
Response: In our proposed rule analysis, we found that the vascular
procedures DRG warranted three subdivisions according to our five
criteria. Nineteen of the 30 diagnosis codes suggested by the commenter
already appear on the CC or MCC list and will result in a patient being
assigned to either MS-DRG 252 or MS-DRG 253. The remaining 11 diagnosis
codes do not appear on either list. These codes are: 250.70, 276.51,
276.7, 276.8, 280.0, 287.5, 427.31, 440.1, 458.9, 496, and 707.15.
Although the commenter has identified common diagnoses in this
patient population, our medical advisors reviewed the clinical issues
and claims data for cases reporting each of the conditions not on the
MCC or CC list as a secondary diagnosis. After evaluating the claims
data and analyzing the clinical issues, our medical advisors recommend
that we not change the CC status for the codes mentioned above. They do
not believe there is sufficient justification for making these codes
CCs. We do not believe that we should make further changes to the MS-
DRG assignments based on combinations of selected diagnoses. These
types of analyses could be done with virtually any MS-DRG and would add
significant complexity to the DRG system that we do not believe is
warranted at this time. We reiterate that the MS-DRGs--like the
predecessor CMS-DRGs--are intended to establish an average payment
based on groups of patients that are similar in costs and clinical
characteristics. Over time, we found that the CMS DRGs did not
sufficiently recognize differences in patient severity of illness, and
we proposed to adopt the MS-DRGs as an alternative to achieve this
objective. While we acknowledge that further potential improvements may
be warranted as we have more experience with the new system, we have
significant concerns about selectively analyzing specific diagnoses
within a given MS-DRG to change their DRG assignment. Although we have
increased the assigned severity level for a limited number of cases,
these decisions recognize that the patient was more complex than was
suggested by their secondary diagnosis either because of a specific
procedure (in the case of intestinal transplants) or the type of
technology used to treat their condition (in the case of cochlear
implants and spinal stabilization devices).
We refer readers to section II.D.2.a. of this preamble for complete
information on the CC list.
l. Coronary Artery Stents (MDC 5)
Effective for cases discharged on or after October 1, 2005 (FY
2006), the ICD-9-CM Coordination and Maintenance Committee created a
series of adjunct codes further describing procedures on the vascular
system. These codes were at the 00.4 subcategory (Adjunct vascular
system procedures), with codes 00.40 through 00.43 describing the
number of vessels upon which a procedure was performed, and codes 00.45
through 00.48 describing the number of stents which were inserted. As
these codes were deemed to be adjunct codes that supplemented the
information describing a patient's hospital treatment, they were not
considered procedure codes that would affect DRG assignment. However,
coders were encouraged to thoroughly and completely code all hospital
stays, in case this information would be used for future DRG
determination. We received comments on the proposed MS-DRGs concerning
the DRG assignment for procedures on multiple coronary vessels and
insertion of multiple stents in coronary arteries.
Comment: Commenters have analyzed standardized charges in the FY
2006 MedPAR data for percutaneous transluminal coronary angioplasty
(PTCA) in conjunction with codes indicating insertion of drug-eluting
or non-drug-eluting coronary artery stent(s) and the use of codes
indicating procedures on multiple vessels and/or insertion of multiple
stents. These commenters believe that mean standardized charges for
these combination codes vary substantially from the mean standardized
charges associated with the DRGs to which they are proposed to be
assigned. The DRGs under consideration in this section for drug-eluting
stents are MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-
Eluting Stent with MCC) (formerly CMS DRG 557 (Percutaneous
Cardiovascular Procedure with Drug-Eluting Stent with Major
Cardiovascular Diagnosis)) and MS-DRG 247 (Percutaneous Cardiovascular
Procedure with Drug-Eluting Stent without MCC) (formerly CMS DRG 558
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without
Major Cardiovascular Diagnosis)). The DRGs under consideration in this
section for non-drug-eluting stents are MS-DRG 248 (Percutaneous
Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC) and MS-
DRG 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting
Stent with MCC). (These were either formerly CMS DRG 555 (Percutaneous
Cardiovascular Procedures with Major Cardiovascular Diagnosis) or CMS
DRG 556 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting
Stent without Major Cardiovascular Diagnosis), respectively.)
The commenters recommended that PTCA code 00.66 (Percutaneous
transluminal coronary angioplasty [PTCA] or coronary atherectomy) in
combination with a code for insertion of a drug-eluting or non-drug-
eluting stent, plus adjunct codes indicating procedures on multiple
vessels and insertion of multiple stents be assigned to MS-DRGs 246 and
248 as described above. They stated that their analysis of standardized
charges for PTCA with insertion of a drug-eluting or non-drug-eluting
stent(s) in multiple vessels or with insertion of multiple stents vary
substantially from the mean standardized charges associated with the
DRGs to which they are proposed to be assigned. The commenters found
that the variation in charges between the subgroups and the overall DRG
average meet CMS' criteria for moving cases between DRGs, and suggested
that cases with multiple vessels and multiple stents be moved up to the
first DRG in the series. That is, cases with insertion of drug-eluting
stents in MS-DRG 247 would be assigned to MS-DRG 246, and cases with
non-drug-eluting stents in MS-DRG 249 would be assigned to MS-DRG 248.
In each of the MS-DRGs, cases where multiple vessels are treated or
multiple stents are placed would be assigned to the ``with MCC'' MS-DRG
rather than the ``without MCC'' MS-DRG.
Response: We reviewed the MedPAR data in response to these comments
and found that PTCAs with four or more vessels or four or more stents
were more comparable in average charges to the higher weighted DRG in
the group. These data are summarized in the following tables.

[[Page 47260]]

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRG cases of stay charges
----------------------------------------------------------------------------------------------------------------
MS-DRG 246--All cases........................................... 31,204 6.34 $64,009.36
MS-DRG 246--Cases with codes 00.66 and 36.07 with 4 or more 1,425 5.68 78,02.93
vessels (code 00.43) and 4 or more stents (code 000.48)........
MS-DRG 247--All cases........................................... 267,684 2.24 40,857.34
MS-DRG 247--Cases with codes 00.66 and 36.07 with 4 or more 8,095 2.33 61,666.34
vessels (code 00.43) and 4 or more stents (code 000.48)........
MS-DRG 248--All cases........................................... 4,710 6.53 56,671.61
MS-DRG 248--Cases with codes 00.66 and 36.06 with 4 or more 112 6.38 69,431.81
vessels (code 00.43) and 4 or more stents (code 000.48)........
MS-DRG 249--All cases........................................... 27,914 2.55 35,577.22
MS-DRG 249--Cases with codes 00.66 and 36.06 with 4 or more 232 3.76 54,203.87
vessels (code 00.43) and 4 or more stents (code 000.48)........
----------------------------------------------------------------------------------------------------------------

In both cases, we believe that the average charges for cases where
four or more vessels are treated or four or more stents are placed more
closely approximate average charges in the higher weighted MS-DRG.
Therefore, we are assigning these cases to the higher weighted MS-DRG
according to the following logic.
Claims containing code 00.66 for PTCA, and code 36.07 (Insertion of
drug-eluting coronary artery stent(s)), and code 00.43 (Procedure on
four or more vessels) or code 00.48 (Insertion of four or more vascular
stents) are assigned to MS-DRG 246. In addition, claims containing code
00.66 for PTCA, and code 36.06 (Insertion of non-drug-eluting coronary
artery stent(s)), and code 00.43 or code 00.48 are assigned to MS-DRG
248.
We are also making conforming changes to the MS-DRG titles as
follows: MS-DRG 246 is titled ``Percutaneous Cardiovascular Procedures
with Drug-Eluting Stent(s) with MCC or 4 or more Vessels/Stents''. The
title for MS-DRG 247 will remain unchanged. MS-DRG 248 is titled
``Percutaneous Cardiovascular Procedures with Non Drug-Eluting Stent(s)
with MCC or 4 or more Vessels/Stents''. The title for MS-DRG 249 will
remain unchanged. This DRG modification is based on newly created codes
that were developed to provide additional detail on the number of
vessels treated and the number of stents inserted. The DRG combines two
distinct concepts: the insertion of four or more stents or the
performance of a vascular procedure on four or more vessels, in order
to determine the DRG assignment. Although we are adopting this DRG
change for FY 2008, we plan to continue examining whether this revision
of the DRG definition captures a relatively homogeneous group of cases.
We currently only have one year of data on these new codes. Therefore,
we plan to revisit this issue further in next year's proposed rule when
we have a second year of data to better distinguish the different types
of cases that are treated with this technology.
m. Endovascular Repair of Aortic and Thoracic Aneurysms (MDC 5)
Comment: Several commenters expressed concern that the relative
weights for MS-DRGs 237 and 238 (Major Cardiovascular Procedures with
MCC and without MCC, respectively), formerly CMS-DRGs 110 and 111
(Major Cardiovascular Procedures with CC and without CC, respectively)
do not reflect the severity of illness and the resource use required
for such complex care. One commenter noted that regardless of the DRG
assignment, the cost of the endovascular graft or device does not
change, nor is it insignificant. The commenter further stated that MS-
DRGs 237 and 238 do not adequately factor into the relative weights
that the device is not incidental to treatment; it is a major component
of the treatment.
Response: New MS-DRGs 237 and 238 are exactly the same as their
predecessor CMS DRGs 110 and 111 in content. Using historic Medicare
charges and hospital cost report data submitted to us by hospitals, we
have included the cost of the device into the MS-DRG relative weights.
Comment: Several commenters suggested that MS-DRGs 237 and 238
should be divided into three levels of severity: ``with MCC'', ``with
CC'', and ``without CC/MCC'' and noted that it is important that CMS be
consistent and not create inequities with regard to major surgical
procedures. One commenter stated that patients with aortic aneurysm
fall naturally into three clinical categories, with patients who are
genetically predisposed to an aneurysm are likely to be younger
(between 50 and 60 years of age, not between 70 and 80 years of age)
and are more likely to be healthier than the typical aneurysm patient.
Those cases are suggested for an MS-DRG without CC/MCC. The commenter
added that the other cases would fall into the ``with MCC'' or ``with
CC'' MS-DRGs based on the severity of their CCs.
Response: When we consolidated all existing DRGs into the base
DRGs, we removed all demarcations that had been added over the years,
including considerations for age, gender, and discharge disposition, as
well as elimination of the current split based on the presence or
absence of a CC, burns, trauma, AMI, major cardiovascular condition,
among others. We then applied the severity criteria described elsewhere
in this preamble, and stated that in order to warrant creation of a CC
or major CC subgroup within a base MS-DRG, the subgroup had to meet all
five criteria. The commenter states that genetically predisposed
patients tend to be younger. Although age is a variable that would be
available in the Medicare claims data, genetic predisposition to a
certain class of diseases generally cannot be identified in the ICD-9-
CM coding system. Therefore, as we are not able to identify those
patients, we cannot subdivide these MS-DRGs using genetic
predisposition as criterion.
We considered subdividing MS-DRGs 237 and 238 into three DRGs for
the proposed rule. However, MS-DRGs 237 and 238 did not meet the
criteria for a 3-way split.
Comment: Two commenters suggested that instead of ``with MCC'' in
the surgical DRGs, CMS should establish a list of devices that would be
equivalent to the MCC categorization and further subdivide the MS-DRGs
based on the presence of ``with Major Device.'' Specifically, they
suggested that endovascular devices or grafts used during
cardiovascular procedures should be considered major devices.
Therefore, they added, when a major device or implantable graft is used
in a cardiovascular repair procedure, such as those performed to repair
an abdominal or thoracic aortic aneurysm, CMS should assign those cases
to MS-DRGs where the DRG title has been changed to reflect that the
costs of the device are similar to the costs of an MCC.

[[Page 47261]]

Response: We believe the commenter is suggesting that we establish
a list of major devices and use them as a proxy for MCCs. We will take
this suggestion under consideration in future reviews of the MS-DRGs.
We looked at data to review the differences between endovascular
graft repair of abdominal aortic aneurysm (code 39.71) and endovascular
graft repair of thoracic aortic aneurysm (code 39.73). Our findings are
represented in the table below.

Review of these data shows that the 887 thoracic cases in MS-DRG
238 have average charges that are between both groups. We believe that
the data indicate that endovascular repair of the thoracic aorta cases
should be assigned to MS-DRG 237.
Therefore, we are assigning procedure code 39.73 (Endovascular
implantation of graft in thoracic aorta) to MS-DRG 237 in FY 2008.
n. O.R. Procedures for Obesity (MDC 10)
Comment: One commenter was concerned with the conditions that are
classified as MCCs and CCs for MS-DRGs 619, 620, 621 (O.R. Procedures
for Obesity with MCC, with CC, and without CC/MCC, respectively),
previously CMS DRG 288. The commenter fully supported efforts to base
payments on patient severity, but states that some of the proposed
changes do not appear to achieve that goal. The commenter acknowledged
the three severity levels added to former CMS DRG 288 (O.R. Procedures
for Obesity). However, the commenter stated that all of the morbidly
obese Medicare patients will have one or more serious comorbidities.
The commenter was concerned about the application of the complete MCC
and CC list to MS-DRGs 619, 620, and 621. The commenter stated that the
following codes, which are on the MCC and CC lists, should not be
considered MCCs or CCs for these bariatric DRGs because these
conditions are ``contraindications'' to performing bariatric surgery:
Diabetes codes 250.10 through 250.13; 250.20 through
250.23; and 250.30 through 250.33 (all MCCs).
Coronary atherosclerosis codes 414.02 through 414.04; and
414.06 and 414.07 (all CCs).
Aneurysm and dissection of heart codes 414.10 (CC), 414.12
(MCC), and 414.19 (CC).
The commenter also requested that the following codes be classified
as CCs for these bariatric DRGs:
Diabetes codes--250.00 through 250.93.
Obstructive sleep apnea--327.23.
Hypertensive disease--401.0 through 405.99.
Cirrhosis of liver without mention of alcohol--571.5.
Biliary cirrhosis--571.6.
Other chronic nonalcoholic liver disease--571.8.
Unspecified chronic liver disease without mention of
alcohol--571.9.
Response: Our clinical advisors disagree with the recommendations
to change the diabetes, coronary atherosclerosis, and aneurysm and
dissection codes from MCCs and CCs to non-CCs for the bariatric MS-
DRGs. They believe these conditions represent significant CCs in the
general patient population and the data we used to perform this
analysis support their judgment. Although we do have secondary
diagnosis codes that are ``exclusions'' (not counted as an MCC or a CC
if they are related to the principal diagnosis), we have not analyzed
whether to classify a particular diagnosis as an MCC or a CC for
purposes of determining if a particular type of surgery should be
performed. However, we believe the commenter indicates that our
decision to classify these conditions as MCCs or CCs is correct by
suggesting that the presence of these conditions is so significant in
increasing severity of illness that it is a contraindication to
surgery. We expect that physicians will not order surgical procedures
that are contraindicated merely because the case would be assigned to a
higher-paying DRG.
Our medical advisors evaluated the request to make the codes
specified above CCs. Our medical advisors reviewed claims data and
clinical issues for cases reporting codes 250.00 through 250.93;
327.23; 401.0 through 405.99; and 571.5 as secondary diagnoses. After
evaluating the claims data and analyzing the clinical issues, our
medical advisors recommend that we not change the CC status for codes
250.00 through 250.93; 327.23; 401.0 through 405.99; and 571.5. They do
not believe there is sufficient justification for making these codes
CCs at this time.
o. Penile Restorative Procedures (MDC 12)
Comment: One commenter, a national organization representing the
prosthetic urology community applauded CMS for moving forward to ensure
that Medicare payments for inpatient services are appropriate and
accurately reflect the severity and resources required for patient
care. The commenter supported the proposal to implement MS-DRGs on
October 1, 2007. However, the commenter indicated that the cost of
implants and prosthetics used in penile implant procedures are
comparable to the resources utilized in a patient with a MCC or CC
diagnosis. Generally, the commenter suggested that in surgical MS-DRGs
where implants and prostheses are part of the ICD-9-CM procedure code
title that CMS should consider revising the MS-DRG titles to account
for the costs associated with surgical procedures that use an implant
or prosthesis. As an example, the commenter expressed support for the
proposed modification to MS-DRG 129 (Major Head and Neck Procedure with
CC/MCC or Major Device). The commenter believed that, when a major
implant/prosthesis/device demonstrates costs that are greater than or
similar to the difference between the relative weights of a CC/MCC DRG
versus a without CC/MCC DRG pair, CMS should recognize the device or
implant in the MS-DRG titles and reassign these cases. Specifically,
the commenter recommended that the title for proposed MS-DRG 709 (Penis
Procedures with CC or MCC) be revised to add the phrase ``or major
device or implant'' and include all cases where an implantable
prosthesis is used in a penile restorative procedure.
Response: We appreciate the commenter's support for MS-DRGs and

[[Page 47262]]

its general suggestions for future refinements. The commenter did not
provide specific examples of types of implants and prosthesis which
they want to have evaluated for possible DRG reassignment. We are not
clear as to whether or not there will be ICD- 9-CM procedure codes for
these specific implants. It is premature to modify the MS-DRG titles at
this time without more specific information and analysis.
Comment: This same commenter also urged CMS to review clinically
significant conditions for penile restorative procedures on the
proposed MCC and CC lists.
Response: We refer readers to section II.D.3. of this final rule
with comment period for a complete discussion on the public comments
received on the MCC and CC lists. We welcome any specific
recommendations for future revisions and refinements to the MCC and CC
lists.
p. Female Reproductive System Reconstruction Procedures (MDC 13)
Comment: Two commenters requested that CMS establish levels within
MS-DRG 748 (Female Reproductive System Reconstruction Procedures). The
commenters noted that all of the other proposed MS-DRGs for surgical
male and female reproductive system procedures have either ``MCC or
CC'' subdivisions. The commenters believed that CMS may have made an
oversight by not establishing severity levels within this MS-DRG.
Response: As stated in the FY 2008 proposed rule, in order to
warrant creation of a CC or MCC subgroup within a base MS-DRG, the
subgroup has to meet all five criteria. In developing the proposed MS-
DRGs, this base DRG did not meet three of the five criteria required to
subdivide a DRG into additional severity subgroups. MS-DRG 748 failed
the following three criteria:
At least 5 percent of the patients in the MS-DRG fall
within the MCC or CC subgroup.
At least 500 cases are in the MCC or CC subgroup.
There is a $4,000 difference in average charge between
subgroups.
We refer readers to section II.D.3 of the FY 2008 proposed rule (72
FR 24705) for a complete listing of the criteria.
As such, effective October 1, 2007, we are adopting the MS-DRGs as
final policy and MS-DRG 748 will remain as proposed with the following
title: MS-DRG 748 (Female Reproductive System Reconstruction
Procedures).
q. Urological and Gynecological Disorders With Grafts or Prosthesis
(MDCs 13 and 14)
Comment: We received comments commending CMS for the creation of
new ICD-9-CM procedure codes that identify the use of grafts or
prosthetics in female pelvic prolapse repair procedures. The commenters
acknowledged that the use of these new codes will result in better data
collection, outcomes research, and improve the quality of health care
for women. However, the commenters indicated that the cost of implants
and prosthetics used in treating various urological and gynecological
conditions are comparable to the resources utilized in a patient with
an MCC or CC diagnosis. Specifically, the commenters recommended that
the titles for the following proposed MS-DRGs be revised to add the
term, ``or major device'' to account for cases where a graft or
prosthesis is used.
MS-DRG 333 (Rectal Resection with CC).
MS-DRG 662 (Minor Bladder Procedures with Major CC).
MS-DRG 707 (Major Male Pelvic Procedures with CC or Major
CC).
MS-DRG 709 (Penis Procedures with CC or Major CC).
MS-DRG 746 (Vagina, Cervix & Vulva Procedures with CC or
Major CC).
Response: We appreciate the commenter's support of the new
procedure codes and the suggestion to revise the proposed MS-DRG
titles. The newly created codes describing the use of grafts or
prosthetics are restricted to female pelvic prolapse repair procedures
and are not effective until October 1, 2007. As a result, there is no
data available for analysis at this time. We will evaluate these
recommendations as we obtain additional data using the MS-DRGs to
determine if future changes to the above mentioned MS-DRGs are
warranted.
r. High Dose Interleukin-2 (HD-IL-2) (MDC 17)
We received comments concerning the appropriate assignment within
the MS-DRGs of patients receiving High-dose Interleukin-2 (IL-2).
In the FY 2004 final rule (68 FR 45360, August 1, 2003), we
discussed the creation of a specific code to identify IL-2 (procedure
code 00.15, High-dose infusion of Interleukin-2 (IL-2)) and the
subsequent modification of existing CMS DRG 492 (Chemotherapy with
Acute Leukemia as Secondary Diagnosis) by adding code 00.15 to the DRG
logic and changing the title to ``Chemotherapy with Acute Leukemia or
with use of High Dose Chemotherapy Agent''. This drug is marketed as
Proleukin(copyright). Under the proposed MS-DRGs, CMS DRG 492 would be
replaced by MS-DRG 837 (Chemotherapy with Acute Leukemia as Secondary
Diagnosis or with High Dose Chemotherapeutic Agent with MCC), MS-DRG
838 (Chemotherapy with Acute Leukemia as Secondary Diagnosis with CC or
High Dose Chemotherapeutic Agent), or MS-DRG 839 (Chemotherapy with
Acute Leukemia as Secondary Diagnosis without CC/MCC).
Administration of high-dose Interleukin-2 (HD-IL-2) is a hospital
inpatient-based regimen that can produce durable remissions of
metastatic renal cell cancer and metastatic melanoma in a subset of
patients. In contrast to traditional cytotoxic chemotherapies which
target cancer cells directly, HD-IL-2 enhances the body's natural
cancer defenses by stimulating the growth and activity of cancer-
killing white blood cells. HD-IL-2 therapy is associated with severe
complications that can include: hypotension, metabolic acidosis, acute
renal failure, arrhythmia, myocardial inflammation, coagulation
defects, hyperthyroidism, psychosis, respiratory distress syndrome,
catheter related septicemia, hyperbilirubinemia and thrombocytopenia.
To safely administer HD-IL-2, the FDA-approved label states that
HD-IL-2 ``should be administered in a hospital setting under the
supervision of a qualified physician experienced in the use of
anticancer agents. An intensive care facility and specialists skilled
in cardiopulmonary or intensive care medicine must be available.''
Strict nursing protocols must be followed in order to minimize adverse
events such as cardiac arrhythmias as well as severe hypotension.
Because it is associated with such severe side effects, HD-IL-2
therapy requires substantially greater resource utilization, including
longer hospital stays and additional nursing support, than conventional
chemotherapy. Conventional chemotherapy may be administered to patients
either on an outpatient basis or through a series of short (that is, 1
to 3 day) inpatient stays. By contrast, FDA approval for high-dose IL-2
refers specifically to the following protocol:
``Each course of high-dose IL-2 therapy is administered during two
separate hospital admissions, with an average length of stay of six to
seven days each. For the first cycle, Interleukin-2 is administered
every 8 hours over a 5-day period. Patients are then discharged to rest
at home for

[[Page 47263]]

several days, and then readmitted for a second cycle consisting of an
identical dosing regimen. These two cycles comprise the first course of
high-dose IL-2 therapy, which may be repeated after 8 to 12 weeks if
the patient is responding.''
Based on data from peer reviewed publications, some centers may
administer IL-2 ``off-label'' in low- or intermediate-dose regimens.
For such off-label uses, IL-2 is either not administered as a bolus, or
in a much lower-dose bolus. Because low- or intermediate-dose IL-2
therapy poses a lower risk of serious side effects, its administration
is less resource intensive in terms of patient monitoring, nursing
support, and length of stay.
A specific code was created for the administration of High-dose
Interleukin-2 beginning with cases discharged on or after October 1,
2003. Code 00.15 (High-dose infusion interleukin-2 (IL-2)) came from
existing code 99.28 (Injection or infusion of biological response
modified [BMR] as an antineoplastic agent), which had been created for
use on or after October 1, 1994. However, as there may be some
confusion in the industry concerning the differentiation and correct
coding of ``high-dose'' IL-2 therapy from less resource intensive uses,
some non-high-dose cases have probably been incorrectly billed under
00.15 as high-dose cases when they should have been classified to code
99.28. Code 00.15 is specifically titled ``High-dose infusion
Interleukin-2'' and contains inclusion terms specifying ``Infusion (IV
Bolus, CIV) interleukin.'' A specifically written ``excludes note'' in
the Tabular section of the Procedure Manual sends Coders to code 99.28
to correctly describe the administration of low-dose infusion
Interleukin-2. This confusion has possibly caused Medicare to overpay
for some non-high-dose cases as if they were high dose cases, and may
have reduced the reported average charges and costs of true high-dose
IL-2 therapy [in the MedPAR data files]. If reported average charges do
not reflect true high-dose IL-2 therapy, the result of this coding
inaccuracy may be causing the IPPS relative weight to reflect a blend
of the costs of patient treated with high-dose and low-dose
administration of IL-2.
To address this incorrect coding issue, CMS will clarify the ICD-9-
CM coding system by making additional entries in both the Index and
Tabular portions of the Procedure section of the code book. Procedure
code 00.15 should only be billed for ``bolus, high-dose IL-2.'' Cases
must satisfy the following four criteria, as documented in the medical
record, to qualify for use of code 00.15 as ``bolus, high-dose IL-2'':
Bolus infusions given over no more than 30 minutes at a
dose of no less than 600,000 IU/kg (weight adjusted);
Placement and utilization of a central line;
Administration in a hospital setting under the supervision
of a qualified physician experienced in the use of anticancer agent
with an intensive care facility and specialists skilled in
cardiopulmonary or intensive care medicine available, and
A planned 5-day treatment protocol.
Comment: Commenters indicated that the administration of High-dose
IL-2 is an extremely complicated and advanced therapy, requiring much
stricter nursing protocols to prevent or manage the expected
complications which accompany this type of cytotoxic therapy. The
commenters also noted that HD-IL-2 cases are assigned to a CMS DRG for
chemotherapy that, in their view, is clinically inappropriate. The
commenters stated that technologies should be assigned to clinically
consistent DRGs. Therefore, the commenters added, when a therapy
differs clinically and in resource allocation from the other cases
assigned to the same base DRG, adoption of a new DRG for that
technology is warranted. Commenters urged CMS to reassess whether cases
using HD-IL-2 and other treatments involving advanced technologies are
assigned to appropriate DRGs and to create new, clinically appropriate
DRGs for all advanced therapies.
Response: The cost of treating patients with HD-IL-2 continues to
be represented in MS-DRGs 837, 838, and 839, but the cases have been
distributed according to the presence or absence of an MCC, a CC, or
the lack of either a comorbidity or complication according to the
historical data represented by MedPAR. Medicare likely will continue to
pay the same amount for all patients in these MS-DRGs. However, our
payments will better reflect patient severity of illness by paying
higher amounts for those cases where the patient has an MCC or CC than
if they do not. The data suggest that it is appropriate to divide CMS
DRG 492 based on severity levels, so for the MS-DRG system, new MS-DRGs
837, 838, and 839 were created, as described above. Our findings are
represented in the following table.

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRG cases of stay charges
----------------------------------------------------------------------------------------------------------------
MS-DRG 837--All cases........................................... 1,525 22.62 $107,269.93
MS-DRG 837--Cases with IL-2 Infusion (Code 00.15)............... 56 8.11 73,104.34
MS-DRG 837--Cases without IL-2 Infusion (Code 00.15)............ 1,469 23.17 108,600.39
MS-DRG 838--All cases........................................... 855 9.15 46,596.45
MS-DRG 838--Cases with IL-2 Infusion (Code 00.15)............... 555 4.78 44,008.54
MS-DRG 838--Cases without IL-2 Infusion (Code 00.15)............ 522 11.94 48,247.36
MS-DRG 839--All cases........................................... 1,307 6.04 22,693.30
MS-DRG 839--Cases with IL-2 Infusion (Code 00.15)............... 20 4.40 38,002.15
MS-DRG 839--Cases without IL-2 Infusion (Code 00.15)............ 1,287 6.07 22,455.40
----------------------------------------------------------------------------------------------------------------

These data suggest that average charges for patients receiving HD-
IL-2 are either comparable or lower than other patients within assigned
MS-DRGs 837 and 838. For this reason, we believe most cases treated
with HD-IL-2 will be paid adequately under the MS-DRGs. The remaining
20 cases in MS-DRG 839 have average charges that are more than $15,000
higher than other cases within this MS-DRG. The average charges for
these cases are closer to those for MS-DRG 838.
In spite of the possibility of erroneous coding of low-dose IL-2
cases to procedure code 00.15 instead of the more appropriate code
99.28 as discussed above, the data do not currently suggest a problem
with Medicare payment for most of the HD-IL-2 cases assigned to MS-DRGs
837, 838, and 839. However, the data do suggest that the costs of cases
of IL-2 coded with 00.15 currently assigned to MS-DRG 839 are closer to
MS-DRG 838. Therefore, for FY 2008, we are assigning procedure code
00.15 (High-dose infusion of Interleukin-2 (IL-2)) to MS-DRG 837
(Chemotherapy with Acute Leukemia as Secondary Diagnosis

[[Page 47264]]

or with High Dose Chemotherapeutic Agent with MCC) and MS-DRG 838
(Chemotherapy with Acute Leukemia as Secondary Diagnosis with CC or
High Dose Chemotherapeutic Agent).
s. Computer Assisted Surgery
Comment: We received one comment from a manufacturer requesting
that CMS recognize improved clinical outcomes resulting from computer
assisted surgery and develop new MS-DRGs to group patients together who
receive this technology. The commenter noted that effective October 1,
2004, CMS created codes to describe specific forms of computer assisted
surgery. The commenter further noted that clinical outcomes are
superior when computer assisted surgery is utilized; however, assigning
the computer assisted surgery codes does not affect the DRG assignment.
The commenter encouraged CMS to consider this issue as it continues to
refine the DRG system.
Response: We appreciate the commenter's recommendation that CMS
evaluate how to better recognize the clinical outcomes associated with
computer-assisted surgical procedures. It is unclear which procedures
the commenter is proposing we specifically examine at this time.
Currently, the procedure codes that identify the use of computer
assisted surgery are as follows:
00.31, Computer assisted surgery with CT/CTA.
00.32, Computer assisted surgery with MR/MRA.
00.33, Computer assisted surgery with fluoroscopy.
00.34, Imageless computer assisted.
00.35, Computer assisted surgery with multiple datasets.
00.39, Other computer assisted surgery.
We will continue to study this issue as we obtain additional data
under the MS-DRGs and determine if it is appropriate to make further
modifications.
13. Changes to MS-DRG Logic As a Result of Public Comments
To assist the readers in identifying all changes that were made to
the MS-DRGs as a result of public comments received on the FY 2008 IPPS
proposed rule, we have developed the following summary chart of those
changes.

MS-DRG Summary Chart
----------------------------------------------------------------------------------------------------------------
MDC/MS-DRG Proposed title Final title Procedure code reassignments
----------------------------------------------------------------------------------------------------------------
Pre-MDC
Intestinal Transplant
----------------------------------------------------------------------------------------------------------------
MS-DRG 005.................. Liver transplant and/or Liver transplant w MCC Cases with procedure code
intestinal transplant w or intestinal 46.97 (Transplant of
MCC. transplant. intestine) are reassigned
from MS-DRG 006 to MS-DRG
005.
MS-DRG 006.................. Liver transplant and/or Liver transplant w/o
Intestinal Transplant w/ MCC.
o MCC.
----------------------------------------------------------------------------------------------------------------
MDC 1 (Diseases and Disorders of the Nervous System)
Implantation of Chemotherapeutic Agent
Intracranial Stents
----------------------------------------------------------------------------------------------------------------
MS-DRG 023.................. Craniotomy with major Cranio w major dev iImpl/ Cases with procedure code
device implant or acute acute complex CNS PDX 00.10 (Implantation of
complex central nervous with MCC or chemo chemotherapeutic agent) are
system principal implant. reassigned from MS-DRG 024
diagnosis with MCC. to MS-DRG 023.
MS-DRG 024.................. Craniotomy with major Cranio w major dev impl/ Cases with procedure code
device implant or acute acute complex CNS PDX w/ 00.62 (Percutaneous
complex central nervous o MCC. angioplasty or atherectomy
system principal of intracranial vessel(s))
diagnosis without MCC. are reassigned from MS-DRGs
037-039 to MS-DRGs 023-024.
----------------------------------------------------------------------------------------------------------------
Intracranial Stents
----------------------------------------------------------------------------------------------------------------
MS-DRG 025.................. Craniotomy & endovascular Craniotomy & Cases with procedure code
intracranial procedures endovascular 00.62 (Percutaneous
w MCC. intracranial procedures angioplasty or atherectomy
w MCC. of intracranial vessel(s))
are reassigned from MS-DRGs
037 039 to MS-DRGS 025-027.
MS-DRG 026.................. Craniotomy & endovascular Craniotomy &endovascular
intracranial procedures intracranial procedures
w CC. w CC.
MS-DRG 027.................. Craniotomy & endovascular Craniotomy &
intracranial procedures endovascular
w/o CC/MCC. intracranial procedures
w/o CC/MCC.
----------------------------------------------------------------------------------------------------------------

[[Page 47265]]

Spinal Neurostimulators
----------------------------------------------------------------------------------------------------------------
MS-DRG 028.................. Spinal procedures w MCC.. Spinal procedures w MCC. Full system spinal cord non-
MS-DRG 029.................. Spinal procedures w CC... Spinal procedures w CC rechargeable and
......................... or spinal rechargeable neurostimulator
MS-DRG 030.................. Spinal procedures w/o CC/ neurostimulators.. cases in MS-DRG 030 are
MCC. Spinal procedures w/o CC/ reassigned to MS-DRG 029 in
MCC.. MDC 1. ICD-9-CM procedure
codes 03.93 (Implantation or
replacement of spinal
neurostimulator lead(s)),
and 86.94 (Insertion or
replacement of single array
neurostimulator pulse
generator, not specified as
rechargeable), or 86.95
(Insertion or replacement of
dual array neurostimulator
pulse generator, not
specified as rechargeable),
or 86.97 (Insertion or
replacement of single array
rechargeable neurostimulator
pulse generator), or 86.98
(Insertion or replacement of
dual array rechargeable
neurostimulator pulse
generator) must be reported
in order for the spinal
neurostimulator cases to be
assigned to MS-DRG 029.
----------------------------------------------------------------------------------------------------------------
Intracranial Stents
----------------------------------------------------------------------------------------------------------------
MS-DRG 037.................. Extracranial procedures w Extracranial procedures Cases with procedure code
MCC. w MCC. 00.62 (Percutaneous
MS-DRG 038.................. Extracranial procedures w Extracranial procedures angioplasty or atherectomy
MS-DRG 039.................. CC. w CC.. of intracranial vessel(s))
Extracranial procedures w/ Extracranial procedures are reassigned from MS-DRGs
o CC/MCC. w/o CC/MCC.. 037 to MS-DRGs 023-027.
----------------------------------------------------------------------------------------------------------------
Peripheral Neurostimulators
----------------------------------------------------------------------------------------------------------------
MS-DRG 040.................. Periph & cranial nerve & Periph & cranial nerve & Full system peripheral non-
other nerv syst proc w other nerv syst proc rechargeable and
MS-DRG 041.................. MCC. with MCC. rechargeable neurostimulator
Peripheral/Cranial nerve Periph/cranial nerve & cases in MS-DRG 042 are
& other nerv syst proc other nerv syst proc w reassigned to MS-DRG 041.
MS-DRG 042.................. with CC.. CC or periph neurostim.. ICD 9 CM procedure codes
Peripheral/cranial nerve Periph/cranial nerve & 04.92 (Implantation or
& other nerv syst proc w/ other nerv syst proc w/ replacement of peripheral
o CC/MCC.. o CC/MCC.. neurostimulator lead(s)),
and 86.94 (Insertion or
replacement of single array
neurostimulator pulse
generator, not specified as
rechargeable), or 86.95
(Insertion or replacement of
dual array neurostimlator
pulse generator, not
specified as rechargeable),
or 86.97 (Insertion or
replacement of single array
rechargeable neurostimulator
pulse generator), or 86.98
(Insertion or replacement of
dual array rechargeable
neurostimulator pulse
generator) must be reported
in order for the peripheral
neurostimulator cases to be
assigned to MS-DRG 041.
----------------------------------------------------------------------------------------------------------------
Pain Codes
----------------------------------------------------------------------------------------------------------------
MS-DRG 091.................. Other disorders of Other disorders of Cases with a principal
nervous system w MCC. nervous system w MCC. diagnosis of code 338.0
MS-DRG 092.................. Other disorders of Other disorders of (Central pain syndrome) or
nervous system w CC.. nervous system w CC.. code 338.21 (Chronic pain
MS-DRG 093.................. Other disorders of Other disorders of due to trauma) or code
nervous system w/o CC/ nervous system w/o CC/ 338.22 (Chronic post-
MCC.. MCC.. thoracotomy pain) or code
338.28 (Other chronic
postoperative pain) or code
338.29 (Other chronic pain)
or code 338.4 (Chronic pain
syndrome) are reassigned
from MDC 23, MS-DRGs 947-948
to MS-DRGs 091-093.
----------------------------------------------------------------------------------------------------------------
MDC 3 (Disease and Disorders of the Ear, Nose, Mouth, and Throat)
Cochlear Implants
----------------------------------------------------------------------------------------------------------------
MS-DRG 129.................. Major head & neck Major head & neck Cochlear implant cases are
procedures w CC/MCC. procedures w CC/MCC or reassigned from MS-DRG 130
MS-DRG 130.................. Major head & neck Major Device. to MS-DRG 129. The ICD 9 CM
procedures w/o CC/MCC.. Major head & neck procedure codes for cochlear
procedures w/o CC/MCC.. implants are: 20.96
(Implantation or replacement
of cochlear prosthetic
device, not otherwise
specified), or 20.97
(Implantation or replacement
of cochlear prosthetic
device, single channel), or
20.98 (Implantation or
replacement of cochlear
prosthetic device, multiple
channel).
----------------------------------------------------------------------------------------------------------------

[[Page 47266]]

MDC 5 (Disease and Disorders of the Circulatory System)
Endovascular Implantation of Graft in Thoracic Aorta
----------------------------------------------------------------------------------------------------------------
MS-DRG 237.................. Major cardiovascular Major cardiovasc Cases with procedure code
procedures w MCC. procedures w MCC or 39.73 (Endovascular
......................... thoracic aortic implantation of graft in
MS-DRG 238.................. Major cardiovascular aneurysm repair. thoracic aorta) are
procedures w/o MCC.. Major cardiovascular reassigned from MS-DRG 238
procedures w/o MCC.. to MS-DRG 237.
----------------------------------------------------------------------------------------------------------------
Multiple Vessels, Multiple Coronary Stents
----------------------------------------------------------------------------------------------------------------
MS-DRG 246.................. Percutaneous Perc cardiovasc proc w Cases in MS-DRG 247 with
cardiovascular pro w drug-eluting stent w procedure code 00.66
drug-eluting stent w MCC or 4+ Vessels/ (Percutaneous transluminal
MS-DRG 247.................. Major CC. Stents. coronary angioplasty [PTCA]
Percutaneous Perc cardiovasc proc w or coronary atherectomy),
cardiovascular proc w drug-eluting stent w/o and code 36.07 (Insertion of
drug-eluting stent w/o MCC.. drug-eluting coronary artery
Major CC.. stent(s)), and code 00.43
(Procedure on four or more
vessels), or code 00.48
(Insertion of four or more
vascular stents) are
reassigned to MS-DRG 246.
MS-DRG 248.................. Percutaneous Perc cardiovasc proc w Cases in MS-DRG 249 with
cardiovascular proc w non-drug-eluting stent procedure codes 00.66
non-drug-eluting stent w w MCC or 4+ Ves/stents. (Percutaneous transluminal
MS-DRG 249.................. Major CC. Perc cardiovasc proc w coronary angioplasty [PTCA]
Percutaneous non-drug-eluting stent or coronary atherectomy),
cardiovascular proc w w/o MCC.. and code 36.06 (Insertion of
non-drug-eluting stent w/ non-drug-eluting coronary
o Major CC.. artery stent(s)), and code
00.43 (Procedure on four or
more vessels), or code 00.48
(Insertion of four or more
vascular stents) are
reassigned to MS-DRG 248.
MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)
Spinal Fusion
----------------------------------------------------------------------------------------------------------------
MS-DRG 456.................. Spinal fusion exc cerv w Spinal fusion exc cerv w The following diagnoses are
spinal curv, malig or 9+ spinal curv/malig/infec added to the principal
fusions w MCC. or 9+ fusions w MCC. diagnosis list for MS-DRGs
MS-DRG 457.................. Spinal fusion exc w Spinal fusion exc cerv w 456-458: 015.02
spinal curv, malig or 9+ spinal curv/malig/infec (Tuberculosis of bones and
fusions w CC.. or 9+ fusions w CC.. joints, vertebral column,
MS-DRG 458.................. Spinal fusion exc w Spinal fusion exc cerv w bacteriological or
spinal curv, malig or 9+ spinal curv/malig/infec histological examination
fusions w/o CC/MCC.. or 9+ fusions w/o CC/ unknown (at present));
MCC.. 015.04 (Tuberculosis of
bones and joints, vertebral
column, tubercle bacilli not
found (in sputum) by
microscopy, but found by
bacterial culture); 015.05
(Tuberculosis of bones and
joints, vertebral column,
tubercle bacilli not found
by bacteriological
examination, but
tuberculosis confirmed
histologically); 730.08
(Acute osteomyelitis of
other specified sites);
730.18 (Chronic
osteomyelitis of other
specified sites); and 730.28
(Unspecified oteomyelitis of
other specified sites).
Procedure code 81.64 (Fusion
or refusion of 9 or more
vertebrae) is added to the
list of procedures for MS-
DRGs 456-458.
----------------------------------------------------------------------------------------------------------------
Hip and Knee Replacements
----------------------------------------------------------------------------------------------------------------
MS-DRG 466.................. Revision of hip or knee Revision of hip or knee Cases with procedure code
replacement w MCC. replacement w MCC. 00.83 (Revision of knee
MS-DRG 467.................. Revision of hip or knee Revision of hip or knee replacement, patellar
replacement w CC.. replacement w CC.. component), or code 00.84
MS-DRG 468.................. Revision of hip or knee Revision of hip or knee (Revision of total knee
replacement w/o CC/MCC.. replacement w/o CC/MCC.. replacement, tibial insert
(liner)) are reassigned from
MS-DRGs 466-468 to MS-DRGs
485-489.
MS-DRG 485.................. Knee procedures w pdx of Knee procedures w pdx of
infection w MCC. infection w MCC.
MS-DRG 486.................. Knee procedures w pdx of Knee procedures w pdx of
infection w CC. infection w CC.
MS-DRG 487.................. Knee procedures w pdx of Knee procedures w pdx of .............................
infection w/o CC/MCC. infection w/o CC/MCC.
MS-DRG 488.................. Knee procedures w/o pdx Knee Procedures without
of infection w CC/MCC. Principal Diagnosis of
Infection with CC/MCC.
MS-DRG 489.................. Knee procedures w/o pdx Knee Procedures without
of infection w/o CC/MCC. Principal Diagnosis of
Infection without CC/
MCC.
----------------------------------------------------------------------------------------------------------------

[[Page 47267]]

Spinal Procedures
Spinal Neurostimulators
----------------------------------------------------------------------------------------------------------------
MS-DRG 490.................. Back & neck procedures Back & neck proc exc Cases with procedure codes
except spinal fusion w spinal fusion with CC/ 84.59 (Insertion of other
CC/MCC or disc devices. MCC or disc device/ spinal devices), or 84.62
MS-DRG 491.................. Back & neck procedures neurostim. (Insertion of total spinal
except spinal fusion w/o Back & neck proc exc disc prosthesis, cervical),
CC/MCC.. spinal fusion w/o CC/ or 84.65 (Insertion of total
MCC.. spinal disc prosthesis,
lumbosacral), or 84.80
(Insertion or replacement of
interspinous process
device(s)), or 84.82
(Insertion or replacement of
pedicle-based dynamic
stabilization device(s)), or
84.84 (Insertion or
replacement of facet
replacement devices) are
reassigned from MS-DRG 491
to MS-DRG 490.
Reassign full system spinal
cord non-rechargeable and
rechargeable neurostimulator
cases in MS-DRG 491 to MS-
DRG 490 in MDC 8. ICD-9-CM
procedure codes 03.93
(Implantation or replacement
of spinal neurostimulator
lead(s)), and 86.94
(Insertion or replacement of
single array neurostimulator
pulse generator, not
specified as rechargeable),
or 86.95 (Insertion or
replacement of dual array
neurostimulator pulse
generator, not specified as
rechargeable), or 86.97
(Insertion or replacement of
single array rechargeable
neurostimulator pulse
generator), or 86.98
(Insertion or replacement of
dual array rechargeable
neurostimulator pulse
generator) must be reported
in order for the spinal
neurostimulator cases to be
assigned to MS-DRG 490.
----------------------------------------------------------------------------------------------------------------
MDC 17 (MYELOPROLIFERATIVE DISEASES AND DISORDERS, POORLY DIFFERENTIATED NEOPLASM
High-dose infusion interleukin-2 [IL-2])
----------------------------------------------------------------------------------------------------------------
MS-DRG 837.................. Chemo w acute leukemia as Chemo w acute leukemia Cases with procedure code
sdx or w high dose chemo as sdx or w high dose 00.15 (High-Dose Infusion
agent w MCC. chemo agent w MCC. Interleukin-2 [IL-2]) are
reassigned from MS-DRG 839
to MS-DRG 838.
MS-DRG 838.................. Chemo w acute leukemia as Chemo w acute leukemia
sdx or w high dose chemo as sdx w CC or high
agent w CC. dose chemo agent.
MS-DRG 839.................. Chemo w acute leukemia as Chemo w acute leukemia
sdx or w high dose chemo as sdx w/o CC/MCC.
agent w/o CC/MCC.
----------------------------------------------------------------------------------------------------------------
MDC 23 (Factors Influencing Health Status and Other Contacts with Health Status)
----------------------------------------------------------------------------------------------------------------
MS-DRG 947.................. Signs & symptoms w MCC... Signs & symptoms w MCC.. Cases with a principal
MS-DRG 948.................. Signs & symptoms w/o MCC. Signs & symptoms w/o diagnosis of code 338.0
MCC.. (Central pain syndrome),
338.21 (Chronic pain due to
trauma), or 338.22 (Chronic
post-thoracotomy pain), or
338.28 (Other chronic
postoperative pain), or
338.29 (Other chronic pain),
or 338.4 (Chronic pain
syndrome) are reassigned
from MDC 23, MS-DRGs 947-948
to MS-DRGs 091-093 in MDC 1.
----------------------------------------------------------------------------------------------------------------

H. Recalibration of DRG Weights

In section II.E. of the preamble of this final rule with comment
period, we stated that we are continuing to implement the cost-based
DRG relative weights under a 3-year transition period such that, in FY
2008 (year two of the transition), the relative weights will be
recalibrated using a blend of 67 percent of the cost-based relative
weight and 33 percent of the charge-based relative weight. For FY 2009,
the relative weights will be 100 percent cost-based. We are making a
few minor changes to the cost-based relative weighting methodology that
we adopted in the FY 2007 IPPS final rule (71 FR 47962 through 47971).
However, in section II.E.2. of the preamble of the FY 2008 IPPS
proposed rule, we requested public comments about whether to adopt any
of the short-term recommendations to the cost-based relative weighting
methodology for FY 2008 made by RTI. In response to those comments, we
state in section II.E.2. of the preamble of this final rule with
comment period that we are not adopting RTI's recommended regression-
based CCRs for medical supplies and devices, IV drugs, and CT Scans and
MRIs for FY 2008. However, as recommended by RTI, for FY 2008, we are
adding two new CCRs for a total of 15 CCRs: One for ``Emergency Room''
and one for ``Blood and Blood Products,'' both of which can be derived
directly from the Medicare cost report.
As we proposed, in developing the FY 2008 system of weights, we
used two data sources: Claims data and cost report data. As in previous
years, the claims data source is the MedPAR file. This file is based on
fully coded diagnostic and procedure data for all Medicare inpatient
hospital bills. The FY 2006 MedPAR data used in this final rule with
comment period include discharges occurring on October 1, 2005, through
September 30, 2006, based on bills received by CMS through March 2007,
from all hospitals subject to the IPPS and short-term, acute care
hospitals in Maryland (which are under

[[Page 47268]]

a waiver from the IPPS under section 1814(b)(3) of the Act). The FY
2006 MedPAR file used in calculating the relative weights includes data
for approximately 11,782,098 Medicare discharges from IPPS providers.
Discharges for Medicare beneficiaries enrolled in a Medicare Advantage
managed care plan are excluded from this analysis. The data exclude
CAHs, including hospitals that subsequently became CAHs after the
period from which the data were taken. The second data source used in
the cost-based relative weighting methodology is the FY 2005 Medicare
cost report data files from HCRIS, which represents the most recent
full set of cost report data available. We used the March 31, 2007
update of the HCRIS cost report files for FY 2005 in setting the
relative cost-based weights.
Because we are implementing the relative weights on a transitional
basis, it is necessary to calculate both charge-based and cost-based
relative weights. The charge-based methodology used to calculate the
DRG relative weights from the MedPAR data is the same methodology that
was in place for FY 2006 and FY 2007 and was applied as follows:
To the extent possible, all the claims were regrouped
using the MS-DRGs being adopted for FY 2008, as discussed in section
II.D. of the preamble of this final rule with comment period.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively;
previously CMS DRGs 103, 480, and 495) were limited to those Medicare-
approved transplant centers that have cases in the FY 2006 MedPAR file.
(Medicare coverage for heart, heart-lung, liver and/or intestinal, and
lung transplants is limited to those facilities that have received
approval from CMS as transplant centers.)
Organ acquisition costs for kidney, heart, heart-lung,
liver, lung, pancreas, and intestinal (or multivisceral organs)
transplants continue to be paid on a reasonable cost basis. Because
these acquisition costs are paid separately from the IPPS rates, it was
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.
Total charges were standardized to remove the effects of
differences in area wage levels, IME and DSH payments, and, for
hospitals in Alaska and Hawaii, the cost-of-living adjustment was
applied. Beginning with FY 2008, because hospital charges include
charges for both operating and capital costs, we are standardizing
total charges to remove the effects of differences in geographic
adjustment factors, large urban add-on payments, cost-of-living
adjustments, DSH payments, and IME adjustments under the capital IPPS
as well.
Statistical outliers were eliminated by removing all cases
that were beyond 3.0 standard deviations from the mean of the log
distribution of both the standardized charges per case and the
standardized charges per day for each DRG.
The average charge for each DRG was then recomputed
(excluding the statistical outliers). To compute the average DRG
charge, we sum the standardized charges by DRG and divide by the
transfer adjusted case count. 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. The average charge per DRG is then
divided by the national average standardized charge per case to
determine the relative weight.
The new charge-based weights were then normalized by an adjustment
factor of 1.50850 so that the average case weight after recalibration
was equal to the average case weight before recalibration. This
normalization adjustment is intended to ensure that recalibration by
itself neither increases nor decreases total payments under the IPPS as
required by section 1886(d)(4)(C)(iii) of the Act.
The methodology we used to calculate the DRG cost-based relative
weights from the FY 2006 MedPAR claims data and FY 2005 Medicare cost
report data is as follows:
To the extent possible, all the claims were regrouped
using the FY 2008 MS-DRG classifications discussed in section II.D. of
the preamble of this final rule with comment period.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively;
previously CMS DRGs 103, 480, and 495) were limited to those Medicare-
approved transplant centers that have cases in the FY 2006 MedPAR file.
(Medicare coverage for heart, heart-lung, liver and/or intestinal, and
lung transplants is limited to those facilities that have received
approval from CMS as transplant centers.)
Organ acquisition costs for kidney, heart, heart-lung,
liver, lung, pancreas, and intestinal (or multivisceral organs)
transplants continue to be paid on a reasonable cost basis. Because
these acquisition costs are paid separately from the prospective
payment rate, it is necessary to subtract the acquisition charges from
the total charges on each transplant bill that showed acquisition
charges before computing the average cost for each DRG and before
eliminating statistical outliers.
Claims with total charges or total length of stay less
than or equal to zero were deleted. Claims that had an amount in the
total charge field that differed by more than $10.00 from the sum of
the routine day charges, intensive care charges, pharmacy charges,
special equipment charges, therapy services charges, operating room
charges, cardiology charges, laboratory charges, radiology charges,
other service charges, labor and delivery charges, inhalation therapy
charges, and anesthesia charges were also deleted.
At least 96.1 percent of the providers in the MedPAR file
had charges for 10 of the 15 cost centers. Claims for providers that
did not have charges greater than zero for at least 10 of the 15 cost
centers were deleted.
Statistical outliers were eliminated by removing all cases
that were beyond 3.0 standard deviations from the mean of the log
distribution of both the total charges per case and the total charges
per day for each DRG.
Once the MedPAR data were trimmed and the statistical outliers were
removed, the charges for each of the 15 cost groups for each claim were
standardized to remove the effects of differences in area wage levels,
IME and DSH payments, and for hospitals in Alaska and Hawaii, the
applicable cost of living adjustment. Beginning with FY 2008, because
hospital charges include charges for both operating and capital costs,
we are standardizing total charges to remove the effects of differences
in geographic adjustment factors, large urban add-on payments, cost-of-
living adjustments, DSH payments, and IME adjustments under the capital
IPPS as well. Charges were then summed by DRG for each of the 15 cost
groups so that each DRG had 15 standardized charge totals. These
charges were then adjusted to cost by applying the national average
CCRs developed from the FY 2005 cost report data.
The 15 cost centers that we used in the relative weight calculation
are shown in the following table. Included

[[Page 47269]]

in the 15 CCRs are two distinct CCRs for FY 2008 for ``Emergency Room''
and ``Blood and Blood Products.'' The costs and charges for these two
additional CCRs are removed from the ``Other Services'' CCR. The table
shows the lines on the cost report that we used to create the 15
national cost center CCRs that we used to adjust the DRG charges to
cost. For FY 2008, we are making minor revisions to the Cardiology,
Laboratory, Radiology, and Other Services CCRs we are using to
calculate the DRG relative weights, as follows:
The costs for cases involving Electroencephalography
(EEG), cost report line 54, are currently in the Cardiology cost center
group. However, MedPAR categorizes the claims data for EEG under
Laboratory Charges (revenue codes 0740 and 0749). In order to maintain
consistency with matching costs on the cost report to charges on MedPAR
claims, we are moving cost report line 54 for EEG out of the Cardiology
cost center group into the Laboratory cost center group.
In the FY 2007 IPPS proposed rule, we originally included
the costs for Radioisotopes, cost report line 43, in the Radiology cost
center group. However, in response to comments, we moved Radioisotopes
to the Other Services cost center group. After researching this issue
further over the past year, we believe that Radioisotopes is a
radiology-related service that more appropriately belongs in the
Radiology cost center group. Accordingly, for FY 2008, as we proposed,
we are moving the cost report line item for line 43, Radioisotopes, out
of the Other Services cost center group and into the Radiology cost
center group. The version of the 15 cost center groupings are in the
table below:
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR22AU07.003

[[Page 47270]]

[GRAPHIC] [TIFF OMITTED] TR22AU07.004

[[Page 47271]]

[GRAPHIC] [TIFF OMITTED] TR22AU07.005

[[Page 47272]]

[GRAPHIC] [TIFF OMITTED] TR22AU07.006

[[Page 47273]]

[GRAPHIC] [TIFF OMITTED] TR22AU07.007

[[Page 47274]]

[GRAPHIC] [TIFF OMITTED] TR22AU07.008

[[Page 47275]]

[GRAPHIC] [TIFF OMITTED] TR22AU07.009

BILLING CODE 4120-01-C

[[Page 47276]]

We developed the national average CCRs as follows:
Taking the FY 2005 cost report data, we removed CAHs, Indian Health
Service hospitals, all inclusive rate hospitals, and cost reports that
represented time periods of less than 1 year (365 days). We included
hospitals located in Maryland as we are including their charges in our
claims database. We then created CCRs for each provider for each cost
center (see prior table for line items used in the calculations) and
removed any CCRs that were greater than 10 or less than 0.01. We
normalized the departmental CCRs by dividing the CCR for each
department by the total CCR for the hospital for the purpose of
trimming the data. We then took the logs of the normalized cost center
CCRs and removed any cost center CCRs where the log of the cost center
CCR was greater or less than the mean log plus/minus 3 times the
standard deviation for the log of that cost center CCR. Once the cost
report data were trimmed, we calculated a Medicare specific CCR. The
Medicare specific CCR was determined by taking the Medicare charges for
each line item from Worksheet D, Part 4 and deriving the Medicare
specific costs by applying the hospital specific departmental CCRs to
the Medicare specific charges for each line item from Worksheet D, Part
4. Once each hospital's Medicare specific costs were established, we
summed the total Medicare specific costs and divided by the sum of the
total Medicare specific charges to produce national average, charge
weighted CCRs.
After we multiplied the total charges for each DRG in each of the
15 cost centers by the corresponding national average CCR, we summed
the 15 ``costs'' across each DRG to produce a total standardized cost
for the DRG. The average standardized cost for each DRG was then
computed as the total standardized cost for the DRG divided by the
transfer adjusted case count for the DRG. The average cost for each DRG
was then divided by the national average standardized cost per case to
determine the relative weight.
The new cost-based relative weights were then normalized by an
adjustment factor of 1.50957 so that the average case weight after
recalibration was equal to the average case weight before
recalibration. Since more trims were applied to the data under the
cost-based weighting methodology than under the charge-based
methodology, a smaller universe of claims was used in the cost-based
weighting methodology. In this instance, the different universe of
claims also resulted in a slightly higher cost-based normalization
factor than the normalization factor derived for charge-based weights.
The normalization adjustment is intended to ensure that recalibration
by itself neither increases nor decreases total payments under the
IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
The 15 national average CCRs for FY 2008 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days................................................. 0.553
Intensive Days............................................... 0.490
Drugs........................................................ 0.209
Supplies & Equipment......................................... 0.345
Therapy Services............................................. 0.428
Laboratory................................................... 0.177
Operating Room............................................... 0.303
Cardiology................................................... 0.196
Radiology.................................................... 0.181
Emergency Room............................................... 0.309
Blood and Blood Products..................................... 0.455
Other Services............................................... 0.451
Labor & Delivery............................................. 0.501
Inhalation Therapy........................................... 0.198
Anesthesia................................................... 0.146
------------------------------------------------------------------------

As we explained in section II.D. of the preamble of this final rule
with comment period, in response to comments, we are implementing the
MS-DRGs with a 2-year transition period beginning in FY 2008. For FY
2008, the first year of the transition, 50 percent of the relative
weight for a DRG is based on the two-thirds cost-based weight/one-third
charge-based weight calculated using FY 2006 MedPAR data grouped to the
Version 24.0 (FY 2007) DRGs. The remaining 50 percent of the FY 2008
relative weight for a DRG is based on the two-thirds cost-based weight/
one-third charge based weight calculated using FY 2006 MedPAR grouped
to the Version 25.0 (FY 2008) MS-DRGs. In FY 2009, the relative weights
will be based on 100 percent cost weights computed using the Version
26.0 (FY 2009) MS-DRGs. Specifically, the blended relative weights for
FY 2008 are computed as follows:
First, using the Version 24.0 GROUPER, relative weights are
calculated based on 100 percent cost-based and 100 percent charge-
based, respectively. These weights are then blended using two-thirds of
the cost-based weights and one-third of the charge-based weights to
establish the CMS DRG portion of the transition weights.
Second, using the Version 25.0 FY 2008 (MS-DRG) GROUPER, relative
weights are calculated based on 100 percent cost-based weights and 100
percent charge-based weights, respectively. These weights are then
blended using two-thirds of the cost-based weights and one-third of the
charge-based weights to establish the MS-DRG portion of the transition
weights.
Under the transition blend we are adopting in this final rule with
comment period, we will group cases to MS-DRGs (using the Version 25.0
GROUPER), but the payment weight for each DRG will be a 50/50 blend of
the MS-DRG weight and CMS DRG weight. Thus, we had to determine a
blended weight for each DRG. Using the claims in the FY 2006 MedPAR
database that we used to compute cost based weights under the Version
24.0 GROUPER, we grouped each case to a CMS-DRG (using the Version 24.0
GROUPER) and an MS-DRG (using the Version 25.0 GROUPER). Commonly, a
set of cases that grouped to a single MS-DRG grouped to two or more CMS
DRGs. Therefore, we determined an average CMS DRG weight for all cases
that grouped to each MS-DRG. Specifically, we summed the CMS DRG
weights of all the cases that grouped to each MS-DRG and then divided
that number by the transfer-adjusted case count. To establish the final
blended weight for each DRG, we added 50 percent of the MS-DRG weight
to 50 percent of the average CMS DRG weight for that MS-DRG. These
final blended relative weights are listed in Table 5 of this final rule
with comment period.
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 DRG weights for FY 2008. Using the FY 2006 MedPAR
data set, there are 7 MS-DRGs that contain fewer than 10 cases. Under
the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs
because we no longer have separate DRGs for patients age 0 to 17 years.
With the exception of newborns, we previously separated some DRGs based
on whether the patient was age 0 to 17 years or age 17 years and older.
Other than the age split, cases grouping to these DRGs are identical.
The DRGs for patients age 0 to 17 years generally have very low volumes
because children are typically ineligible for Medicare. In the past, we
have found that the low volume of cases for the pediatric DRGs could
lead to significant year-to-year instability in their relative weights.
Although we have always encouraged non-Medicare payers to develop
weights applicable to their own patient populations, we have heard
frequent complaints from providers about the use of the Medicare
relative weights in the pediatric population. We believe that

[[Page 47277]]

eliminating this age split in the MS-DRGs will provide more stable
payment for pediatric cases by determining their payment using adult
cases that are much higher in total volume. All of the low volume DRGs
listed below are for newborns. Newborns are unique and require separate
DRGs that are not mirrored in the adult population. Therefore, it
remains necessary to retain separate DRGs for newborns. In FY 2008,
because we do not have sufficient MedPAR data to set accurate and
stable cost weights for these low-volume DRGs, we are computing weights
for the low-volume DRGs by adjusting their FY 2007 weights by the
percentage change in the average weight of the cases in other DRGs. The
crosswalk table is shown below:

------------------------------------------------------------------------
Low Volume DRG DRG title Crosswalk to DRG
------------------------------------------------------------------------
789................. Neonates, Died or FY 2007 FR weight
Transferred to (adjusted by percent
Another Acute Care change in average weight
Facility. of the cases in other
DRGs).
790................. Extreme Immaturity or FY 2007 FR weight
Respiratory Distress (adjusted by percent
Syndrome, Neonate. change in average weight
of the cases in other
DRGs).
791................. Prematurity With Major FY 2007 FR weight
Problems. (adjusted by percent
change in average weight
of the cases in other
DRGs).
792................. Prematurity Without FY 2007 FR weight
Major Problems. (adjusted by percent
change in average weight
of the cases in other
DRGs).
793................. Full-Term Neonate With FY 2007 FR weight
Major Problems. (adjusted by percent
change in average weight
of the cases in other
DRGs).
794................. Neonate With Other FY 2007 FR weight
Significant Problems. (adjusted by percent
change in average weight
of the cases in other
DRGs).
795................. Normal Newborn........ FY 2007 FR weight
(adjusted by percent
change in average weight
of the cases in other
DRGs).
------------------------------------------------------------------------

I. MS-LTC-DRG Reclassifications and Relative Weights for LTCHs for FY
2008

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
uses the same CMS DRGs as those currently 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. Therefore, 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. We further stated that we will publish the annual proposed and
final update of the LTC-DRGs in same notice as the proposed and final
update for the IPPS (69 FR 34125).
Comment: Several commenters strongly recommended that we establish
one rulemaking cycle that would encompass the update of the LTCH PPS
payment rates (July 1) as well as the development of the LTC-DRG
weights (October 1). One commenter also suggests that this change
should begin for RY 2009 and, for that year, CMS should implement a 3-
month update to the standardized amount (July 1, 2008 through September
30, 2008 with no other policy changes. The commenters also have stated
that there should only be one rulemaking cycle because of interactive
effects of adjustments made at two different times.
Response: In the RY 2008 LTCH PPS final rule (72 FR 26874), we
responded to a similar comment by stating that we would ``evaluate
whether such a consolidation is a workable alternative to the present
schedule.'' While we appreciate the continued interest of commenters on
this issue, we note that we did not propose a change to the LTCH PPS
update cycle in the FY 2008 IPPS proposed rule. Therefore, we do not
believe that the IPPS final rule is the appropriate vehicle for
addressing these concerns. Rather, we believe that exploring the
possibility of the consolidation of the LTCH PPS rulemaking cycles
would be better addressed in the LTCH PPS rate year regulations since
those rules are the primary vehicle for proposing and finalizing policy
changes to the LTCH PPS. Therefore, we will continue our evaluation of
this suggestion for the time being.
In the FY 2008 IPPS proposed rule, we did not address the issue
concerning changing the present update cycle for the LTCH PPS, and
therefore, we are not making any changes to the LTCH PPS update cycle
in this final rule with comment period. However, we will take all
comments and suggestions concerning the RY 2009 update into
consideration when preparing the RY 2009 LTCH PPS proposed rule.
Commenters' concerns regarding any changes to the present rulemaking
cycle will be considered when we evaluate the possibility of making
changes to the present update cycle as well as any options that may be
available. To this end, any proposed changes to the present update
cycle would be included in the RY 2009 LTCH PPS proposed rule for
public comment.
In the past, the annual update to the IPPS CMS 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 2008 IPPS proposed rule (72 FR 24755
through 24757), 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.
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 improves the recognition of new technologies
under the IPPS by accounting for those ICD-9-CM codes in the MedPAR
claims data earlier than the agency had accounted for new technology in
the past. In implementing the statutory change, the agency has provided
that ICD-9-CM diagnosis and procedure codes for new medical technology
may be created and assigned to existing DRGs in the middle of the
Federal fiscal year, on April 1. However,

[[Page 47278]]

this policy change will not impact the DRG relative weights in effect
for that year, which will continue to be updated only once a year
(October 1), nor will it have any impact on Medicare payments in that
year. 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.
As noted above, the patient classification system used under the
LTCH PPS is the same patient classification system that is used under
the IPPS. Therefore, the ICD-9-CM codes currently used under both the
IPPS and LTCH PPS may be updated as often as twice a year. This
requirement is included as part of the amendments to the Act relating
to recognition of new medical technology under the IPPS.
Because we do not publish a midyear IPPS rule, any April 1 ICD-9-CM
coding update will not be published midyear. Rather, we will assign any
new diagnosis 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 (as also discussed in section II.G.10. of the preamble
of this final rule with comment period). Any coding updates will be
available through the Web sites provided in section II.G.10. of the
preamble of this final rule with comment period and through the Coding
Clinic for ICD 9-CM, a product of the American Hospital Association.
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, because each ICD 9-CM code must be included
in the GROUPER algorithm to classify each case under the LTCH PPS, the
GROUPER software program used under the LTCH PPS would need to be
revised to accommodate any new codes.
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. We note 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 is an open process through the ICD-9-CM Coordination and
Maintenance Committee. Requestors will be given the opportunity to
present the merits for a new code and to 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 (as also
discussed in section II.G.10. of the preamble of this final rule with
comment period).
As we discussed in the FY 2008 IPPS proposed rule (72 FR 24755), at
the September 28, 2006 ICD-9-CM Coordination and Maintenance Committee
meeting, there were no requests for an April 1, 2007 implementation of
ICD 9-CM codes. Therefore, the next update to the ICD-9-CM coding
system will not occur until October 1, 2007 (FY 2008). Because there
were no coding changes suggested for an April 1, 2007 update, the ICD-
9-CM coding set implemented on October 1, 2006, will continue through
September 30, 2007 (FY 2008). The update to the ICD-9-CM coding system
for FY 2008 is discussed above in section II.G.10. of the preamble of
this final rule with comment period. Accordingly, in this final rule
with comment period, as discussed in greater detail below, we are
modifying and revising the LTC-DRG classifications and relative
weights, to be effective October 1, 2007 through September 30, 2008 (FY
2008). In addition, we will notify LTCHs of any revisions to the
GROUPER software used under the IPPS and the LTCH PPS that may be
implemented on April 1, 2008. As discussed in greater detail below, the
MS-LTC-DRGs for FY 2008 in this final rule with comment period are the
same as the MS-DRGs adopted under the IPPS for FY 2008 (GROUPER Version
25.0) discussed in section II.B. of the preamble to this final rule
with comment period.
2. Changes in the LTC DRG Classifications
a. Background
Section 123 of Pub. L. 106 113 specifically requires that the
agency implement a PPS for LTCHs that is a per discharge system with a
DRG-based patient classification system reflecting the differences in
patient resources and costs in LTCHs. 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 123 of Pub. L. 106-113 as amended by
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. As described in section
II.D. of the preamble of this final rule with comment period, we are
adopting MS-DRGs under the IPPS because we believe that adopting this
system will result in a significant improvement in the DRG system's
recognition of severity of illness and resource usage. We believe these
improvements in the DRG system will be equally applicable to the LTCH
PPS. The changes we are currently making for the IPPS are reflected in
the FY 2008 GROUPER, Version 25.0, to be effective for discharges
occurring on or after October 1, 2007 through September 30, 2008.
Currently, the LTC-DRGs used as the patient classification system under
the LTCH PPS correspond to the current CMS DRGs applicable under the
IPPS for acute care hospitals.
Consistent with our historical practice of having LTC-DRGs
correspond to the DRGs applicable under the IPPS, under the broad
authority of section 123(a) of Pub. L. 106-113, as modified by section
307(b) of Pub. L. 106-554, as proposed, under the LTCH PPS we are
adopting the use of MS-LTC-DRGs, which correspond to the MS-DRGs we are
adopting under the IPPS. In addition, as stated above, we will be using
the FY 2008 GROUPER Version 25.0 to classify cases effective for LTCH
discharges occurring on or after October 1, 2007 through September 30,
2008. The changes to the current CMS DRG classification system used
under the IPPS for FY 2008 (GROUPER Version 25.0) are discussed in
section II.D. of the preamble to this final rule with comment period.
Comment: Four commenters indicated support for the adoption of the
MS-LTC-DRGs for the LTCH PPS but noted specific concerns and included
policy suggestions that they believed could address these concerns.
Response: We appreciate the commenters' support. We have seriously
considered the areas of concern as well as the policy suggestions. As
stated above, we are adopting the use of MS-LTC-DRGs beginning in FY
2008.

[[Page 47279]]

Below, we explain our responses to these stated concerns.
Comment: Several commenters expressed concern about the adoption of
the MS-LTC-DRGs for FY 2008 in advance of RAND's final report. These
commenters envisioned that a report recommending a DRG system other
than the MS-DRGs, (upon which the MS-LTC-DRGs are based) could result
in a CMS decision to implement ``yet another'' patient classification
system in FY 2009.
Response: As noted above in our response to similar comments
focusing on the use of the MS-DRGs by the IPPS, as RAND has completed
its evaluation of the alternative DRG systems, including the MS-DRGs,
consistent with RAND's findings, we believe it is appropriate at this
time to adopt the MS-DRG system for Medicare in FY 2008 for the IPPS
and at the same time, we are also adopting the MS-LTC-DRGs for the LTCH
PPS. While there will be an opportunity for the public to comment on
RAND's findings, we do not think it is likely that there will be
persuasive public comments suggesting that one of the alternative DRG
systems being evaluated by RAND is clearly superior. We plan to use
RAND's report to continue to examine ways to improve and refine
Medicare inpatient payment systems and expect that any future
refinements will be based on MS-DRGs. Therefore, as final policy for FY
2008, we are adopting the MS-LTC-DRGs as the new classification system
for the LTCH PPS. However, since we are interested in public input on
this issue, we will make RAND's final report available on the CMS Web
Site at: http://www.cms.hhs.gov/Reports/downloads/
Interested members of the public can write to the following
address:
Division of Acute Care, Center for Medicare Management, 7500
Security Boulevard, C4-08-06, Baltimore, MD 21244, Attn: Mady Hue.
Comment: Two commenters requested that CMS delay adoption of the
MS-LTC-DRGs until FY 2009 in order to provide LTCHs additional time to
analyze the impact of the new classification system and to provide
meaningful comments. The commenters suggested that, during this time,
CMS examine the interaction of MS-LTC-DRG relative weights and new
policies established for RY 2008 (for example, revisions to the short-
stay outlier policy resulting in the ``IPPS comparable threshold'')
before implementing MS-LTC-DRGs. The commenters further stated that
such a delay would allow LTCHs the opportunity to adjust to the other
recent LTCH PPS changes.
Response: We do not believe that it is either appropriate or
necessary to delay the adoption of the MS-LTC-DRGs until FY 2009 as the
commenters suggest. We believe that we provided a comprehensive
analysis of the MS-DRG classification system, upon which the MS-LTC-
DRGs are based, in the proposed rule and, as discussed elsewhere in
these responses, clear and specific direction, which are evidenced by
the number of comments that were received, which allowed hospital
stakeholders to simulate the impacts of the proposed policy change. We
do not believe a full year delay in implementation of the MS-DRGs and
the MS-LTC-DRGs is necessary or appropriate. We believe that
implementing the severity-based DRGs will result in more appropriate
Medicare payments, a goal that should not be postponed. However,
although we are not delaying the adoption of the severity-based DRGs
for either the IPPS or the LTCH PPS, we are providing a 2-year
transition to the full adoption of both the MS-DRGs and the MS-LTC-
DRGs, described elsewhere in these responses. We believe the transition
will mitigate the payment impact of the new DRG system for both acute
care hospitals and LTCHs as they adapt to the system. Furthermore, as
we note in our discussion of a similar comment regarding the adoption
of the MS-DRGs for the IPPS (see section II.E. of the preamble of this
final rule with comment period), many commenters supported immediate
adoption of the MS-DRGs, particularly because they are so structurally
similar to the current DRGs. Therefore, we continue to maintain that a
full year's delay in the adoption of the MS-LTC-DRGs under the LTCH PPS
is unwarranted. While the MS-DRGs do include some consolidations of
base DRGs, the major changes from the current DRGs involve adding
severity levels to the base DRGs. Therefore, the move to MS-LTC-DRGs
will not necessitate additional data elements. Because we do not
believe that extensive preparation for implementation of the MS-DRGs is
necessary, we do not believe that it is appropriate or necessary to
delay adoption of the MS-DRGs until FY 2009. We continue to believe
that payment adjustments that were finalized in the RY 2008 LTCH PPS
final rule, among which was the revision to the short-stay outlier
policy noted by the commenters, will result in more appropriate
Medicare payments to LTCHs. The revised SSO policy addresses the issue
of LTCH discharges that are comparable to an acute care IPPS hospital
discharge based on the length of stay for that discharge. That policy
is not tied to or affected by the adoption of the MS-LTC-DRGs. Nor do
we believe that the extension of the 25 percent threshold adjustment
that we finalized for RY 2008 at revised Sec. 412.534 and new Sec.
412.536, which governs Medicare payments for patients discharged from
LTCHs who were admitted from specific referring hospitals, is tied to
or affected by the adoption of the MS-LTC-DRGs. Furthermore, as noted
above, because the MS-LTC-DRGs are so structurally similar to the LTC-
DRGs, we do not believe that postponing the adoption of the severity-
weighted DRGs in order to evaluate the interaction of the policy
changes implemented for the LTCH PPS for RY 2008 would confer any
significant advantage to stakeholders.
Comment: Four commenters urged CMS to establish a 3-year transition
to the full adoption of the MS-LTC-DRGs in order to minimize the
``impact of behavioral changes in coding'' resulting from the new
system. Referring to the proposed 2.4 percent downward adjustment, the
commenters also maintained that a 3-year transition would allow CMS to
analyze LTCH data which would indicate whether there were coding
changes that could warrant the application of a prospective adjustment
to LTCH PPS payment rates.
Response: We have carefully considered each comment in determining
whether there should be a transition period for the relative weights
computed using the MS-LTC-DRGs, the length of the transition, and how
to compute the relative weights during the transition. Although we
received strong general support for adopting the MS-LTC-DRGs, we agree
that some transition is warranted to mitigate the magnitude of
potential changes in payment to LTCHs that could occur in one year. As
discussed in section II.D. of the preamble to this final rule with
comment period, although MedPAC recommended that CMS fully implement
MS-DRGs immediately, MedPAC suggested that, if the agency chose not to
fully implement severity-adjusted DRGs in FY 2008, CMS should implement
MS-DRGs over a 2-year transition. Accordingly, as we discussed earlier
regarding implementation of the MS-DRGs under the IPPS, we are also
implementing a 2 year transition to MS-LTC-DRGs. For FY 2008, the first
year of the transition, 50 percent of the relative weight for a MS-LTC-
DRG will be based on average relative weight under Version 24.0 of the
LTC-DRG GROUPER. The remaining 50 percent of the FY 2008 relative
weight for a MS-

[[Page 47280]]

LTC-DRG will be based on the MS-LTC-DRG relative weight. For a more
detailed description of the calculation of the MS-LTC-DRG relative
weights for FY 2008 under this transition methodology, we refer readers
to section II.I.4. (step 7 of Steps for Determining the FY 2008 MS-LTC-
DRG Relative Weights) of the preamble of this final rule with comment
period.) In FY 2009, the MS-LTC-DRG relative weights will be based on
100 percent of MS-LTC-DRG relative weights.
As discussed in detail elsewhere in these responses, we are not
finalizing the proposed 2.4 percent downward adjustment to the MS-LTC-
DRG relative weights.
Comment: Some commenters maintained that they are unable to fully
evaluate the impact of the proposed MS-DRG system on their member
hospitals due to the lack of access to the necessary tools. The
commenters note that neither an MS-LTC-DRG GROUPER nor an MS-LTC-DRG
Definitions Manual has been made available to help them completely
understand the proposed system. Therefore, the commenters believed they
have been prevented from thoroughly and completely evaluating the
proposed system and providing meaningful comments. The commenter
recommended delaying implementation of the MS-LTC-DRGs until such
information has been made available and providers have had the
opportunity to review it and provide meaningful comments.
Response: We disagree that LTCHs have not had adequate access to
information concerning the changes to the MS-DRGs and the MS-LTC-DRGs.
Ample and thorough information was published in the FY 2008 IPPS
proposed rule. We refer the commenters to Section II.D.2.,
``Development of Proposed Medicare Severity DRGs (MS-DRGs)'' beginning
on page 24697 of the May 3, 2007 Federal Register (72 FR 24697 through
24707), where CMS' entire process for the creation of the MS-DRGs was
explained. We discussed the creation of base MS-DRGs, upon which the
MS-LTC-DRGs are based, and the consolidation from the existing DRGs is
summarized in Table F of the Addendum to the proposed rule (72 FR
24702). We also discussed the process for applying the severity
criteria to each of the 335 base DRGs, resulting in 745 proposed MS-
DRGs.
We discussed the proposed changes to the LTC-DRG classifications
(72 FR 24755 through 24771), and indicated that we proposed to conform
the LTC-DRG system to the IPPS DRG system by using MS-LTC-DRGs which
correspond to the proposed MS-DRGs. Further specific conforming
language was spelled out on pages 24756 through 24757 of the FY 2008
IPPS proposed rule.
In addition, we made other information available to the public that
would allow for a detailed analysis of the MS-LTC-DRG proposal. We made
available two MedPAR files (FY 2005 and FY 2006) that included the CMS
DRG and MS-DRG assignment for each case. As discussed in the preamble
to the proposed rule, the MS-LTC-DRGs and MS-DRGs share identical
titles. Furthermore, Table 11 of the Addendum to the proposed rule
listed the relative weight for each MS-LTC-DRG. With this information,
the public could determine the MS-LTC-DRG assignment and relative
weight for all cases in the FY 2005 and FY 2006 MedPAR files.
Therefore, we believe the public had detailed information with which to
perform a comprehensive analysis of our proposal to adopt MS-LTC-DRGs.
Because we believe that adequate access to proposed changes to MS-
LTC-DRGs has been provided, as discussed above, we are not delaying
their implementation. As stated above, we are adopting the use of MS-
LTC-DRGs under the LTCH PPS, which correspond to the MS-DRGs adopted
under the IPPS. Accordingly, we will be using the FY 2008 GROUPER
Version 25.0 effective for LTCH discharges occurring on or after
October 1, 2007 through September 30, 2008.
In conjunction with the changes to the existing CMS DRGs for the
IPPS by adoption of the MS-DRGs, as discussed above, we are adopting
the MS-LTC-DRGs for the LTCH PPS, as both sets of DRGs are determined
from the same DRG structure. Although the structure of the DRGs used
under the IPPS and the LTCH PPS are identical, we refer to the DRGs
under the LTCH PPS as MS-LTC-DRGs. This conforming change, that is, to
replicate the MS-LTC-DRG structure after the MS-DRG structure, is
appropriate in order to maintain consistency and uniformity among a
number of stakeholders, such as acute care hospitals, LTCHs,
epidemiologists, rate setting organizations, and payors, among others.
Notwithstanding the value of consistency, however, we also emphasize,
that the adoption of the MS-LTC-DRGs as the patient classification
system for the LTCH PPS will improve identification of severity of
illness and hospital resource use which will result in more appropriate
Medicare payments for LTCHs. As noted above, the patient classification
system used under the LTCH PPS is the same patient classification
system used under the IPPS, which historically has been updated
annually as required by section 1886(d)(4)(C) of the Act and is
effective for discharges occurring on or after October 1 through
September 30 of each year. As such, the updates to the MS-DRG
classification system used under the IPPS for FY 2008 (GROUPER Version
25.0), discussed in section II.D. of the preamble of this final rule
with comment period, will be applicable to updates under the LTCH PPS
(that is, the MS-LTC-DRGs).
As discussed above, we proposed to adopt the MS-LTC-DRGs as the
patient classification system under the LTCH PPS, beginning with
discharges occurring on or after October 1, 2007. However, in the
proposed rule, we omitted proposed changes to the regulation text
reflecting the proposed change from LTC-DRGs to MS-LTC-DRGs. As
discussed previously in this preamble, in this final rule with comment
period, we are adopting MS-LTC-DRGs for use in the LTCH PPS beginning
with discharges on or after October 1, 2007. In this final rule with
comment period, we are revising the regulation text to conform to our
proposed and final policy. Consequently, we are revising the regulation
text at Sec. 412.503 where we define terms associated with the LTCH
PPS in order to indicate the adoption of the MS-LTC-DRGs as the patient
classification system under the LTCH PPS beginning with FY 2008 for
discharges occurring on or after October 1, 2007. First, we are adding
language to the definition of ``LTC-DRG'' indicating that effective,
October 1, 2007, the MS-LTC-DRGs are used to classify patient
discharges occurring on or after October 1, 2007, from a long-term care
hospital and that for patient discharges occurring on or after October
1, 2007 and that references to LTC-DRGs in 42 CFR Part 412, Subpart O
for policy descriptions and/or payment calculations shall be considered
to be references to the MS-LTC-DRGs. Secondly, we are adding a
definition of ``MS-LTC-DRGs'' as ``* * * the severity-adjusted
diagnosis-related group used to classify patient discharges from a
long-term care hospital based on clinical characteristics and average
resource use, for prospective payment purposes for discharges from a
long-term care hospital occurring on or after October 1, 2007.''
Under the LTCH PPS, as described in greater detail below, we
determine relative weights for each of the MS-LTC-DRGs to account for
the difference in resource use by patients exhibiting the case
complexity and multiple

[[Page 47281]]

medical problems characteristic of LTCH patients. (Unless otherwise
noted in this final rule with comment period, our MS-LTC-DRG analysis
is based on LTCH data from the March 2007 update of the FY 2006 MedPAR
file, which contains hospital bills received through March 31, 2007,
for discharges occurring in FY 2006.)
LTCHs do not typically treat the full range of diagnoses as do
acute care hospitals. Therefore, as we discussed in the August 30, 2002
LTCH PPS final rule (67 FR 55985), which implemented the LTCH PPS, and
the FY 2006 IPPS final rule (70 FR 47324), we use low-volume quintiles
in determining the DRG relative weights for DRGs with less than 25 LTCH
cases (low-volume LTC-DRGs). Specifically, we group those low-volume
DRGs into 5 quintiles based on average charges per discharge. (A
listing of the composition of low-volume quintiles for the FY 2007 LTC-
DRGs (based on FY 2005 MedPAR data) appears in section II.I.2. of the
FY 2007 IPPS final rule (71 FR 47975 through 47978).) 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, as discussed below in section II.I.4. of the preamble of
this final rule with comment period.
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 DRG to which a beneficiary's stay is assigned. Just as cases
have been classified into the MS-DRGs for acute care hospitals under
the IPPS (section II.B. of the preamble of this final rule with comment
period), cases have been classified into MS-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 demographic information about the patient. The diagnosis and
procedure information is reported by the hospital using the ICD-9-CM
coding system. Under the MS-DRGs for the IPPS and the MS-LTC-DRGs for
the LTCH-PPS, these factors will not change.
Section II.B. of the preamble of this final rule with comment
period discusses the organization of the existing CMS DRGs, which we
are maintaining under the MS-DRG and MS-LTC-DRG systems. As noted
above, the patient classification system for the LTCH-PPS is derived
from the IPPS DRGs and is similarly organized into 25 major diagnostic
categories (MDCs). Most of these MDCs are based on a particular organ
system of the body and the remainder involves 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. Under the present CMS DRGs, some
surgical and medical DRGs are further differentiated based on the
presence or absence of CCs. The existing LTC-DRGs are similarly
categorized. (See section II.B. of the preamble of this final rule with
comment period for further discussion of surgical DRGs and medical
DRGs.)
The MS-DRGs and the MS-LTC-DRGs contain base DRGs that have been
subdivided into one, two, or three severity levels. The most severe
level has cases with at least one code that is a major CC, referred to
as ``with MCC''. The next lower severity level contains cases with at
least one CC, referred to as ``with CC''. Those DRGs without an MCC or
a CC are referred to as ``without CC/MCC''. When data did not support
the creation of three severity levels, the base DRG was divided into
either two levels or the base was not subdivided. The two-level
subdivisions consist of one of the following subdivisions:
With CC/MCC.
Without CC/MCC.
In this type of subdivision, cases with at least one code that is
on the CC or MCC list are assigned to the ``with CC/MCC'' DRG. Cases
without a CC or an MCC are assigned to the ``without CC/MCC'' DRG.
The other type of two-level subdivision is as follows:
With MCC.
Without MCC.
In this type of subdivision, cases with at least one code that is
on the MCC list are assigned to the ``with MCC'' DRG. Cases that do not
have an MCC are assigned to the ``without MCC'' DRG. This type of
subdivision could include cases with a CC code, but no MCC.
3. Development of the FY 2008 MS-LTC-DRG Relative Weights
a. General Overview of Development of the MS-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
medical care to Medicare patients. The system must be able to account
adequately for each LTCH's case-mix in order to ensure both fair
distribution of Medicare payments and access to adequate care for those
Medicare patients whose care is more costly. To accomplish these goals,
we have annually adjusted the LTCH-PPS standard Federal prospective
payment system rate by the applicable relative weight in determining
payment to LTCHs for each case. (As we have noted above, as proposed,
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