Federal Register, Volume 73 Issue 84 (Wednesday, April 30, 2008)

[Federal Register Volume 73, Number 84 (Wednesday, April 30, 2008)]
[Proposed Rules]
[Pages 23528-23938]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1135]

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Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid

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42 CFR Parts 411, 412, 413 et al.

Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2009 Rates; Proposed
Changes to Disclosure of Physician Ownership in Hospitals and Physician
Self-Referral Rules; Proposed Collection of Information Regarding
Financial Relationships Between Hospitals and Physicians; Proposed Rule

Federal Register / Vol. 73, No. 84 / Wednesday, April 30, 2008 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 411, 412, 413, 422, and 489

[CMS-1390-P]
RIN 0938-AP15

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment systems (IPPS) for operating and capital-related
costs to implement changes arising from our continuing experience with
these systems, and to implement certain provisions made by the Deficit
Reduction Act of 2005, the Medicare Improvements and Extension Act,
Division B, Title I of the Tax Relief and Health Care Act of 2006, and
the TMA, Abstinence Education, and QI Programs Extension Act of 2007.
In addition, in the Addendum to this proposed rule, we describe the
proposed changes to the amounts and factors used to determine the rates
for Medicare hospital inpatient services for operating costs and
capital-related costs. These proposed changes would be applicable to
discharges occurring on or after October 1, 2008. We also are setting
forth the proposed update to 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. The proposed updated
rate-of-increase limits would be effective for cost reporting periods
beginning on or after October 1, 2008.
Among the other policy decisions and changes that we are proposing
to make are changes related to: Limited proposed revisions of the
classification of cases to Medicare severity diagnosis-related groups
(MS-DRGs), proposals to address charge compression issues in the
calculation of MS-DRG relative weights, the proposed revisions to the
classifications and relative weights for the Medicare severity long-
term care diagnosis-related groups (MS-LTC-DRGs); applications for new
medical services and technologies add-on payments; wage index reform
changes and the wage data, including the occupational mix data, used to
compute the proposed FY 2009 wage indices; submission of hospital
quality data; proposed changes to the postacute care transfer policy
relating to transfers to home for the furnishing of home health
services; and proposed policy changes relating to the requirements for
furnishing hospital emergency services under the Emergency Medical
Treatment and Labor Act of 1986 (EMTALA).
In addition, we are proposing policy changes relating to disclosure
to patients of physician ownership or investment interests in hospitals
and soliciting public comments on a proposed collection of information
regarding financial relationships between hospitals and physicians. We
are also proposing changes or soliciting comments on issues relating to
policies on physician self-referrals.

DATES: To be assured consideration, comments must be received at one of
the addresses provide below, no later than 5 p.m. E.S.T. on June 13,
2008.

ADDRESSES: When commenting on issues presented in this proposed rule,
please refer to filecode CMS-1390-P. Because of staff and resource
limitations, we cannot accept comments by facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the instructions for
``Comment or Submission'' and enter the file code CMS-1390-P to submit
comments on this proposed rule.
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-1390-P, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1390-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to either of the following addresses:
a. Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
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.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION, CONTACT:
Michele Hudson, (410) 786-4487, Operating Prospective Payment, MS-
DRGs, Wage Index, New Medical Service and Technology Add-On Payments,
Hospital Geographic Reclassifications, and Postacute Care Transfer
Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, Direct and Indirect Graduate Medical Education, MS-LTC-DRGs,
EMTALA, Hospital Emergency Services, and Hospital-within-Hospital
Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment
Update Issues.
Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing and
Readmissions to Hospital Issues.
Anne Hornsby, (410) 786-1181, Collection of Managed Care Encounter
Data Issues.
Jacqueline Proctor, (410) 786-8852, Disclosure of Physician
Ownership in

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Hospitals and Financial Relationships between Hospitals and Physicians
Issues.
Lisa Ohrin, (410) 786-4565, and Don Romano, (410) 786-1404,
Physician Self-Referral Issues.

SUPPLEMENTARY INFORMATION:
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.regulations.gov. Follow the search instructions 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 p.m. To schedule
an appointment to view public comments, phone 1-800-743-3951.

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

AARP American Association of Retired Persons
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AF Artrial fibrillation
AHA American Hospital Association
AICD Automatic implantable cardioverter defibrillator
AHIMA American Health Information Management Association
AHIC American Health Information Community
AHRQ Agency for Healthcare Research and Quality
AMA American Medical Association
AMGA American Medical Group Association
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ASC Ambulatory surgical center
ASITN American Society of Interventional and Therapeutic
Neuroradiology
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
CARE [Medicare] Continuity Assessment Record & Evaluation
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-
272
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
DFRR Disclosure of financial relationship report
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
DVT Deep vein thrombosis
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Pub. L.
99-272
FAH Federation of Hospitals
FDA Food and Drug Administration
FHA Federal Health Architecture
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
HACs Hospital-acquired conditions
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
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HWH Hospital-within-a hospital
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Edition,
Procedure Coding System
ICR Information collection requirement
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
LAMCs Large area metropolitan counties
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of
the Tax Relief and Health Care Act of 2006, 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
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NCD National coverage determination

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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]
PE Pulmonary embolism
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPI Producer price index
PPS Prospective payment system
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
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
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248
TMA TMA [Transitional Medical Assistance], Abstinence Education, and
QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L.
110-09
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set
VAP Ventilator-associated pneumonia
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 (MIEA-TRHCA)
D. Provision of the TMA, Abstinence Education, and QI Programs
Extension Act of 2007
E. Major Contents of this Proposed Rule
1. Proposed Changes to MS-DRG Classifications 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. Proposed Changes Relating to Disclosure of Physician
Ownership in Hospitals
7. Proposed Changes and Solicitation of Comments on Physician
Self-Referral Provisions
8. Proposed Collection of Information Regarding Financial
Relationships between Hospitals and Physicians
9. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate-of-Increase Limits
10. Impact Analysis
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
12. Disclosure of Financial Relationships Report (DFRR) Form
13. Discussion of Medicare Payment Advisory Commission
Recommendations
F. Public Comments Received on Issues in Related Rules
1. Comments on Phase-Out of the Capital Teaching Adjustment
under the IPPS Included in the FY 2008 IPPS Final Rule with Comment
Period
2. Policy Revisions Related to Medicare GME Group Affiliations
for Hospitals in Certain Declared Emergency Areas
II. Proposed Changes to Medicare Severity DRG (MS-DRG)
Classifications and Relative Weights
A. Background
B. MS-DRG Reclassifications
1. General
2. Yearly Review for Making MS-DRG Changes
C. Adoption of the MS-DRGs in FY 2008
D. MS-DRG Documentation and Coding Adjustment, Including the
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount
1. MS-DRG Documentation and Coding Adjustment
2. Application of the Documentation and Coding Adjustment to the
Hospital-Specific Rates
3. Application of the Documentation and Coding Adjustment to
Puerto Rico-Specific Standardized Amount
4. Potential Additional Payment Adjustments in FYs 2010 through
2012
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
2. Refining the Medicare Cost Report
3. Timeline for Revising the Medicare Cost Report
4. Revenue Codes used in the MedPAR File
F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections
1. General
2. Statutory Authority
3. Public Input
4. Collaborative Process
5. Selection Criteria for HACs
6. HACs Selected in FY 2008 and Proposed Changes to Certain
Codes
a. Foreign Object Retained After Surgery: Proposed Inclusion of
ICD-9-CM Code 998.7 (CC)
b. Pressure Ulcers: Proposed Changes in Code Assignments
7. HACs Under Consideration as Additional Candidates
a. Surgical Site Infections Following Elective Surgeries
b. Legionnaires' Disease
c. Glycemic Control
d. Iatrogenic Pneumothorax
e. Delirium
f. Ventilator-Associated Pneumonia (VAP)
g. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)
h. Staphylococcus aureus Septicemia
i. Clostridium Difficile-Associated Disease (CDAD)
j. Methicillin-Resistant Staphylococcus aureus (MRSA)
8. Present on Admission (POA) Indicator Reporting
9. Enhancement and Future Issues
a. Risk Adjustment
b. Rates of HACs
c. Use of POA Information
d. Transition to ICD-10-PCS
e. Application of Nonpayment for HACs to Other Settings
f. Relationship to NQF's Serious Reportable Adverse Events
G. Proposed Changes to Specific MS-DRG Classifications
1. Pre-MDCs: Artificial Heart Devices
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Transferred Stroke Patients Receiving Tissue Plasminogen
Activator (tPA)
b. Intractable Epilepsy with Video Electroencephalogram (EEG)
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead
and Generator Procedures
b. Left Atrial Appendage Device
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue): Hip and Knee Replacements and Revisions
a. Brief History of Development of Hip and Knee Replacement
Codes
b. Prior Recommendations of the AAHKS
c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008
and AAHKS' Recommendations
d. AAHKS' Recommendations for FY 2009
e. CMS' Response to AAHKS' Recommendations
f. Conclusion
5. MDC 18 (Infections and Parasitic Diseases Systemic or
Unspecified Sites): Severe Sepsis

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6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs):
Traumatic Compartment Syndrome
7. Medicare Code Editor (MCE) Changes
a. List of Unacceptable Principal Diagnoses in MCE
b. Diagnoses Allowed for Male Only Edit c. Limited Coverage Edit
8. Surgical Hierarchies
9. CC Exclusions List
a. Background
b. CC Exclusions List for FY 2009
10. Review of Procedure Codes in MS-DRGs 981, 982, and 983; 984,
985, and 986; and 987, 988, and 989
a. Moving Procedure Codes from MS-DRG 981 through 983 or MS-DRG
987 through 989 to MDCs
b. Reassignment of Procedures among MS-DRGs 981 through 983, 984
through 986, and 987 through 989
c. Adding Diagnosis or Procedure Codes to MDCs
11. Changes to the ICD-9-CM Coding System
H. Recalibration of MS-DRG Weights
I. Proposed Medicare Severity Long-Term Care Diagnosis-Related
Group (MS-LTC-DRG) Reclassifications and Relative Weights for LTCHs
for FY 2009
1. Background
2. Proposed Changes in the MS-LTC-DRG Classifications
a. Background
b. Patient Classifications into MS-LTC-DRGs
3. Development of the Proposed FY 2009 MS-LTC-DRG Relative
Weights
a. General Overview of Development of the MS-LTC-DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value (HSRV) Methodology
d. Treatment of Severity Levels in Developing Proposed Relative
Weights
e. Proposed Low-Volume MS-LTC-DRGs
4. Steps for Determining the Proposed FY 2009 MS-LTC-DRG
Relative Weights
J. Proposed 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 2009 Status of Technologies Approved for FY 2008 Add-On
Payments
4. FY 2009 Applications for New Technology Add-On Payments
a. CardioWest^TM Temporary Total Artificial Heart
System (CardioWest^TM TAH-t)
b. Emphasys Medical Zephyr[supreg] Endobronchial Valve
(Zephyr[supreg] EBV)
c. Oxiplex[supreg]
d. TherOx Downstream[supreg] System
5. Proposed Regulatory Change
III. Proposed Changes to the Hospital Wage Index
A. Background
B. Requirements of Section 106 of the MIEA-TRHCA
1. Wage Index Study Required Under the MIEA-TRHCA
2. CMS Proposals in Response to Requirements Under Section
106(b) of the MIEA-TRHCA
a. Proposed Revision of the Reclassification Average Hourly Wage
Comparison Criteria
b. Within-State Budget Neutrality Adjustment for the Rural and
Imputed Floors
c. Within-State Budget Neutrality Adjustment for Geographic
Reclassification
C. Core-Based Statistical Areas for the Hospital Wage Index
D. Proposed Occupational Mix Adjustment to the Proposed FY 2009
Wage Index
1. Development of Data for the Proposed FY 2009 Occupational Mix
Adjustment
2. Calculation of the Proposed Occupational Mix Adjustment for
FY 2009
3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index
E. Worksheet S-3 Wage Data for the Proposed FY 2009 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals Under the IPPS
F. Verification of Worksheet S-3 Wage Data
1. Wage Data for Multicampus Hospitals
2. New Orleans' Post-Katrina Wage Index
G. Method for Computing the Proposed FY 2009 Unadjusted Wage
Index
H. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2009 Occupational Mix Adjustment Wage
Index
I. Proposed Revisions to the Wage Index Based on Hospital
Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2009 MGCRB Reclassifications
4. FY 2008 Policy Clarifications and Revisions
5. Redesignations of Hospitals under Section 1886(d)(8)(B) of
the Act
6. Reclassifications under Section 1886(d)(8)(B) of the Act
J. Proposed FY 2009 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 Proposed Wage Index for FY 2009
IV. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and GME Costs
A. Proposed Changes to the Postacute Care Transfer Policy
1. Background
2. Proposed Policy Change Relating to Transfers to Home with a
Written Plan for the Provision of Home Health Services
3. Evaluation of MS-DRGs under Postacute Care Transfer Policy
for FY 2009
B. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
a. Overview
b. Voluntary Hospital Quality Data Reporting
c. Hospital Quality Data Reporting under Section 501(b) of Pub.
L. 108-173
d. Hospital Quality Data Reporting under Section 5001(a) of Pub.
L. 109-171
2. Proposed Quality Measures for FY 2010 and Subsequent Years
a. Proposed Quality Measures for FY 2010
b. Possible New Quality Measures, Measure Sets, and Program
Requirements for FY 2011 and Subsequent Years
c. Considerations in Expanding and Updating Quality Measures
Under the RHQDAPU Program
3. Form and Manner and Timing of Quality Data Submission
4. Current and Proposed RHQDAPU Program Procedures
a. RHQDAPU Program Procedures for FY 2009
b. Proposed RHQDAPU Program Procedures for FY 2010
5. Current and Proposed HCAHPS Requirements
a. FY 2009 HCAHPS Requirements
b. Proposed FY 2010 HCAHPS Requirements
6. Current and Proposed Chart Validation Requirements
a. Chart Validation Requirements for FY 2009
b. Proposed Chart Validation Requirements for FY 2010
c. Chart Validation Methods and Requirements Under Consideration
for FY 2011 and Subsequent Years
7. Data Attestation Requirements
a. Proposed Change to Requirements for FY 2009
b. Proposed Requirements for FY 2010
8. Public Display Requirements
9. Proposed Reconsideration and Appeal Procedures
10. Proposed RHQDAPU Program Withdrawal Deadline for FYs 2009
and 2010
11. Requirements for New Hospitals
12. Electronic Medical Records
C. Medicare Hospital Value-Based Purchasing (VBP)
1. Medicare Hospital VBP Plan Report to Congress
2. Testing and Further Development of the Medicare Hospital VBP
Plan
D. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small
Rural Hospitals (MDHs): Volume Decrease Adjustment
1. Background
2. Volume Decrease Adjustment for SCHs and MDHs: Data Sources
for Determining Core Staff Values
a. Occupational Mix Survey
b. AHA Annual Survey
E. Rural Referral Centers (RRCs)
1. Case-Mix Index
2. Discharges
F. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2009
G. Medicare GME Affiliation Provisions for Teaching Hospitals in
Certain Emergency Situations; Technical Correction
1. Background
2. Technical Correction
H. Payments to Medicare Advantage Organizations: Collection of
Risk Adjustment Data
I. Hospital Emergency Services under EMTALA

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1. Background
2. EMTALA Technical Advisory Group (TAG): Recommendations
3. Proposed Changes Relating to Applicability of EMTALA
Requirements to Hospital Inpatients
4. Proposed Changes to the EMTALA Physician On-Call Requirements
a. Relocation of Regulatory Provisions
b. Shared/Community Call
5. Proposed Technical Change to Regulations
J. Application of Incentives To Reduce Avoidable Readmissions to
Hospitals
1. Introduction
2. Measurement
3. Accountability
4. Interventions
5. Financial Incentive: Direct Payment Adjustment
6. Financial Incentive: Performance-Based Payment Adjustment
7. Nonfinancial Incentive: Public Reporting
8. Conclusion
K. Rural Community Hospital Demonstration Program
V. Proposed Changes to the IPPS for Capital-Related Costs
A. Background
1. Exception Payments
2. New Hospitals
3. Hospitals Located in Puerto Rico
B. Revisions to the Capital IPPS Based on Data on Hospitals
Medicare Capital Margins
1. Elimination of the Large Add-On Payment Adjustment
2. Changes to the Capital IME Adjustment
a. Background and Changes Made for FY 2008
b. Public Comments Received on Phase Out of Capital IPPS
Teaching Adjustment Provisions Included in the FY 2008 Final Rule
With Comment Period and Further Solicitation of Public Comments
VI. Proposed Changes for Hospitals and Hospital Units Excluded From
the IPPS
A. Proposed Payments to Excluded Hospitals and Hospital Units
B. IRF PPS
C. LTCH PPS
D. IPF PPS
E. Determining Proposed LTCH Cost-to-Charge Ratios (CCRs) under
the LTCH PPS
F. Proposed Change to the Regulations Governing Hospitals-
Within-Hospitals
VII. Disclosure Required of Certain Hospitals and Critical Access
Hospitals Regarding Physician Ownership
VIII. Physician Self-Referrals Provisions
A. Stand in the Shoes Provisions
1. Physician ``Stand in the Shoes'' Provisions
a. Background
b. Proposals
2. DHS Entity ``Stand in the Shoes'' Provisions
3. Application of the Physician ``Stand in the Shoes'' and the
Entity ``Stand in the Shoes'' Provisions
4. Definitions: ``Physician'' and ``Physician Organization''
B. Period of Disallowance
C. Gainsharing Arrangements
1. Background
2. Statutory Impediments to Gainsharing Arrangements
3. Office of Inspector General (OIG) Approach Towards
Gainsharing Arrangements
4. MedPAC Recommendation
5. Demonstration Programs
6. Solicitation of Comments
D. Physician-Owned Implant and Other Medical Device Companies
1. Background
2. Solicitation of Comments
IX. Financial Relationships between Hospitals and Physicians
A. Background
B. Section 5006 of the Deficit Reduction Act (DRA) of 2005
C. Disclosure of Financial Relationships Report (DFRR)
D. Civil Monetary Penalties
E. Uses of Information Captured by the DFRR
F. Solicitation of Comments
X. MedPAC Recommendations
XI. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
1. Legislative Requirement for Solicitation of Comments
2. Solicitation of Comments on Proposed Requirements in
Regulatory Text
a. ICRs Regarding Physician Reporting Requirements
b. ICRs Regarding Risk Adjustment Data
c. ICRs Regarding Basic Commitments of Providers
3. Associated Information Collections Not Specified in
Regulatory Text
a. Present on Admission (POA) Indicator Reporting
b. Proposed Add-On Payments for New Services and Technologies
c. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
d. Occupational Mix Adjustment to the FY 2009 Index (Hospital
Wage Index Occupational Mix Survey)
4. Addresses for Submittal of Comments on Information Collection
Requirements
C. Response to Public Comments

Regulation Text

Addendum--Proposed Schedule of Standardized Amounts, Update Factors,
and Rate-of-Increase Percentages Effective With Cost Reporting Periods
Beginning On or After October 1, 2008

I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital
Inpatient Operating Costs for FY 2009
A. Calculation of the Adjusted Standardized Amount
B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
C. Proposed MS-DRG Relative Weights
D. Calculation of the Proposed Prospective Payment Rates
III. Proposed Changes of Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2009
A. Determination of Proposed Federal Hospital Inpatient Capital-
Related Prospective Payment Rate Update
B. Calculation of the Proposed Inpatient Capital-Related
Prospective Payments for FY 2009
C. Capital Input Price Index
IV. Proposed 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 2007; Hospital Wage Indexes for Federal Fiscal
Year 2009; Hospital Average Hourly Wages for Federal Fiscal Years
2007 (2003 Wage Data), 2008 (2004 Wage Data), and 2009 (2005 Wage
Data); and 3-Year Average of Hospital Average Hourly Wages
Table 3A.--FY 2009 and 3-Year Average Hourly Wage for Urban
Areas by CBSA
Table 3B.--FY 2009 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 and by State--FY 2009
Table 4B.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Rural Areas by CBSA and by State--FY 2009
Table 4C.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Hospitals That Are Reclassified by CBSA and by State--FY
2009
Table 4D-1.--Rural Floor Budget Neutrality Factors--FY 2009
Table 4D-2.--Urban Areas with Hospitals Receiving the Statewide
Rural Floor or Imputed Floor Wage Index--FY 2009
Table 4E.--Urban CBSAs and Constituent Counties--FY 2009
Table 4F.--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) by CBSA--FY 2009
Table 4J.--Out-Migration Wage Adjustment--FY 2009
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 (Available
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6H.--Deletions From the CC Exclusions List (Available
Through the

[[Page 23533]]

Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
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 6J.--Major Complication and Comorbidity (MCC) List
(Available Through the Internet on the CMS Web Site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6K.--Complication and Comorbidity (CC) List (Available
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 2007 MedPAR Update--December 2007
GROUPER V25.0 MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2007 MedPAR Update--December 2007
GROUPER V26.0 MS-DRGs
Table 8A.--Proposed Statewide Average Operating Cost-to-Charge
Ratios--March 2008
Table 8B.--Proposed Statewide Average Capital Cost-to-Charge
Ratios--March 2008
Table 8C.--Proposed Statewide Average Total Cost-to-Charge
Ratios for LTCHs--March 2008
Table 9A.--Hospital Reclassifications and Redesignations--FY
2009
Table 9B.--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act--FY 2009
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)--March 2008
Table 11.--Proposed FY 2009 MS-LTC-DRGs, Proposed Relative
Weights, Proposed Geometric Average Length of Stay, and Proposed
Short-Stay Outlier 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 Proposed Policy Changes Under the
IPPS for Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Proposed Changes to the MS-DRG
Reclassifications and Relative Cost-Based Weights (Column 2)
D. Effects of Proposed Wage Index Changes (Column 3)
E. Combined Effects of Proposed MS-DRG and Wage Index Changes
(Column 4)
F. Effects of MGCRB Reclassifications (Column 5)
G. Effects of the Proposed Rural Floor and Imputed Rural Floor,
Including the Proposed Application of Budget Neutrality at the State
Level (Column 6)
H. Effects of the Proposed Wage Index Adjustment for Out-
Migration (Column 7)
I. Effects of All Proposed Changes with CMI Adjustment Prior to
Estimated Growth (Column 8)
J. Effects of All Proposed Changes with CMI Adjustment and
Estimated Growth (Column 9)
K. Effects of Policy on Payment Adjustment for Low-Volume
Hospitals
L. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
A. Effects of Proposed Policy on HACs, Including Infections
B. Effects of Proposed MS-LTC-DRG Reclassifications and Relative
Weights for LTCHs
C. Effects of Proposed Policy Change Relating to New Medical
Service and Technology Add-On Payments
D. Effects of Proposed Policy Change Regarding Postacute Care
Transfers to Home Health Services
E. Effects of Proposed Requirements for Hospital Reporting of
Quality Data for Annual Hospital Payment Update
F. Effects of Proposed Policy Change to Methodology for
Computing Core Staffing Factors for Volume Decrease Adjustment for
SCHs and MDHs
G. Effects of Proposed Clarification of Policy for Collection of
Risk Adjustment Data From MA Organizations
H. Effects of Proposed Policy Changes Relating to Hospital
Emergency Services under EMTALA
I. Effects of Implementation of Rural Community Hospital
Demonstration Program
J. Effects of Proposed Policy Changes Relating to Payments to
Hospitals-Within-Hospitals
K. Effects of Proposed Policy Changes Relating to Requirements
for Disclosure of Physician Ownership in Hospitals
L. Effects of Proposed Changes Relating to Physician Self-
Referral Provisions
M. Effects of Proposed Changes Relating to Reporting of
Financial Relationships Between Hospitals and Physicians
VIII. Effects of Proposed 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 2009
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare

Appendix C--Disclosure of Financial Relationships Report (DFRR) Form

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. 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

[[Page 23534]]

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 in whole or in part based on their hospital-specific rate based on
their costs in a base year. For example, sole community hospitals
(SCHs) receive the higher of a hospital-specific rate based on their
costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or
the IPPS rate based on the standardized amount. Until FY 2007, a
Medicare-dependent, small rural hospital (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 based on their
costs in a base year (the higher of FY 1982, FY 1987, or FY 2002) is
higher than the IPPS 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. SCHs are the sole source of care in their
areas, and 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.
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. However, as discussed in section V.B.2. of this
preamble, we are phasing out the IME adjustment beginning with FY 2008.
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 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. For cost reporting periods beginning on or after January 1, 2008,
all IPFs are paid 100 percent of the Federal per diem payment amount
established under the IPF PPS. (For cost reporting periods beginning on
or after January 1, 2005, and ending on or before December 31, 2007,
some IPFs received transitioned payments for inpatient hospital
services based on a blend of reasonable cost-based payment and a
Federal per diem payment rate.) The existing regulations governing
payment under the IPF PPS are located in 42 CFR part 412, Subpart N.
3. Critical Access Hospitals (CAHs)
Under sections 1814, 1820, and 1834(g) of the Act, payments are
made to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services are 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

[[Page 23535]]

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)

Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Pub. L.
109-171, requires the Secretary to develop a plan to implement,
beginning with FY 2009, a value-based purchasing plan for section
1886(d) hospitals defined in the Act. In section IV.C. of the preamble
of this proposed rule, we discuss the report to Congress on the
Medicare value-based purchasing plan and the current testing of the
plan.

C. Provisions of the Medicare Improvements and Extension Act Under
Division B, Title I of the Tax Relief and Health Care Act of 2006
(MIEA-TRHCA)

Section 106(b)(2) of the MIEA-TRHCA instructs the Secretary of
Health and Human Services 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. The
Secretary was also instructed to consider MedPAC's recommendations on
the Medicare wage index classification system in developing these
proposals. In section III. of the preamble of this proposed rule, we
discuss MedPAC's recommendations in a report to Congress and present
our proposed changes to the FY 2009 wage index in response to those
recommendations.

D. Provision of the TMA, Abstinence Education, and QI Programs
Extension Act of 2007

Section 7 of the TMA [Transitional Medical Assistance], Abstinence
Education, and QI [Qualifying Individuals] Programs Extension Act of
2007 (Pub. L. 110-90) provides for a 0.9 percent prospective
documentation and coding adjustment in the determination of
standardized amounts under the IPPS (except for MDHs and SCHs) for
discharges occurring during FY 2009. The prospective documentation and
coding adjustment was established in FY 2008 in response to the
implementation of an MS-DRG system under the IPPS that resulted in
changes in coding and classification that did not reflect real changes
in case-mix under section 1886(d) of the Act. We discuss our proposed
implementation of this provision in section II.D. of the preamble of
this proposed rule and in the Addendum and in Appendix A to this
proposed rule.

E. Major Contents of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the
Medicare IPPS for operating costs and for capital-related costs in FY
2009. We also are setting forth proposed changes relating to payments
for IME costs and payments to certain hospitals and units that continue
to be excluded from the IPPS and paid on a reasonable cost basis. In
addition, we are presenting proposed changes relating to disclosure to
patients of physician ownership and investment interests in hospitals,
proposed changes to our physician self-referral regulations, and a
solicitation of public comments on a proposed collection of information
regarding financial relationships between hospitals and physicians.
The following is a summary of the major changes that we are
proposing to make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of
Relative Weights
In section II. of the preamble to this proposed rule, we are
including--
Proposed changes to MS-DRG reclassifications based on our
yearly review.
Proposed application of the documentation and coding
adjustment to hospital-specific rates resulting from implementation of
the MS-DRG system.
Proposed changes to address the RTI reporting
recommendations on charge compression.
Proposed recalibrations of the MS-DRG relative weights.
We also are proposing to refine the hospital cost reports so that
charges for relatively inexpensive medical supplies are reported
separately from the costs and charges for more expensive medical
devices. This proposal would be applied to the determination of both
the IPPS and the OPPS relative weights as well as the calculation of
the ambulatory surgical center payment rates.
We are presenting a listing and discussion of additional hospital-
acquired conditions (HACs), including infections, that are being
proposed to be subject to the statutorily required quality adjustment
in MS-DRG payments for FY 2009.
We are presenting our evaluation and analysis of the FY 2009
applicants for add-on payments for high-cost new medical services and
technologies (including public input, as directed by Pub. L. 108-173,
obtained in a town hall meeting).
We are proposing the annual update of the MS-LTC-DRG
classifications and relative weights for use under the LTCH PPS for FY
2009.
2. Proposed Changes to the Hospital Wage Index
In section III. of the preamble to this proposed rule, we are
proposing revisions to the wage index and the annual update of the wage
data. Specific issues addressed include the following:
Proposed wage index reform changes in response to
recommendations made to Congress as a result of the wage index study
required under Pub. L. 109-432. We discuss changes related to
reclassifications criteria, application of budget neutrality in
reclassifications, and the rural floor and imputed floor budget
neutrality at the State level.
Changes to the CBSA designations.
The methodology for computing the proposed FY 2009 wage
index.
The proposed FY 2009 wage index update, using wage data
from cost reporting periods that began during FY 2006.
Analysis and implementation of the proposed FY 2009
occupational mix adjustment to the wage index.
Proposed revisions to the wage index based on hospital
redesignations and reclassifications.
The proposed adjustment to the wage index for FY 2009
based on commuting patterns of hospital employees who reside in a
county and work in a different area with a higher wage index.
The timetable for reviewing and verifying the wage data
used to compute the proposed FY 2009 wage index.
The proposed labor-related share for the FY 2009 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 this proposed rule, we discuss a
number of the provisions of the regulations in 42 CFR Parts 412, 413,
and 489, including the following:
Proposed changes to the postacute care transfer policy as
it relates to transfers to home with the provision of home health
services.
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Proposed changes in the collection of Medicare Advantage
(MA) encounter data that are used for computing the risk payment
adjustment made to MA organizations.
Discussion of the report to Congress on the Medicare
value-based purchasing

[[Page 23536]]

plan and current testing and further development of the plan.
Proposed changes to the methodology for determining core
staff values for the volume decrease payment adjustment for SCHs and
MDHs.
The proposed updated national and regional case-mix values
and discharges for purposes of determining RRC status.
The statutorily-required IME adjustment factor for FY 2009
and technical changes to the GME payment policies.
Proposed changes to policies on hospital emergency
services under EMTALA to address EMTALA Technical Advisory Group (TAG)
recommendations.
Solicitation of public comments on Medicare policies
relating to incentives for avoidable readmissions to hospitals.
Discussion of the fifth 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 this proposed rule, we discuss the
payment policy requirements for capital-related costs and capital
payments to hospitals. We acknowledge the public comments that we
received on the phase-out of the capital teaching adjustment included
in the FY 2008 IPPS final rule with comment period, and again are
soliciting public comments on this phase-out in this proposed rule.
5. Proposed Changes to the Payment Rates for Excluded Hospitals and
Hospital Units: Rate-of-Increase Percentages
In section VI. of the preamble to this proposed rule, we discuss
proposed changes to payments to excluded hospitals and hospital units,
proposed changes for determining LTCH CCRs under the LTCH PPS,
including a discussion regarding changing the annual payment rate
update schedule for the LTCH PPS, and proposed changes to the
regulations on hospitals-within-hospitals.
6. Proposed Changes Relating to Disclosure of Physician Ownership in
Hospitals
In section VII. of the preamble of this proposed rule, we present
proposed changes to the regulations relating to the disclosure to
patients of physician ownership or investment interests in hospitals.
7. Proposed Changes and Solicitation of Comments on Physician Self-
Referrals Provisions
In section VIII. of the preamble of this proposed rule, we present
proposed changes to the policies on physician self-referrals relating
to the ``Stand in Shoes'' provision, In addition, we solicit public
comments regarding physician-owned implant companies and gainsharing
arrangements.
8. Proposed Collection of Information Regarding Financial Relationships
Between Hospitals and Physicians
In section IX. of the preamble of this proposed rule, we solicit
public comments on our proposed collection of information regarding
financial relationships between hospitals and physicians.
9. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the FY 2009
prospective payment rates for operating costs and capital-related
costs. We also establish the proposed threshold amounts for outlier
cases. In addition, we address the proposed update factors for
determining the rate-of-increase limits for cost reporting periods
beginning in FY 2009 for hospitals and hospital units excluded from the
PPS.
10. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of
the impact that the proposed changes would have on affected hospitals.
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
In Appendix B of this proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2009 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.
12. Disclosure of Financial Relationships Report (DFRR) Form
In Appendix C of this proposed rule, we present the reporting form
that we are proposing to use for the proposed collection of information
on financial relationships between hospitals and physicians discussed
in section IX, of the preamble of this proposed rule.
13. 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 2008 recommendations concerning hospital inpatient
payment policies address 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
address these recommendations in Appendix B of this proposed rule. For
further information relating specifically to the MedPAC March 2008
reports or to obtain a copy of the reports, contact MedPAC at (202)
220-3700 or visit MedPAC's Web site at: www.medpac.gov.

F. Public Comments Received on Issues in Related Rules

1. Comments on Phase-Out of the Capital Teaching Adjustment Under the
IPPS Included in the FY 2008 IPPS Final Rule With Comment Period
In the FY 2008 IPPS final rule with comment period, we solicited
public comments on our policy changes related to phase-out of the
capital teaching adjustment to the capital payment update under the
IPPS (72 FR 47401). We received approximately 90 timely pieces of
correspondence in response to our solicitation. (These public comments
may be viewed on the following Web site: http://www.cms.hhs.gov/eRulemaking/ECCMSR/list.asp under file code CMS-1533-FC.) In section V.
of the preamble of this proposed rule, we acknowledge receipt of these
public comments and again solicit public comments on the phase-out in
this proposed rule. We will respond to the public comments received in
response to both the FY 2008 IPPS final rule with comment period and
this proposed rule in the FY 2009 IPPS final rule, which is scheduled
to be published in August 2008.
2. Policy Revisions Related to Medicare GME Group Affiliations for
Hospitals in Certain Declared Emergency Areas
We have issued two interim final rules with comment periods in the
Federal Register that modified the GME

[[Page 23537]]

regulations as they apply to Medicare GME affiliated groups to provide
for greater flexibility in training residents in approved residency
programs during times of disasters: on April 12, 2006 (71 FR 18654) and
on November 27, 2007 (72 FR 66892). We received a number of timely
pieces of correspondence in response to these interim final rules with
comment period. (The public comments that we received may be viewed on
the Web site at: http://www.cms.hhs.gov/eRulemaking/ECCMSR/list.asp
under the file codes CMS-1531-IFC1 and CMS-1531-IFC2, respectively.) We
will summarize and address these public comments in the FY 2009 IPPS
final rule, which is scheduled to be published in August 2008.

II. Proposed Changes to Medicare Severity DRG (MS-DRG) Classifications
and Relative Weights

A. Background

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

1. General
As discussed in the preamble to the FY 2008 IPPS final rule with
comment period (72 FR 47138), we focused our efforts in FY 2008 on
making significant reforms to the IPPS consistent with the
recommendations made by MedPAC in its ``Report to the Congress,
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. For FY 2008, we adopted 745 new Medicare
Severity DRGs (MS-DRGs) to replace the CMS DRGs. We refer readers to
section II.D. of the FY 2008 IPPS final rule with comment period for a
full detailed discussion of how the MS-DRG system was established based
on severity levels of illness (72 FR 47141).
---------------------------------------------------------------------------

\1\ Medicare Payment Advisory Commission: Report to the
Congress, Physician-Owned Specialty Hospitals, March 25, page viii.
---------------------------------------------------------------------------

Currently, cases are classified into MS-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 MS-DRGs, classification is also based on the age, sex,
and discharge status of the patient. The diagnosis and procedure
information is reported by the hospital using codes from the
International Classification of Diseases, Ninth Revision, Clinical
Modification (ICD-9-CM).
The process of forming the MS-DRGs was begun by dividing all
possible principal diagnoses into mutually exclusive principal
diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The
MDCs were 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 MS-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
2008, cases are assigned to one of 745 MS-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.
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 an MS-DRG. However, under the
most recent version of the Medicare GROUPER (Version 26.0), there are 9
MS-DRGs to

[[Page 23538]]

which cases are directly assigned on the basis of ICD-9-CM procedure
codes. These MS-DRGs are for heart transplant or implant of heart
assist systems, liver and/or intestinal transplants, bone marrow
transplants, lung transplants, simultaneous pancreas/kidney
transplants, pancreas transplants, and for tracheostomies. Cases are
assigned to these MS-DRGs before they are classified to an MDC. The
table below lists the nine current pre-MDCs.

Pre-Major Diagnostic Categories (Pre-MDCs)
------------------------------------------------------------------------

------------------------------------------------------------------------
MS-DRG 103............................. Heart Transplant or Implant of
Heart Assist System.
MS-DRG 480............................. Liver Transplant and/or
Intestinal Transplant.
MS-DRG 481............................. Bone Marrow Transplant.
MS-DRG 482............................. Tracheostomy for Face, Mouth,
and Neck Diagnoses.
MS-DRG 495............................. Lung Transplant.
MS-DRG 512............................. Simultaneous Pancreas/Kidney
Transplant.
MS-DRG 513............................. Pancreas Transplant.
MS-DRG 541............................. ECMO or Tracheostomy with
Mechanical Ventilation 96+
Hours or Principal Diagnosis
Except for Face, Mouth, and
Neck Diagnosis with Major O.R.
MS-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) or a major complication or comorbidity (MCC).
Generally, nonsurgical procedures and minor surgical procedures
that are not usually performed in an operating room are not treated as
O.R. procedures. However, there are a few non-O.R. procedures that do
affect MS-DRG assignment for certain principal diagnoses. An example is
extracorporeal shock wave lithotripsy for patients with a principal
diagnosis of urinary stones. Lithotripsy procedures are not routinely
performed in an operating room. Therefore, lithotripsy codes are not
classified as O.R. procedures. However, our clinical advisors believe
that patients with urinary stones who undergo extracorporeal shock wave
lithotripsy should be considered similar to other patients who undergo
O.R. procedures. Therefore, we treat this group of patients similar to
patients undergoing O.R. procedures.
Once the medical and surgical classes for an MDC were formed, each
diagnosis class was evaluated to determine if complications or
comorbidities would consistently affect the consumption of hospital
resources. Each diagnosis was categorized into one of three severity
levels. These three levels include a major complication or comorbidity
(MCC), a complication or comorbidity (CC), or a non-CC. Physician
panels classified each diagnosis code based on a highly iterative
process involving a combination of statistical results from test data
as well as clinical judgment. As stated earlier, we refer readers to
section II.D. of the FY 2008 IPPS final rule with comment period for a
full detailed discussion of how the MS-DRG system was established based
on severity levels of illness (72 FR 47141).
A patient's diagnosis, procedure, discharge status, and demographic
information is entered into the Medicare claims processing systems and
subjected to a series of automated screens called the Medicare Code
Editor (MCE). The MCE screens are designed to identify cases that
require further review before classification into an MS-DRG.
After patient information is screened through the MCE and any
further development of the claim is conducted, the cases are classified
into the appropriate MS-DRG by the Medicare GROUPER software program.
The GROUPER program was developed as a means of classifying each case
into an MS-DRG on the basis of the diagnosis and procedure codes and,
for a limited number of MS-DRGs, demographic information (that is, sex,
age, and discharge status).
After cases are screened through the MCE and assigned to an MS-DRG
by the GROUPER, the PRICER software calculates a base MS-DRG payment.
The PRICER calculates the payment for each case covered by the IPPS
based on the MS-DRG relative weight and additional factors associated
with each hospital, such as IME and DSH payment adjustments. These
additional factors increase the payment amount to hospitals above the
base MS-DRG payment.
The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and Review (MedPAR) file.
The data in this file are used to evaluate possible MS-DRG
classification changes and to recalibrate the MS-DRG weights. However,
in the FY 2000 IPPS final rule (64 FR 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 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 indicated above, for FY 2008, we made significant improvement
in the DRG system to recognize severity of illness and resource usage
by adopting MS-DRGs. The changes we adopted were reflected in the FY
2008 GROUPER, Version 25.0, and were effective for discharges occurring
on or after October 1, 2007. Our DRG analysis for the FY 2008 final
rule with comment period was based on data from the March 2007 update
of the FY 2006 MedPAR file, which contained hospital bills received
through March 31, 2007, for discharges occurring through September 30,
2006. For this proposed rule, for FY 2009, our DRG analysis is based on
data from the September 2007 update of the FY 2007 MedPAR file, which
contains hospital bills received through September 30, 2007, for
discharges through September 30, 2007.
2. Yearly Review for Making MS-DRG Changes
Many of the changes to the MS-DRG classifications we make annually
are the result of specific issues brought to our attention by
interested parties. We encourage individuals with concerns about MS-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

[[Page 23539]]

timetable for interested parties to submit non-MedPAR data for
consideration in the MS-DRG recalibration process, concerns about MS-
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 MS-DRGs was, and will likely
continue to be, highly iterative, involving a combination of
statistical results from test data combined with clinical judgment. In
the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described
in detail the process we used to develop the MS-DRGs that we adopted
for FY 2008. In addition, in deciding whether to make further
modification to the MS-DRGs for particular circumstances brought to our
attention, we considered whether the resource consumption and clinical
characteristics of the patients with a given set of conditions are
significantly different than the remaining patients in the MS-DRG. We
evaluated patient care costs using average charges and lengths of stay
as proxies for costs and relied on the judgment of our medical advisors
to decide whether patients are clinically distinct or similar to other
patients in the MS-DRG. In evaluating resource costs, we considered
both the absolute and percentage differences in average charges between
the cases we selected for review and the remainder of cases in the MS-
DRG. We also considered variation in charges within these groups; that
is, whether observed average differences were consistent across
patients or attributable to cases that were extreme in terms of charges
or length of stay, or both. Further, we considered the number of
patients who will have a given set of characteristics and generally
preferred not to create a new MS-DRG unless it would include a
substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed
a number of recommendations made by MedPAC regarding revisions to the
DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881
through 47939; and 72 FR 47140 through 47189). As we noted in the FY
2006 IPPS final rule, we had insufficient time to complete a thorough
evaluation of these recommendations for full implementation in FY 2006.
However, we did adopt severity-weighted cardiac DRGs in FY 2006 to
address public comments on this issue and the specific concerns of
MedPAC regarding cardiac surgery DRGs. We also indicated that we
planned to further consider all of MedPAC's recommendations and
thoroughly analyze options and their impacts on the various types of
hospitals in the FY 2007 IPPS proposed rule.
For FY 2007, we began this process. In the FY 2007 IPPS proposed
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY
2008 (if not earlier). 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 CMS DRGs in the public comments. Second, we
indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as
part of making further refinements to the current CMS DRGs to better
recognize severity of illness based on the work that CMS (then HCFA)
did in the mid-1990's in connection with adopting severity DRGs. We
describe below the progress we have made on these two initiatives, our
actions for FY 2008, and our proposals for FY 2009 based on our
continued analysis of reform of the DRG system. We note that the
adoption of the MS-DRGs to better recognize severity of illness has
implications for the outlier threshold, the application of the
postacute care transfer policy, the measurement of real case-mix versus
apparent case-mix, and the IME and DSH payment adjustments. We discuss
these implications for FY 2009 in other sections of this preamble and
in the Addendum to this proposed rule.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's
recommendations to move to a cost-based HSRV weighting methodology
using HSRVs beginning with the FY 2007 IPPS proposed rule for
determining the DRG relative weights. Although we proposed to adopt the
HSRV weighting methodology for FY 2007, we decided not to adopt the
proposed methodology in the final rule after considering the public
comments we received on the proposal. Instead, in the FY 2007 IPPS
final rule, we adopted a cost-based weighting methodology without the
HSRV portion of the proposed methodology. The cost-based weights 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 HSRV-based
methodology as well as other issues brought to our attention related to
the cost-based weighting methodology adopted in the FY 2007 final rule.
There was significant concern in the public comments that our cost-
based weighting methodology does not adequately account for charge
compression--the practice of applying a higher percentage charge markup
over costs to lower cost items and services and a lower percentage
charge markup over costs to higher cost items and services. Further,
public commenters expressed concern about potential inconsistencies
between how costs and charges are reported on the Medicare cost reports
and charges on the Medicare claims. In the FY 2007 IPPS final rule, we
used costs and charges from the cost report to determine departmental
level cost-to-charge ratios (CCRs) which we then applied to charges on
the Medicare claims to determine the cost-based weights. The commenters
were concerned about potential distortions to the cost-based weights
that would result from inconsistent reporting between the cost reports
and the Medicare claims. After publication of the FY 2007 IPPS final
rule, we entered into a contract with RTI International (RTI) to study
both charge compression and to what extent our methodology for
calculating DRG relative weights is affected by inconsistencies between
how hospitals report costs and charges on the cost reports and how
hospitals report charges on individual claims. Further, as part of its
study of alternative DRG systems, the RAND Corporation analyzed the
HSRV cost-weighting methodology. We refer readers to section II.E. of
the preamble of this proposed rule for our proposals for addressing the
issue of charge compression and the HSRV cost-weighting methodology for
FY 2009.
We believe that revisions to the DRG system to better recognize
severity of

[[Page 23540]]

illness and changes to the relative weights based on costs rather than
charges are improving the accuracy of the payment rates in the IPPS. We
agree with MedPAC that these refinements should be pursued. Although we
continue to caution that any prospective payment system based on
grouping cases will always present some opportunities for providers to
specialize in cases they believe have higher margins, we believe that
the changes we have adopted and the continuing reforms we are proposing
in this proposed rule for FY 2009 will improve payment accuracy and
reduce financial incentives to create specialty hospitals.
We refer readers to section II.D. of the FY 2008 IPPS final rule
with comment period for a full discussion of how the MS-DRG system was
established based on severity levels of illness (72 FR 47141).

D. MS-DRG Documentation and Coding Adjustment, Including the
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount

1. MS-DRG Documentation and Coding Adjustment
As stated above, we adopted the new MS-DRG patient classification
system for the IPPS, effective October 1, 2007, to better recognize
severity of illness in Medicare payment rates. Adoption of the MS-DRGs
resulted in the expansion of the number of DRGs from 538 in FY 2007 to
745 in FY 2008. By increasing the number of DRGs and more fully taking
into account severity of illness in Medicare payment rates, the MS-DRGs
encourage hospitals to improve their documentation and coding of
patient diagnoses. In the FY 2008 IPPS final rule with comment period
(72 FR 47175 through 47186), which appeared in the Federal Register on
August 22, 2007, we indicated that we believe the adoption of the MS-
DRGs had the potential to lead to increases in aggregate payments
without a corresponding increase in actual patient severity of illness
due to the incentives for improved documentation and coding. In that
final rule with comment period, using the Secretary's authority under
section 1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by
adjusting the standardized amount to eliminate the effect of changes in
coding or classification that do not reflect real change in case-mix,
we established prospective documentation and coding adjustments of -1.2
percent for FY 2008, -1.8 percent for FY 2009, and -1.8 percent for FY
2010.
On September 29, 2007, the TMA, Abstinence Education, and QI
Programs Extension Act of 2007, Pub. L. 110-90, was enacted. Section 7
of Pub. L. 110-90 included a provision that reduces the documentation
and coding adjustment for the MS-DRG system that we adopted in the FY
2008 IPPS final rule with comment period to -0.6 percent for FY 2008
and -0.9 percent for FY 2009. To comply with the provision of section 7
of Pub. L. 110-90, in a final rule that appeared in the Federal
Register on November 27, 2007 (72 FR 66886), we changed the IPPS
documentation and coding adjustment for FY 2008 to -0.6 percent, and
revised the FY 2008 payment rates, factors, and thresholds accordingly,
with these revisions effective October 1, 2007.
For FY 2009, Pub. L. 110-90 requires a documentation and coding
adjustment of -0.9 percent instead of the -1.8 percent adjustment
specified in the FY 2008 IPPS final rule with comment period. As
required by statute, we are applying a documentation and coding
adjustment of -0.9 percent to the FY 2009 IPPS national standardized
amounts. The documentation and coding adjustments established in the FY
2008 IPPS final rule with comment period are cumulative. As a result,
the -0.9 percent documentation and coding adjustment in FY 2009 is in
addition to the -0.6 percent adjustment in FY 2008, yielding a combined
effect of -1.5 percent.
2. Application of the Documentation and Coding Adjustment to the
Hospital-Specific Rates
Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on
whichever of the following rates yields the greatest aggregate payment:
The Federal national rate; the updated hospital-specific rate based on
FY 1982 costs per discharge; the updated hospital-specific rate based
on FY 1987 costs per discharge; or the updated hospital-specific rate
based on FY 1996 costs per discharge. Under section 1886(d)(5)(G) of
the Act, MDHs are paid based on the Federal national rate or, if
higher, the Federal national rate plus 75 percent of the difference
between the Federal national rate and the updated hospital-specific
rate based on the greater of either the FY 1982, 1987, or 2002 costs
per discharge. In the FY 2008 IPPS final rule with comment period, we
established a policy of applying the documentation and coding
adjustment to the hospital-specific rates. In that rule, we indicated
that because SCHs and MDHs use the same DRG system as all other
hospitals, we believe they should be equally subject to the budget
neutrality adjustment that we are applying for adoption of the MS-DRGs
to all other hospitals. In establishing this policy, we cited our
authority under section 1886(d)(3)(A)(vi) of the Act, which provides
the authority to adjust ``the standardized amount'' to eliminate the
effect of changes in coding or classification that do not reflect real
change in case-mix. However, in a final rule that appeared in the
Federal Register on November 27, 2007 (72 FR 66886), we rescinded the
application of the documentation and coding adjustment to the hospital-
specific rates retroactive to October 1, 2007. In that final rule, we
indicated that, while we still believe it would be appropriate to apply
the documentation and coding adjustment to the hospital-specific rates,
upon further review we decided that application of the documentation
and coding adjustment to the hospital-specific rates is not consistent
with the plain meaning of section 1886(d)(3)(A)(vi) of the Act, which
only mentions adjusting ``the standardized amount'' and does not
mention adjusting the hospital-specific rates.
We continue to have concerns about this issue. Because hospitals
paid based on the hospital-specific rate use the same MS-DRG system as
other hospitals, we believe they have the potential to realize
increased payments from coding improvements that do not reflect real
increases in patients' severity of illness. In section
1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid
based on the standardized amount should not receive additional payments
based on the effect of documentation and coding changes that do not
reflect real changes in case-mix. Similarly, we believe that hospitals
paid based on the hospital-specific rate should not have the potential
to realize increased payments due to documentation and coding
improvements that do not reflect real increases in patients' severity
of illness. While we continue to believe that section 1886(d)(3)(A)(vi)
of the Act does not provide explicit authority for application of the
documentation and coding adjustment to the hospital-specific rates, we
believe that we have the authority to apply the documentation and
coding adjustment to the hospital-specific rates using our special
exceptions and adjustment authority under section 1886(d)(5)(I)(i) of
the Act. The special exceptions and adjustment authority authorizes us
to provide ``for such other exceptions and adjustments to [IPPS]
payment amounts * * * as the Secretary deems appropriate.'' In light of
this authority, for the FY 2010 rulemaking, we plan to

[[Page 23541]]

examine our FY 2008 claims data for hospitals paid based on the
hospital-specific rate. If we find evidence of significant increases in
case-mix for patients treated in these hospitals, we would consider
proposing application of the documentation and coding adjustments to
the FY 2010 hospital-specific rates under our authority in section
1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and
coding adjustments established in the FY 2008 IPPS final rule with
comment period are cumulative. For example, the -0.9 percent
documentation and coding adjustment to the national standardized amount
in FY 2009 is in addition to the -0.6 percent adjustment made in FY
2008, yielding a combined effect of -1.5 percent in FY 2009. Given the
cumulative nature of the documentation and coding adjustments, if we
were to propose to apply the documentation and coding adjustment to the
FY 2010 hospital-specific rates, it may involve applying the FY 2008
and FY 2009 documentation and coding adjustments (-1.5 percent
combined) plus the FY 2010 documentation and coding adjustment,
discussed in the FY 2008 IPPS final rule with comment period, to the FY
2010 hospital-specific rates.
3. Application of the Documentation and Coding Adjustment to the Puerto
Rico-Specific Standardized Amount
Puerto Rico hospitals are paid based on 75 percent of the national
standardized amount and 25 percent of the Puerto Rico-specific
standardized amount. As noted previously, the documentation and coding
adjustment we adopted in the FY 2008 IPPS final rule with comment
period relied upon our authority under section 1886(d)(3)(A)(vi) of the
Act, which provides the authority to adjust ``the standardized amounts
computed under this paragraph'' to eliminate the effect of changes in
coding or classification that do not reflect real change in case-mix.
Section 1886(d)(3)(A)(vi) of the Act applies to the national
standardized amounts computed under section 1886(d)(3) of the Act, but
does not apply to the Puerto Rico-specific standardized amount computed
under section 1886(d)(9)(C) of the Act. In calculating the FY 2008
payment rates, we made an inadvertent error and applied the FY 2008 -
0.6 percent documentation and coding adjustment to the Puerto Rico-
specific standardized amount, relying on our authority under section
1886(d)(3)(A)(vi) of the Act. We are currently in the process of
developing a Federal Register notice to correct that error in the
Puerto Rico-specific standardized amount for FY 2008 retroactive to
October 1, 2007.
While section 1886(d)(3)(A)(vi) of the Act is not applicable to the
Puerto Rico-specific standardized amount, we believe that we have the
authority to apply the documentation and coding adjustment to the
Puerto Rico-specific standardized amount using our special exceptions
and adjustment authority under section 1886(d)(5)(I)(i) of the Act.
Similar to SCHs and MDHs that are paid based on the hospital-specific
rate, discussed in section II.D.2. of this preamble, we believe that
Puerto Rico hospitals that are paid based on the Puerto Rico-specific
standardized amount should not have the potential to realize increased
payments due to documentation and coding improvements that do not
reflect real increases in patients' severity of illness. Consistent
with the approach described for SCHs and MDHs in section II.D.2. of the
preamble of this proposed rule, for the FY 2010 rulemaking, we plan to
examine our FY 2008 claims data for hospitals in Puerto Rico. If we
find evidence of significant increases in case-mix for patients treated
in these hospitals, we would consider proposing application of the
documentation and coding adjustments to the FY 2010 Puerto Rico-
specific standardized amount under our authority in section
1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and
coding adjustments established in the FY 2008 IPPS final rule with
comment period are cumulative. Given the cumulative nature of the
documentation and coding adjustments, if we were to propose to apply
the documentation and coding adjustment to the FY 2010 Puerto Rico-
specific standardized amount, it may involve applying the FY 2008 and
FY 2009 documentation and coding adjustments (-1.5 percent combined)
plus the FY 2010 documentation and coding adjustment, discussed in the
FY 2008 IPPS final rule with comment period, to the FY 2010 Puerto
Rico-specific standardized amount.
4. Potential Additional Payment Adjustments in FYs 2010 Through 2012
Section 7 of Pub. L.110-90 also provides for payment adjustments in
FYs 2010 through 2012 based upon a retrospective evaluation of claims
data from the implementation of the MS-DRG system. If, based on this
retrospective evaluation, the Secretary finds that in FY 2008 and FY
2009, the actual amount of change in case-mix that does not reflect
real change in underlying patient severity differs from the statutorily
mandated documentation and coding adjustments implemented in those
years, the law requires the Secretary to adjust payments for discharges
occurring in FYs 2010 through 2012 to offset the estimated amount of
increase or decrease in aggregate payments that occurred in FY 2008 and
FY 2009 as a result of that difference, in addition to making an
appropriate adjustment to the standardized amount under section
1886(d)(3)(A)(vi) of the Act.
In order to implement these requirements of section 7 of Pub. L.
110-90, we are planning a thorough retrospective evaluation of our
claims data. Results of this evaluation would be used by our actuaries
to determine any necessary payment adjustments in FYs 2010 through 2012
to ensure the budget neutrality of the MS-DRG implementation for FY
2008 and FY 2009, as required by law. We are currently developing our
analysis plans for this effort.
We intend to measure and corroborate the extent of the overall
national average changes in case-mix for FY 2008 and FY 2009. We expect
part of this overall national average change would be attributable to
underlying changes in actual patient severity and part would be
attributable to documentation and coding improvements under the MS-DRG
system. In order to separate the two effects, we plan to isolate the
effect of shifts in cases among base DRGs from the effect of shifts in
the types of cases within base DRGs. The shifts among base DRGs are the
result of changes in principal diagnoses while the shifts within base
DRGs are the result of changes in secondary diagnoses. Because we
expect most of the documentation and coding improvements under the MS-
DRG system will occur in the secondary diagnoses, the shifts among base
DRGs are less likely to be the result of the MS-DRG system and the
shifts within base DRGs are more likely to be the result of the MS-DRG
system. We also anticipate evaluating data to identify the specific MS-
DRGs and diagnoses that contributed significantly to the improved
documentation and coding payment effect and to quantify their impact.
This step would entail analysis of the secondary diagnoses driving the
shifts in severity within specific base DRGs.
While we believe that the data analysis plan described previously
will produce an appropriate estimate of the extent of case-mix changes
resulting from documentation and coding improvements, we may also
decide, if feasible, to use historical data from our Hospital Payment
Monitoring Program

[[Page 23542]]

(HPMP) to corroborate the within base DRG shift analysis. The HPMP is
supported by the Medicare Clinical Data Abstraction Center (CDAC). From
1999 to 2007, the CDAC obtained medical records for a sample of
discharges as part of our hospital monitoring activities. These data
were collected on a random sample of between 30,000 to 50,000 hospital
discharges per year. The historical CDAC data could be used to develop
an upper bound estimate of the trend in real case-mix growth (that is,
real change in underlying patient severity) prior to implementation of
the MS-DRGs.
We welcome public comments on our analysis plans, as well as
suggestions on other possible approaches for conducting a retrospective
analysis to identify the amount of case-mix changes that occurred in FY
2008 and FY 2009 that did not reflect real increases in patients'
severity of illness. Our analysis, findings, and any resulting
proposals to adjust payments for discharges occurring in FYs 2010
through 2012 to offset the estimated amount of increase or decrease in
aggregate payments that occurred in FY 2008 and FY 2009 will be
discussed in future years' rulemakings.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
In the FY 2008 IPPS final rule with comment period (72 FR 47188),
we continued to implement significant revisions to Medicare's inpatient
hospital rates by basing relative weights on hospitals' estimated costs
rather than on charges. We continued our 3-year transition from charge-
based relative weights to cost-based relative weights. Beginning in FY
2007, we implemented relative weights based on cost report data instead
of based on charge information. We had initially proposed to develop
cost-based relative weights using the hospital-specific relative value
cost center (HSRVcc) methodology as recommended by MedPAC. However,
after considering concerns raised in the public comments, we modified
MedPAC's methodology to exclude the hospital-specific relative weight
feature. Instead, we developed national CCRs based on distinct hospital
departments and engaged a contractor to evaluate the HSRVcc methodology
for future consideration. To mitigate payment instability due to the
adoption of cost-based relative weights, we decided to transition cost-
based weights over 3 years by blending them with charge-based weights
beginning in FY 2007. In FY 2008, we continued our transition by
blending the relative weights with one-third charge-based weights and
two-thirds cost-based weights.
Also, in FY 2008, we adopted severity-based MS-DRGs, which
increased the number of DRGs from 538 to 745. Many commenters raised
concerns as to how the transition from charge-based weights to cost-
based weights would continue with the introduction of new MS-DRGs. We
decided to implement a 2-year transition for the MS-DRGs to coincide
with the remainder of the transition to cost-based relative weights. In
FY 2008, 50 percent of the relative weight for each DRG was based on
the CMS DRG relative weight and 50 percent was based on the MS-DRG
relative weight. We refer readers to the FY 2007 IPPS final rule (71 FR
47882) for more detail on our final policy for calculating the cost-
based DRG relative weights and to the FY 2008 IPPS final rule with
comment period (72 FR 47199) for information on how we blended relative
weights based on the CMS DRGs and MS-DRGs.
As we transitioned to cost-based relative weights, some commenters
raised concerns about potential bias in the weights due to ``charge
compression,'' which is the practice of applying a higher percentage
charge markup over costs to lower cost items and services, and a lower
percentage charge markup over costs to higher cost items and services.
As a result, the cost-based weights would undervalue high cost items
and overvalue low cost items if a single CCR is applied to items of
widely varying costs in the same cost center. To address this concern,
in August 2006, we awarded a contract to RTI to study the effects of
charge compression in calculating the relative weights and to consider
methods to reduce the variation in the CCRs across services within cost
centers. RTI issued an interim draft report in March 2007 which was
posted on the CMS Web site with its findings on charge compression. In
that report, RTI found that a number of factors contribute to charge
compression and affect the accuracy of the relative weights. RTI found
inconsistent matching of charges in the Medicare cost report and their
corresponding charges in the MedPAR claims for certain cost centers. In
addition, there was inconsistent reporting of costs and charges among
hospitals. For example, some hospitals would report costs and charges
for devices and medical supplies in the Medical Supplies Charged to
Patients cost center, while other hospitals would report those costs
and charges in their related ancillary departments such as Operating
Room or Radiology. RTI also found evidence that certain revenue codes
within the same cost center had significantly different markup rates.
For example, within the Medicare Supplies Charged to Patients cost
center, revenue codes for devices, implantables, and prosthetics had
different markup rates than the other medical supplies in that cost
center. RTI's findings demonstrated that charge compression exists in
several CCRs, most notably in the Medical Supplies and Equipment CCR.
RTI offered short-term, medium-term, and long-term recommendations
to mitigate the effects of charge compression. RTI's short-term
recommendations included expanding the distinct hospital CCRs to 19 by
disaggregating the ``Emergency Room'' and ``Blood and Blood Products''
from the Other Services cost center and by estimating regression-based
CCRs to disaggregate Medical Supplies, Drugs, and Radiology cost
centers. RTI recommended, for the medium-term, to expand the MedPAR
file to include separate fields that disaggregate several existing
charge departments. In addition, RTI recommended improving hospital
cost reporting instructions so that hospitals can properly report costs
in the appropriate cost centers. RTI's long-term recommendations
included adding new cost centers to the Medicare cost report, such as
adding a ``Devices, Implants and Prosthetics'' line under ``Medical
Supplies Charged to Patients'' and a ``CT Scanning and MRI''
subscripted line under ``Radiology-Diagnostics''.
Among RTI's short-term recommendations, for FY 2008, we expanded
the number of distinct hospital department CCRs from 13 to 15 by
disaggregating ``Emergency Room'' and ``Blood and Blood Products'' from
the Other Services cost center as these lines already exist on the
hospital cost report. Furthermore, in an effort to improve consistency
between costs and their corresponding charges in the MedPAR file, we
moved the costs for cases involving electroencephalography (EEG) from
the Cardiology cost center to the Laboratory cost center group which
corresponds with the EEG MedPAR claims categorized under the Laboratory
charges. We also agreed with RTI's recommendations to revise the
Medicare cost report and the MedPAR file as a long-term solution for
charge compression. We stated that, in the upcoming year, we would
consider additional lines to the cost report and additional revenue
codes for the MedPAR file.
We did not adopt RTI's short-term recommendation to create four

[[Page 23543]]

additional regression-based CCRs for several reasons, even though we
had received comments in support of the regression-based CCRs as a
means to immediately resolve the problem of charge compression,
particularly within the Medical Supplies and Equipment CCR. We were
concerned that RTI's analysis was limited to charges on hospital
inpatient claims while typically hospital cost report CCRs combine both
inpatient and outpatient services. Further, because both the IPPS and
OPPS rely on cost-based weights, we preferred to introduce any
methodological adjustments to both payment systems at the same time. We
have since expanded RTI's analysis of charge compression to incorporate
outpatient services. RTI has been evaluating the cost estimation
process for the OPPS cost-based weights, including a reassessment of
the regression-based CCR models using both outpatient and inpatient
charge data. The RTI report was finalized at the conclusion of our
proposed rule development process and is expected to be posted on the
CMS Web site in the near future. We welcome comments on this report.
A second reason that we did not implement regression-based CCRs at
the time of the FY 2008 IPPS final rule with comment period was our
inability to investigate how regression-based CCRs would interact with
the implementation of MS-DRGs. We stated that we would consider the
results of the second phase of the RAND study as we prepared for the FY
2009 IPPS rulemaking process. The purpose of the RAND study was to
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. We had intended to include a detailed discussion of RAND's study
in this FY 2009 IPPS proposed rule. However, due to some delays in
releasing identifiable data to the contractor under revised data
security rules, the report on this second stage of RAND's analysis was
not completed in time for the development of this proposed rule.
Therefore, we continue to have the same concerns with respect to
uncertainty about how regression-based CCRs would interact with the MS-
DRGs or an HSRV methodology. Therefore, we are not proposing to adopt
the regression-based CCRs or an HSRV methodology in this FY 2009 IPPS
proposed rule. Nevertheless, we welcome public comments on our
proposals not to adopt regression-based CCRs or an HSRV methodology at
this time or in the future. The RAND report on regression-based CCRs
and the HSRV methodology was finalized at the conclusion of our
proposed rule development process and is expected to be posted on the
CMS Web site in the near future. Although we are unable to include a
discussion of the results of the RAND study in this proposed rule, we
welcome public comment on the report.
Finally, we received public comments on the FY 2008 IPPS proposed
rule raising concerns on the accuracy of using regression-based CCR
estimates to determine the relative weights rather than the Medicare
cost report. Commenters noted that regression-based CCRs would not fix
the underlying mismatch of hospital reporting of costs and charges.
Instead, the commenters suggested that the impact of charge compression
might be mitigated through an educational initiative that would
encourage hospitals to improve their cost reporting. Commenters
recommended that hospitals be educated to report costs and charges in a
way that is consistent with how charges are grouped in the MedPAR file.
In an effort to achieve this goal, hospital associations have launched
an educational campaign to encourage consistent reporting, which would
result in consistent groupings of the cost centers used to establish
the cost-based relative weights. The commenters requested that CMS
communicate to the fiscal intermediaries/MACs that such action is
appropriate. In the FY 2008 IPPS final rule with comment period, we
stated that we were supportive of the educational initiative of the
industry, and we encouraged hospitals to report costs and charges
consistently with how the data are used to determine relative weights
(72 FR 47196). We would also like to affirm that the longstanding
Medicare principles of cost apportionment at 42 CFR 413.53 convey that,
under the departmental method of apportionment, the cost of each
ancillary department is to be apportioned separately rather than being
combined with another ancillary department (for example, combining the
cost of Medical Supplies Charged to Patients with the costs of
Operating Room or any other ancillary cost center. (We note that,
effective for cost reporting periods starting on or after January 1,
1979, the departmental method of apportionment replaced the combination
method of apportionment where all the ancillary departments were
apportioned in the aggregate (Section 2200.3 of the Provider
Reimbursement Manual (PRM), Part I).)
Furthermore, longstanding Medicare cost reporting policy has been
that hospitals must include the cost and charges of separately
``chargeable medical supplies'' in the Medical Supplies Charged to
Patients cost center (line 55 of Worksheet A), rather than in the
Operating Room, Emergency Room, or other ancillary cost centers.
Routine services, which can include ``minor medical and surgical
supplies'' (Section 2202.6 of the PRM, Part 1), and items for which a
separate charge is not customarily made, may be directly assigned
through the hospital's accounting system to the department in which
they were used, or they may be included in the Central Services and
Supply cost center (line 15 of Worksheet A). Conversely, the separately
chargeable medical supplies should be assigned to the Medical Supplies
Charged to Patients cost center on line 55.
We note that not only is accurate cost reporting important for IPPS
hospitals to ensure that accurate relative weights are computed, but
hospitals that are still paid on the basis of cost, such as CAHs and
cancer hospitals, and SCHs and MDHs must adhere to Medicare cost
reporting principles as well.
The CY 2008 OPPS/ASC final rule with comment period (72 FR 66601)
also discussed the issue of charge compression and regression-based
CCRs, and noted that RTI is currently evaluating the cost estimation
process underpinning the OPPS cost-based weights, including a
reassessment of the regression models using both outpatient and
inpatient charges, rather than inpatient charges only. In responding to
comments in the CY 2008 OPPS/ASC final rule with comment period, we
emphasized that we ``fully support'' the educational initiatives of the
industry and that we would ``examine whether the educational activities
being undertaken by the hospital community to improve cost reporting
accuracy under the IPPS would help to mitigate charge compression under
the OPPS, either as an adjunct to the application of regression-based
CCRs or in lieu of such an adjustment'' (72 FR 66601). However, as we
stated in the FY 2008 IPPS final rule with comment period that we would
consider the results of the RAND study before considering whether to
adopt regression-based CCRs, in the CY 2008 OPPS/ASC final rule with
comment period, we stated that we would determine whether refinements
should be proposed, after reviewing the results of the RTI study.
On February 29, 2008, we issued Transmittal 321, Change Request
5928, to inform the fiscal intermediaries/

[[Page 23544]]

MACs of the hospital associations' initiative to encourage hospitals to
modify their cost reporting practices with respect to costs and charges
in a manner that is consistent with how charges are grouped in the
MedPAR file. We noted that the hospital cost reports submitted for FY
2008 may have costs and charges grouped differently than in prior
years, which is allowable as long as the costs and charges are properly
matched and the Medicare cost reporting instructions are followed.
Furthermore, we recommended that fiscal intermediaries/MACs remain
vigilant to ensure that the costs of items and services are not moved
from one cost center to another without moving their corresponding
charges. Due to a time lag in submittal of cost reporting data, the
impact of changes in providers' cost reporting practices occurring
during FY 2008 would be reflected in the FY 2011 IPPS relative weights.
2. Refining the Medicare Cost Report
In developing this FY 2009 proposed rule, we considered whether
there were concrete steps we could take to mitigate the bias introduced
by charge compression in both the IPPS and OPPS relative weights in a
way that balance hospitals' desire to focus on improving the cost
reporting process through educational initiatives with device industry
interest in adopting regression-adjusted CCRs. Although RTI recommended
adopting regression-based CCRs, particularly for medical supplies and
devices, as a short-term solution to address charge compression, RTI
also recommended refinements to the cost report as a long-term
solution. RTI's draft interim March 2007 report discussed a number of
options that could improve the accuracy and precision of the CCRs
currently being derived from the Medicare cost report and also reduce
the need for statistically-based adjustments. As mentioned in the FY
2008 IPPS final rule with comment period (72 FR 47193), we believe that
RTI and many of the public commenters on the FY 2008 IPPS proposed rule
concluded that, ultimately, improved and more precise cost reporting is
the best way to minimize charge compression and improve the accuracy of
cost weights. Therefore, in this proposed rule, we are proposing to
begin making cost report changes geared to improving the accuracy of
the IPPS and OPPS relative weights. However, we also received comments
last year asking that we proceed cautiously with changing the Medicare
cost report to avoid unintended consequences for hospitals that are
paid on a cost basis (such as CAHs and, to some extent, SCHs and MDHs),
and to consider the administrative burden associated with adapting to
new cost reporting forms and instructions. Accordingly, we are
proposing to focus at this time on the CCR for Medical Supplies and
Equipment because RTI found that the largest impact on the relative
weights could result from correcting charge compression for devices and
implants. When examining markup differences within the Medical Supplies
Charged to Patients cost center, RTI found that its ``regression
results provide solid evidence that if there were distinct cost centers
for items, cost ratios for devices and implants would average about 17
points higher than the ratios for other medical supplies'' (January
2007 RTI report, page 59). This suggests that much of the charge
compression within the Medical Supplies CCR results from inclusion of
medical devices that have significantly different markups than the
other supplies in that CCR. Furthermore, in the FY 2007 final rule and
FY 2008 IPPS final rule with comment period, the Medical Supplies and
Equipment CCR received significant attention by the public commenters.
Although we are proposing to make improvements to lessen the
effects of charge compression only on the Medical Supplies and
Equipment CCR as a first step, we are inviting public comments as to
whether to make other changes to the Medicare cost report to refine
other CCRs. In addition, we are open to making further refinements to
other CCRs in the future. Therefore, we are proposing at this time to
add only one cost center to the cost report, such that, in general, the
costs and charges for relatively inexpensive medical supplies would be
reported separately from the costs and charges of more expensive
devices (such as pacemakers and other implantable devices). We will
consider public comments submitted on this proposed rule for purposes
of both the IPPS and the OPPS relative weights and, by extension, the
calculation of the ambulatory surgical center (ASC) payment rates.
Under the IPPS for FY 2007 and FY 2008, the aggregate CCR for
supplies and equipment was computed based on line 55 for Medical
Supplies Charged to Patients and lines 66 and 67 for DME Rented and DME
Sold, respectively. To compute the 15 national CCRs used in developing
the cost-based weights under the IPPS (explained in more detail under
section II.H. of the preamble of this proposed rule), we take the costs
and charges for the 15 cost groups from Worksheet C, Part I of the
Medicare cost report for all hospital patients and multiply each of
these 15 CCRs by the Medicare charges on Worksheet D-4 for those same
cost centers to impute the Medicare cost for each of the 15 cost
groups. Under this proposal, the goal would be to split the current CCR
for Medical Supplies and Equipment into one CCR for medical supplies,
and another CCR for devices and DME Rented and DME Sold.
In considering how to instruct hospitals on what to report in the
cost center for supplies and the cost center for devices, we looked at
the existing criteria for what type of device qualifies for payment as
a transitional pass-through device category in the OPPS. (There are no
such existing criteria for devices under the IPPS.) The provisions of
the regulations under Sec. 419.66(b) state that for a medical device
to be eligible for pass-through payment under the OPPS, the medical
device must meet the following criteria:
a. If required by the FDA, the device must have received FDA
approval or clearance (except for a device that has received an FDA
investigational device exemption (IDE) and has been classified as a
Category B device by the FDA in accordance with Sec. Sec. 405.203
through 405.207 and 405.211 through 405.215 of the regulations) or
another appropriate FDA exemption.
b. The device is determined to be reasonable and necessary for the
diagnosis or treatment of an illness or injury or to improve the
functioning of a malformed body part (as required by section
1862(a)(1)(A) of the Act).
c. The device is an integral and subordinate part of the service
furnished, is used for one patient only, comes in contact with human
tissues, and is surgically implanted or inserted whether or not it
remains with the patient when the patient is released from the
hospital.
d. The device is not any of the following:
Equipment, an instrument, apparatus, implement, or item of
this type for which depreciation and financing expenses are recovered
as depreciable assets as defined in Chapter 1 of the Medicare Provider
Reimbursement Manual (CMS Pub. 15-1).
A material or supply furnished incident to a service (for
example, a suture, customized surgical kit, or clip, other than a
radiological site marker).
Material that may be used to replace human skin (for
example, a biological or synthetic material).
These requirements are the OPPS criteria used to define a device
for pass-through payment purposes and do not include additional
criteria that are used

[[Page 23545]]

under the OPPS to determine if a candidate device is new and represents
a substantial clinical improvement, two other requirements for
qualifying for pass-through payment.
For purposes of applying the eligibility criteria, we interpret
``surgical insertion or implantation'' to include devices that are
surgically inserted or implanted via a natural or surgically created
orifice as well as those devices that are inserted or implanted via a
surgically created incision (70 FR 68630).
In proposing to modify the cost report to have one cost center for
medical supplies and one cost center for devices, we are proposing that
hospitals would determine what should be reported in the Medical
Supplies cost center and what should be reported in the Medical Devices
cost center using criteria consistent with those listed above that are
included under Sec. 419.66(b), with some modification. Specifically,
for purposes of the cost reporting instructions, we are proposing that
an item would be reported in the device cost center if it meets the
following criteria:
a. If required by the FDA, the device must have received FDA
approval or clearance (except for a device that has received an FDA
investigational device exemption (IDE) and has been classified as a
Category B device by the FDA in accordance with Sec. Sec. 405.203
through 405.207 and 405.211 through 405.215 of the regulations) or
another appropriate FDA exemption.
b. The device is reasonable and necessary for the diagnosis or
treatment of an illness or injury or to improve the functioning of a
malformed body part (as required by section 1862(a)(1)(A) of the Act).
c. The device is an integral and subordinate part of the service
furnished, is used for one patient only, comes in contact with human
tissue, is surgically implanted or inserted through a natural or
surgically created orifice or surgical incision in the body, and
remains in the patient when the patient is discharged from the
hospital.
d. The device is not any of the following:
Equipment, an instrument, apparatus, implement, or item of
this type for which depreciation and financing expenses are recovered
as depreciable assets as defined in Chapter 1 of the Medicare Provider
Reimbursement Manual (CMS Pub. 15-1).
A material or supply furnished incident to a service (for
example, a surgical staple, a suture, customized surgical kit, or clip,
other than a radiological site marker).
Material that may be used to replace human skin (for
example, a biological or synthetic material).
A medical device that is used during a procedure or
service and does not remain in the patient when the patient is released
from the hospital.
We are proposing to select the existing criteria for what type of
device qualifies for payment as a transitional pass-through device
under the OPPS as a basis for instructing hospitals on what to report
in the cost center for Medical Supplies Charged to Patients or the cost
center for Medical Devices Charged to Patients because these criteria
are concrete and already familiar to the hospital community. However,
the key difference between the existing criteria for devices that are
eligible for pass-through payment under the OPPS at Sec. 419.66(b) and
our proposed criteria stated above to be used for cost reporting
purposes is that the device that is implanted remains in the patient
when the patient is discharged from the hospital. Essentially, we are
proposing to instruct hospitals to report only implantable devices that
remain in the patient at discharge in the cost center for devices. All
other devices and non-routine supplies which are separately chargeable
would be reported in the medical supplies cost center. We believe that
defining a device for cost reporting purposes based on criteria that
specify implantation and adding that the device must remain in the
patient upon discharge would have the benefit of capturing virtually
all costly implantable devices (for example, implantable cardioverter
defibrillators (ICDs), pacemakers, and cochlear implants) for which
charge compression is a significant concern.
However, we acknowledge that a definition of device based on
whether an item is implantable and remains in the patient could, in
some cases, include items that are relatively inexpensive (for example,
urinary catheters, fiducial markers, vascular catheters, and drainage
tubes), and which many would consider to be supplies. Thus, some modest
amount of charge compression could still be present in the cost center
for devices if the hospital does not have a uniform markup policy. In
addition, requiring as a cost reporting criterion that the device is to
remain in the patient at discharge could exclude certain technologies
that are moderately expensive (for example, cryoablation probes,
angioplasty catheters, and cardiac echocardiography catheters, which do
not remain in the patient upon discharge). Therefore, some charge
compression could continue for these technologies. We believe this
limited presence of charge compression is acceptable, given that the
proposed definition of device for cost reporting purposes would isolate
virtually all of the expensive items, allowing them to be separately
reported from most inexpensive supplies.
The criteria we are proposing above for instructing hospitals as to
what to report in the device cost center specify that a device is not a
material or supply furnished incident to a service (for example, a
surgical staple, a suture, customized surgical kit, or clip, other than
a radiological site marker) (emphasis added). We understand that
hospitals may sometimes receive surgical kits from device manufacturers
that consist of a high-cost primary implantable device, external
supplies required for operation of the device, and other disposable
surgical supplies required for successful device implantation. Often
the device and the attending supplies are included on a single invoice
from the manufacturer, making it difficult for the hospital to
determine the cost of each item in the kit. In addition, manufacturers
sometimes include with the primary device other free or ``bonus'' items
or supplies that are not an integral and necessary part of the device
(that is, not actually required for the safe surgical implantation and
subsequent operation of that device). (We note that arrangements
involving free or bonus items or supplies may implicate the Federal
anti-kickback statue, depending on the circumstances.) One option is
for the hospital to split the total combined charge on the invoice in a
manner that the hospital believes best identifies the cost of the
device alone. However, because it may be difficult for hospitals to
determine the respective costs of the actual device and the attending
supplies (whether they are required for the safe surgical implantation
and subsequent operation of that device or not), we are soliciting
comments with respect to how supplies, disposable or otherwise, that
are part of surgical kits should be reported. We are distinguishing
between such supplies that are an integral and necessary part of the
primary device (that is, required for the safe surgical implantation
and subsequent operation of that device) from other supplies that are
not directly related to the implantation of that device, but may be
included by the device manufacturer with or without charge as ``perks''
along with the kit. If it is difficult to break out the costs and
charges of these lower cost items that are an integral and necessary

[[Page 23546]]

part of the primary device, we would consider allowing hospitals to
report the costs and charges of these lower cost supplies along with
the costs and charges of the more expensive primary device in the cost
report cost center for implantable devices. However, to the extent that
device manufacturers could be encouraged to refine their invoicing
practices to break out the charges and costs for the lower cost
supplies and the higher cost primary device separately, so that
hospitals need not ``guesstimate'' the cost of the device, this would
facilitate more accurate cost reporting and, therefore, the calculation
of more accurate cost-based weights. Under either scenario, even for an
aggregated invoice that contains an expensive device, we believe that
RTI's findings of significant differences in supply CCRs for hospitals
with a greater percentage of charges in device revenue codes
demonstrate that breaking the Medical Supplies Charged to Patients cost
center into two cost centers and using appropriate revenue codes for
devices, and walking those costs to the new Implantable Devices Charged
to Patients cost center, will result in an increase in estimated device
costs.
In summary, we are proposing to modify the cost report to have one
cost center for Medical Supplies Charged to Patients and one cost
center for Implantable Devices Charged to Patients. We are proposing to
instruct hospitals to report only devices that meet the four criteria
listed above (specifically including that the device is implantable and
remains in the patient at discharge) in the cost center for Implantable
Devices Charged to Patients. All other devices and nonchargeable
supplies would be reported in the Medical Supplies cost center. This
would allow for two distinct CCRs, one for medical supplies and one for
implantable devices and DME rented and DME sold.
However, we are also soliciting comments on alternative approaches
that could be used in conjunction with or in lieu of the four proposed
criteria for distinguishing between what should be reported in the cost
center for Implantable Devices and Medical Supplies, respectively.
Another option we are considering would distinguish between high-cost
and low-cost items based on a cost threshold. Under this methodology,
we would also have one cost center for Medical Supplies and one cost
center for Devices, but we would instruct hospitals to report items
that are not movable equipment or a capital expense but are above a
certain cost threshold in the cost center for Devices. Items costing
below that threshold would be reported in the cost center for Medical
Supplies.
Establishing a cost threshold for cost reporting purposes would
directly address the problem of charge compression and would enable
hospitals to easily determine whether an item should be reported in the
supply or the device cost center. A cost threshold would also
potentially allow a broader variety of expensive, single use devices
that do not remain in the patient at discharge to be reported in the
device cost center (such as specialized catheters or ablation probes).
While we have a number of concerns with the cost threshold approach, we
are nevertheless soliciting public comments on whether such an approach
would be worthwhile to pursue. Specifically, we are concerned that
establishing a single cost threshold for pricing devices could possibly
be inaccurate across hospitals. Establishing a threshold would require
identifying a cost at which hospitals would begin applying reduced
markup policies. Currently, we do not have data from which to derive a
threshold. We have anecdotal reports that hospitals change their markup
thresholds between $15,000 and $20,000 in acquisition costs. Recent
research on this issue indicated that hospitals with average inpatient
discharges in DRGs with supply charges greater than $15,000, $20,000,
and $30,000 have higher supply CCRs (Advamed March 2006).
Furthermore, although a cost threshold directly addresses charge
compression, it may not eliminate all charge compression from the
device cost center because a fixed cost threshold may not accurately
capture differential markup policies for an individual hospital. At the
same time, we are also concerned that establishing a cost threshold may
interfere with the pricing practices of device manufacturers in that
the prices for certain devices or surgical kits could be inflated to
ensure that the devices met the cost threshold. We believe our proposed
approach of identifying a group of items that are relatively expensive
based on the existing criteria for OPPS device pass-through payment
status, rather than adopting a cost threshold, would not influence
pricing by the device industry. In addition, if a cost threshold were
adopted for distinguishing between high-cost devices and low-cost
supplies on the cost report, we would need to periodically reassess the
threshold for changes in markup policies and price inflation over time.
Another option for distinguishing between high-cost and low-cost
items for purposes of the cost report would be to divide the Medical
Supplies cost center based on markup policies by placing items with
lower than average markups in a separate cost center. This approach
would center on documentation requirements for differential charging
practices that would lead hospitals to distinguish between the
reporting of supplies and devices on different cost report lines. That
is, because charge compression results from the different markup
policies that hospitals apply to the supplies and devices they use
based on the estimated costs of those supplies and devices, isolating
supplies and devices with different markup policies mitigates
aggregation in markup policies that cause charge compression and is
specific to a hospital's internal accounting and pricing practices. If
requested by the fiscal intermediaries/MACs at audit, hospitals could
be required to submit documentation of their markup policies to justify
the way they have reported relatively inexpensive supplies on one line
and more expensive devices on the other line. We believe that it should
not be too difficult for hospitals to document their markup practices
because, as was pointed out by many commenters since the implementation
of cost-based weights, the source of charge compression is varying
markup practices. Greater knowledge of the specifics of hospital markup
practices may allow ultimately for development of standard cost
reporting instructions that instruct hospitals to report an item as a
device or a supply based on the type of markup applied to that item.
This option related to markup practices, the proposal to define devices
based on four specific criteria, and the third alternative that would
establish a cost threshold for purposes of distinguishing between high-
cost and low-cost items, could be utilized separately or in some
combination for purposes of cost report modification. Again, we are
soliciting comments on these alternative approaches. We are also
interested in other recommendations for appropriate cost reporting
improvements that address charge compression.
3. Timeline for Revising the Medicare Cost Report
As mentioned in the FY 2008 IPPS final rule with comment period (72
FR 47198), we have begun a comprehensive review of the Medicare
hospital cost report, and the proposed splitting of the current cost
center for Medical Supplies Charged to Patients into one line for
Medical Supplies Charged to Patients and another line for Implantable
Devices Charged to Patients, is part of

[[Page 23547]]

our initiative to update and revise the hospital cost report. Under an
effort initiated by CMS to update the Medicare hospital cost report to
eliminate outdated requirements in conjunction with the Paperwork
Reduction Act, we plan to propose the actual changes to the cost
reporting form, the attending cost reporting software, and the cost
report instructions in Chapter 36 of the Medicare Provider
Reimbursement Manual (PRM), Part II. We expect the proposed revision to
the Medicare hospital cost report to be issued after publication of
this IPPS proposed rule. If we were to adopt as final our proposal to
create one cost center for Medical Supplies Charged to Patients and one
cost center for Implantable Devices Charged to Patients in the FY 2009
IPPS final rule, the cost report forms and instructions would reflect
those changes. We expect the revised cost report would be available for
hospitals to use when submitting cost reports during FY 2009 (that is,
for cost reporting periods beginning on or after October 1, 2008).
Because there is approximately a 3-year lag between the availability of
cost report data for IPPS and OPPS ratesetting purposes and a given
fiscal year, we may be able to derive two distinct CCRs, one for
medical supplies and one for devices, for use in calculating the FY
2012 IPPS relative weights and the CY 2012 OPPS relative weights.
4. Revenue Codes Used in the MedPAR File
An important first step in RTI's study (as explained in its draft
interim March 2007 report) was determining how well the cost report
charges used to compute CCRs matched to the charges in the MedPAR file.
This match (or lack thereof) directly affects the accuracy of the DRG
cost estimates because MedPAR charges are multiplied by CCRs to
estimate cost. RTI found 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 some 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
Charged to Patients cost center. While the educational initiative
undertaken by the national hospital associations is encouraging
hospitals to consistently report costs and charges for devices and
other medical supplies only in the Medical Supplies Charged to Patients
cost center, equal attention must be paid to the way in which charges
are grouped by hospitals in the MedPAR file. Several commenters on the
FY 2008 IPPS proposed rule supported RTI's recommendation of including
additional fields in the MedPAR file to disaggregate certain cost
centers. One commenter stated that the assignment of revenue codes and
charges to revenue centers in the MedPAR file should be reviewed and
changed to better reflect hospital accounting practices as reflected on
the cost report (72 FR 47198).
In an effort to improve the match between the costs and charges
included on the cost report and the charges in the MedPAR file, we are
recommending that certain revenue codes be used for items reported in
the proposed Medical Supplies Charged to Patients cost center and the
proposed Implantable Devices Charged to Patients cost center,
respectively. Specifically, under the proposal to create a cost center
for implantable devices that remain in the patient upon discharge,
revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), and 0278
(Other Implants) would correspond to implantable devices reported in
the proposed Implantable Devices Charged to Patients cost center. Items
for which a hospital may have previously used revenue code 0270
(General Classification), but actually meet the proposed definition of
an implantable device that remains in the patient upon discharge should
instead be billed with the 0278 revenue code. Conversely, relatively
inexpensive items and supplies that are not implantable and do not
remain in the patient at discharge would be reported in the proposed
Medical Supplies Charged to Patients cost center on the cost report,
and should be billed with revenue codes 0271 (nonsterile supply), 0272
(sterile supply), and 0273 (take-home supplies), as appropriate.
Revenue code 0274 (Prosthetic/Orthotic devices) and revenue code 0277
(Oxygen--Take Home) should be associated with the costs reported on
lines 66 and 67 for DME--Rented and DME--Sold on the cost report.
Charges associated with supplies used incident to radiology or to other
diagnostic services (revenue codes 0621 and 0622 respectively) should
match those items used incident to those services on the Medical
Supplies Charged to Patients cost center of the cost report, because,
under this proposal, supplies furnished incident to a service would be
reported in the Medical Supplies Charged to Patients cost center (see
item b. listed above, in the proposed definition of a device). A
revenue code of 0623 for surgical dressings would similarly be
associated with the costs and charges of items reported in the proposed
Medical Supplies Charged to Patients cost center, while a revenue code
of 0624 for FDA investigational device, if that device does not remain
in the patient upon discharge, could be associated with items reported
on the Medical Supplies Charged to Patients cost center as well.
In general, if an item is reported as an implantable device on the
cost report, the associated charges should be recorded in the MedPAR
file with either revenue codes 0275 (Pacemaker), 0276 (Intraocular
Lens), or 0278 (Other Implants). Likewise, items reported as Medical
Supplies should receive an appropriate revenue code indicative of
supplies. We understand that many of these revenue codes have been in
existence for many years and have been added for purposes unrelated to
the goal of refining the calculation of cost-based weights.
Accordingly, we acknowledge that additional instructions relating to
the appropriate use of these revenue codes may need to be issued. In
addition, CMS or the hospital associations may need to request new
revenue codes from the National Uniform Billing Committee (NUBC). In
either case, we do not believe either should delay use of the new
Medical Supplies and Implantable Devices CCRs in setting payment rates.
However, in light of our proposal to create two separate cost centers
for Medical Supplies Charged to Patients and Implantable Devices
Charged to Patients, respectively, we are soliciting comments on how
the existing revenue codes or additional revenue codes could best be
used in conjunction with the revised cost centers on the cost report.

F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections

1. General
In its landmark 1999 report ``To Err is Human: Building a Safer
Health System,'' the Institute of Medicine found that medical errors,
particularly hospital-acquired conditions (HACs) caused by medical
errors, are a leading cause of morbidity and mortality in the United
States. The report noted that the number of Americans who die each year
as a result of medical errors that occur in hospitals may be as high as
98,000. The cost burden of HACs is also high. Total national costs of
these errors due to lost productivity, disability, and health care
costs were estimated at $17

[[Page 23548]]

billion to $29 billion.\2\ In 2000, the CDC estimated that hospital-
acquired infections added nearly $5 billion to U.S. health care costs
every year.\3\ A 2007 study found that, in 2002, 1.7 million hospital-
acquired infections were associated with 99,000 deaths\4\ Research has
also shown that hospitals are not following recommended guidelines to
avoid preventable hospital-acquired infections. A 2007 Leapfrog Group
survey of 1,256 hospitals found that 87 percent of those hospitals do
not follow recommendations to prevent many of the most common hospital-
acquired infections.\5\
---------------------------------------------------------------------------

\2\ Institute of Medicine: To Err Is Human: Building a Safer
Health System, November 1999. Available at: http://www.iom.edu/Object.File/Master/4/117/ToErr-8pager.pdf.
\3\ Centers for Disease Control and Prevention: Press Release,
March 2000. Available at: http://www.cdc.gov/od/oc/media/pressrel/r2k0306b.htm.
\4\ Klevens et al. Estimating Health Care-Associated Infections
and Deaths in U.S. Hospitals, 2002. Public Health Reports. March-
April 2007. Volume 122.
\5\ 2007 Leapfrog Group Hospital Survey. The Leapfrog Group
2007. Available at: http://www.leapfroggroup.org/media/file/Leapfrog_hospital_acquired_infections_release.pdf
---------------------------------------------------------------------------

As one approach to combating HACs, including infections, in 2005
Congress authorized CMS to adjust for Medicare IPPS hospital payments
to encourage the prevention of these conditions. The preventable HAC
provision at section 1886(d)(4)(D) of the Act is part of an array of
Medicare value-based purchasing (VBP) tools that CMS is using to
promote increased quality and efficiency of care. Those tools include
measuring performance, using payment incentives, publicly reporting
performance results, applying national and local coverage policy
decisions, enforcing conditions of participation, and providing direct
support for providers through Quality Improvement Organization (QIO)
activities. CMS' application of VBP tools through various initiatives,
such as this HAC provision, is transforming Medicare from a passive
payer to an active purchaser of higher value health care services. We
are applying these strategies for inpatient hospital care and across
the continuum of care for Medicare beneficiaries.
The President's FY 2009 Budget outlines another approach for
addressing serious preventable adverse events (``never events''),
including HACs. The President's Budget proposal would: (1) Prohibit
hospitals from billing the Medicare program for ``never events'' and
prohibit Medicare payment for these events; and (2) require hospitals
to report occurrence of these events or receive a reduced annual
payment update.
Medicare's IPPS encourages hospitals to treat patients efficiently.
Hospitals receive the same DRG payment for stays that vary in length
and in the services provided, which gives hospitals an incentive to
avoid unnecessary costs in the delivery of care. In many cases,
complications acquired in the hospital do not generate higher payments
than the hospital would otherwise receive for uncomplicated cases paid
under the same DRG. To this extent, the IPPS encourages hospitals to
avoid complications. However, complications, such as infections,
acquired in the hospital can generate higher Medicare payments in two
ways. First, the treatment of complications can increase the cost of a
hospital stay enough to generate an outlier payment. However, the
outlier payment methodology requires that a hospital experience a large
loss on an outlier case, which serves as an incentive for hospitals to
prevent outliers. Second, under the MS-DRGs that took effect in FY
2008, there are currently 258 sets of MS-DRGs that are split into 2 or
3 subgroups based on the presence or absence of a CC or an MCC. If a
condition acquired during a hospital stay is one of the conditions on
the CC or MCC list, the hospital currently receives a higher payment
under the MS-DRGs (prior to the October 1, 2008 effective date of the
HAC payment provision). (We refer readers to section II.D. of the FY
2008 IPPS final rule with comment period for a discussion of DRG
reforms (72 FR 47141).) The following is an example of how an MS-DRG
may be paid.

----------------------------------------------------------------------------------------------------------------
Present on
admission Average
Service: MS-DRG Assignment\*\ (Examples below with CC/MCC indicate a single (status of payment (based
secondary diagnosis only) secondary on 50th
diagnosis) percentile)
----------------------------------------------------------------------------------------------------------------
Principal Diagnosis............................................................ ............... $5,347.98
Intracranial hemorrhage or cerebral infarction (stroke) without CC/
MCC--MS-DRG 066...........................................................
Principal Diagnosis............................................................ Y 6,177.43
Intracranial hemorrhage or cerebral infarction (stroke) with CC--
MS-DRG 065................................................................
Example Secondary Diagnosis
Dislocation of patella-open due to a fall (code 836.4 (CC)).......
Principal Diagnosis............................................................ N 5,347.98
Intracranial hemorrhage or cerebral infarction (stroke) with CC--
MS-DRG 065................................................................
Example Secondary Diagnosis
Dislocation of patella-open due to a fall (code 836.4 (CC)).......
Principal Diagnosis............................................................ Y 8,030.28
Intracranial hemorrhage or cerebral infarction (stroke) with MCC--
MS-DRG 064................................................................
Example Secondary Diagnosis
Stage III pressure ulcer (code 707.23 (MCC))......................
Principal Diagnosis............................................................ N 5,347.98
Intracranial hemorrhage or cerebral infarction (stroke) with MCC--
MS-DRG 064................................................................
Example Secondary Diagnosis
Stage III pressure ulcer (code 707.23 (MCC))......................
----------------------------------------------------------------------------------------------------------------
\*\ Operating amounts for a hospital whose wage index is equal to the national average.

2. Statutory Authority
Section 1886(d)(4)(D) of the Act required the Secretary to select
at least two conditions by October 1, 2007, that are: (a) High cost,
high volume, or both; (b) assigned to a higher paying DRG when present
as a secondary diagnosis; and (c) could reasonably have been prevented
through the application of evidence-based guidelines. Beginning October
1, 2008, Medicare can no longer assign an inpatient hospital discharge
to

[[Page 23549]]

a higher paying MS-DRG if a selected HAC was not present on admission.
That is, the case will be paid as though the secondary diagnosis was
not present. (Medicare will continue to assign a discharge to a higher
paying MS-DRG if the selected condition was present on admission.)
Section 1886(d)(4)(D) of the Act provides that the list of conditions
can be revised from time to time, as long as the list contains at least
two conditions. Beginning October 1, 2007, we required hospitals to
begin submitting information on Medicare claims specifying whether
diagnoses were present on admission (POA).
The POA indicator reporting requirement and the HACs payment
provision apply to IPPS hospitals only. At this time, non-IPPS
hospitals such as CAHs, LTCHs, IRFs, and hospitals in Maryland
operating under waivers, among others, are exempt from POA reporting
and the HAC payment provision. Throughout this section, ``hospital''
refers to IPPS hospitals.
3. Public Input
In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public
input regarding conditions with evidence-based prevention guidelines
that should be selected in implementing section 1886(d)(4)(D) of the
Act. The public comments 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. In the FY 2008 IPPS final rule
with comment period (72 FR 47200 through 47218), we summarized the
public comments we received on the FY 2008 IPPS proposed rule,
presented our responses, selected eight conditions to which the HAC
provision will initially apply, and noted that we would be seeking
comments on additional HAC candidates in this proposed rule.
4. Collaborative Process
CMS experts worked with public health and infectious disease
professionals from the CDC to identify the candidate preventable HACs.
CMS and CDC staff also collaborated on the process for hospitals to
submit a POA indicator for each diagnosis listed on IPPS hospital
Medicare claims.
On December 17, 2007, CMS and CDC hosted a jointly sponsored HAC
and POA Listening Session to receive input from interested
organizations and individuals. The agenda, presentations, audio file,
and written transcript of the listening session are available on the
Web site at: http://www.cms.hhs.gov/HospitalAcqCond/07_EducationalResources.asp. CMS and CDC also received informal comments
during the listening session and subsequently received numerous written
comments.
5. Selection Criteria for HACs
CMS and CDC staff evaluated each candidate condition against the
criteria established by section 1886(d)(4)(D)(iv) of the Act.
Cost or Volume--Medicare data \6\ must support that the
selected conditions are high cost, high volume, or both. At this point,
there are no Medicare claims data indicating which secondary diagnoses
were POA because POA indicator reporting began only recently;
therefore, the currently available data for candidate conditions
includes all secondary diagnoses.
---------------------------------------------------------------------------

\6\ For this FY 2009 IPPS proposed rule, the DRG analysis is
based on data from the September 2007 update of the FY 2007 MedPAR
file, which contains hospital bills received through September 30,
2007, for discharges through September 30, 2007.
---------------------------------------------------------------------------

Complicating Condition (CC) or Major Complicating
Condition (MCC)--Selected conditions must be represented by ICD-9-CM
diagnosis codes that clearly identify the condition, are designated as
a CC or an MCC, and result in the assignment of the case to an MS-DRG
that has a higher payment when the code is reported as a secondary
diagnosis. That is, selected conditions must be a CC or an MCC that
would, in the absence of this provision, result in assignment to a
higher paying MS-DRG.
Evidence-Based Guidelines--Selected conditions must be
reasonably preventable through the application of evidence-based
guidelines. By reviewing guidelines from professional organizations,
academic institutions, and entities such as the Healthcare Infection
Control Practices Advisory Committee (HICPAC), we evaluated whether
guidelines are available that hospitals should follow to prevent the
condition from occurring in the hospital.
Reasonably Preventable--Selected conditions must be
reasonably preventable through the application of evidence-based
guidelines.
6. HACs Selected in FY 2008 and Proposed Changes to Certain Codes
The HACs that were selected for the HAC payment provision through
the FY 2008 IPPS final rule with comment period are listed below. The
payment provision for these selected HACs will take effect on October
1, 2008. We refer readers to section II.F.6. of the FY 2008 IPPS final
rule with comment period (72 FR 47202 through 47218) for a detailed
analysis supporting the selection of each of these HACs.
BILLING CODE 4120-01-P

[[Page 23550]]

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[[Page 23551]]

[GRAPHIC][TIFF OMITTED]TP30AP08.001

BILLING CODE 4120-01-C

[[Page 23552]]

We are seeking public comments on the following refinements to two
of the previously selected HACs:
a. Foreign Object Retained After Surgery: Proposed Inclusion of ICD-9-
CM Code 998.7 (CC)
In the FY 2008 IPPS final rule with comment period (72 FR 47206),
we indicated that a foreign body accidentally left in the patient
during a procedure (ICD-9-CM code 998.4) was one of the conditions
selected. It has come to our attention that ICD-9-CM diagnosis code
998.7 (Acute reaction to foreign substance accidentally left during a
procedure) should also be included. ICD-9-CM code 998.7 describes
instances in which a patient developed an acute reaction due to a
retained foreign substance. Therefore, we are proposing to make this
code subject to the HAC payment provision.
b. Pressure Ulcers: Proposed Changes in Code Assignments
As discussed in the FY 2008 IPPS final rule with comment period (72
FR 47205-47206), we referred the need for more detailed ICD-9-CM
pressure ulcer codes to the CDC. The topic of expanding pressure ulcer
codes to capture the stage of the ulcer was addressed at the September
27-28, 2007, meeting of the ICD-9-CM Coordination and Maintenance
Committee. A summary report of this meeting is available on the Web
site at: http://www.cdc.gov/nchs/about/otheract/icd9/maint/maint.htm.
Numerous wound care professionals supported modifying the pressure
ulcer codes to capture staging information. The stage of the pressure
ulcer is a powerful predictor of severity and resource utilization. At
its September 27-28, 2007 meeting, the ICD-9-CM Coordination and
Maintenance Committee discussed the creation of pressure ulcer codes to
capture this information. The new codes, along with their proposed CC/
MCC classifications, are shown in Table 6A of the Addendum to this
proposed rule. The new codes are as follows:
707.20 (Pressure ulcer, unspecified stage).
707.21 (Pressure ulcer stage I).
707.22 (Pressure ulcer stage II).
707.23 (Pressure ulcer stage III).
707.24 (Pressure ulcer stage IV).
While the code titles are final, we are soliciting comment on the
proposed MS-DRG classifications of these codes, as indicated in Table
6A of the Addendum to this proposed rule. We are proposing to remove
the CC/MCC classifications from the current pressure ulcer codes that
show the site of the ulcer (ICD-9-CM codes 707.00 through 707.09).
Therefore, the following codes would no longer be a CC:
707.00 (Decubitus ulcer, unspecified site).
707.01 (Decubitus ulcer, elbow).
707.09 (Decubitus ulcer, other site). The following codes
would no longer be an MCC:
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).
We are proposing to instead assign the CC/MCC classifications to
the stage of the pressure ulcer as shown in Table 6A of the Addendum to
this proposed rule. We are proposing to classify ICD-9-CM codes 707.23
and 707.24 as MCCs. We are proposing to classify codes 707.20, 707.21,
and 707.22 as non-CCs.
Therefore, we are proposing that, beginning October 1, 2008, the
codes used to make MS-DRG adjustments for pressure ulcers under the HAC
provision would include the proposed MCC codes 707.23 and 707.24.
7. HACs Under Consideration as Additional Candidates
CMS and CDC have diligently worked together and with other
stakeholders to identify additional HACs that might appropriately be
subject to the HAC payment provision. If the additional candidate HACs
are selected in the FY 2009 IPPS final rule, the payment provision will
take effect for these candidate HACS on October 1, 2008. The statutory
criteria for each HAC candidate are presented in tabular format. Each
table contains the following:
HAC Candidate--We are seeking public comment on all HAC
candidates.
Medicare Data--We are seeking public comment on the
statutory criterion of high cost, high volume, or both as it applies to
the HAC candidate.
CC/MCC--We are seeking public comment on the statutory
criterion that an ICD-9-CM diagnosis code(s) clearly identifies the HAC
candidate.
Selected Evidence-Based Guidelines--We are seeking public
comment on the degree to which the HAC candidate is reasonably
preventable through the application of the identified evidence-based
guidelines.
a. Surgical Site Infections Following Elective Surgeries

[[Page 23553]]

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In the FY 2008 IPPS final rule with comment period (72 FR 47213),
surgical site infections were identified as a broad category for
consideration, and we selected mediastinitis after coronary artery
bypass graft (CABG) as one of the initial eight HACs for
implementation. We are now considering the addition of other surgical
site infections, particularly those following elective procedures. In
most cases, patients selected as candidates for elective surgeries
should have a relatively low-risk profile for surgical site infections.
The following elective surgical procedures are under consideration:
Total Knee Replacement (81.54): ICD-9-CM codes 996.66 (CC)
and 998.59 (CC)
Laparoscopic Gastric Bypass (44.38) and Laparoscopic
Gastroenterostomy (44.39): ICD-9-CM code 998.59 (CC)
Ligation and Stripping of Varicose Veins (38.50 through
38.53, 38.55, 38.57, and 38.59): ICD-9-CM code 998.59 (CC)
Evidence-based guidelines for preventing surgical site infections
emphasize the importance of appropriately using prophylactic
antibiotics, using clippers rather than razors for hair removal and
tightly controlling postoperative glucose.
While we are seeking public comments on the applicability of each
of the statutory criteria to surgical site infections following
elective procedures, we are particularly interested in receiving
comments on the degree of preventability of surgical site infections
following elective procedures generally, as well as specifically for
those listed above. We also are seeking public comments on additional
elective surgical procedures that would qualify for the HAC provision
by meeting all of the statutory criteria. Based on the public comments
we receive, we may select some combination of the four procedures
presented here along with additional conditions that qualify and are
supported by the comments.
b. Legionnaires' Disease
[GRAPHIC][TIFF OMITTED]TP30AP08.003

We discussed Legionnaires' Disease in the FY 2008 IPPS final rule
with comment period (72 FR 47216). Legionnaires' Disease is a type of
pneumonia caused by the bacterium Legionella pneumophila. It is
contracted

[[Page 23554]]

by inhaling contaminated water vapor or droplets. It is not spread
person to person. Individuals at risk include those who are elderly,
immunocompromised, smokers, or persons with underlying lung disease.
The bacterium thrives in warm aquatic environments and infections have
been linked to large industrial water systems, including hospital water
systems such as air conditioning cooling towers and potable water
plumbing systems. Prevention depends primarily on regular monitoring
and decontamination of these water systems. While we are seeking public
comments regarding the applicability of each of the statutory criteria
to Legionnaires' Disease, we are particularly interested in receiving
comments on the degree of preventability of Legionnaires' Disease
through the application of hospital water system maintenance
guidelines.
Legionnaires' Disease is typically acquired outside of the hospital
setting and may be difficult to diagnose as present on admission. We
are seeking comments on the degree to which hospital-acquired
Legionnaires' Disease can be distinguished from community-acquired
cases.
We also are seeking public comments on additional water-borne
pathogens that would qualify for the HAC provision by meeting the
statutory criteria. Based on the public comments we receive, we may
finalize some combination of Legionnaires' Disease and additional
conditions that qualify and are supported by the public comments.
c. Glycemic Control
[GRAPHIC][TIFF OMITTED]TP30AP08.004

During the December 17, 2007 HAC and POA Listening Session, one of
the commenters suggested that we explore hyperglycemia and hypoglycemia
as HACs for selection. NQF's list of Serious Reportable Adverse Events
includes death or serious disability associated with hypoglycemia that
occurs during hospitalization.
Hyperglycemia and hypoglycemia are extremely common laboratory
findings in hospitalized patients and can be complicating features of
underlying diseases and some therapies. However, we believe that
extreme forms of poor glycemic control should not occur while under
medical care in the hospital setting. Thus, we are considering whether
the following forms of extreme glucose derangement should be subject to
the HAC payment provision:
Diabetic Ketoacidosis: ICD-9-CM codes 250.10-250.13 (CC)
Nonketotic Hyperosmolar Coma: ICD-9-CM code 251.0 (CC)
Diabetic Coma: ICD-9-CM codes 250.30-250.33 (CC)
Hypoglycemic Coma: ICD-9-CM codes 250.30-251.0 (CC)
While we are seeking public comments regarding the applicability of
each of the statutory criteria to these extreme aberrations in glycemic
control, we are particularly interested in receiving comments on the
degree to which these extreme aberrations in glycemic control are
reasonably preventable, in the hospital setting, through the
application of evidence-based guidelines. Based on the public comments
we receive, we may select some combination of these glycemic control-
related conditions as HACs.
d. Iatrogenic Pneumothorax

[[Page 23555]]

[GRAPHIC][TIFF OMITTED]TP30AP08.005

Iatrogenic pneumothorax refers to the accidental introduction of
air into the pleural space, which is the space between the lung and the
chest wall. When air is introduced into this space it partially or
completely collapses the lung. Iatrogenic pneumothorax can occur during
any procedure where there is the possibility of air entering pleural
space, including needle biopsy of the lung, thoracentesis, central
venous catheter placement, pleural biopsy, tracheostomy, and liver
biopsy. Iatrogenic pneumothorax can occur secondary to positive
pressure mechanical ventilation when an air sac in the lung ruptures
allowing air into the pleural space.
While we are seeking public comments on the applicability of each
of the statutory criteria to iatrogenic pneumothorax, we are
particularly interested in receiving comments on the degree to which
iatrogenic pneumothorax is reasonably preventable through the
application of evidence-based guidelines. Based on the public comments
we receive, we may select iatrogenic pneumothorax as an HAC.
e. Delirium
[GRAPHIC][TIFF OMITTED]TP30AP08.006

Delirium is a relatively abrupt deterioration in a patient's
ability to sustain attention, learn, or reason. Delirium is strongly
associated with aging and treatment of illnesses that are associated
with hospitalizations. Delirium affects nearly half of hospital patient
days for individuals age 65 and older, and approximately three-quarters
of elderly individuals in intensive care units have delirium. About 14
to 24 percent of hospitalized elderly individuals have delirium at the
time of admission. Having delirium is a very serious risk factor, with
1-year mortality of 35 to 40 percent, a rate as high as those
associated with heart attacks and sepsis. The adverse effects of
delirium routinely last for months. Delirium is a clinical diagnosis,
commonly assisted by screening tests such as the Confusion Assessment
Method.
Well-established practices, such as reducing certain medications,
reorienting the patient, assuring sensory input and sleep, and avoiding
malnutrition and dehydration, prevent 30 to 40 percent of the possible
cases. While we are seeking public comments on the applicability of
each of the statutory criteria to delirium, we are particularly
interested in receiving comments on the degree to which delirium is
reasonably preventable through the application of evidence-based
guidelines. Based upon the public comments we receive, we may select
delirium as an HAC.
f. Ventilator-Associated Pneumonia (VAP)

[[Page 23556]]

[GRAPHIC][TIFF OMITTED]TP30AP08.007

We discussed ventilator-associated pneumonia (VAP) in the FY 2008
IPPS final rule with comment period (72 FR 47209-47210). VAP is a
serious hospital-acquired infection associated with high mortality,
significantly increased hospital length of stay, and high cost. It is
typically caused by the aspiration of contaminated gastric and/or
oropharyngeal secretions. The presence of an endotracheal tube
facilitates both the contamination of secretions as well as aspiration.
During the past year, the ICD-9-CM Coordination and Maintenance
Committee discussed the creation of a new ICD-9-CM code 997.31 to
identify VAP. This new code is shown in Table 6A of the Addendum to
this proposed rule. The lack of a specific code was one of the barriers
to including VAP as an HAC that we discussed in the FY 2008 IPPS final
rule with comment period. We also discussed the degree to which VAP may
be reasonably preventable through the application of evidence-based
guidelines. Specifically, the FY 2008 IPPS final rule with comment
period referenced the American Association for Respiratory Care's
Clinical Practice Guidelines at the Web site: http://www.rcjournal.com/cpgs/09.03.0869.html.
To further investigate the extent to which VAP is reasonably
preventable, we reviewed published clinical research. The literature,
including recommendations by CDC and the HICPAC, from 2003 shows
numerous prevention guidelines that can significantly reduce the
incidence of VAP in the hospital setting. These guidelines include
interventions such as educating staff, hand washing, using gowns and
gloves, properly positioning the patient, elevating the head of the
bed, changing ventilator tubing, sterilizing reusable equipment,
applying chlorhexadine solution for oral decontamination, monitoring
sedation daily, administering stress ulcer prophylaxis, and
administering pneumococcal vaccinations. Further review of the
literature, specifically regarding the proportion of VAP cases that
might be preventable, revealed two large-scale analyses that were
completed recently. One study concluded that an estimated 40 percent of
VAP cases are preventable. A second study concluded that at least 20
percent of nosocomial infections in general (not just VAP) are
preventable.\7\
---------------------------------------------------------------------------

\7\ American Association for Respiratory Care Clinical Practice:
Guideline: Care of the Ventilator Circuit and Its Relation to
Ventilator Associated Pneumonia. Available at the Web site: http://www.rcjournal.com/cpgs/09.03.0869.html.
---------------------------------------------------------------------------

During the December 17, 2007 HAC and POA Listing Session, we also
received comments on evidence-based guidelines for preventing VAP.
Commenters referenced two articles \8\ \9\ that both state there is a
high degree of risk associated with endotracheal tube insertions,
suggesting that VAP may not always be preventable.
---------------------------------------------------------------------------

\8\ Ramirez et al.: Prevention Measures for Ventilator-
Associated Pneumonia: A New Focus on the Endotracheal Tube. Current
Opinion in Infectious Disease, April 2007, Vol.20 (2), pp. 190-197.
\9\ Safdar et al.: The Pathogenesis of Ventilator-Associated
Pneumonia: Its Relevance to Developing Effective Strategies for
Prevention. Respiratory Care, June 2005, Vol. 50, No. 6, pp.725-741.
---------------------------------------------------------------------------

While we are seeking public comments on the applicability of each
of the statutory criteria to VAP, we are particularly interested in
receiving comment on the degree to which VAP

[[Page 23557]]

is reasonably preventable through the application of evidence-based
guidelines. Based on the public comments we receive, we may select VAP
as an HAC.
g. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)
[GRAPHIC][TIFF OMITTED]TP30AP08.008

We discussed deep vein thrombosis (DVT) and pulmonary embolism (PE)
in the FY 2008 IPPS final rule with comment period (72 FR 47215). DVT
and PE are common events. DVT occurs when a blood clot forms in the
deep veins of the leg and causes local swelling and inflammation. PE
occurs when a clot or a piece of a clot migrates from its original site
into the lungs, causing the death of lung tissue, which can be fatal.
Risk factors for DVTs and PEs include inactivity, smoking, use of oral
contraceptives, prolonged bed rest, prolonged sitting with bent knees,
certain types of cancer and other disease states, certain blood
clotting disorders, and certain types of orthopedic and other surgical
procedures. DVT is not always clinically apparent because the
manifestations of pain, redness, and swelling may develop some time
after the venous clot forms.
As we discussed in the FY 2008 IPPS final rule with comment period,
DVTs and PEs may be preventable in certain circumstances, but it is
possible that a patient may have a DVT that is difficult to detect on
admission. We also received comments during the December 17, 2007 HAC
and POA Listening Session reiterating that not all cases of DVTs and
PEs are preventable. For example, common patient characteristics such
as immobility, obesity, severe vessel trauma, and venous stasis put
certain trauma and joint replacement surgery patients at high risk for
these conditions.
In our review of the literature, we found that there are definite
pharmacologic and nonpharmacologic interventions that may reduce the
likelihood of developing DVTs and PEs, including exercise, compression
stockings, intermittent pneumatic boots, aspirin, enoxaparin,
dalteparin, heparin, coumadin, clopidogrel, and fondaparinux. However,
the evidence[pi]based guidelines indicate that some patients may still
develop clots despite these therapies.
While we are seeking public comments on the applicability of each
of the statutory criteria to DVTs and PEs, we are particularly
interested in receiving comments on the degree of preventability of
DVTs and PEs. We are also interested in comments on determining the
presence of DVT and PE at admission. Based on the public comments we
receive, we may select DVTs and PEs as HACs.
h. Staphylococcus aureus Septicemia
[GRAPHIC][TIFF OMITTED]TP30AP08.009

[[Page 23558]]

We discuss Staphylococcus aureus Septicemia in the FY 2008 IPPS
final rule with comment period (72 FR 47208). Staphylococcus aureus is
a bacterium that lives in the nose and on the skin of a large
percentage of the population. It usually does not cause physical
illness, but it can cause infections ranging from superficial boils to
cellulitis to pneumonia to life threatening bloodstream infections
(septicemia). It usually enters the body through traumatized tissue,
such as cuts or abrasions, or at the time of invasive procedures.
Staphylococcus aureus Septicemia can also be a late effect of an injury
or a surgical procedure. Risk factors for developing Staphylococcus
aureus Septicemia include advanced age, debilitated state,
immunocompromised status, and a history of an invasive medical
procedure.
CDC has developed evidence-based guidelines for the prevention of
the Staphylococcus aureus Septicemia. Most preventable cases of
septicemia are primarily related to the presence of a central venous or
vascular catheter. During the December 17, 2007 HAC and POA Listening
Session, commenters noted that intravascular catheter-associated
infections are only one cause of septicemia. Therefore, catheter-
oriented evidence-based guidelines would not cover all cases of
Staphylococcus aureus Septicemia.\10\
---------------------------------------------------------------------------

\10\ Jensen, A.G. Importance of Focus Identification in the
Treatment of Staphylococcus aureus Bacteremia. 2002. Vol. 52, pp.
29-36.
---------------------------------------------------------------------------

We identified evidence-based guidelines that suggest Staphylococcus
aureus Septicemia is reasonably preventable. These guidelines emphasize
the importance of effective and fastidious hand washing by both staff
and visitors, using gloves and gowns where appropriate, applying proper
decontamination techniques, and exercising contact isolation where
clinically indicated.
While we are seeking public comments on the applicability of each
of the statutory criteria to Staphylococcus aureus infections
generally, we are particularly interested in receiving comments on the
degree of preventability of Staphylococcus aureus infections generally,
and specifically Staphylococcus aureus Septicemia. Based on the public
comments we receive, we may select Staphylococcus aureus Septicemia as
an HAC.
i. Clostridium Difficile-Associated Disease (CDAD)
[GRAPHIC][TIFF OMITTED]TP30AP08.010

We discussed Clostridium difficile-associated disease (CDAD) in the
FY 2008 IPPS final rule with comment period. Clostridium difficile is a
bacterium that colonizes the gastrointestinal (GI) tract of a certain
number of healthy people. Under conditions where the normal flora of
the gastrointestinal tract is altered, Clostridium difficile can
flourish and release large enough amounts of a toxin to cause severe
diarrhea or even life threatening colitis. Risk factors for CDAD
include prolonged use of broad spectrum antibiotics, gastrointestinal
surgery, prolonged nasogastric tube insertion, and repeated enemas.
CDAD can be acquired in the hospital or in the community. Its spores
can live outside of the body for months and thus can be spread to other
patients in the absence of meticulous hand washing by care providers
and others who contact the infected patient.
We continue to receive strong support in favor of selecting CDAD as
an HAC. During the December 17, 2007 HAC and POA Listening Session,
representatives of consumers and purchasers advocated to include CDAD
as an HAC.
The evidence-based guidelines for CDAD prevention emphasize that
hand washing by staff and visitors and effective decontamination of
environmental surfaces prevent the spread of Clostridium difficile.
While we are seeking public comments on the applicability of each of
the statutory criteria to CDADs, we are particularly interested in
receiving comments on the degree of preventability of CDAD. Based on
the public comments we receive, we may select CDAD as an HAC.
j. Methicillin-Resistant Staphylococcus aureus (MRSA)

[[Page 23559]]

[GRAPHIC][TIFF OMITTED]TP30AP08.011

We discussed the special case of methicillin-resistant
Staphylococcus aureus (MRSA) in the FY 2008 IPPS final rule with
comment period (72 FR 47212). In October 2007, the CDC published in the
Journal of the American Medical Association an article citing high
mortality rates from MRSA, an antibiotic-resistant ``superbug.'' The
article estimates 19,000 people died from MRSA infections in the United
States in 2005. The majority of invasive MRSA cases are health care-
related--contracted in hospitals or nursing homes--though community-
acquired MRSA also poses a significant public health concern. Hospitals
have been focused for years on controlling MRSA through the application
of CDC's evidence-based guidelines outlining best practices for
combating the bacterium in that setting.
MRSA is currently addressed by the HAC payment provision. For every
infectious condition selected, MRSA could be the etiology of that
infection. For example, if MRSA were the cause of a vascular catheter-
associated infection (one of the eight conditions selected in the FY
2008 IPPS final rule with comment period), the HAC payment provision
would apply to that MRSA infection.
As we noted in the FY 2008 IPPS final rule with comment period,
colonization by MRSA is not a reasonably preventable HAC according to
the current evidence-based guidelines; therefore, MRSA does not meet
the reasonably preventable statutory criterion for an HAC. An estimated
32.4 percent of Americans are colonized with MRSA, which may reside in
the nose or on the skin of asymptomatic carriers.\11\ In addition, in
last year's final rule with comment period, we noted that there is no
CC/MCC code available for MRSA, and therefore it also does not meet the
codeable CC/MCC statutory criterion for an HAC. Only when MRSA causes
an infection does a codeable condition occur. However, we referenced
the possibility that new codes for MRSA were being considered by the
ICD-9-CM Coordination and Maintenance Committee. The creation of unique
codes to capture MRSA was discussed during the March 19-20, 2008
Committee meeting. While these codes will enhance the data available
and our understanding of MRSA, the availability and use of these codes
will not change the fact that the mere presence of MRSA as a colonizing
bacterium does not constitute an HAC.
---------------------------------------------------------------------------

\11\ Kuehnert, M.J., et al.: Prevalence of Staphylococcusa
aureus Nasal Colonization in the United States, 2001-2002. The
Journal of Infectious Disease, January 15, 2006; Vol. 193.
---------------------------------------------------------------------------

Because MRSA as a bacterium does not meet two of our statutory
criteria, codeable CC/MCC and reasonably preventable through evidence-
based guidelines, we are not proposing MRSA as an HAC. However, we
recognize the significant public health concerns that were raised by
representatives of consumers and purchasers at the HAC and POA
Listening Session, and we are committed to reducing the spread of
multi-drug resistant organisms, such as MRSA.
In addition, we are pursuing collaborative efforts with other HHS
agencies to combat MRSA. The Agency for Healthcare Research and Quality
(AHRQ) has launched a new initiative in collaboration with CDC and CMS
to identify and suppress the spread of MRSA and related infections. In
support of this work, Congress has appropriated $5 million to fund
research, implementation, management, and evaluation practices that
mitigate such infections.
CDC has carried out extensive research on the epidemiology of MRSA
and effective techniques that could be used to treat the infection and
reduce its spread. The following Web sites contain information that
reflect CDC's commitment: (1) http://www.cdc.gov/ncidod/dhqp/ar_mrsa.html (health care-associated MRSA); (2) http://www.cdc.gov/ncidod/dhqp/ar_mrsa_ca_public.html (community-acquired MRSA); (3) http://www.cdc.gov/mmwr/preview/mmwrhtml/mm4908a1.htm; and (4) http://www.cdc.gov/handhygiene/.
AHRQ has made previous investments in systems research to help
monitor MRSA and related infections in hospital settings, as reflected
in material on the Web site at: http://www.guideline.gov/browse/guideline_index.aspx and http://www.ahrq.gov/clinic/ptsafety/pdf/ptsafety.pdf.
8. Present on Admission (POA) Indicator Reporting
POA indicator information is necessary to identify which conditions
were acquired during hospitalization for the HAC payment provision and
for broader public health uses of Medicare data. Through Change Request
No. 5679 (released June 20, 2007), CMS issued instructions requiring
IPPS hospitals to submit the POA indicator data for all diagnosis codes
on Medicare claims. Specific instructions on how to select the correct
POA indicator for each diagnosis code are included in the ICD-9-CM
Official Guidelines for Coding and Reporting, available at the Web
site: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/icdguide07.pdf
(POA

[[Page 23560]]

reporting guidelines begin on page 92). Additional instructions,
including information regarding CMS's phased implementation of POA
indicator reporting and application of the POA reporting options, are
available at the Web site: http://www.cms.hhs.gov/HospitalAcqCond.
There are five POA indicator reporting options: ``Y,'' ``N,''
``W,'' ``U,'' and ``1.'' Under the HAC payment provision, we are
proposing to pay the CC/MCC MS-DRGs only for those HACs coded as ``Y''
and ``W'' indicators. The ``Y'' option indicates that the condition was
present on admission. The ``W'' indicator affirms that the provider has
determined, based on data and clinical judgment, that it is not
possible to document when the onset of the condition occurred. We
expect that this approach will encourage better documentation and
promote the public health goals of POA reporting by providing more
accurate data about the occurrence of HACs in the Medicare population.
We anticipate that true clinical uncertainty will occur in only a very
small number of cases. We plan to analyze how frequently the ``W''
indicator is used, and we leave open the possibility of proposing in
future IPPS rulemaking not paying the CC/MCC MS-DRGs for HACs coded
with the ``W'' indicator. In addition, we plan to analyze whether both
the ``Y'' and ``W'' indicators are being used appropriately. Medicare
program integrity initiatives closely monitor for inaccurate coding and
coding that is inconsistent with medical record documentation. We are
seeking public comments regarding the proposed treatment of the ``Y''
and ``W'' POA reporting options under the HAC payment provision.
We are proposing to not pay the CC/MMC MS-DRGs for HACs coded with
the ``N'' indicator. The ``N'' option indicates that the condition was
not present on admission. We are also proposing to not pay the CC/MCC
MS-DRGs for HACs coded with the ``U'' indicator. The ``U'' option
indicates that the medical record documentation is insufficient to
determine whether the condition was present at the time of admission.
Not paying for the CC/MCC MS-DRGs for HACs that are coded with the
``U'' indicator is expected to foster better medical record
documentation.
Although we are proposing not paying the CC/MCC MS-DRG for HACs
coded with the ``U'' indicator, we do recognize there may be some
exceptional circumstances under which payment might be made. Death,
elopement (leaving against medical advice), and transfers out of a
hospital may preclude making an informed determination of whether an
HAC was present on admission. We are seeking public comments on the
potential use of the following current patient discharge status codes
to identify the exceptional circumstances:

Patient Discharge Status Codes
------------------------------------------------------------------------
Form locator code Code descriptor
------------------------------------------------------------------------
Exception for Patient Death
------------------------------------------------------------------------
20.................................... Expired.
------------------------------------------------------------------------
Exception for Patient Elopement (Leaving Against Medical Device)
------------------------------------------------------------------------
7..................................... Left against medical advice or
discontinued care.
------------------------------------------------------------------------
Exception for Transfer
------------------------------------------------------------------------
02.................................... Discharged/transferred to a
short-term general hospital for
inpatient care.
03.................................... Discharged/transferred to a
skilled nursing facility (SNF)
with Medicare certification in
anticipation of skilled care.
04.................................... Discharged/transferred to an
intermediate care facility
(ICF).
05.................................... Discharged/transferred to a
designated cancer center or
children's hospital.
06.................................... Discharged/transferred to home
under care of organized home
health service organization.
43.................................... Discharged/transferred to a
Federal health care facility.
50.................................... Hospice-home.
51.................................... Hospice-medical facility
(certified) providing hospice
level of care.
61.................................... Discharged/transferred to a
hospital-based Medicare
approved swing bed.
62.................................... Discharged/transferred to an
inpatient rehabilitation
facility (IRF) including
rehabilitation distinct part
units of a hospital.
63.................................... Discharged/transferred to a
Medicare certified long term
care hospital (LTCH).
64.................................... Discharged/transferred to a
nursing facility certified
under Medicaid but not
certified under Medicare.
65.................................... Discharged/transferred to a
psychiatric hospital or
psychiatric distinct part unit
of a hospital.
66.................................... Discharged/transferred to a
critical access hospital (CAH).
70.................................... Discharged/transferred to
another type of health care
institution not otherwise
defined in this code list.
------------------------------------------------------------------------

We plan to analyze whether both the ``N'' and ``U'' POA reporting
options are being used appropriately. The American Health Information
Management Association (AHIMA) has promulgated Standards of Ethical
Coding that require accurate coding regardless of the payment
implications of the diagnoses. That is, diagnoses must be reported
accurately regardless of their effect on payment. Medicare program
integrity initiatives closely monitor for inaccurate coding and coding
inconsistent with medical record documentation. We are seeking public
comments regarding the proposal to not pay the CC/MCC MS-DRGs for HACs
coded with ``N'' and ``U'' indicators.
9. Enhancement and Future Issues
The preventable HAC payment provision is one of CMS' VBP
initiatives, as noted earlier in this section. VBP ties payment to
performance through the use of incentives based on quality measures and
cost of care. The implementation of VBP is rapidly transforming CMS
from being a passive payer of claims to an active purchaser of higher
quality, more efficient health care for Medicare beneficiaries. Other
VBP initiatives include hospital pay for reporting (the RHQDAPU program
discussed in section IV.B. of the preamble of this proposed rule),
physician pay for reporting (the Physician Quality Reporting
Initiative), home health pay for reporting, the Hospital VBP Plan
Report to Congress (discussed in section IV.C. of the preamble of this
proposed rule), and various VBP demonstration

[[Page 23561]]

programs across payment settings, including the Premier Hospital
Quality Incentive Demonstration and the Physician Group Practice
Demonstration.
The success of CMS' VBP initiatives depends in large part on the
validity of the performance measures and on the effectiveness of
incentives in driving desired changes in behavior that will result in
greater quality and efficiency. We are committed to enhancing the
Medicare VBP programs, in close collaboration with stakeholders, to
fulfill VBP's potential to promise of promoting higher value health
care for Medicare beneficiaries. It is in this spirit that we seek
public comment on enhancements to the preventable HACs payment policy
and to concomitant POA indicator reporting.
We welcome all public comments presenting ideas and models for
combating preventable HACs through the application of VBP principles.
To stimulate reflection and creativity, we present several options:
Risk adjustment could be applied to make the HAC payment
provision more precise.
Rates of HACs could be collected to obtain a more robust
longitudinal measure of a hospital's incidence of these conditions.
POA information could be used in various ways to decrease
the incidence of preventable HACs.
The adoption of ICD-10-PCS could facilitate more precise
identification of HACs.
The principle behind the HAC payment provision (Medicare
not paying more for preventable HACs) could be applied to Medicare
payments in settings of care other than the IPPS.
CMS is using authority other than the HAC payment
provision to address other events on the NQF's list of Serious
Reportable Adverse Events.
We note that we are not proposing new Medicare policy in this
Enhancements and Future Issues discussion, as some of these approaches
may require new statutory authority.
a. Risk Adjustment
To make the HAC payment provision more precise, the adjustments to
payment made when one of the selected HACs occurs during the
hospitalization could be further adjusted to account for patient-
specific risk factors. The expected occurrence of an HAC may be greater
or lesser depending on the health status of the patient, as reflected
by severity of illness, presence of comorbidities, or other factors.
Rather than not paying any additional amount for the complication, the
additional payment for the complication could range from zero for the
lowest risk patient to the full amount for the highest risk patient. An
option may be individualized adjustment for every hospitalization based
on the patient's unique characteristics, but state-of-the-art risk
adjustment currently precludes such individualized adjustment.
b. Rates of HACs
Given our limited capability at present for precise patient-level
risk adjustment, adding a consideration of risk to the criteria for
selecting HACs could be an alternative. If primarily high-risk patients
are acquiring a certain condition during hospitalization, that
condition could be considered a less-fit candidate for selection. Other
alternatives to precise individualized risk adjustment could be
adjustment for overall facility case mix or facility case-mix by
condition. At the highest level, national Medicare program data could
be used to make adjustments to the payment implications for the
selected HACs based on expected rates of complications. Another option
could be to designate certain patient risk factors as exemptions that
would prohibit or mitigate the application of the HAC payment policy to
the claims of patients with those risk factors.
The Medicare Hospital VBP Plan was submitted in a Report to
Congress on November 21, 2007. The plan includes a performance
assessment model that scores a hospital's attainment or improvement on
various measures. The scores for each measure would be summed within
each domain, such as the clinical process of care domain or the patient
experience domain, and then the domains would be weighted and summed to
yield a total performance score. The total performance score would then
be translated into an incentive payment, proposed to be a certain
percentage of each MS-DRG payment, using an exchange function. The plan
also calls for public reporting of hospitals' performance scores by
domain and in total. (Section IV.C. of this preamble included a related
discussion of the Hospital VBP Plan Report to Congress.)
In accordance with this hospital VBP model, a hospital's rates of
HACs could be included as a domain within each hospital's total
performance score. The measurement of rates over time could be a more
meaningful, actionable, and fair way to adjust a hospital's MS-DRG
payments for the incidence of HACs. The consequence of a higher
incidence of measured conditions would be a lower VBP incentive
payment. Public reporting of the measured rates of HACs would give
hospitals an additional, nonfinancial incentive to prevent occurrence
of the conditions to avoid lower public ratings.
c. Use of POA Information
Information obtained from hospitals' reporting of POA data could be
used in various ways to better understand and prevent the occurrence of
HACs. The POA information could be provided to health services
researchers to analyze factors that lead to HACs and disseminate the
best practices for prevention of HACs. At least two states, New York
and California, already collect POA data from their hospitals.
Comparison of the State POA data with the Medicare data could fill in
gaps in the databases and yield valuable insights about POA data
validity.
POA data could also be used to calculate the incidence of HACs by
hospital. This application of the POA data would be particularly
powerful if the Medicare POA data were combined with state or private
sector payer POA data. The Medicare-only or combined quality of care
information could be initially shared with hospitals and thereafter
publicly reported to support better healthcare decision making by
Medicare beneficiaries, other health care consumers, professionals, and
caregivers.
d. Transition to ICD-10-PCS
Accurate identification of HACs requires unambiguous and precise
diagnosis codes. The current ICD-9-CM diagnosis coding system is three
decades old. It is outdated and contains numerous instances of broad
and vague codes. Attempts to add necessary detail to the ICD-9-CM
system are inhibited by lack of expansion capacity. These factors
negatively affect CMS' attempts to identify HAC cases.
ICD-10-PCS codes are more precise and capture information using
more current medical terminology. For example, ICD-9-CM codes for
pressure ulcers do not provide information about the size, depth, or
exact location of the ulcer, while ICD-10-PCS has 60 codes to capture
this information. ICD-10-PCS would also provide codes, beyond the
current ICD-9-CM codes, that would enable the selection of additional
surgical complications and adverse drug events.
e. Application of Nonpayment for HACs to Other Settings
The broad principle of Medicare not paying for preventable health
care-associated conditions could potentially be applied to Medicare
payment settings other than IPPS hospitals. Other

[[Page 23562]]

possible settings of care might include hospital outpatient
departments, SNFs, HHAs, end-stage renal disease facilities, and
physician practices. The implications would be different for each
setting, as each payment system is different and the reasonable
preventability through the application of evidence-based guidelines
would vary for candidate conditions over the different settings.
However, alignment of incentives across settings of care is an
important goal for all of CMS' VBP initiatives, including the HAC
provision.
A related application of the broad principle behind the HAC payment
could be accomplished through modification to the Medicare secondary
payer policy which would allow us to directly recoup from the provider
that failed to prevent the occurrence of a preventable condition in one
setting to pay for all or part of the necessary followup care in a
second setting. This would help shield the Medicare program from
inappropriately paying for the downstream effects of a preventable
condition acquired in the first setting but treated in the second
setting.
f. Relationship to NQF's Serious Reportable Adverse Events
CMS is applying its authority to address the events on the NQF's
list of Serious Reportable Adverse Events (also known as ``never
events''). In May 2006 testimony before the Senate Finance Committee,
the CMS Administrator noted that paying hospitals for serious
preventable events is contrary to the promise that hospital payments
should support higher quality and efficiency. There is growing
consensus that health care purchasers should not be paying for these
events when they occur during a hospitalization. In January 2005,
HealthPartners, a Minnesota-based not-for-profit HMO, announced that it
would no longer reimburse hospitals for services associated with events
enumerated in the Minnesota Adverse Health Care Events Reporting Act
(essentially the NQF's list of Serious Reportable Adverse Events).
Further, HealthPartners' contracts preclude hospitals from seeking
reimbursement from the patient for these costs. During 2007, several
State hospital associations adopted policies stating that their members
will not bill payers or patients when these events occur in their
hospitals.
In the FY 2008 IPPS final rule with comment period, we adopted
several items from the NQF's list of events as HACs, including retained
foreign object after surgery, air embolism, blood incompatibility,
stage III and IV pressure ulcers, falls, electric shock, and burns. In
this proposed rule, we are seeking public comments regarding adding
hypoglycemic coma, which is closely related to NQF's listing of death
or serious disability associated with hypoglycemia. However, as we
discussed in the FY 2008 IPPS final rule with comment period, the HAC
payment provision is not ideally suited to address every condition on
the NQF's list of Serious Reportable Adverse Events. To address the
events on the NQF's list beyond the effect of the HAC policy, CMS is
exploring the application of Medicare authority, including other
payment provisions, coverage policy, conditions of participation, and
Quality Improvement Organization (QIO) retrospective review.
We note that we are not proposing new Medicare policy in this
discussion of the HAC payment provision for IPPS hospitals, as some of
these approaches may require new statutory authority. We are seeking
public comments on these and other options for enhancing the
preventable HACs payment provision and maximizing the use of POA
indicator reporting data. We look forward to working with stakeholders
in the fight against HACs.

G. Proposed Changes to Specific MS-DRG Classifications

1. Pre-MDCs: Artificial Heart Devices
Heart failure affects more than 5 million patients in the United
States with 550,000 new cases each year, and causes more than 55,000
deaths annually. It is a progressive disease that is medically managed
at all stages, but over time leads to continued deterioration of the
heart's ability to pump sufficient amounts of adequately oxygenated
blood throughout the body. When medical management becomes inadequate
to continue to support the patient, the patient's heart failure would
be considered to be the end stage of the disease. At this point, the
only remaining treatment options are a heart transplant or mechanical
circulatory support. A device termed an artificial heart has been used
only for severe failure of both the right and left ventricles, also
known as biventricular failure. Relatively small numbers of patients
suffer from biventricular failure, but the exact numbers are unknown.
There are about 4,000 patients approved and waiting to receive heart
transplants in the United States at any given time, but only about
2,000 hearts per year are transplanted due to a scarcity of donated
organs. There are a number of mechanical devices that may be used to
support the ventricles of a failing heart on either a temporary or
permanent basis. When it is apparent that a patient will require long-
term support, a ventricular support device is generally implanted and
may be considered either as a bridge to recovery or a bridge to
transplantation. Sometimes a patient's prognosis is uncertain, and with
device support the native heart may recover its function. However when
recovery is not likely, the patient may qualify as a transplant
candidate and require mechanical circulatory support until a donor
heart becomes available. This type of support is commonly supplied by
ventricular assist devices, (VADs), which are surgically attached to
the native ventricles but do not replace them.
Devices commonly called artificial hearts are biventricular heart
replacement systems that differ from VADs in that a substantial part of
the native heart, including both ventricles, is removed. When the heart
remains intact, it remains possible for the native heart to recover its
function after being assisted by a VAD. However, because the artificial
heart device requires the resection of the ventricles, the native heart
is no longer intact and such recovery is not possible. The designation
``artificial heart'' is somewhat of a misnomer because some portion of
the native heart remains and there is no current mechanical device that
fully replaces all four chambers of the heart. Over time, better
descriptive language for these devices may be adopted.
In 1986, CMS made a determination that the use of artificial hearts
was not covered under the Medicare program. To conform to that
decision, we placed ICD-9-CM procedure code 37.52 (Implantation of
total replacement heart system) on the GROUPER program's MCE in the
noncovered procedure list.
On August 1, 2007, CMS began a national coverage determination
process for artificial hearts. SynCardia Systems, Inc. submitted a
request for reconsideration of the longstanding noncoverage policy when
its device, the CardioWest Temporary Total Artificial Heart (TAH-t)
System, is used for ``bridge to transplantation'' in accordance with
the FDA-labeled indication for the device. ``Bridge to
transplantation'' is a phrase meaning that a patient in end-stage heart
failure may qualify as a heart transplant candidate, but will require
mechanical circulatory support until a donor heart becomes available.
The CardioWest TAH-t System is indicated for use as a bridge to
transplantation in cardiac transplant-eligible candidates at risk of
imminent death from biventricular

[[Page 23563]]

failure. The system is intended for use inside the hospital as the
patient awaits a donor heart. The ultimate desired outcome for
insertion of the TAH-t is a successful heart transplant, along with the
potential that offers for cure from heart failure.
CMS determined that a broader analysis of artificial heart coverage
was deemed appropriate, as another manufacturer, Abiomed, Inc. has
developed an artificial heart device, AbioCor[reg] Implantable
Replacement Heart Device, with different indications. SynCardia
Systems, Inc has received approval of its device from the FDA for
humanitarian use as destination therapy for patients in end-stage
biventricular failure who cannot qualify as transplant candidates. The
AbioCor[reg] Implantable Replacement Heart Device is indicated for use
in severe biventricular end-stage heart disease patients who are not
cardiac transplant candidates and who are less than 75 years old, who
require multiple inotropic support, who are not treatable by VAD
destination therapy, and who cannot be weaned from biventricular
support if they are on such support. The desired outcome for this
device is prolongation of life and discharge to home.
On February 1, 2008, CMS published a proposed coverage decision
memorandum for artificial hearts which stated, in part, that while the
evidence is inadequate to conclude that the use of an artificial heart
is reasonable and necessary for Medicare beneficiaries, the evidence is
promising for the uses of artificial heart devices as described above.
CMS supports additional research for these devices, and therefore
proposed that the artificial heart will be covered by Medicare when
performed under the auspices of a clinical study. The study must meet
all of the criteria listed in the proposed decision memorandum. This
proposed coverage decision memorandum may be found on the CMS Web site
at: http://www.cms.hhs.gov/mcd/viewdraftdecisionmemo.asp?id=211.
Following consideration of the public comments received, CMS expects to
make a final decision on or about May 1, 2008.
The topic of coding of artificial heart devices was discussed at
the September 27-28, 2007 ICD-9-CM Coordination and Maintenance
Committee meeting held at CMS in Baltimore, MD. We note that this topic
was placed on the Committee's agenda because any proposed changes to
the ICD-9-CM coding system must be discussed at a Committee meeting,
with opportunity for comment from the public. At the September 2007
Committee meeting, the Committee accepted oral comments from
participants and encouraged attendees or anyone with an interest in the
topic to comment on proposed changes to the code, inclusion terms, or
exclusion terms. We accepted written comments until October 12, 2007.
As a result of discussion and comment from the Committee meeting, the
Committee revised the title of procedure code 37.52 for artificial
hearts to read ``Implantation of internal biventricular heart
replacement system.'' In addition, the Committee created new code 37.55
(Removal of internal biventricular heart replacement system) to
identify explantation of the artificial heart prior to heart
transplantation.
To make conforming changes to the IPPS system with regard to the
proposed revision to the coverage decision for artificial hearts, in
this proposed rule, we are proposing to remove procedure code 37.52
from MS-DRG 215 (Other Heart Assist System Implant) and assign it to
MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with
Major Comorbidity or Complication (MCC)) and MS-DRG 002 (Heart
Transplant or Implant of Heart Assist System without Major Comorbidity
or Complication (MCC)). In addition, we are proposing to remove
procedure code 37.52 from the MCE ``Non-Covered Procedure'' edit and
assign it to the ``Limited Coverage'' edit. We are proposing to include
in this proposed edit the requirement that ICD-9-CM diagnosis code
V70.7 (Examination of participant in clinical trial) also be present on
the claim. We are proposing that claims submitted without both
procedure code 37.52 and diagnosis code V70.7 would be denied because
they would not be in compliance with the proposed coverage policy.
During FY 2008, we are making mid-year changes to portions of the
GROUPER program that do not affect MS-DRG assignment or ICD-9-CM
coding. However, as the proposed coverage decision memorandum for
artificial hearts was published after the CMS contractor's testing and
release of the mid-year product, the above proposed changes to the MCE
will not be included in that revision of the GROUPER Version 25.0.
GROUPER Version 26.0, which will be in use for FY 2009, will contain
the proposed changes if they are approved. If the proposed revisions to
the MCE are accepted, the edits in the MCE Version 25.0 will be
effective retroactive to May 1, 2008. (To reduce confusion, we note
that the version number of the MCE is one digit lower than the current
GROUPER version number; that is, Version 26.0 of the GROUPER uses
Version 25.0 of the MCE.)
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator
(tPA)
In 1996, the FDA approved the use of tissue plasminogen activator
(tPA), one type of thrombolytic agent that dissolves blood clots. In
1998, the ICD-9-CM Coordination and Maintenance Committee created code
99.10 (Injection or infusion of thrombolytic agent) in order to be able
to uniquely identify the administration of these agents. Studies have
shown that tPA can be effective in reducing the amount of damage the
brain sustains during an ischemic stroke, which is caused by blood
clots that block blood flow to the brain. tPA is approved for patients
who have blood clots in the brain, but not for patients who have a
bleeding or hemorrhagic stroke. Thrombolytic therapy has been shown to
be most effective when used within the first 3 hours after the onset of
an embolic stroke, but it is contraindicated in hemorrhagic strokes.
For FY 2006, we modified the structure of CMS DRGs 14 (Intracranial
Hemorrhage or Cerebral Infarction) and 15 (Nonspecific CVA and
Precerebral Occlusion without Infarction) by removing the diagnostic
ischemic (embolic) stroke codes. We created a new CMS DRG 559 (Acute
Ischemic Stroke with Use of Thrombolytic Agent) which increased
reimbursement for patients who sustained an ischemic or embolic stroke
and who also had administration of tPA. The intent of this DRG was not
to award higher payment for a specific drug but to recognize the need
for better overall care for this group of patients. Even though tPA is
indicated only for a small proportion of stroke patients, that is,
those patients experiencing ischemic strokes treated within 3 hours of
the onset of symptoms, our data suggested that there was a sufficient
quantity of patients to support the DRG change. While our goal is to
make payment relate more closely to resource use, we also note that use
of tPA in a carefully selected patient population may lead to better
outcomes and overall care and may lessen the need for postacute care.
For FY 2008, with the adoption of MS-DRGs, CMS DRG 559 became MS-
DRGs 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with
MCC), 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with
CC), and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent
without CC/MCC). Stroke cases in which no thrombolytic

[[Page 23564]]

agent was administered were grouped to MS-DRGs 064 (Intracranial
Hemorrhage or Cerebral Infarction with MCC), 065 (Intracranial
Hemorrhage or Cerebral Infarction with CC), or 066 (Intracranial
Hemorrhage or Cerebral Infarction without CC/MCC). The MS-DRGs that
reflect use of a thrombolytic agent, that is, MS-DRGs 061, 062, and
063, have higher relative weights than the hemorrhagic or cerebral
infarction MS-DRGs 064, 065, and 066.
The American Society of Interventional and Therapeutic
Neuroradiology (ASITN) has made us aware of a treatment issue that is
of concern to the stroke provider's community. In some instances,
patients suffering an embolytic or thrombolytic stroke are evaluated
and given tPA in a community hospital's emergency department, and then
are transferred to a larger facility's stroke center that is able to
provide the level of services required by the increased severity of
these cases. The facility providing the administration of tPA in its
emergency department does not realize increased reimbursement, as the
patient is often transferred as soon a possible to a stroke center. The
facility to which the patient is transferred does not realize increased
reimbursement, as the tPA was not administered there. The ASITN has
requested that CMS give permission to code the administration of tPA as
if it had been given in the receiving facility. This would result in
the receiving facility being paid the higher weighted MS-DRGs 061, 062,
or 063 instead of MS-DRGs 064, 065, or 066. The ASITN's rationale is
that the patients who received tPA in another facility (even though
administration of tPA may have alleviated some of the worst
consequences of their strokes) are still extremely compromised and
require increased health care services that are much more resource
consumptive than patients with less severe types of stroke. We have
advised the ASITN that hospitals may not report services that were not
performed in their facility.
We recognize that the ASITN's concerns potentially have merit but
the quantification of the increased resource consumption of these
patients is not currently possible in the existing ICD-9-CM coding
system. Without specific length of stay and average charges data, we
are unable to determine an appropriate MS-DRG for these cases.
Therefore, we have advised the ASITN to present a request at the
diagnostic portion of the ICD-9-CM Coordination and Maintenance
Committee meeting on March 20, 2008, for a code that would recognize
the fact that the patient had received a thrombolytic agent for
treatment of the current stroke. If this request is presented at the
March 20, 2008 meeting, it will not be approved in time to be published
as a final code in this proposed rule. However, if a diagnosis code is
created by the National Centers for Health Statistics as a result of
that meeting, it can be added to the list of codes published in the FY
2009 IPPS final rule that will go into effect on October 1, 2008. With
such information appearing on subsequent claims, we will have a better
idea of how to classify these cases within the MS-DRGs. Therefore,
because we lack the data to identify these patients, we are not
proposing an MS-DRG modification for the stroke patients receiving tPA
in one facility prior to being transferred to another facility.
b. Intractable Epilepsy With Video Electroencephalogram (EEG)
As we did for FY 2008, we received a request from an individual
representing the National Association of Epilepsy Centers to consider
further refinements to the MS-DRGs describing seizures. Specifically,
the representative recommended that a new MS-DRG be established for
patients with intractable epilepsy who receive an electroencephalogram
with video monitoring (vEEG) during their hospital stay. Similar to the
initial recommendation, the representative 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. 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.
Effective October 1, 2007, MS-DRG 100 (Seizures with MCC) and MS-
DRG 101 (Seizures without MCC) were implemented as a result of
refinements to the DRG system to better recognize severity of illness
and resource utilization. Once again, the representative applauded CMS
for making changes in the DRG structure to better recognize differences
in patient severity. However, the representative stated that a subset
of patients in MS-DRG 101 who have a primary diagnosis of intractable
epilepsy and are treated with vEEG are substantially more costly to
treat than other patients in this MS-DRG and represent the majority of
patients being evaluated by specialized epilepsy centers.
Alternatively, the representative stated that he was not requesting any
change in the structure of MS-DRG 100. According to the representative,
the number of cases that would fall into this category is not
significant. The representative further noted that this is a change
from last year's request.
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'' for without mention of intractable epilepsy.
``1'' for with intractable epilepsy.
With the assistance of an outside reviewer, the representative
analyzed cost data for MS-DRGs 100 and 101, which focused on three
subsets of patients identified with a primary diagnosis of epilepsy or
convulsions who also received vEEG (procedure code 89.19):
Patients with a primary diagnosis of epilepsy with
intractability specified (codes 345.01 through 345.91).
Patients with a primary diagnosis of epilepsy without
intractability specified (codes 345.00 through 345.90).
Patients with a primary diagnosis of convulsions (codes
780.39).
The representative acknowledged that the association did not
include any secondary diagnoses in its analyses. Based on its results,
the representative recommended that CMS further refine MS-DRG 101 by
subdividing cases with a primary diagnosis of intractable epilepsy
(codes 345.01 through 345.91) when vEEG (code 89.19) is also performed
into a separate MS-DRG that would be defined as ``MS-DRG XXX''
(Epilepsy Evaluation without MCC).
According to the representative, these cases are substantially more
costly than the other cases within MS-DRG 101 and are consistent with
the criteria for dividing MS-DRGs on the basis of CCs and MCCs. In
addition, the representative stated that the request would have a
minimal impact on most hospitals but would substantially improve the
accuracy of payment to hospitals specializing in epilepsy care.
We performed an analysis using FY 2007 MedPAR data. As shown in the
table below, we found a total of 54,060 cases in MS-DRG 101 with
average charges of $14,508 and an average length of stay of 3.69 days.
There were 879 cases with intractable epilepsy and vEEG with average
charges of $19,227 and an average length of stay of 5 days.

[[Page 23565]]

In applying the criteria to establish subgroups, the data do not
support the creation of a new subdivision for MS-DRG 101 for cases with
intractable epilepsy and vEEG nor does the data support moving the 879
cases from MS-DRG 101 to MS-DRG 100. Moving the 879 cases to MS-DRG 100
would mean moving cases with average charges of approximately $19,000
into an MS-DRG with average charges of $28,000. Therefore, we are not
proposing to refine MS-DRG 101 by subdividing cases with a primary
diagnosis of intractable epilepsy (codes 345.01 through 345.91) when
vEEG (code 89.19) is also performed into a separate MS-DRG.
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and
Generator Procedures
In the FY 2008 IPPS final rule with comment period (72 FR 47257),
we created a separate, stand alone DRG for automatic implantable
cardioverter-defibrillator (AICD) generator replacements and
defibrillator lead replacements. The new MS-DRG 245 (AICD lead and
generator procedures) 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.
Commenters on the FY 2008 IPPS proposed rule supported this new MS-
DRG, which recognizes the distinct differences in resource utilization
between pacemaker and defibrillator generators and leads, but suggested
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.
In response to the commenters, we indicated that the data supported
separate DRGs for these very different devices (72 FR 47257). We
indicated that moving the defibrillator leads back into a pacemaker MS-
DRG defeated the purpose of creating separate MS-DRGs for
defibrillators and pacemakers. Therefore, we finalized MS-DRG 245 as
proposed with the leads and generator codes listed above.
After publication of the FY 2008 IPPS final rule with comment
period, we received a request from a manufacturer that recommended a
subdivision for MS-DRG 245 (AICD Lead and Generator Procedures). The
requestor suggested creating a new MS-DRG to separate the implantation
or replacement of the AICD leads from the implantation or replacement
of the AICD pulse generators to better recognize the differences in
resource utilization for these distinct procedures.
The requestor applauded CMS' decision to create separate MS-DRGs
for the pacemaker device procedures from the AICD procedures in the FY
2008 IPPS final rule (72 FR 47257). The requestor further acknowledged
its support of the clinically distinct MS-DRGs for pacemaker devices.
Currently, MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement
with MCC and without MCC, respectively) describe the implantation or
replacement of pacemaker generators while MS-DRGs 260, 261, and 262
(Cardiac Pacemaker Revision Except Device Replacement with MCC, with
CC, without CC/MCC, respectively) describe the insertion or replacement
of pacemaker leads.
The requestor believed that the IPPS ``needs to continue to evolve
to accurately reflect clinical differences and costs of services.'' As
such, the requestor recommended that CMS follow the same structure as
it did with the pacemaker MS-DRGs for MS-DRG 245 to separately identify
the implantation or replacement of the defibrillator leads (codes
37.95, 37.97, and 00.52) from the implantation or replacement of the
pulse generators (codes 37.96, 37.98, 00.54).
In our analysis of the FY 2007 MedPAR data, we found a total of
5,546 cases in MS-DRG 245 with average charges of $62,631 and an
average length of stay of 3.3 days. We found 1,894 cases with
implantation or replacement of the defibrillator leads (codes 37.95,
37.97, and 00.52) with average charges of $42, 896 and an average
length of stay of 3.4 days. We also found a total of 3,652 cases with
implantation or replacement of the pulse generator (codes 37.96, 37.98,
00.54) with average charges of $72, 866 and an average length of stay
of 3.2 days.
We agree with the requestor that the IPPS should accurately
recognize differences in resource utilization for clinically distinct
procedures. As the data demonstrate, average charges for the
implantation or replacement of the AICD pulse generators are
significantly higher than for the implantation or replacement of the
AICD leads. Therefore, we are proposing to create a new MS-DRG 265 to
separately identify these distinct procedures. The proposed new MS-DRG
265 would be titled ``AICD Lead Procedures'' and would include
procedure codes that identify the AICD leads (codes 37.95, 37.97 and
00.52). The title for MS-DRG 245 would be revised to ``AICD Generator
Procedures'' and include procedure codes 37.96, 37.98, 00.54. We
believe these changes would better reflect the clinical differences and
resources utilized for these distinct procedures.

[[Page 23566]]

b. Left Atrial Appendage Device
Atrial fibrillation (AF) is the primary cardiac abnormality
associated with ischemic or embolytic stroke. Most ischemic strokes
associated with AF are possibly due to an embolism or thrombus that has
formed in the left atrial appendage. Evidence from studies such as
transesophageal echocardiography shows left atrial thrombi to be more
frequent in AF patients with ischemic stroke as compared to AF patients
without stroke. While anticoagulation medication can be efficient in
ischemic stroke prevention, there can be problems of safety and
tolerability in many patients, especially those older than 75 years.
Chronic warfarin therapy has been proven to reduce the risk of embolism
but there can be difficulties concerning its administration. Frequent
blood tests to monitor warfarin INR are required at some cost and
patient inconvenience. In addition, because warfarin INR is affected by
a large number of drug and dietary interactions, it can be
unpredictable in some patients and difficult to manage. The efficacy of
aspirin for stroke prevention in AF patients is less clear and remains
controversial. With the known disutility of warfarin and the
questionable effectiveness of aspirin, a device-based solution may
provide added protection against thromboembolism in certain patients
with AF.
At the April 1, 2004 ICD-9-CM Coordination and Maintenance
Committee meeting, a proposal was presented for the creation of a
unique procedure code describing insertion of the left atrial appendage
filter system. Subsequently, ICD-9-CM code 37.90 (Insertion of left
atrial appendage device) was created for use beginning October 1, 2004.
This code was designated as a non-operating room (non-O.R.) procedure,
and had an effect only on cases in MDC 5, CMS DRG 518 (Percutaneous
Cardiovascular Procedure without Coronary Artery Stent or Acute
Myocardial Infarction). With the adoption of MS-DRGs in FY 2008, CMS
DRG 518 was divided into MS-DRGs 250 and 251 (Percutaneous
Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC,
and without MCC, respectively).
We have reviewed the data concerning this procedure code annually.
Using FY 2005 MedPAR data for the FY 2007 IPPS final rule, 24 cases
were reported, and the average charges ($27,620) closely mimicked the
average charges of the other 22,479 cases in CMS DRG 518 ($28,444). As
the charges were comparable, we made no recommendations to change the
CMS DRG assignment for FY 2007.
Using FY 2006 MedPAR data for the FY 2008 final rule with comment
period, we divided CMS DRG 518 into the cases that would be reflected
in the MS-DRG configuration; that is, we divided the cases based on the
presence or absence of an MCC. There were 35 cases without an MCC with
average charges of $24,436, again mimicking the 38,002 cases with
average charges of $32,546. There were 3 cases with MCC with average
charges of $62,337, compared to the 5,458 cases also with an MCC with
average charges of $53,864. Again it was deemed that cases with code
37.90 were comparable to the rest of the cases in CMS DRG 518, and the
decision was made not to make any changes in the DRG assignment for
this procedure code. As noted above, CMS DRG 518 became MS-DRGs 250 and
251 in FY 2008.
We have received a request regarding code 37.90, and its placement
within the MS-DRG system for FY 2009. The requestor asked for either
the reassignment of code 37.90 to an MS-DRG that would adequately cover
the costs associated with the complete procedure or the creation of a
new MS-DRG that would reimburse hospitals adequately for the cost of
the device. The requestor, a manufacturer's representative, reported
that the device's IDE clinical trial is nearing completion, with the
conclusion of study enrollment in May 2008. The requestor will continue
to enroll patients in a Continued Use Registry following completion of
the trial. The requestor reported that it did not charge hospitals for
the atrial appendage device, estimated to cost $6,000, during the trial
period, but it will begin to charge hospitals upon the completion of
the trial in May. The requestor provided us with its data showing what
it believed to be a differential of $107 more per case than the payment
average for MS-DRG 250, and a shortfall of $3,808 per case than the
payment average for MS-DRG 251.
The requestor pointed out that code 37.90 is assigned to both MS-
DRGs 250 and 251, but stated that the final MS-DRG assignment would be
MS-DRG 251 when the patient has a principal diagnosis of atrial
fibrillation (code 427.31) because AF is not presently listed as a CC
or an MCC. We would take this opportunity to note that the principal
diagnosis is used to determine assignment of a case to the correct MDC.
Secondary or additional diagnosis codes are the only codes that can be
used to determine the presence of a CC or an MCC.
With regard to the request to create a specific DRG for the
insertion of this device entitled ``Percutaneous Cardiovascular
Procedures with Implantation of a Left Atrial Appendage Device without
CC/MCC'', we would point out that the payments under a prospective
payment system are predicated on averages. The device is already
assigned to MS-DRGs containing other percutaneous cardiovascular
devices; to create a new MS-DRG specific to this device would be to
remove all other percutaneously inserted devices and base the MS-DRG
assignment solely on the presence of code 37.90. This approach negates
our longstanding method of grouping like procedures, and removes the
concept of averaging. Further, to ignore the structure of the MS-DRG
system solely for the purpose of increasing payment for one device
would set an unwelcome precedent for defining all of the other MS-DRGs
in the system. We would also point out that the final rule establishing
the MS-DRGs set forth five criteria, all five of which are required to
be met, in order to warrant creation of a CC or an MCC subgroup within
a base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule
with comment period (72 FR 47169). One of the criteria specifies that
there will be at least 500 cases in the CC or MCC subgroup. To date,
there are not enough cases of code 37.90 reported within the MedPAR
data.
Using FY 2007 MedPAR data, for this FY 2009 IPPS proposed rule, we
reviewed MS-DRGs 250 and 251 for the presence of the left atrial
appendage device. The following table displays our results:

[[Page 23567]]

251--Cases with code 37.90........................ 101 1.30 20,846.09
251--Cases without code 37.90..................... 39,335 2.85 35,757.98
----------------------------------------------------------------------------------------------------------------

There were a total of 105 cases with code 37.90 reported for
Medicare beneficiaries in the 2007 MedPAR data. There are 4 cases with
an atrial appendage device in MS-DRG 250 that have higher average
charges than the other 6,420 cases in the MS-DRG, and that have
slightly shorter lengths of stay by 1.25 days. However, the more
telling data are located in MS-DRG 251, which shows that the 101 cases
in which an atrial appendage device was implanted have much lower
average charges ($20,846.09) than the other 39,355 cases in the MS-DRG,
with average charges of $35,758.98. The difference in the average
charges is approximately $14,912, so even when the manufacturer begins
charging the hospitals the estimated $6,000 for the device, there is
still a difference of approximately $8,912 in average charges based on
the comparison within the total MS-DRG 251. Interestingly, the 101
cases also have an average length of stay of less than half of the
average length of stay compared to the other cases assigned to that MS-
DRG.
Because the data do not support either the creation of a unique MS-
DRG or the assignment of procedure code 37.90 to another higher-
weighted MS-DRG, we are not proposing any change to MS-DRGs 250 and
251, or to code 37.90 for FY 2009. We believe, based on the past 3
year's comparisons, that this code is appropriately located within the
MS-DRG structure.
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue): Hip and Knee Replacements and Revisions
For FY 2009, we again received a request from the American
Association of Hip and Knee Surgeons (AAHKS), a specialty group within
the American Academy of Orthopedic Surgeons (AAOS), concerning
modifications of the lower joint procedure MS-DRGs. The request is
similar, in some respects, to the AAHKS's request in FY 2008,
particularly as it relates to separating routine and complex
procedures. For the benefit of the reader, we are republishing a
history of the development of DRGs for hip and knee replacements and a
summary of the AAHKS FY 2008 request that were included in the FY 2008
IPPS final rule with comment period (72 FR 47222 through 47224) before
we discuss the AAHKS's more recent request.
a. Brief History of Development of Hip and Knee Replacement Codes
In the FY 2006 IPPS final rule (70 FR 47303), we deleted CMS DRG
209 (Major Joint and Limb Reattachment Procedures of Lower Extremity)
and created two new CMS DRGs: 544 (Major Joint Replacement or
Reattachment of Lower Extremity) and 545 (Revision of Hip or Knee
Replacement). The two new CMS DRGs were created because revisions of
joint replacement procedures are significantly more resource intensive
than original hip and knee replacements procedures. CMS DRG 544
included the following procedure code assignments:
81.51, Total hip replacement.
81.52, Partial hip replacement.
81.54, Total knee replacement.
81.56, Total ankle replacement.
84.26, Foot reattachment.
84.27, Lower leg or ankle reattachment.
84.28, Thigh reattachment.
CMS DRG 545 included 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 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 CMS DRGs to determine if future additional DRG modifications are
needed.
b. Prior Recommendations of the AAHKS
Prior to this year, the AAHKS had recommended that we make further
refinements to the CMS DRGs for knee and hip arthroplasty procedures.
The AAHKS previously presented data to CMS on the important differences
in clinical characteristics and resource utilization between primary
and revision total joint arthroplasty procedures. The AAHKS stated that
CMS's 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. The 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.
The 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, the
AAHKS recommended that CMS examine Medicare claims data and consider
the creation of separate DRGs for total hip and total knee arthroplasty
procedures. The AAHKS stated that based on the differences between
patient

[[Page 23568]]

characteristics, procedure characteristics, resource utilization, and
procedure code payment rates between total hip and total knee
replacements, separate DRGs were warranted. Furthermore, the 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 head 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.
The AAHKS also recommended the continuation of CMS DRG 471
(Bilateral or Multiple Major Joint Procedures of Lower Extremity)
without modifications. CMS DRG 471 included 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.
c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and
AAHKS's Recommendations
In the FY 2008 IPPS final rule with comment period (72 FR 47222
through 47226), we adopted MS-DRGs to better recognize severity of
illness for FY 2008. The MS-DRGs include two new severity of illness
levels under the then current base DRG 544. We also added three new
severity of illness levels to the base DRG for Revision of Hip or Knee
Replacement. 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)
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. In the final rule, we
presented data indicating the average charges for each new MS-DRG for
the joint procedures.
In the FY 2008 IPPS final rule with comment period, 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. Commenters on the FY 2008 proposed
rule had encouraged CMS to continue working with the orthopedic
community, including the AAHKS, to monitor the need for additional new
DRGs. The commenters stated that 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. 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 had proposed three severity levels for
revision of hip and knee replacement (MS-DRGs 466, 467, and 468), and
AAHKS agreed with this 3-level subdivision.)
The AAHKS 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. AAHKS 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. AAHKS
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. It recommended
that the existing five criteria be modified for low volume subgroups to
assure materiality. For higher volume MS-DRG subgroups, the AAHKS
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 AAHKS 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:
[supsqu] At least $1,000 cost difference per case between
subgroups; or
[supsqu] At least $1 million overall cost should be shifted to
cases with a CC (or MCC) within the base DRG for payment weight
calculations.

[[Page 23569]]

In response, we indicated that we did not believe it was
appropriate to modify our five criteria for creating severity
subgroups. Our data did not support creating additional subdivisions
based on the criteria. At that time, we believed the criteria we
established to create subdivisions within a base DRG were 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 indicated that
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.
The AAHKS indicated in its response to the FY 2008 proposed rule
that it continued to support the separation of routine and complex
joint procedures. It believed that certain joint replacement procedures
have significantly lower average charges than do other joint
replacements. The AAKHS's data suggest that more routine joint
replacements are associated with substantially less resource
utilization than other more complex revision procedures. The AAHKS
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.
In 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 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. We found that 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).
Given the very similar resource requirements of MS-DRG 485 and the
fact that these DRGs also contain knee procedures, we moved 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 also indicated that we would continue to monitor
the revision DRGs to determine if additional modifications are needed.
d. AAHKS' Recommendations for FY 2009
The AAHKS' current request involves the following recommendations:
That CMS consolidate and reassign certain joint procedures
that have a diagnosis of an infection or malignancy into MS-DRGs that
are similar in terms of clinical characteristics and resource
utilization. The AAKHS further identifies groups called Stage 1 and 2
procedures that it believes require significant differences in resource
utilization.
That CMS reclassify certain specific joint procedures,
which AAHKS refers to as ``routine,'' out of their current MS-DRG
assignments. The three joint procedures that AAHKS classifies as
``routine'' are codes 00.73 (Revision of hip replacement, acetabular
liner and/or femoral head only), 00.83 (Revision of knee replacement,
patellar component), and 00.84 (Revision of total knee replacement,
tibial insert (liner)). The AAHKS advocated removing these three
``routine'' procedures from the following DRGs: MS-DRGs 466, 467, and
468, MS-DRGs 485, 486, and 487, and MS-DRGs 488 and 489. The AAHKS
refers to MS-DRGs 466, 467, and 468 as ``complex'' revision DRGs, and
recommended that the three ``routine'' procedures be moved out of MS-
DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 489 and into MS-DRGs
469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity
with and without MCC, respectively). The AAHKS contended that the three
``routine'' procedures have similar clinical characteristics and
resource utilization to those in MS-DRGs 469.
The recommendations suggested by AAHKS are quite complex and
involve a number of specific code lists and MS-DRG assignment changes.
We discuss each of these requests in detail below.
(1) AAHKS Recommendation 1: Consolidate and reassign patients with
hip and knee prosthesis related infections or malignancies.
The AAHKS pointed out that deep infection is one of the most
devastating complications associated with hip and knee replacements.
These infections have been reported to occur in approximately 0.5
percent to 3 percent of primary and 4 percent to 6 percent of revision
total joint replacement procedures. These infections often result in
the need for multiple reoperations, prolonged use of intravenous and
oral antibiotics, extended inpatient and outpatient rehabilitation, and
frequent followup visits. Furthermore, clinical outcomes following
single- and two-stage revision total joint arthroplasty procedures have
been less favorable than revision for other causes of failure not
associated with infection.
In addition to the clinical impact, the AAHKS stated that infected
total joint replacement procedures also have substantial economic
implications for patients, payers, hospitals, physicians, and society
in terms of direct medical costs, resource utilization, and the
indirect costs associated with lost wages and productivity. The AAHKS
stated that the considerable resources required to care for these
patients has resulted in a strong financial disincentive for physicians
and hospitals to provide care for patients with infected total joint
replacements, an increased economic burden on the high volume tertiary
care referral centers where patients with infected hip replacement
procedures are frequently referred for definitive management. The AAHKS
further stated that, in some cases, there are compromised patient
outcomes due to treatment delays as patients with infected joint
replacements seek providers who are willing to care for them.
Once a deep infection of a total joint prosthesis is identified,
the first stage of treatment involves a hospital admission for removal
of the infected prosthesis and debridement of the involved bone and
surrounding tissue. During the same procedure, an antibiotic-
impregnated cement spacer is typically inserted to maintain alignment
of the limb during the course of antibiotic therapy. The patient is
then discharged to a rehabilitation facility/nursing home (or to home
if intravenous therapy can be safely arranged for the patient) for a 6-
week course of IV antibiotic treatment until the infection has cleared.
After the completion of antibiotic therapy, the hip or knee may be
reaspirated to look for evidence of persistent infection or eradication
of infection. A second stage procedure is then undertaken, where the
patient is readmitted, the hip or knee is reexplored, and the cement
spacer removed. If there are no signs of persistent infection, a hip or
knee prosthesis is reimplanted, often using bone graft and costly
revision implants in order to address extensive bone loss

[[Page 23570]]

and distorted anatomy. Thus, the entire course of treatment for
patients with infected joint replacements is 4 to 6 months, with an
additional 6 to 12 months of rehabilitation. Furthermore, clinical
outcomes following revision for infection are poor relative to outcomes
following revision for other, aseptic causes. The AAHKS noted that
patients with bone malignancy have a similar treatment focus--surgery
to remove diseased tissue, chemotherapy to treat the malignancy, and
implantation of the new prosthesis. They also have similar resource
use. For simplicity, the AAHKS' discussion focused on infected joint
prostheses, but it suggested that the issues it raises would apply to
patients with a malignancy as well.
The AAHKS stated that these patients are currently grouped in
multiple MS-DRGs, and the cases are often ``outliers'' in each one.
AAHKS proposed to consolidate these patients with similar clinical
characteristics and treatment into MS-DRGs reflective of their resource
utilization.
The AAHKS states that these more severe patients are currently
classified into the following MS-DRGs:
MS-DRGs 463, 463, and 465 (Wound Debridement and Skin
Graft Excluding Hand, for Musculoskeletal-Connective Tissue Disease
with MCC, with CC, without CC/MCC, respectively).
MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except
Major Joint with MCC, with CC, without CC/MCC, respectively).
MS-DRGs 485, 486, and 487 (Knee Procedures with Principal
Diagnosis of Infection and with MCC, with CC, and without CC/MCC,
respectively).
MS-DRGs 488 and 489 (Knee Procedures without Principal
Diagnosis of Infection and with CC/MCC and without CC/MCC,
respectively).
MS-DRGs 495, 496, and 497 (Local Excision and Removal of
Internal Fixation Devices Except Hip and Femur with MCC, with CC, and
without CC/MCC, respectively).
Other MS-DRGs (The AAHKS did not specify what these other
MS-DRGs were.).
The AAHKS indicated that cases with the severe diagnoses of
infections, neoplasms, and structural defects have similarities. These
similarities are due to an overlap of a severe diagnosis (including a
principal diagnosis of code 996.66 (Infected joint prosthesis) and the
resulting need for more extensive surgical procedures. The AAHKS stated
that currently these patients are grouped into MS-DRGs by major
procedure alone. AAHKS recommended that these cases be grouped into
what it refers to as Stages 1 and 2 as follows:
Stage 1 would include the removal of an infected
prosthesis and includes cases in MS-DRGs 463, 464, and 465, 480, 481,
and 482, 485 through 489, and 495, 496, and 497. Stage 1 joint
procedure codes would include codes 80.05 (Arthrotomy for removal of
prosthesis, hip), 80.06 (Arthrotomy for removal of prosthesis, knee),
00.73 (Revision of hip replacement, acetabular liner and/or femoral
head only), and 00.84 (Revision of knee replacement, tibial insert
(liner)).
Stage 2 would include the implant of a new prosthesis and
includes cases in MS-DRGs 461 and 462, 463, 464, and 465, 466, 467, and
468, and 469 and 470. Stage 2 joint procedure codes would include codes
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), 00.80 (Revision
of knee replacement, total (all components)), 00.81 (Revision of knee
replacement, tibial component), 00.82 (Revision of knee replacement,
femoral component), 00.85 (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 (Revise hip replacement), 81.54
(Total knee replacement), 81.55 (Revise knee replacement), and 81.56
(Total ankle replacement).
As stated earlier, the AAHKS recommended patients with certain more
severe diagnoses be grouped into a higher severity level. While most of
AAHKS' comments focused on joint replacement patients with infections,
the AAHKS also believed that patients with certain neoplasms require
greater resources. To this group of infections and neoplasms, the AAHKS
recommended the addition of four codes that capture acquired
deformities. The AAHKS believed that these codes would capture
admissions for the second stage of the treatment for an infected joint.
The AAHKS stated that the significance of these diagnoses when they are
reported as the principal code position was significant in predicting
resource utilization. However, the impact was not as significant when
the diagnosis was reported as a secondary diagnosis. The AAHKS
recommended that patients with one of the following infection/neoplasm/
defect principal diagnosis codes be segregated into a higher severity
level.
Stage 1 Infection/Neoplasm/Defect Principal Diagnosis Codes
170.7 (Malignant neoplasm of long bones of lower limb).
171.3 (Malignant neoplasm of soft tissue, lower limb,
including hip).
711.05 (Pyogenic arthritis, pelvic region and thigh).
711.06 (Pyogenic arthritis, lower leg).
730.05 (Acute osteomyelitis, pelvic region and thigh).
730.06 (Acute osteomyelitis, lower leg).
730.15 (Chronic osteomyelitis, pelvic region and thigh).
730.16 (Chronic osteomyelitis, lower leg).
730.25 (Unspecified osteomyelitis, pelvic region and
thigh).
730.26 (Unspecified osteomyelitis, lower leg).
996.66 (Infection and inflammatory reaction due to
internal joint prosthesis).
996.67 (Infection and inflammatory reaction due to other
internal orthopedic device, implant, and graft).
Stage 2 Infection/Neoplasm/Defect Principal Diagnosis Codes (an
Asterisk * Shows the Diagnoses Included in Stage 2 That Were Not Listed
in Stage 1)
170.7 (Malignant neoplasm of long bones of lower limb).
171.3 (Malignant neoplasm of soft tissue, lower limb,
including hip).
198.5 (Secondary malignant neoplasm of bone and bone
marrow) .*
711.05 (Pyogenic arthritis, pelvic region and thigh).
711.06 (Pyogenic arthritis, lower leg).
730.05 (Acute osteomyelitis, pelvic region and thigh).
730.06 (Acute osteomyelitis, lower leg).
730.15 (Chronic osteomyelitis, pelvic region and thigh).
730.16 (Chronic osteomyelitis, lower leg).
730.25 (Unspecified osteomyelitis, pelvic region and
thigh).
730.26 (Unspecified osteomyelitis, lower leg).
736.30 (Acquired deformities of hip, unspecified
deformity).
736.39 (Other acquired deformities of hip) .*
736.6 (Other acquired deformities of knee) .*
736.89 (Other acquired deformities of other parts of
limbs). *
996.66 (Infection and inflammatory reaction due to
internal joint prosthesis). *
996.67 (Infection and inflammatory reaction due to other
internal orthopedic device, implant, and graft). *

[[Page 23571]]

For the Stage 2 procedures, AAHKS also suggested the use of the
following secondary diagnosis codes to assign the cases to a higher
severity level. These conditions would not be the reason the patient
was admitted to the hospital. They would instead represent secondary
conditions that were also present on admission or conditions that were
diagnosed after admission.
Stage 2 Infection/Neoplasm/Defect Secondary Diagnosis Codes
170.7 (Malignant neoplasm of long bones of lower limb).
171.3 (Malignant neoplasm of soft tissue, lower limb,
including hip).
711.05 (Pyogenic arthritis, pelvic region and thigh).
711.06 (Pyogenic arthritis, lower leg).
730.05 (Acute osteomyelitis, pelvic region and thigh).
730.06 (Acute osteomyelitis, lower leg).
730.15 (Chronic osteomyelitis, pelvic region and thigh).
730.16 (Chronic osteomyelitis, lower leg).
730.25 (Unspecified osteomyelitis, pelvic region and
thigh).
730.26 (Unspecified osteomyelitis, lower leg).
996.66 (Infection and inflammatory reaction due to
internal joint prosthesis).
996.67 (Infection and inflammatory reaction due to other
internal orthopedic device, implant, and graft).
(2) AAHKS Recommendation 2: Reclassify certain specific joint
procedures.
The AAHKS suggested that cases with the infection/neoplasm/defect
diagnoses listed above be segregated according to the Stage 1 and 2
groups listed above. The AAHKS made one final recommendation concerning
joint procedure cases with infections. It identified a subset of
patients who had a principal diagnosis of 996.66 (Infection and
inflammatory reaction due to internal joint prosthesis) and who also
had a secondary diagnosis of sepsis or septicemia. The AAHKS believed
that these patients are for the most part admitted with both the joint
infection and sepsis/septicemia present at the time of admission. The
codes for sepsis/septicemia are classified as MCCs under MS-DRGs. The
AAHKS believed it is inappropriate to count the secondary diagnosis of
sepsis/septicemia as a MCC when it is reported with code 996.66. The
AAHKS believed that counting sepsis and septicemia as a MCC results in
double counting the infections. It believed that the joint infection
and septicemia are the same infection. The AAHKS recommended that the
following sepsis and septicemia codes not count as a MCC when reported
with code 996.66:
038.0 (Streptococcal septicemia).
038.10 (Staphylococcal septicemia, unspecified).
038.11 (Staphylococcal aureus septicemia).
038.19 (Other staphylococcal septicemia).
038.2 (Pneumococcal septicemia [streptococcus pneumonia
septicemia]).
038.3 (Septicemia due anaerobes).
038.40 (Septicemia due to gram-negative organisms).
038.41 (Hemophilus influenzae [H. Influenzae]).
038.42 (Escherichia coli [E. Coli]).
038.43 (Pseudomonas).
038.44 (Serratia).
038.49 (Other septicemia due to gram-negative organisms).
038.8 (Other specified septicemias).
038.9 (Unspecified septicemia).
995.91 (Sepsis).
995.92 (Severe sepsis).
e. CMS' Response to AAHKS' Recommendations
The MS-DRG modifications proposed by the AAHKS are quite complex
and have many separate parts. We made changes to the MS-DRGs in FY 2008
as a result of a request by the AAHKS as discussed above, to recognize
two types of partial knee replacements as less complex procedures. We
have no data on how effective the new MS-DRGs for joint procedures are
in differentiating patients with varying degrees of severity.
Therefore, we analyzed data reported prior to the adoption of MS-DRGs
to analyze each of the recommendations made. We begin our analysis by
focusing first on the more simple aspects of the recommendations made
by the AAHKS.
(1) Changing the MS-DRG Assignment for Codes 00.73, 00.83, and 00.84
As discussed previously, in FY 2008, the AAHKS recommended that CMS
classify certain joint procedures as either routine or complex. We
examined the data for these cases and found that the following two
codes had significantly lower charges than the other joint revisions:
00.83 (Revision of knee replacement, patellar component) and 00.84
(Revision of knee replacement, tibial insert (liner)). Therefore, we
moved these two codes to MS-DRGs 485, 486, and 487, and MS-DRGs 488 and
489.
As a result of AAHKS' most recent recommendations, we once again
examined claims data for these two knee procedures (codes 00.83 and
00.84) as well as its request that we move code 00.73 (Revision of hip
replacement, acetabular liner and/or femoral head only). Code 00.73 is
assigned to MS-DRGs 466, 467, and 468. The following tables show our
findings.

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRG cases of stay charges
----------------------------------------------------------------------------------------------------------------
485--All Cases.................................................. 1,122 12.20 $64,672.47
485--Cases with Code 00.83 or 00.84............................. 179 11.83 64,446.68
485--Cases without Code 00.83 or 00.84.......................... 943 12.27 64,715.33
486--All Cases.................................................. 2,061 8.03 40,758.55
486--Cases with Code 00.83 or 00.84............................. 464 7.34 39,864.39
486--Cases without Code 00.83 or 00.84.......................... 1,597 8.23 41,018.34
487--All Cases.................................................. 1,236 5.67 29,180.88
487--Cases with Code 00.83 or 00.84............................. 284 5.61 31,231.79
487--Cases without Code 00.83 or 00.84.......................... 952 5.68 28,569.06
488--All Cases.................................................. 2,374 5.17 30,180.80
488--Cases with code 00.83 or 00.84............................. 754 4.09 28,432.06
488--Cases without code 00.83 or 00.84.......................... 1,620 5.67 30,994.73
489--All Cases.................................................. 5,493 3.04 21,385.67
489--Cases with code 00.83 or 00,.84............................ 2,154 3.07 23,122.18
489--Cases without code 00.83 or 00.84.......................... 3,339 3.03 20,265.44
469--All cases.................................................. 29,030 8.17 56,681.64
470--All Cases.................................................. 385,123 3.93 36,126.23
466--All Cases.................................................. 3,888 9.18 76,015.66
466--Cases with Code 00.73...................................... 273 10.02 71,293.33

[[Page 23572]]

466--Cases without Code 00.73................................... 3,616 9.12 76,372.06
467--All Cases.................................................. 13,551 5.50 53,431.63
467--Cases with Code 00.73...................................... 1,078 5.94 43,635.63
467--Cases without Code 00.73................................... 12,484 5.47 54,284.13
468--All Cases.................................................. 19,917 3.94 44,055.62
468--Cases with Code 00.73...................................... 1,688 3.93 33,449.22
468--Cases without Code 00.73................................... 18,232 3.94 45,037.09
469--All Cases.................................................. 29,030 8.17 56,681.64
470--All Cases.................................................. 385,123 3.93 36,126.23
----------------------------------------------------------------------------------------------------------------

The tables show that codes 00.73, 00.83, and 00.84 are
appropriately assigned to their current MS-DRGs. The data do not
support moving these three codes to MS-DRGs 469 and 470. Therefore, we
are not proposing a change of MS-DRG assignment for codes 00.73, 00.83,
and 00.84.
(2) Excluding Sepsis and Septicemia From Being a MCC With Code 996.66
There are cases where a patient may be admitted with an infection
of a joint prosthesis (code 996.66) and also have sepsis. In these
cases, it may be possible to perform joint procedures as suggested by
AAHKS. However, in other cases, a patient may be admitted with an
infection of a joint prosthesis and then develop sepsis during the
stay. Because our current data do not indicate whether a condition is
present on admission, we could not determine whether or not the sepsis
occurred after admission. Our data have consistently shown that cases
of sepsis and septicemia require significant resources. Therefore, we
classified the sepsis and septicemia codes as MCCs. Our clinical
advisors do not believe it is appropriate to exclude all cases of
sepsis and septicemia that are reported as a secondary diagnosis with
code 996.66 from being classified as a MCC. We discuss septicemia as
part of hospital acquired conditions provision under section II.F. of
the preamble of this proposed rule. For the purposes of classifying
sepsis and septicemia as non-CCs when reported with code 996.66, we do
not support this recommendation. Therefore, we are not proposing that
the sepsis and septicemia codes be added to the CC exclusion list for
code 996.66.
(3) Differences Between Stage 1 and 2 Cases With Severe Diagnoses
We next examined data on AAHKS' suggestion that there are
significantly differences in resource utilization for cases they refer
to as Stage 1 and 2. AAHKS stated that this is particularly true for
those with infections, neoplasms, or structural defects. We used the
list of procedure codes listed above that AAHKS describes as Stage 1
and 2 procedures. We also used AAHKS' designated lists of Stage 1 and 2
principal diagnosis codes to examine this proposal. This proposal
entails moving cases with a Stage 1 or 2 principal diagnosis and
procedure out of their current MS-DRG assignment in the following 19
MS-DRGs and into a newly consolidated set of MS-DRGs: MS-DRGs 463, 464,
and 465, 480, 481, and 482, 485 through 489, and 495, 496, and 497.
As can be seen from the information below, there was not a
significant difference in average charges between these Stage 1 and
Stage 2 cases that have an MCC.

Stage 1.--Cases With Infection, Neoplasm, or Structural Defect
----------------------------------------------------------------------------------------------------------------
Average length Average
Stage 1 Total cases of stay charges
----------------------------------------------------------------------------------------------------------------
With MCC........................................................ 1,306 14.1 $79,232
Without MCC..................................................... 4,115 7.6 44,716
----------------------------------------------------------------------------------------------------------------

Stage 2.--Cases With Infection, Neoplasm, or Structural Defect
----------------------------------------------------------------------------------------------------------------
Average length Average
Stage 2 Total cases of stay charges
----------------------------------------------------------------------------------------------------------------
With MCC........................................................ 1,072 10.9 $80,781
Without MCC..................................................... 5,413 6.0 57,355
----------------------------------------------------------------------------------------------------------------

Average charges for Stage 1 cases with an MCC was $79,232 compared
to $80,781 for Stage 2. Stage 1 cases without an MCC had average
charges of $44,716 compared to $57,355. These data do not support
reconfiguring the current MS-DRGs based on this new subdivision.
(4) Moving Joint Procedure Cases to New MS-DRGs Based on Secondary
Diagnoses of Infection
We examined AAHKS' recommendation that Stage 2 joint cases with
specific secondary diagnoses of infection or neoplasm be moved out of
their current MS-DRG assignments and into a newly constructed MS-DRG.
We are reluctant to make this type of significant DRG change to the
joint MS-DRGs based on the presence of a secondary diagnosis. This
results in the movement of cases out of MS-DRGs which were configured
based on the reason for the admission (for example, principal
diagnosis) and surgery. The cases would instead be assigned based on
conditions that are reported as secondary diagnoses. In some cases, the
infection may have developed or be diagnosed during the admission. This
would be a significant logic change to the MS-DRGs for joint
procedures. We have not had an opportunity to examine

[[Page 23573]]

claims data based on hospital discharges under the MS-DRGs which began
October 1, 2008. Our clinical advisors believe it would be more
appropriate to wait for data under the new MS-DRG system to determine
how well the new severity levels are addressing accurate payment for
these cases before considering this approach to assigning cases to a
MS-DRG.
(5) Moving Cases With Infection, Neoplasms, or Structural Defects Out
of 19 MS-DRGs and Into Two Newly Developed MS-DRGs
The last recommended by AAHKS that we considered was moving cases
with a principal diagnosis of infection, neoplasm, or structural defect
from their list of Stage 1 and 2 diagnoses and consolidated them into
newly constructed and modified MS-DRGs. AAHKS could not identify an
existing set of MS-DRGs with similar resource utilizations into which
the Stage 1 cases could be assigned. Therefore, the AAHKS recommended
that CMS create three new MS-DRGs for Stage 1 cases with infections,
neoplasms and structural defects which would be titled ``Arthrotomy/
Removal/Component exchange of Infected Hip or Knee Prosthesis with MCC,
with CC, and without CC/MCC'', respectively.
The AAHKS recommended moving Stage 2 cases out of MS-DRGs 466, 467,
and 468, and 469 and 470 and into MS-DRGs 461 and 462. AAHKS
recommended that MS-DRGs 461 and 462 be renamed ``Major Joint
Procedures of Lower Extremity--Bilateral/Multiple/Infection/
Malignancy''.
In reviewing these proposed changes, we had a number of concerns.
The first concern was that these proposed changes would result in the
removal of cases with varying average charges from 19 current MS-DRGs
and consolidating them into two separate sets of MS-DRGs. As the data
below indicate, the average charges vary from as low as $29,181 in MS-
DRG 487 to $81,089 in MS-DRG 463. Furthermore, the average charges for
these infection/neoplasm/structural defect cases are very similar to
other cases in their respective MS-DRG assignments for many of these
MS-DRGs. There are cases where the average charges are higher. In MS-
DRG 469 and 470, the infection/neoplasm/structural defect cases are
significantly higher. However, there are only 136 cases in MS-DRG 469
out of a total of 29,030 cases with these diagnoses. There are only 673
cases in MS-DRG 470 out of a total of 385,123 cases with one of these
diagnoses. The table below clearly demonstrates the wide variety of
charges for cases with these diagnoses.

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRGs cases of stay charges
----------------------------------------------------------------------------------------------------------------
463--All Cases.................................................. 4,747 16.25 $73,405.46
463--Cases with PDX of Infection/Malignancy/React............... 1,009 17.79 81,089.07
464--All Cases.................................................. 5,499 10.21 44,387.73
464--Cases with PDX of Infection/Malignancy/React............... 1,420 10.59 46,800.60
465--All Cases.................................................. 2,271 5.95 26,631.57
465--Cases with PDX of Infection/Malignancy/React............... 557 10.59 29,816.40
466--All Cases.................................................. 3,888 9.18 76,015.66
466--Cases with PDX of Infection/Malignancy/React............... 890 10.67 79,334.69
467--All Cases.................................................. 13,551 5.50 53,431.63
467--Cases with PDX of Infection/Malignancy/React............... 2,401 6.71 58,506.86
468--All Cases.................................................. 19,917 3.94 44,055.62
468--Cases with PDX of Infection/Malignancy/React............... 1,994 4.76 54,322.03
469--All Cases.................................................. 29,030 8.17 56,681.64
469--Cases with PDX of Infection/Malignancy/React............... 136 11.74 85,256.07
470--All Cases.................................................. 385,123 3.93 36,126.23
470--Cases with PDX of Infection/Malignancy/React............... 673 6.44 59,676.31
480--All Cases.................................................. 25,391 9.32 52,281.65
480--Cases with PDX of Infection/Malignancy/React............... 880 14.53 76,355.15
481--All Cases.................................................. 68,655 5.94 32,963.64
481--Cases with PDX of Infection/Malignancy/React............... 878 8.78 48,655.30
482--All Cases.................................................. 45,832 4.86 27,266.20
482--Cases with PDX of Infection/Malignancy/React............... 577 6.19 37,572.38
485--All Cases.................................................. 1,122 12.20 64,672.47
485--Cases with PDX of Infection/Malignancy/React............... 1,122 12.20 64,672.47
486--All Cases.................................................. 2,061 8.03 40,758.55
486--Cases with PDX of Infection/Malignancy/React............... 2,061 8.03 40,758.55
487--All Cases.................................................. 1,236 5.67 29,180.88
487--Cases with PDX of Infection/Malignancy/React............... 1,236 5.67 29,180.88
488--All Cases.................................................. 2,374 5.17 30,180.80
488--Cases with PDX of Infection/Malignancy/React............... 31 7.13 50,155.42
489--All Cases.................................................. 5,493 3.04 21,385.67
489--Cases with PDX of Infection/Malignancy/React............... 36 3.72 35,313.84
495--All Cases.................................................. 1,860 10.94 55,103.91
495--Cases with PDX of Infection/Malignancy/React............... 1,025 11.74 59,453.69
496--All Cases.................................................. 5,203 5.95 32,177.29
496--Cases with PDX of Infection/Malignancy/React............... 2,759 6.98 36,940.99
497--All Cases.................................................. 6,259 3.01 21,445.60
497--Cases with PDX of Infection/Malignancy/React............... 1,500 5.18 29,966.98
----------------------------------------------------------------------------------------------------------------

Given the wide variety of charges and the small number of cases
where there are differences in charges, we do not believe the data
support the AAHKS' recommendations. The data do not support removing
these cases from the 19 MS-DRGs above and consolidating them into a new
set of MS-DRGs, either newly created, or by adding them to

[[Page 23574]]

MS-DRG 461 or 462, which have average charges of $80,718 and $57,355,
respectively.
A second major concern involves redefining MS-DRGs 461 and 462 is
that these MS-DRG currently captures bilateral and multiple joint
procedures. These MS-DRGs were specifically created to capture a unique
set of patients who undergo procedures on more than one lower joint.
Redefining these MS-DRGs to include both single and multiple joints
undermines the clinical coherence of this MS-DRG. It would create a
widely diverse group of patients based on either a list of specific
diagnoses or the fact that the patient had multiple lower joint
procedures.
f. Conclusion
The AAHKS recommended a number of complicated, interrelated MS-DRG
changes to the joint procedure MS-DRGs. We have not yet had the
opportunity to review data for these cases under the new MS-DRGs. We
did analyze the impact of these recommendations using cases prior to
the implementation of MS-DRGs. The recommendations were difficult to
analyze because there were so many separate logic changes that impacted
a number of MS-DRGs. We did examine each major suggestion separately,
and found that our data and clinical analysis did not support making
these changes. Therefore, we are not proposing any revisions to the
joint procedure MS-DRGs for FY 2009. We look forward to examining these
issues once we receive data under the MS-DRG system. We also welcome
additional recommendations from the AAHKS and others on a more
incremental approach to resolving its concerns about the ability of the
current MS-DRGs to adequately capture differences in severity levels
for joint procedure patients.
5. MDC 18 (Infections and Parasitic Diseases (Systemic or Unspecified
Sites)): Severe Sepsis
We received a request from a manufacturer to modify the titles for
three MS-DRGs with the most significant concentration of severe sepsis
patients. The manufacturer stated that modification of the titles will
assist in quality improvement efforts and provide a better reflection
on the types of patients included in these MS-DRGs. Specifically, the
manufacturer urged CMS to incorporate the term ``severe sepsis'' into
the titles of the following MS-DRGs that became effective October 1,
2007 (FY 2008)
MS-DRG 870 (Septicemia with Mechanical Ventilation 96+
Hours).
MS-DRG 871 (Septicemia without Mechanical Ventilation 96+
Hours with MCC).
MS-DRG 872 (Septicemia without Mechanical Ventilation 96+
Hours without MCC).
These MS-DRGs were created to better recognize severity of illness
among patients diagnosed with conditions including septicemia, severe
sepsis, septic shock, and systemic inflammatory response syndrome
(SIRS) who are also treated with mechanical ventilation for a specified
duration of time.
According to the manufacturer, ``severe sepsis is a common, deadly
and costly disease, yet the number of patients impacted and the
outcomes associated with their care remain largely hidden within the
administrative data set.'' The manufacturer further noted that,
although improvements have been made in the ICD-9-CM coding of severe
sepsis (diagnosis code 995.92) and septic shock (diagnosis code
785.52), results of an analysis demonstrated an unacceptably high
mortality rate for patients reported to have those conditions. The
manufacturer believed that revising the titles to incorporate ``severe
sepsis'' will provide various clinicians and researchers the
opportunity to improve outcomes for these patients. Therefore, the
manufacturer recommended revising the current MS-DRG titles as follows:
Proposed Revised MS-DRG 870 (Septicemia or Severe Sepsis
with Mechanical Ventilation 96+ Hours).
Proposed Revised MS-DRG 871 (Septicemia or Severe Sepsis
without Mechanical Ventilation 96+ Hours with MCC).
Proposed Revised MS-DRG 872 (Septicemia or Severe Sepsis
without Mechanical Ventilation 96+ Hours without MCC).
We agree with the manufacturer that revising the current MS-DRG
titles to include the term ``severe sepsis'' would better assist in the
recognition and identification of this disease, which could lead to
better clinical outcomes and quality improvement efforts. In addition,
both severe sepsis (diagnosis code 995.92) and septic shock (diagnosis
code 785.52) are currently already assigned to these three MS-DRGs.
Therefore, we are proposing to revise the titles of MS-DRGs 870, 871,
and 872 to reflect severe sepsis in the titles as suggested by the
manufacturer and listed above for FY 2009.
6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic
Compartment Syndrome
Traumatic compartment syndrome is a condition in which increased
pressure within a confined anatomical space that contains blood
vessels, muscles, nerves, and bones causes a decrease in blood flow and
may lead to tissue necrosis.
There are five ICD-9-CM diagnosis codes that were created effective
October 1, 2006, to identify traumatic compartment syndrome of various
sites.
958.90 (Compartment syndrome, unspecified).
958.91 (Traumatic compartment syndrome of upper
extremity).
958.92 (Traumatic compartment syndrome of lower
extremity).
958.93 (Traumatic compartment syndrome of abdomen).
958.99 (Traumatic compartment syndrome of other sites) .
Cases with one of the diagnosis codes listed above reported as the
principal diagnosis and no operating room procedure are assigned to
either MS-DRG 922 (Other Injury, Poisoning and Toxic Effect Diagnosis
with MCC) or MS-DRG 923 (Other Injury, Poisoning and Toxic Effect
Diagnosis without MCC) in MDC 21.
In the FY 2008 IPPS final rule with comment period when we adopted
the MS-DRGs, we inadvertently omitted the addition of these traumatic
compartment syndrome codes 958.90 through 958.99 to the multiple trauma
MS-DRGs 963 (Other Multiple Significant Trauma with MCC), MS-DRG 964
(Other Multiple Significant Trauma with CC), and MS-DRG 965 (Other
Multiple Significant Trauma without CC/MCC) in MDC 24 (Multiple
Significant Trauma). Cases are assigned to MDC 24 based on the
principal diagnosis of trauma and at least two significant trauma
diagnosis codes (either as principal or secondary diagnoses) from
different body site categories. There are eight different body site
categories as follows:
Significant head trauma.
Significant chest trauma.
Significant abdominal trauma.
Significant kidney trauma.
Significant trauma of the urinary system.
Significant trauma of the pelvis or spine.
Significant trauma of the upper limb.
Significant trauma of the lower limb.
Therefore, we are proposing to add traumatic compartment syndrome
codes 958.90 through 958.99 to MS-DRGs 963 and MS-DRG 965 in MDC 24.
Under

[[Page 23575]]

this proposal, codes 958.90 through 958.99 would be added to the list
of principal diagnosis of significant trauma. In addition, code 958.91
would be added to the list of significant trauma of upper limb, code
958.92 would be added to the list of significant trauma of lower limb,
and code 958.93 would be added to the list of significant abdominal
trauma.
7. Medicare Code Editor (MCE) Changes
As explained under section II.B.1. of the preamble of this proposed
rule, the Medicare Code Editor (MCE) is a software program that detects
and reports errors in the coding of Medicare claims data. Patient
diagnoses, procedure(s), and demographic information are entered into
the Medicare claims processing systems and are subjected to a series of
automated screens. The MCE screens are designed to identify cases that
require further review before classification into a DRG. For FY 2009,
we are proposing to make the following changes to the MCE edits:
a. List of Unacceptable Principal Diagnoses in MCE
Diagnosis code V62.84 (Suicidal ideation) was created for use
beginning October 1, 2005. At the time the diagnosis code was created,
it was not clear that the creation of this code was requested in order
to describe the principal reason for admission to a facility or the
principal reason for treatment. The NCHS Official ICD-9-CM Coding
Guidelines therefore categorized the group of codes in V62.X for use
only as additional or secondary diagnoses. It has been brought to the
government's attention that the use of this code is hampered by its
designation as an additional-only diagnosis. NCHS has therefore
modified the Official Coding Guidelines for FY 2009 by making this code
acceptable as a principal diagnosis as well as an additional diagnosis.
In order to conform to this change by NCHS, we are proposing to remove
code V62.84 from the MCE list of ``Unacceptable Principal Diagnoses''
for FY 2009.
b. Diagnoses Allowed for Males Only Edit
There are four diagnosis codes that were inadvertently left off of
the MCE edit titled ``Diagnoses Allowed for Males Only.'' These codes
are located in the chapter of the ICD-9-CM diagnosis codes entitled
``Diseases of Male Genital Organs.'' We are proposing to add the
following four codes to this MCE edit: 603.0 (Encysted hydrocele),
603.1 (Infected hydrocele), 603.8 (Other specified types of hydrocele),
and 603.9 (Hydrocele, unspecified). We have had no reported problems or
confusion with the omission of these codes from this section of the
MCE, but in order to have an accurate product, we are proposing that
these codes be added for FY 2009.
c. Limited Coverage Edit
As explained in section II.G.1. of the preamble of this proposed
rule, we are proposing to remove procedure code 37.52 (Implantation of
internal biventricular heart replacement system) from the MCE ``Non-
Covered Procedure'' edit and to assign it to the ``Limited Coverage''
edit. We are proposing to include in this proposed edit the requirement
that ICD-9-CM diagnosis code V70.7 (Examination of participant in
clinical trial) also be present on the claim. We are proposing that
claims submitted without both procedure code 37.52 and diagnosis code
V70.7 would be denied because they would not be in compliance with the
proposed coverage policy explained in section II.G.1. of this preamble.
8. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different MS-DRG within the MDC to which the principal diagnosis
is assigned. Therefore, it is necessary to have a decision rule within
the GROUPER by which these cases are assigned to a single MS-DRG. The
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function.
Application of this hierarchy ensures that cases involving multiple
surgical procedures are assigned to the MS-DRG associated with the most
resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of MS-DRG reclassification and recalibrations, we
reviewed the surgical hierarchy of each MDC, as we have for previous
reclassifications and recalibrations, to determine if the ordering of
classes coincides with the intensity of resource utilization.
A surgical class can be composed of one or more MS-DRGs. For
example, in MDC 11, the surgical class ``kidney transplant'' consists
of a single MS-DRG (MS-DRG 652) and the class ``kidney, ureter and
major bladder procedures'' consists of three MS-DRGs (MS-DRGs 653, 654,
and 655). Consequently, in many cases, the surgical hierarchy has an
impact on more than one MS-DRG. The methodology for determining the
most resource-intensive surgical class involves weighting the average
resources for each MS-DRG by frequency to determine the weighted
average resources for each surgical class. For example, assume surgical
class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs
3, 4, and 5. Assume also that the average charge of MS-DRG 1 is higher
than that of MS-DRG 3, but the average charges of MS-DRGs 4 and 5 are
higher than the average charge of MS-DRG 2. To determine whether
surgical class A should be higher or lower than surgical class B in the
surgical hierarchy, we would weight the average charge of each MS-DRG
in the class by frequency (that is, by the number of cases in the MS-
DRG) to determine average resource consumption for the surgical class.
The surgical classes would then be ordered from the class with the
highest average resource utilization to that with the lowest, with the
exception of ``other O.R. procedures'' as discussed below.
This methodology may occasionally result in assignment of a case
involving multiple procedures to the lower-weighted MS-DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER search for the procedure in the
most resource-intensive surgical class, in cases involving multiple
procedures, this result is sometimes unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average 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 MS-DRG or MS-
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

[[Page 23576]]

average charge than the class ordered below it.
For FY 2009, we are proposing a revision of the surgical hierarchy
for MDC 5 (Diseases and Disorders of the Circulatory System) by placing
MS-DRG 245 (AICD Generator Procedures) above proposed new MS-DRG 265
(AICD Lead Procedures).
9. CC Exclusions List
a. Background
As indicated earlier in the preamble of this proposed rule, 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 comorbidity. A substantial
complication or comorbidity was defined as a condition that, because of
its presence with a specific principal diagnosis, would cause an
increase in the length of stay by at least 1 day in at least 75 percent
of the patients. We refer readers to section II.D.2. and 3. of the
preamble of the FY 2008 IPPS final rule with comment period for a
discussion of the refinement of CCs in relation to the MS-DRGs we
adopted for FY-2008 (72 FR 47152 through 47121).
b. CC Exclusions List for FY 2009
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.\12\
---------------------------------------------------------------------------

\12\ See the FY 1989 final rule (53 FR 38485, September 30,
1988), for the revision made for the discharges occurring in FY
1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for
the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September
4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR
43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final
rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the
FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994
revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994),
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782,
September 1, 1995), for the FY 1996 revisions; the FY 1997 final
rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the
FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998
revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August
1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR
39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final
rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the
FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004
revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004),
for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640,
August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule
(71 FR 47870) for the FY 2007 revisions; and the FY 2008 final rule
(72 FR 47130) for the FY 2008 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 2009, we are proposing to make 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, 2008. (See
section II.G.11. of the preamble of this proposed rule with comment
period for a discussion of ICD-9-CM changes.) We are proposing to make
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 proposed rule, 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 adopted for FY 2008.
Tables 6G and 6H, Additions to and Deletions from the CC Exclusion
List, respectively, which will be effective for discharges occurring on
or after October 1, 2008, are not being published in this proposed rule
because of the length of the two tables. Instead, we are making them
available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses
for which there is a CC exclusion is shown in Tables 6G and 6H with an
asterisk, and the conditions that will not count as a CC, are provided
in an indented column immediately following the affected principal
diagnosis.
A complete updated MCC, CC, and Non-CC Exclusions List is also
available through the Internet on the CMS Web site at: http:/
www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or
after October 1, 2008, the indented diagnoses will not be recognized by
the GROUPER as valid CCs for the asterisked principal diagnosis.
To assist readers in the review of changes to the MCC and CC lists
that occurred as a result of updates to the ICD-9-CM codes, as
described in Tables 6A, 6C, and 6E, we are providing the following
summaries of those MCC and CC changes.

Summary of Additions to the MS-DRG MCC List.--Table 6I.1
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
249.10................................ Secondary diabetes mellitus with
ketoacidosis, not stated as
uncontrolled, or unspecified.
249.11................................ Secondary diabetes mellitus with
ketoacidosis, uncontrolled.
249.20................................ Secondary diabetes mellitus with
hyperosmolarity, not stated as
uncontrolled, or unspecified.

[[Page 23577]]

249.21................................ Secondary diabetes mellitus with
hyperosmolarity, uncontrolled.
249.30................................ Secondary diabetes mellitus with
other coma, not stated as
uncontrolled, or unspecified.
249.31................................ Secondary diabetes mellitus with
other coma, uncontrolled.
707.23................................ Pressure ulcer, stage III.
707.24................................ Pressure ulcer, stage IV.
777.50................................ Necrotizing enterocolitis in
newborn, unspecified.
777.51................................ Stage I necrotizing
enterocolitis in newborn.
777.52................................ Stage II necrotizing
enterocolitis in newborn.
777.53................................ Stage III necrotizing
enterocolitis in newborn.
780.72................................ Functional quadriplegia.
------------------------------------------------------------------------

Summary of Deletions From the MS-DRG MCC List.--Table 6I.2
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
136.2................................. Specific infections by free-
living amebae.
511.8................................. Other specified forms of pleural
effusion, except tuberculous.
707.02................................ Pressure ulcer, upper back.
707.03................................ Pressure ulcer, lower back.
707.04................................ Pressure ulcer, hip.
707.05................................ Pressure ulcer, buttock.
707.06................................ Pressure ulcer, ankle.
707.07................................ Pressure ulcer, heel.
777.5................................. Necrotizing enterocolitis in
fetus or newborn.
------------------------------------------------------------------------

Summary of Additions to the MS-DRG CC List.--Table 6J.1
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
046.11................................ Variant Creutzfeldt-Jakob
disease.
046.19................................ Other and unspecified
Creutzfeldt-Jakob disease.
046.71................................ Gerstmann-Str[auml]ussler-
Scheinker syndrome.
046.72................................ Fatal familial insomnia.
046.79................................ Other and unspecified prion
disease of central nervous
system.
059.01................................ Monkeypox.
059.21................................ Tanapox.
136.29................................ Other specific infections by
free-living amebae.
199.2................................. Malignant neoplasm associated
with transplant organ.
203.02................................ Multiple myeloma, in relapse.
203.12................................ Plasma cell leukemia, in
relapse.
203.82................................ Other immunoproliferative
neoplasms, in relapse.
204.02................................ Acute lymphoid leukemia, in
relapse.
204.12................................ Chronic lymphoid leukemia, in
relapse.
204.22................................ Subacute lymphoid leukemia, in
relapse.
204.82................................ Other lymphoid leukemia, in
relapse.
204.92................................ Unspecified lymphoid leukemia,
in relapse.
205.02................................ Acute myeloid leukemia, in
relapse.
205.12................................ Chronic myeloid leukemia, in
relapse.
205.22................................ Subacute myeloid leukemia, in
relapse.
205.32................................ Myeloid sarcoma, in relapse.
205.82................................ Other myeloid leukemia, in
relapse.
205.92................................ Unspecified myeloid leukemia, in
relapse.
206.02................................ Acute monocytic leukemia, in
relapse.
206.12................................ Chronic monocytic leukemia, in
relapse.
206.22................................ Subacute monocytic leukemia, in
relapse.
206.82................................ Other monocytic leukemia, in
relapse.
206.92................................ Unspecified monocytic leukemia,
in relapse.
207.02................................ Acute erythremia and
erythroleukemia, in relapse.
207.12................................ Chronic erythremia, in relapse.
207.22................................ Megakaryocytic leukemia, in
relapse.
207.82................................ Other specified leukemia, in
relapse.
208.02................................ Acute leukemia of unspecified
cell type, in relapse.
208.12................................ Chronic leukemia of unspecified
cell type, in relapse.
208.22................................ Subacute leukemia of unspecified
cell type, in relapse.
208.82................................ Other leukemia of unspecified
cell type, in relapse.
208.92................................ Unspecified leukemia, in
relapse.
209.00................................ Malignant carcinoid tumor of the
small intestine, unspecified
portion.
209.01................................ Malignant carcinoid tumor of the
duodenum.
209.02................................ Malignant carcinoid tumor of the
jejunum.
209.03................................ Malignant carcinoid tumor of the
ileum.

[[Page 23578]]

209.10................................ Malignant carcinoid tumor of the
large intestine, unspecified
portion.
209.11................................ Malignant carcinoid tumor of the
appendix.
209.12................................ Malignant carcinoid tumor of the
cecum.
209.13................................ Malignant carcinoid tumor of the
ascending colon.
209.14................................ Malignant carcinoid tumor of the
transverse colon.
209.15................................ Malignant carcinoid tumor of the
descending colon.
209.16................................ Malignant carcinoid tumor of the
sigmoid colon.
209.17................................ Malignant carcinoid tumor of the
rectum.
209.20................................ Malignant carcinoid tumor of
unknown primary site.
209.21................................ Malignant carcinoid tumor of the
bronchus and lung.
209.22................................ Malignant carcinoid tumor of the
thymus.
209.23................................ Malignant carcinoid tumor of the
stomach.
209.24................................ Malignant carcinoid tumor of the
kidney.
209.25................................ Malignant carcinoid tumor of
foregut, not otherwise
specified.
209.26................................ Malignant carcinoid tumor of
midgut, not otherwise
specified.
209.27................................ Malignant carcinoid tumor of
hindgut, not otherwise
specified.
209.29................................ Malignant carcinoid tumor of
other sites.
209.30................................ Malignant poorly differentiated
neuroendocrine carcinoma, any
site.
238.77................................ Post-transplant
lymphoproliferative disorder
(PTLD).
279.50................................ Graft-versus-host disease,
unspecified.
279.51................................ Acute graft-versus-host disease.
279.52................................ Chronic graft-versus-host
disease.
279.53................................ Acute on chronic graft-versus-
host disease.
346.60................................ Persistent migraine aura with
cerebral infarction, without
mention of intractable migraine
without mention of status
migrainosus.
346.61................................ Persistent migraine aura with
cerebral infarction, with
intractable migraine, so
stated, without mention of
status migrainosus.
346.62................................ Persistent migraine aura with
cerebral infarction, without
mention of intractable migraine
with status migrainosus.
346.63................................ Persistent migraine aura with
cerebral infarction, with
intractable migraine, so
stated, with status
migrainosus.
511.81................................ Malignant pleural effusion.
511.89................................ Other specified forms of
effusion, except tuberculous.
649.70................................ Cervical shortening, unspecified
as to episode of care or not
applicable.
649.71................................ Cervical shortening, delivered,
with or without mention of
antepartum condition.
649.73................................ Cervical shortening, antepartum
condition or complication.
695.12................................ Erythema multiforme major.
695.13................................ Stevens-Johnson syndrome.
695.14................................ Stevens-Johnson syndrome-toxic
epidermal necrolysis overlap
syndrome.
695.15................................ Toxic epidermal necrolysis.
695.53................................ Exfoliation due to erythematous
condition involving 30-39
percent of body surface.
695.54................................ Exfoliation due to erythematous
condition involving 40-49
percent of body surface.
695.55................................ Exfoliation due to erythematous
condition involving 50-59
percent of body surface.
695.56................................ Exfoliation due to erythematous
condition involving 60-69
percent of body surface.
695.57................................ Exfoliation due to erythematous
condition involving 70-79
percent of body surface.
695.58................................ Exfoliation due to erythematous
condition involving 80-89
percent of body surface.
695.59................................ Exfoliation due to erythematous
condition involving 90 percent
or more of body surface.
997.31................................ Ventilator associated pneumonia.
997.39................................ Other respiratory complications.
998.30................................ Disruption of wound,
unspecified.
998.33................................ Disruption of traumatic wound
repair.
999.81................................ Extravasation of vesicant
chemotherapy.
999.82................................ Extravasation of other vesicant
agent.
------------------------------------------------------------------------

Summary of Deletions to the MS-DRG CC List.--Table 6J.2
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
046.1............................. Jakob-Creutzfeldt disease.
337.0............................. Idiopathic peripheral autonomic
neuropathy.
695.1............................. Erythema multiforme.
707.00............................ Pressure ulcer, unspecified site.
707.01............................ Pressure ulcer, elbow.
707.09............................ Pressure ulcer, other site.
997.3............................. Respiratory complications.
999.8............................. Other transfusion reaction.
------------------------------------------------------------------------

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 25.0, is available for $225.00,
which includes $15.00 for shipping and handling. Version 26.0 of this
manual, which will include the final FY 2009 DRG changes, will be
available in hard copy for $250.00. Version 26.0 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.
10. Review of Procedure Codes in MS DRGs 981, 982, and 983; 984, 985,
and 986; and 987, 988, and 989
Each year, we review cases assigned to former CMS DRG 468
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal
Diagnosis) to determine whether it would be appropriate to change the
procedures assigned among

[[Page 23579]]

these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG
468 was split three ways and became MS-DRGs 981, 982, and 983
(Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC,
with CC, and without CC/MCC). CMS DRG 476 became MS-DRGs 984, 985, and
986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC). CMS DRG 477 became MS-DRGs 987, 988,
and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis
with MCC, with CC, and without CC/MCC).
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 DRGs are intended to capture atypical
cases, that is, those cases not occurring with sufficient frequency to
represent a distinct, recognizable clinical group. MS-DRGs 984 through
986 (previously CMS DRG 476) are assigned to those discharges in which
one or more of the following prostatic procedures are performed and are
unrelated to the principal diagnosis:
60.0, Incision of prostate.
60.12, Open biopsy of prostate.
60.15, Biopsy of periprostatic tissue.
60.18, Other diagnostic procedures on prostate and
periprostatic tissue.
60.21, Transurethral prostatectomy.
60.29, Other transurethral prostatectomy.
60.61, Local excision of lesion of prostate.
60.69, Prostatectomy, not elsewhere classified.
60.81, Incision of periprostatic tissue.
60.82, Excision of periprostatic tissue.
60.93, Repair of prostate.
60.94, Control of (postoperative) hemorrhage of prostate.
60.95, Transurethral balloon dilation of the prostatic
urethra.
60.96, Transurethral destruction of prostate tissue by
microwave thermotherapy.
60.97, Other transurethral destruction of prostate tissue
by other thermotherapy.
60.99, Other operations on prostate.
All remaining O.R. procedures are assigned to MS-DRGs 981 through
983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those
discharges in which the only procedures performed are nonextensive
procedures that are unrelated to the principal diagnosis.\13\
---------------------------------------------------------------------------

\13\ 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 FY 2008, no procedures
were moved, as noted in the final rule with comment period (72 FR
46241).
---------------------------------------------------------------------------

For FY 2009, we are not proposing to change the procedures assigned
among these DRGs.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987
Through 989 to MDCs
We annually conduct a review of procedures producing assignment to
MS-DRGs 981 through 983 (formerly CMS DRG 468) or MS-DRGs 987 through
989 (formerly CMS DRG 477) on the basis of volume, by procedure, to see
if it would be appropriate to move procedure codes out of these DRGs
into one of the surgical DRGs for the MDC into which the principal
diagnosis falls. The data are arrayed 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. For
FY 2009, we are not proposing to remove any procedures from MS-DRGs 981
through 983 or MS-DRGs 987 through 989.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989)
We also annually review the list of ICD-9-CM procedures that, when
in combination with their principal diagnosis code, result in
assignment to MS-DRGs 981 through 983, 984 through 986, and 987 through
989 (formerly, CMS DRGs 468, 476, and 477, respectively), 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.
For FY 2009, we are not proposing to move any procedure codes among
these DRGs.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on our review this year, we are not proposing to add any
diagnosis codes to MDCs for FY 2009.
11. Changes to the ICD-9-CM Coding System
As described in section II.B.1. of the preamble of this proposed
rule, 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 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 $27.00 by
calling (202) 512-1800.) Complete information on ordering the CD-ROM is
also available at: http://www.cdc.gov/nchs/products/prods/subject/icd96ed.htm. The Official

[[Page 23580]]

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 2009 at a public meeting held on September 27-28,
2007 and finalized the coding changes after consideration of comments
received at the meetings and in writing by December 3, 2007. Those
coding changes are announced in Tables 6A through 6F in the Addendum to
this proposed rule. The Committee held its 2008 meeting on March 19-20,
2008. 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 2008 will be included in the October 1, 2008 update to ICD-9-CM.
Code revisions that were discussed at the March 19-20, 2008 Committee
meeting but that could not be finalized in time to include them in the
Addendum to this proposed rule are not included in Tables 6A through
6F. These additional codes will be included in Tables 6A through 6F of
the 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 27-28, 2007 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 27-28, 2007 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, 2008. The new ICD-9-CM codes are listed, along
with their DRG classifications, in Tables 6A and 6B (New Diagnosis
Codes and New Procedure Codes, respectively) in the Addendum to this
proposed rule. As we stated above, the code numbers and their titles
were presented for public comment at the ICD-9-CM Coordination and
Maintenance Committee meetings. Both oral and written comments were
considered before the codes were approved. In this proposed rule, we
are only soliciting comments on the proposed classification of these
new codes.
For codes that have been replaced by new or expanded codes, 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, 2008. 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, 2008. Revisions to diagnosis code titles are in Table 6E (Revised
Diagnosis Code Titles), which also includes the MS-DRG assignments for
these revised codes. Table 6F includes revised procedure code titles
for FY 2009.
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 19-20, 2008 Committee meeting
that received consensus and that are finalized by May 2008, will be
included in Tables 6A through 6F of the Addendum to the final rule.
Section 503(a) of Pub. L. 108-173 included a requirement for
updating ICD-9-CM codes twice a year instead of a single update on
October 1 of each year. This requirement was included as part of the
amendments to the Act relating to recognition of new technology under
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by
adding a clause (vii) which states that the ``Secretary shall provide
for the addition of new diagnosis and procedure codes 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

[[Page 23581]]

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
approved for an expedited April l, 2008 implementation of an ICD-9-CM
code at the September 27-28, 2007 Committee meeting. Therefore, there
were no new ICD-9-CM codes implemented on April 1, 2008.
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.

H. Recalibration of MS-DRG Weights

In section II.E. of the preamble of this proposed rule, we state
that we are proposing to fully implement the cost-based DRG relative
weights for FY 2009, which is the third year in the 3-year transition
period to calculate the relative weights at 100 percent based on costs.
In the FY 2008 IPPS final rule with comment period (72 FR 47267), as
recommended by RTI, for FY 2008, we added 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.
In developing the FY 2009 proposed 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 2007 MedPAR data used in this proposed rule include
discharges occurring on October 1, 2006, through September 30, 2007,
based on bills received by CMS through December 2007, from all
hospitals subject to the IPPS and short-term, acute care hospitals in
Maryland (which are under a waiver from the IPPS under section
1814(b)(3) of the Act). The FY 2007 MedPAR file used in calculating the
relative weights includes data for approximately 11,433,806 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 2006 Medicare cost report data files from HCRIS
(that is, cost reports beginning on or after October 1, 2005, and
before October 1, 2006), which represents the most recent full set of
cost report data available. We used the

[[Page 23582]]

December 31, 2007 update of the HCRIS cost report files for FY 2006 in
setting the relative cost-based weights.
The methodology we used to calculate the DRG cost-based relative
weights from the FY 2007 MedPAR claims data and FY 2006 Medicare cost
report data is as follows:
To the extent possible, all the claims were regrouped
using the proposed FY 2009 MS-DRG classifications discussed in sections
II.B. and G. of the preamble of this proposed rule.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)
were limited to those Medicare-approved transplant centers that have
cases in the FY 2007 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, emergency room charges, blood 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. Because hospital charges include
charges for both operating and capital costs, we standardized total
charges to remove the effects of differences in geographic adjustment
factors, cost-of-living adjustments, 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 2006 cost report data.
The 15 cost centers that we used in the relative weight calculation
are shown in the following table. The table shows the lines on the cost
report and the corresponding revenue codes that we used to create the
15 national cost center CCRs.
BILLING CODE 4120-01-P

[[Page 23583]]

[GRAPHIC][TIFF OMITTED]TP30AP08.012

[[Page 23584]]

[GRAPHIC][TIFF OMITTED]TP30AP08.013

[[Page 23585]]

[GRAPHIC][TIFF OMITTED]TP30AP08.014

[[Page 23586]]

[GRAPHIC][TIFF OMITTED]TP30AP08.015

[[Page 23587]]

[GRAPHIC][TIFF OMITTED]TP30AP08.016

[[Page 23588]]

[GRAPHIC][TIFF OMITTED]TP30AP08.017

BILLING CODE 4120-01-C
We developed the national average CCRs as follows:
Taking the FY 2006 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

[[Page 23589]]

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-4 and deriving the Medicare-specific costs by applying the
hospital-specific departmental CCRs to the Medicare-specific charges
for each line item from Worksheet D-4. Once each hospital's Medicare-
specific costs were established, we summed the total Medicare-specific
costs and divided by the sum of the total Medicare-specific charges to
produce national average, charge-weighted CCRs.
After we multiplied the total charges for each 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 1.50612 so that the average case weight after
recalibration was equal to the average case weight before
recalibration. The normalization adjustment is intended to ensure that
recalibration by itself neither increases nor decreases total payments
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
The 15 proposed national average CCRs for FY 2009 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days.................................................. 0.527
Intensive Days................................................ 0.476
Drugs......................................................... 0.205
Supplies & Equipment.......................................... 0.341
Therapy Services.............................................. 0.419
Laboratory.................................................... 0.166
Operating Room................................................ 0.293
Cardiology.................................................... 0.186
Radiology..................................................... 0.171
Emergency Room................................................ 0.291
Blood and Blood Products...................................... 0.449
Other Services................................................ 0.419
Labor & Delivery.............................................. 0.482
Inhalation Therapy............................................ 0.198
Anesthesia.................................................... 0.150
------------------------------------------------------------------------

As we explained in section II.E. of the preamble of this proposed
rule, we are proposing to complete our 2-year transition to the MS-
DRGs. For FY 2008, the first year of the transition, 50 percent of the
relative weight for an MS-DRG was 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 an MS-DRG was 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, we are proposing that the relative weights will be based on
100 percent cost weights computed using the Version 26.0 (FY 2009) MS-
DRGs.
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 are proposing to use that same case
threshold in recalibrating the MS-DRG weights for FY 2009. Using the FY
2007 MedPAR data set, there are 8 MS-DRGs that contain fewer than 10
cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the
CMS DRGs because we no longer have separate DRGs for patients 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
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 MS-
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 2009,
because we do not have sufficient MedPAR data to set accurate and
stable cost weights for these low-volume MS-DRGs, we are proposing to
compute weights for the low-volume MS-DRGs by adjusting their FY 2008
weights by the percentage change in the average weight of the cases in
other MS-DRGs. The crosswalk table is shown below:

------------------------------------------------------------------------
Low-volume MS-DRG MS-DRG title Crosswalk to MS-DRG
------------------------------------------------------------------------
768................. Vaginal Delivery with FY 2008 FR weight
O.R. Procedure Except (adjusted by percent
Sterilization and/or change in average
D&C. weight of the cases in
other MS-DRGs).
789................. Neonates, Died or FY 2008 FR weight
Transferred to Another (adjusted by percent
Acute Care Facility. change in average
weight of the cases in
other MS-DRGs).
790................. Extreme Immaturity or FY 2008 FR weight
Respiratory Distress (adjusted by percent
Syndrome, Neonate. change in average
weight of the cases in
other MS-DRGs).
791................. Prematurity with Major FY 2008 FR weight
Problems. (adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
792................. Prematurity without FY 2008 FR weight
Major Problems. (adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
793................. Full-Term Neonate with FY 2008 FR weight
Major Problems. (adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
794................. Neonate with Other FY 2008 FR weight
Significant Problems. (adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
795................. Normal Newborn.......... FY 2008 FR weight
(adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
------------------------------------------------------------------------

[[Page 23590]]

I. Proposed Medicare Severity Long-Term Care (MS-LTC-DRG)
Reclassifications and Relative Weights for LTCHs for FY 2009

1. Background
Section 123 of the BBRA requires that the Secretary implement a PPS
for LTCHs (that is, a per discharge system with a diagnosis-related
group (DRG)-based patient classification system reflecting the
differences in patient resources and costs). Section 307(b)(1) of the
BIPA modified the requirements of section 123 of the BBRA by requiring
that the Secretary examine ``the feasibility and the impact of basing
payment under such a system [the long-term care hospital (LTCH) PPS] on
the use of existing (or refined) hospital DRGs that have been modified
to account for different resource use of LTCH patients, as well as the
use of the most recently available hospital discharge data.''
When the LTCH PPS was implemented for cost reporting periods
beginning on or after October 1, 2002, we adopted the same DRG patient
classification system (that is, the CMS DRGs) that was utilized at that
time under the IPPS. As a component of the LTCH PPS, we refer to the
patient classification system as the ``long-term care diagnosis-related
groups (LTC-DRGs).'' As discussed in greater detail below, although the
patient classification system used under both the LTCH PPS and the IPPS
are the same, the relative weights are different. The established
relative weight methodology and data used under the LTCH PPS result in
LTC-DRG relative weights that reflect ``the differences in patient
resource use * * *'' of LTCH patients (section 123(a)(1) of the BBRA
(Pub. L. 106-113). As part of our efforts to better recognize severity
of illness among patients, in the FY 2008 IPPS final rule with comment
period (72 FR 47130), the MS-DRGs and the Medicare severity long-term
care diagnosis related groups (MS-LTC-DRGs) were adopted for the IPPS
and the LTCH PPS, respectively, effective October 1, 2007 (FY 2008).
For a full description of the development and implementation of the MS-
DRGs and MS-LTC-DRGs, we refer readers to the FY 2008 IPPS final rule
with comment period (72 FR 47141 through 47175 and 47277 through
47299). (We note that, in that same final rule, we revised the
regulations at Sec. 412.503 to specify that for LTCH discharges
occurring on or after October 1, 2007, when applying the provisions of
42 CFR Part 412, Subpart O applicable to LTCHs for policy descriptions
and payment calculations, all references to LTC-DRGs would be
considered a reference to MS-LTC-DRGs. For the remainder of this
section, we present the discussion in terms of the current MS-LTC-DRG
patient classification unless specifically referring to the previous
LTC-DRG patient classification system (that was in effect before
October 1, 2007).) We believe the MS-DRGs (and by extension, the MS-
LTC-DRGs) represent a substantial improvement over the previous CMS
DRGs in their ability to differentiate cases based on severity of
illness and resource consumption.
The MS-DRGs represent an increase in the number of DRGs by 207
(that is, from 538 to 745) (72 FR 47171). In addition to improving the
DRG system's recognition of severity of illness, we believe the MS-DRGs
are responsive to the public comments that were made on the FY 2007
IPPS proposed rule with respect to how we should undertake further DRG
reform. The MS-DRGs use the CMS DRGs as the starting point for revising
the DRG system to better recognize resource complexity and severity of
illness. We have generally retained 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.
Consistent with section 123 of the BBRA as amended by section
307(b)(1) of the BIPA and Sec. 412.515, we use information derived
from LTCH PPS patient records to classify LTCH discharges into distinct
MS-LTC-DRGs based on clinical characteristics and estimated resource
needs. We then assign an appropriate weight to the MS-LTC-DRGs to
account for the difference in resource use by patients exhibiting the
case complexity and multiple medical problems characteristic of LTCHs.
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge; and that payment varies
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into MS-LTC-DRGs for payment based on the following six data
elements:
Principal diagnosis.
Up to eight additional diagnoses.
Up to six procedures performed.
Age.
Sex.
Discharge status of the patient.
Upon the discharge of the patient from a LTCH, the LTCH must assign
appropriate diagnosis and procedure codes from the most current version
of the International Classification of Diseases, Ninth Revision,
Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets
Standards regulations at 45 CFR Parts 160 and 162 require that no later
than October 16, 2003, all covered entities must comply with the
applicable requirements of Subparts A and I through R of Part 162.
Among other requirements, those provisions direct covered entities to
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2,
Version 4010, and the applicable standard medical data code sets for
the institutional health care claim or equivalent encounter information
transaction (see 45 CFR 162.1002 and 45 CFR 162.1102). For additional
information on the ICD-9-CM Coding System, we refer readers to the FY
2008 IPPS final rule with comment period (72 FR 47241 through 47243 and
47277 through 47281). We also refer readers to the detailed discussion
on correct coding practices in the August 30, 2002 LTCH PPS final rule
(67 FR 55981 through 55983). Additional coding instructions and
examples are published in the Coding Clinic for ICD-9-CM, a product of
the American Hospital Association.
Medicare contractors (that is, fiscal intermediaries or MACs) enter
the clinical and demographic information into their claims processing
systems and subject this information to a series of automated screening
processes called the Medicare Code Editor (MCE). These screens are
designed to identify cases that require further review before
assignment into a MS-LTC-DRG can be made. During this process, the
following types of cases are selected for further development:
Cases that are improperly coded. (For example, diagnoses
are shown that are inappropriate, given the sex of the patient. Code
68.69 (Other and unspecified radical abdominal hysterectomy) would be
an inappropriate code for a male.)
Cases including surgical procedures not covered under
Medicare. (For example, organ transplant in a nonapproved transplant
center.)
Cases requiring more information. (For example, ICD-9-CM
codes are required to be entered at their highest level of specificity.
There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262
(Other severe protein-calorie malnutrition) contains all appropriate
digits, but if it is reported with either fewer or more than 3 digits,
the claim will be rejected by the MCE as invalid.)
After screening through the MCE, each claim is classified into the
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software.

[[Page 23591]]

The Medicare GROUPER software, which is used under the LTCH PPS, is
specialized computer software, and is the same GROUPER software program
used under the IPPS. The GROUPER software was developed as a means of
classifying each case into a MS-LTC-DRG on the basis of diagnosis and
procedure codes and other demographic information (age, sex, and
discharge status). Following the MS-LTC-DRG assignment, the Medicare
contractor determines the prospective payment amount by using the
Medicare PRICER program, which accounts for hospital-specific
adjustments. Under the LTCH PPS, we provide an opportunity for the LTCH
to review the MS-LTC-DRG assignments made by the Medicare contractor
and to submit additional information within a specified timeframe as
specified in Sec. 412.513(c).
The GROUPER software is used both to classify past cases to measure
relative hospital resource consumption to establish the DRG weights and
to classify current cases for purposes of determining payment. The
records for all Medicare hospital inpatient discharges are maintained
in the MedPAR file. The data in this file are used to evaluate possible
MS-DRG classification changes and to recalibrate the MS-DRG and MS-LTC-
DRG relative weights during our annual update under both the IPPS
(Sec. 412.60(e)) and the LTCH PPS (Sec. 412.517), respectively.
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 DRGs as those used under the IPPS for acute care
hospitals, in that same final rule, we explained that the annual update
of the LTC-DRG classifications and relative weights will continue to
remain linked to the annual reclassification and recalibration of the
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).
In the RY 2009 LTCH PPS proposed rule (73 FR 5351-5352), due to
administrative considerations as well as in response to numerous
comments urging CMS to establish one rulemaking cycle that would
encompass the update of the LTCH PPS payment rates (currently updated
on a rate year basis, effective July 1) as well as the development of
the LTC-DRG weights (currently updated on a fiscal year basis,
effective October 1), we proposed to amend the regulations at Sec.
412.535 in order to consolidate the rate year and fiscal year
rulemaking cycles. Specifically, we proposed that the annual update of
the LTCH PPS payment rates (and description of the methodology and data
used to calculate these payment rates) and the annual update of the MS-
LTC-DRG classifications and associated weighting factors for LTCHs
would be effective on October 1 each Federal fiscal year. In order to
revise the payment rate update (currently on a rate year cycle of July
1 through June 30) to an October 1 through September 30 cycle, we
proposed to extend the 2009 rate period to September 30, 2009, so that
RY 2009 would be 15 months. This proposed 15-month rate period would
extend from July 1, 2008, through September 30, 2009. We believe that
extending RY 2009 by 3 months (July, August, and September) would
provide for a smooth transition to a consolidated annual update for
both the LTCH PPS payment rates and the LTCH PPS MS-LTC-DRG
classifications and weighting factors. (We believe that proposing to
shorten the 2009 rate year period to an October 1 through September 30
period so that RY 2009 would only be 3 months (that is, July 1, 2008
through September 30, 2008) would exacerbate the current time-
consuming, biannual update process by resulting in two payment rate
changes within a very short period of time.) Consequently, under the
proposal to extend RY 2009 to a 15-month rate period, after September
30, 2009, when the RY 2009 cycle ends, the LTCH PPS payment rates and
other policy changes would subsequently be updated on an October 1
through September 30 cycle in conjunction with the annual update to the
MS-LTC-DRG classifications and relative weights. Accordingly, the next
update to the LTCH PPS payment rates, after the proposed 15-month RY
2009, would begin October 1, 2009, coinciding with the 2010 Federal
fiscal year.
In the past, the annual update to the DRGs used under the IPPS has
been based on the annual revisions to the ICD-9-CM codes and was
effective each October 1. As discussed in the RY 2009 LTCH PPS proposed
rule (73 FR 5348-5349), 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, 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). 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 HIPAA.
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 the LTCH PPS have the potential of being updated 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 in the Federal Register. 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.11. of
the preamble of this proposed rule). Any coding updates will be
available through the Web sites provided in section II.G.11. of the
preamble of this proposed rule and through the Coding Clinic for ICD-9-
CM. Publishers and software vendors currently obtain code changes
through these sources in order to update their code books and software
system. If new codes are implemented on April 1, revised code books and
software systems, including the GROUPER

[[Page 23592]]

software program, will be necessary because the most current ICD-9-CM
codes must be reported. 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 correct 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 diagnosis and procedure code
revisions are requested and approved. We note that any new codes
created for April 1 implementation will be limited to those 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.11. of the preamble of this proposed rule).
At the September 27, 2007 ICD-9-CM Coordination and Maintenance
Committee meeting, there were no requests for an April 1, 2008
implementation of ICD-9-CM codes. Therefore, the next update to the
ICD-9-CM coding system will occur on October 1, 2008 (FY 2009). Because
there were no coding changes suggested for an April 1, 2008 update, the
ICD-9-CM coding set implemented on October 1, 2008, will continue
through September 30, 2009 (FY 2009). The update to the ICD-9-CM coding
system for FY 2009 is discussed in section II.G.11. of the preamble of
this proposed rule. Accordingly, in this proposed rule, as discussed in
greater detail below, we are proposing to modify and revise the MS-LTC-
DRG classifications and relative weights to be effective October 1,
2008 through September 30, 2009 (FY 2009). As discussed in greater
detail below, the MS-LTC-DRGs for FY 2009 in this proposed rule are the
same as the MS-DRGs proposed for the IPPS for FY 2009 (GROUPER Version
26.0) discussed in section II.B. of the preamble to this proposed rule.
2. Proposed Changes in the MS-LTC-DRG Classifications
a. Background
As discussed earlier, 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.''
Consistent 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 proposed rule, for FY 2008, we adopted
MS-DRGs under the IPPS because we believe that this system results in a
significant improvement in the DRG system's recognition of severity of
illness and resource usage. We stated that we believe these
improvements in the DRG system are equally applicable to the LTCH PPS.
The changes we are proposing to make for the FY 2009 IPPS are reflected
in the proposed FY 2009 GROUPER, Version 26.0, that would be effective
for discharges occurring on or after October 1, 2008 through September
30, 2009.
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, under the LTCH PPS for FY 2008, we adopted
the use of MS-LTC-DRGs, which correspond to the MS-DRGs we adopted
under the IPPS. In addition, as stated above, we are proposing to use
the FY 2009 GROUPER Version 26.0 to classify cases effective for LTCH
discharges occurring on or after October 1, 2008, through September 30,
2009. The changes to the MS-DRG classification system that we are
proposing to use under the IPPS for FY 2009 (GROUPER Version 26.0) are
discussed in section II.B. of the preamble to this proposed rule.
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 medical problems characteristic of LTCH
patients. (Unless otherwise noted in this proposed rule, our MS-LTC-DRG
analysis is based on LTCH data from the December 2007 update of the FY
2007 MedPAR file, which contains hospital bills received through
December 31, 2007, for discharges occurring in FY 2007.)
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 2008 IPPS final rule with comment period (72 FR 47283), we use
low-volume quintiles in determining the DRG relative weights for DRGs
with less than 25 LTCH cases (low-volume MS-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 2008 MS-LTC-DRGs (based on FY 2006 MedPAR data) appears in
section II.I.3. of the FY 2008 IPPS final rule with comment period (72
FR 47281 through 47288).) 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 proposed rule.
b. Patient Classifications Into MS-LTC-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 proposed rule), 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 proposed rule discusses the
organization of the existing MS-DRGs, which we are maintaining under
the MS-LTC-DRG system. 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).

[[Page 23593]]

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 MS-DRGs, some surgical and medical DRGs are further
defined for severity purposes based on the presence or absence of MCCs
or CCs. The existing MS-LTC-DRGs are similarly categorized. (We refer
readers to section II.B. of the preamble of this proposed rule for
further discussion of surgical DRGs and medical DRGs.)
Therefore, consistent with the MS-DRGs, a base MS-LTC-DRG may be
subdivided according to three alternatives. The first alternative
includes division of the DRG 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
do not support the creation of three severity levels, the base DRG is
divided into either two levels or the base is not subdivided.
The two-level subdivisions consist of one of the following
subdivisions: ``with CC/MCC'' or ``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 `` 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''
and ``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 Proposed FY 2009 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, in last year's
final rule, we adopted the MS-LTC-DRGs for the LTCH PPS beginning in FY
2008. However, this change in the patient classification system does
not affect the basic principles of the development of relative weights
under a DRG-based prospective payment system.
Although the adoption of the MS-LTC-DRGs resulted in some
modifications of existing procedures for assigning weights in cases of
zero volume and/or nonmonotonicity, as discussed in the FY 2008 IPPS
final rule with comment period (72 FR 47289 through 47295) and
discussed in detail in the following sections, the basic methodology
for developing the proposed FY 2009 MS-LTC-DRG relative weights in this
proposed rule continue to be determined in accordance with the general
methodology established in the August 30, 2002 LTCH PPS final rule (67
FR 55989 through 55991). Under the LTCH PPS, relative weights for each
MS-LTC-DRG are a primary element used to account for the variations in
cost per discharge and resource utilization among the payment groups
(Sec. 412.515). To ensure that Medicare patients classified to each
MS-LTC-DRG have access to an appropriate level of services and to
encourage efficiency, we calculate a relative weight for each MS-LTC-
DRG that represents the resources needed by an average inpatient LTCH
case in that MS-LTC-DRG. For example, cases in an MS-LTC-DRG with a
relative weight of 2 will, on average, cost twice as much to treat as
cases in an MS-LTC-DRG with a weight of 1.
b. Data
To calculate the proposed MS-LTC-DRG relative weights for FY 2009,
we obtained total Medicare allowable charges from FY 2007 Medicare LTCH
bill data from the December 2007 update of the MedPAR file, which are
the best available data at this time, and we used the proposed Version
26.0 of the CMS GROUPER that is also proposed for use under the IPPS to
classify cases for FY 2009. We also are proposing that if more recent
data are available, we will use those data and the finalized Version
26.0 of the CMS GROUPER in establishing the FY 2009 MS-LTC-DRG relative
weights in the final rule.
Consistent with our historical methodology, we have excluded the
data from LTCHs that are all-inclusive rate providers and LTCHs that
are reimbursed in accordance with demonstration projects authorized
under section 402(a) of Pub. L. 90-248 or section 222(a) of Pub. L. 92-
603 (We refer readers to the FY 2008 IPPS final rule with comment
period (72 FR 47282)). Therefore, in the development of the proposed FY
2009 MS-LTC-DRG relative weights in this proposed rule, we have
excluded the data of the 17 all-inclusive rate providers and the 2
LTCHs that are paid in accordance with demonstration projects that had
claims in the FY 2007 MedPAR file.
c. Hospital-Specific Relative Value (HSRV) Methodology
By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients and rehabilitation and wound care. Some
case types (DRGs) may be treated, to a large extent, in hospitals that
have, from a perspective of charges, relatively high (or low) charges.
This nonarbitrary distribution of cases with relatively high (or low)
charges in specific MS-LTC-DRGs has the potential to inappropriately
distort the measure of average charges. To account for the fact that
cases may not be randomly distributed across LTCHs, we are proposing to
use a hospital-specific relative value (HSRV) methodology to calculate
the MS-LTC-DRG relative weights instead of the methodology used to
determine the MS-DRG relative weights under the IPPS described in
section II.H. of the preamble of this proposed rule. We believe this
method will remove this hospital-specific source of bias in measuring
LTCH average charges. Specifically, we are proposing to reduce the
impact of the variation in charges across providers on any particular
MS-LTC-DRG relative weight by converting each LTCH's charge for a case
to a relative value based on that LTCH's average charge.
Under the HSRV methodology, we standardize charges for each LTCH by
converting its charges for each case to hospital-specific relative
charge values and then adjusting those values for the LTCH's case-mix.
The adjustment for case-mix is needed to rescale the hospital-specific
relative charge values (which, by definition, average 1.0 for each
LTCH). The average relative weight for a LTCH is its case-mix, so it is
reasonable to scale each LTCH's average relative charge value by its
case-mix. In this way, each LTCH's relative charge

[[Page 23594]]

value is adjusted by its case-mix to an average that reflects the
complexity of the cases it treats relative to the complexity of the
cases treated by all other LTCHs (the average case-mix of all LTCHs).
In accordance with the methodology established in the August 30,
2002 LTCH PPS final rule (67 FR 55989 through 55991), we continue to
standardize charges for each case by first dividing the adjusted charge
for the case (adjusted for short-stay outliers under Sec. 412.529 as
described in section II.I.4. (step 3) of the preamble of this proposed
rule) by the average adjusted charge for all cases at the LTCH in which
the case was treated. Short-stay outliers are cases with a length of
stay that is less than or equal to five-sixths the average length of
stay of the MS-LTC-DRG (Sec. 412.529 and Sec. 412.503). The average
adjusted charge reflects the average intensity of the health care
services delivered by a particular LTCH and the average cost level of
that LTCH. The resulting ratio is multiplied by that LTCH's case-mix
index to determine the standardized charge for the case.
Multiplying by the LTCH's case-mix index accounts for the fact that
the same relative charges are given greater weight at a LTCH with
higher average costs than they would at a LTCH with low average costs,
which is needed to adjust each LTCH's relative charge value to reflect
its case-mix relative to the average case-mix for all LTCHs. Because we
standardize charges in this manner, we count charges for a Medicare
patient at a LTCH with high average charges as less resource intensive
than they would be at a LTCH with low average charges. For example, a
$10,000 charge for a case at a LTCH with an average adjusted charge of
$17,500 reflects a higher level of relative resource use than a $10,000
charge for a case at a LTCH with the same case-mix, but an average
adjusted charge of $35,000. We believe that the adjusted charge of an
individual case more accurately reflects actual resource use for an
individual LTCH because the variation in charges due to systematic
differences in the markup of charges among LTCHs is taken into account.
d. Treatment of Severity Levels in Developing Proposed Relative Weights
Under the proposed MS-LTC-DRGs, for purposes of the proposed
setting of the relative weights, there would be three different
categories of DRGs based on volume of cases within specific MS-LTC-
DRGs. MS-LTC-DRGs with at least 25 cases are each assigned a unique
relative weight; low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs that
contain between one and 24 cases annually) are grouped into quintiles
(described below) and assigned the weight of the quintile. No-volume
MS-LTC-DRGs (that is, no cases in the database were assigned to those
MS-LTC-DRGs) are crosswalked to other MS-LTC-DRGs based on the clinical
similarities and assigned the relative weight of the crosswalked MS-
LTC-DRG. (We provide in-depth discussions of our proposed policy
regarding weight setting for low-volume MS-LTC-DRGs in section
II.I.3.e. of the preamble of this proposed rule and for no-volume MS-
LTC-DRGs, under Step 5 in section II.I.4. of the preamble of this
proposed rule.)
As described above, in response to the need to account for severity
and pay appropriately for cases, we developed a severity-adjusted
patient classification system which we adopted for both the IPPS and
the LTCH PPS in FY 2008. As described in greater detail above, the MS-
LTC-DRG system can accommodate three severity levels: ``with MCC''
(most severe); ``with CC,'' and ``without CC/MCC'' (the least severe)
with each level assigned an individual MS-LTC-DRG number. In cases with
two subdivisions, the levels are either ``with CC/MCC'' and ``without
CC/MCC'' or ``with MCC'' and ``without MCC''. For example, under the
MS-LTC-DRG system, multiple sclerosis and cerebellar ataxia with MCC is
MS-LTC-DRG 58; multiple sclerosis and cerebellar ataxia with CC is MS-
LTC-DRG 59; and multiple sclerosis and cerebellar ataxia without CC/MCC
is MS-LTC-DRG 60. For purposes of discussion in this section, the term
``base DRG'' is used to refer to the DRG category that encompasses all
levels of severity for that DRG. For example, when referring to the
entire DRG category for multiple sclerosis and cerebellar ataxia, which
includes the above three severity levels, we would use the term ``base-
DRG.''
As noted above, while the LTCH PPS and the IPPS use the same
patient classification system, the methodology that is used to set the
DRG weights for use in each payment system differs because the overall
volume of cases in the LTCH PPS is much less than in the IPPS. As a
general rule, consistent with the methodology we used when we adopted
the MS-LTC-DRGs in the FY 2008 IPPS final rule with comment period (72
FR 47278 through 47281), we are proposing to determine the FY 2009
relative weights for the MS-LTC-DRGs using the following steps: (1) if
an MS-LTC-DRG has at least 25 cases, it is assigned its own relative
weight; (2) if an MS-LTC-DRG has between 1 and 24 cases, it is assigned
to a quintile for which we will compute a relative weight; and (3) if
an MS-LTC-DRG has no cases, it is crosswalked to another MS-LTC-DRG
based upon clinical similarities to assign an appropriate relative
weight (as described below in detail in Step 5 of the Steps for
Determining the proposed FY 2009 MS-LTC-DRG Relative Weights).
Furthermore, in determining the proposed FY 2009 MS-LTC-DRG relative
weights, when necessary, we are proposing to make adjustments to
account for nonmonotonicity, as explained below.
Theoretically, cases under the MS-LTC-DRG system that are more
severe require greater expenditure of medical care resources and will
result in higher average charges. Therefore, in the three severity
levels, weights should increase with severity, from lowest to highest.
If the weights do not increase (that is, if based on the relative
weight methodology outlined above, the MS-LTC-DRG with MCC would have a
lower relative weight than one with CC, or the MS-LTC-DRG without CC/
MCC would have a higher relative weight than either of the others),
there is a problem with monotonicity. Since the start of the LTCH PPS
for FY 2003 (67 FR 55990), we have adjusted the setting of the LTC-DRG
relative weights in order to maintain monotonicity by grouping both
sets of cases together and establishing a new relative weight for both
LTC-DRGs. We continue to believe that utilizing nonmonotonic relative
weights to adjust Medicare payments would result in inappropriate
payments because, in a nonmonotonic system, cases that are more severe
and require greater expenditure of medical care resources would be paid
based on a lower relative weight than cases that are less severe and
require lower resource use. The procedure for dealing with
nonmonotonicity under the MS-LTC-DRG classification system is discussed
in greater detail below in section II.I.4. (Step 6) of the preamble of
this proposed rule.
e. Proposed Low-Volume MS-LTC-DRGs
In order to account for MS-LTC-DRGs with low volume (that is, with
fewer than 25 LTCH cases), consistent with the methodology we
established when we implemented the LTCH PPS (August 30, 2002; 67 FR
55984 through 55995), we group those ``low-volume MS-LTC-DRGs'' (that
is, MS-LTC-DRGs that contained between 1 and 24 cases annually) into
one of five categories (quintiles) based on average charges, for the
purposes of determining relative weights (72 FR 47283 through 47288).
In determining the proposed FY

[[Page 23595]]

2009 MS-LTC-DRG relative weights in this proposed rule, we are
proposing to continue to employ this quintile methodology for proposed
low-volume MS-LTC-DRGs. In addition, in cases where the initial
assignment of a low-volume MS-LTC-DRG to quintiles results in
nonmonotonicity within a base DRG, in order to ensure appropriate
Medicare payments, consistent with our historical methodology, we are
proposing to make adjustments to the treatment of low-volume MS-LTC-
DRGs to preserve monotonicity, as discussed in detail below in section
II.I.4 (Step 6 of the methodology for determining the proposed FY 2009
MS-LTC-DRG relative weights). In this proposed rule, using LTCH cases
from the December 2007 update of the FY 2007 MedPAR file, we identified
290 MS-LTC-DRGs that contained between 1 and 24 cases. This list of
proposed MS-LTC-DRGs was then divided into one of the proposed 5 low-
volume quintiles, each containing 58 MS-LTC-DRGs (290/5 = 58). We are
proposing to make the assignment of a low-volume MS-LTC-DRG to a
specific low-volume quintile by sorting the proposed low-volume MS-LTC-
DRGs in ascending order by average charge in accordance with our
established methodology. Specifically, for this proposed rule, the 290
proposed low-volume MS-LTC-DRGs are sorted by ascending order by
average charge and assigned to a specific proposed low-volume quintile
(as described below). After sorting the 290 proposed low-volume MS-LTC-
DRGs by average charge in ascending order, we are proposing to group
the first fifth (1st through 58th) of proposed low-volume MS-LTC-DRGs
(with the lowest average charge) into Quintile 1. This process is
repeated through the remaining proposed low-volume MS-LTC-DRGs so that
each of the 5 proposed low-volume quintiles contains 58 proposed MS-
LTC-DRGs. The highest average charge cases would be grouped into
Quintile 5. (We note that, consistent with our historical methodology,
if the number of proposed low-volume MS-LTC-DRGs had not been evenly
divisible by 5, we would have used the average charge of the proposed
low-volume MS-LTC-DRG to determine which proposed low-volume quintile
would have received the additional proposed low-volume MS-LTC-DRG.)
Accordingly, in order to determine the proposed relative weights
for the proposed MS-LTC-DRGs with low-volume for FY 2009, we are
proposing to use the five low-volume quintiles described above. The
composition of each of the proposed five low-volume quintiles shown in
the chart below was used in determining the proposed MS-LTC-DRG
relative weights for FY 2009 (Table 11 of the Addendum of this proposed
rule). We would determine a proposed relative weight and (geometric)
average length of stay for each of the proposed five low-volume
quintiles using the methodology that we are proposing to apply to the
regular MS-LTC-DRGs (25 or more cases), as described in section II.I.4.
of the preamble of this proposed rule. We are proposing to assign the
same relative weight and average length of stay to each of the proposed
low-volume MS-LTC-DRGs that make up an individual low-volume quintile.
We note that, as this system is dynamic, it is possible that the number
and specific type of MS-LTC-DRGs with a low volume of LTCH cases will
vary in the future. We use the best available claims data in the MedPAR
file to identify low-volume MS-LTC-DRGs and to calculate the relative
weights based on our methodology.

Proposed Composition of Low-Volume Quintiles for FY 2009
------------------------------------------------------------------------
Proposed MS-LTC-DRG (version Proposed MS-LTC-DRG description (version
26.0) 26.0)
------------------------------------------------------------------------
PROPOSED QUINTILE 1
------------------------------------------------------------------------
66........................... Intracranial hemorrhage or cerebral
infarction w/o CC/MCC.
67........................... Nonspecific cva & precerebral occlusion w/
o infarct w MCC.
68........................... Nonspecific cva & precerebral occlusion w/
o infarct w/o MCC.
69........................... Transient ischemia.
72........................... Nonspecific cerebrovascular disorders w/o
CC/MCC.
79........................... Hypertensive encephalopathy w/o CC/MCC.
87........................... Traumatic stupor & coma, coma <1 hr w/o
CC/MCC.
89........................... Concussion w CC.
125.......................... Other disorders of the eye w/o MCC.
135.......................... Sinus & mastoid procedures w CC/MCC.
136.......................... Sinus & mastoid procedures w/o CC/MCC.**
148.......................... Ear, nose, mouth & throat malignancy w/o
CC/MCC.
149.......................... Dysequilibrium.
159.......................... Dental & Oral Diseases w/o CC/MCC.
183.......................... Major chest trauma w MCC.
184.......................... Major chest trauma w CC.
185.......................... Major chest trauma w/o CC/MCC.
201.......................... Pneumothorax w/o CC/MCC.
257.......................... Upper limb & toe amputation for circ
system disorders w/o CC/MCC.
261.......................... Cardiac pacemaker revision except device
replacement w CC.***
263.......................... Vein ligation & stripping.
304.......................... Hypertension w MCC.
305.......................... Hypertension w/o MCC.
311.......................... Angina pectoris.
313.......................... Chest pain.
382.......................... Complicated peptic ulcer w/o CC/MCC.
387.......................... Inflammatory bowel disease w/o CC/MCC.
437.......................... Malignancy of hepatobiliary system or
pancreas w/o CC/MCC.
443.......................... Disorders of liver except malig, cirr,
alc hepa w/o CC/MCC.
468.......................... Revision of hip or knee replacement w/o
CC/MCC.
510.......................... Shoulder, elbow or forearm proc, exc
major joint proc w MCC.***
537.......................... Sprains, strains, & dislocations of hip,
pelvis & thigh w CC/MCC.

[[Page 23596]]

544.......................... Pathological fractures & musculoskelet &
conn tiss malig w/o CC/MCC.
547.......................... Connective tissue disorders w/o CC/MCC.
556.......................... Signs & symptoms of musculoskeletal
system & conn tissue w/o MCC.
563.......................... Fx, sprn, strn & disl except femur, hip,
pelvis & thigh w/o MCC.
601.......................... Non-malignant breast disorders w/o CC/
MCC.
618.......................... Amputat of lower limb for endocrine,
nutrit, & metabol dis w/o CC/MCC.
642.......................... Inborn errors of metabolism
645.......................... Endocrine disorders w/o CC/MCC.
694.......................... Urinary stones w/o esw lithotripsy w/o
MCC.
723.......................... Malignancy, male reproductive system w
CC.
726.......................... Benign prostatic hypertrophy w/o MCC.
730.......................... Other male reproductive system diagnoses
w/o CC/MCC.
756.......................... Malignancy, female reproductive system w/
o CC/MCC.
781.......................... Other antepartum diagnoses w medical
complications.
810.......................... Major hematol/immun diag exc sickle cell
crisis & coagul w/o CC/MCC.
816.......................... Reticuloendothelial & immunity disorders
w/o CC/MCC.
864.......................... Fever of unknown origin.
869.......................... Other infectious & parasitic diseases
diagnoses w/o CC/MCC.
880.......................... Acute adjustment reaction & psychosocial
dysfunction.
882.......................... Neuroses except depressive.
886.......................... Behavioral & developmental disorders.
895.......................... Alcohol/drug abuse or dependence w
rehabilitation therapy.
897.......................... Alcohol/drug abuse or dependence w/o
rehabilitation therapy w/o MCC.
917.......................... Poisoning & toxic effects of drugs w MCC.
918.......................... Poisoning & toxic effects of drugs w/o
MCC.
958.......................... Other O.R. procedures for multiple
significant trauma w CC.
965.......................... Other multiple significant trauma w/o CC/
MCC.
------------------------------------------------------------------------
PROPOSED QUINTILE 2
------------------------------------------------------------------------
59........................... Multiple sclerosis & cerebellar ataxia w
CC.
60........................... Multiple sclerosis & cerebellar ataxia w/
o CC/MCC.
75........................... Viral meningitis w CC/MCC.
78........................... Hypertensive encephalopathy w CC.
83........................... Traumatic stupor & coma, coma >1 hr w CC.
84........................... Traumatic stupor & coma, coma >1 hr w/o
CC/MCC.
99........................... Non-bacterial infect of nervous sys exc
viral meningitis w/o CC/MCC.
102.......................... Headaches w MCC.
103.......................... Headaches w/o MCC.
121.......................... Acute major eye infections w CC/MCC.
122.......................... Acute major eye infections w/o CC/MCC.
124.......................... Other disorders of the eye w MCC.
153.......................... Otitis media & URI w/o MCC.
156.......................... Nasal trauma & deformity w/o CC/MCC.
157.......................... Dental & Oral Diseases w MCC.
158.......................... Dental & Oral Diseases w CC.
182.......................... Respiratory neoplasms w/o CC/MCC.*
188.......................... Pleural effusion w/o CC/MCC.*
203.......................... Bronchitis & asthma w/o CC/MCC.
254.......................... Other vascular procedures w/o CC/MCC.
294.......................... Deep vein thrombophlebitis w CC/MCC.
354.......................... Hernia procedures except inguinal &
femoral w CC.
376.......................... Digestive malignancy w/o CC/MCC.
379.......................... G.I. hemorrhage w/o CC/MCC.
381.......................... Complicated peptic ulcer w CC.
390.......................... G.I. obstruction w/o CC/MCC.
409.......................... Biliary tract proc except only cholecyst
w or w/o c.d.e. w CC.
433.......................... Cirrhosis & alcoholic hepatitis w CC.
440.......................... Disorders of pancreas except malignancy w/
o CC/MCC.
446.......................... Disorders of the biliary tract w/o CC/
MCC.*
489.......................... Knee procedures w/o pdx of infection w/o
CC/MCC.
533.......................... Fractures of femur w MCC.
534.......................... Fractures of femur w/o MCC.
553.......................... Bone diseases & arthropathies w MCC.
578.......................... Skin graft &/or debrid exc for skin ulcer
or cellulitis w/o CC/MCC.
584.......................... Breast biopsy, local excision & other
breast procedures w CC/MCC.
624.......................... Skin grafts & wound debrid for endoc,
nutrit & metab dis w/o CC/MCC.
661.......................... Kidney & ureter procedures for non-
neoplasm w/o CC/MCC.
663.......................... Minor bladder procedures w CC.
665.......................... Prostatectomy w MCC.***

[[Page 23597]]

669.......................... Transurethral procedures w CC.
671.......................... Urethral procedures w CC/MCC.
688.......................... Kidney & urinary tract neoplasms w/o CC/
MCC.
696.......................... Kidney & urinary tract signs & symptoms w/
o MCC.
722.......................... Malignancy, male reproductive system w
MCC.
759.......................... Infections, female reproductive system w/
o CC/MCC.*
815.......................... Reticuloendothelial & immunity disorders
w CC.
835.......................... Acute leukemia w/o major O.R. procedure w
CC.***
842.......................... Lymphoma & non-acute leukemia w/o CC/MCC.
844.......................... Other myeloprolif dis or poorly diff
neopl diag w CC.
845.......................... Other myeloprolif dis or poorly diff
neopl diag w/o CC/MCC.
866.......................... Viral illness w/o MCC.
876.......................... O.R. procedure w principal diagnoses of
mental illness.
881.......................... Depressive neuroses
923.......................... Other injury, poisoning & toxic effect
diag w/o MCC.
929.......................... Full thickness burn w skin graft or inhal
inj w/o CC/MCC.
964.......................... Other multiple significant trauma w CC.
976.......................... HIV w major related condition w/o CC/MCC.
------------------------------------------------------------------------
PROPOSED QUINTILE 3
------------------------------------------------------------------------
23........................... Craniotomy w major device implant or
acute complex CNS PDX w MCC.***
27........................... Craniotomy & endovascular intracranial
procedures w/o CC/MCC.
53........................... Spinal disorders & injuries w/o CC/MCC.
58........................... Multiple sclerosis & cerebellar ataxia w
MCC.
82........................... Traumatic stupor & coma, coma >1 hr w
MCC.
98........................... Non-bacterial infect of nervous sys exc
viral meningitis w CC.
113.......................... Orbital procedures w CC/MCC.
116.......................... Intraocular procedures w CC/MCC.
136.......................... Sinus & mastoid procedures w/o CC/MCC.***
152.......................... Otitis media & URI w MCC.
165.......................... Major chest procedures w/o CC/MCC.
168.......................... Other resp system O.R. procedures w/o CC/
MCC.
238.......................... Major cardiovascular procedures w/o MCC.
241.......................... Amputation for circ sys disorders exc
upper limb & toe w/o CC/MCC.
261.......................... Cardiac pacemaker revision except device
replacement w CC.**
262.......................... Cardiac pacemaker revision except device
replacement w/o CC/MCC.**
284.......................... Circulatory disorders w AMI, expired w
CC.*
287.......................... Circulatory disorders except AMI, w card
cath w/o MCC.
369.......................... Major esophageal disorders w CC.
370.......................... Major esophageal disorders w/o CC/MCC.
380.......................... Complicated peptic ulcer w MCC.
384.......................... Uncomplicated peptic ulcer w/o MCC.
424.......................... Other hepatobiliary or pancreas O.R.
procedures w CC.
471.......................... Cervical spinal fusion w MCC.
472.......................... Cervical spinal fusion w CC.
476.......................... Amputation for musculoskeletal sys & conn
tissue dis w/o CC/MCC.
482.......................... Hip & femur procedures except major joint
w/o CC/MCC.
494.......................... Lower extrem & humer proc except hip,
foot, femur w/o CC/MCC.
497.......................... Local excision & removal int fix devices
exc hip & femur w/o CC/MCC.*
502.......................... Soft tissue procedures w/o CC/MCC.
504.......................... Foot procedures w CC.
505.......................... Foot procedures w/o CC/MCC.
510.......................... Shoulder, elbow or forearm proc, exc
major joint proc w MCC.**
511.......................... Shoulder, elbow or forearm proc, exc
major joint proc w CC.**
535.......................... Fractures of hip & pelvis w MCC.
542.......................... Pathological fractures & musculoskelet &
conn tiss malig w MCC.
555.......................... Signs & symptoms of musculoskeletal
system & conn tissue w MCC.
562.......................... Fx, sprn, strn & disl except femur, hip,
pelvis & thigh w MCC.
598.......................... Malignant breast disorders w CC.
599.......................... Malignant breast disorders w/o CC/MCC.**
600.......................... Non-malignant breast disorders w CC/MCC.
626.......................... Thyroid, parathyroid & thyroglossal
procedures w CC.
630.......................... Other endocrine, nutrit & metab O.R. proc
w/o CC/MCC.
665.......................... Prostatectomy w MCC.**
666.......................... Prostatectomy w CC.**
668.......................... Transurethral procedures w MCC.
686.......................... Kidney & urinary tract neoplasms w MCC.
687.......................... Kidney & urinary tract neoplasms w CC.
693.......................... Urinary stones w/o esw lithotripsy w MCC.

[[Page 23598]]

725.......................... Benign prostatic hypertrophy w MCC.
744.......................... D&C, conization, laparoscopy & tubal
interruption w CC/MCC.
755.......................... Malignancy, female reproductive system w
CC.
800.......................... Splenectomy w CC.
809.......................... Major hematol/immun diag exc sickle cell
crisis & coagul w CC.
814.......................... Reticuloendothelial & immunity disorders
w MCC.
824.......................... Lymphoma & non-acute leukemia w other
O.R. proc w CC.
834.......................... Acute leukemia w/o major O.R. procedure w
MCC.
835.......................... Acute leukemia w/o major O.R. procedure w
CC.**
836.......................... Acute leukemia w/o major O.R. procedure w/
o CC/MCC.**
843.......................... Other myeloprolif dis or poorly diff
neopl diag w MCC.
883.......................... Disorders of personality & impulse
control.
903.......................... Wound debridements for injuries w/o CC/
MCC.
905.......................... Skin grafts for injuries w/o CC/MCC.
922.......................... Other injury, poisoning & toxic effect
diag w MCC.
941.......................... O.R. proc w diagnoses of other contact w
health services w/o CC/MCC.
963.......................... Other multiple significant trauma w MCC.
989.......................... Non-extensive O.R. proc unrelated to
principal diagnosis w/o CC/MCC.
------------------------------------------------------------------------
PROPOSED QUINTILE 4
------------------------------------------------------------------------
23........................... Craniotomy w major device implant or
acute complex CNS PDX w MCC.**
24........................... Craniotomy w major device implant or
acute complex CNS PDX w/o MCC.**
28........................... Spinal procedures w MCC.
29........................... Spinal procedures w CC.
30........................... Spinal procedures w/o CC/MCC.
37........................... Extracranial procedures w MCC.
38........................... Extracranial procedures w CC.**
42........................... Periph & cranial nerve & other nerv syst
proc w/o CC/MCC.*
77........................... Hypertensive encephalopathy w MCC.
133.......................... Other ear, nose, mouth & throat O.R.
procedures w CC/MCC.
164.......................... Major chest procedures w CC.
237.......................... Major cardiovascular procedures w MCC.
242.......................... Permanent cardiac pacemaker implant w
MCC.***
246.......................... Percutaneous cardiovascular proc w drug-
eluting stent w MCC.
247.......................... Percutaneous cardiovascular proc w drug-
eluting stent w/o MCC.
248.......................... Percutaneous cardiovasc proc w non-drug-
eluting stent w MCC.
249.......................... Percutaneous cardiovasc proc w non-drug-
eluting stent w/o MCC.**
259.......................... Cardiac pacemaker device replacement w/o
MCC.
260.......................... Cardiac pacemaker revision except device
replacement w MCC.
262.......................... Cardiac pacemaker revision except device
replacement w/o CC/MCC.***
286.......................... Circulatory disorders except AMI, w card
cath w MCC.
327.......................... Stomach, esophageal & duodenal proc w CC.
328.......................... Stomach, esophageal & duodenal proc w/o
CC/MCC.**
348.......................... Anal & stomal procedures w CC.
358.......................... Other digestive system O.R. procedures w/
o CC/MCC.*
405.......................... Pancreas, liver & shunt procedures w MCC.
406.......................... Pancreas, liver & shunt procedures w
CC.**
417.......................... Laparoscopic cholecystectomy w/o c.d.e. w
MCC.***
466.......................... Revision of hip or knee replacement w
MCC.
467.......................... Revision of hip or knee replacement w CC.
469.......................... Major joint replacement or reattachment
of lower extremity w MCC.***
478.......................... Biopsies of musculoskeletal system &
connective tissue w CC.
481.......................... Hip & femur procedures except major joint
w CC.
485.......................... Knee procedures w pdx of infection w MCC.
486.......................... Knee procedures w pdx of infection w CC.
487.......................... Knee procedures w pdx of infection w/o CC/
MCC.**
490.......................... Back & neck procedures except spinal
fusion w CC/MCC or disc devices.
492.......................... Lower extrem & humer proc except hip,
foot, femur w MCC.
493.......................... Lower extrem & humer proc except hip,
foot, femur w CC.
503.......................... Foot procedures w MCC.
511.......................... Shoulder, elbow or forearm proc, exc
major joint proc w CC.***
513.......................... Hand or wrist proc, except major thumb or
joint proc w CC/MCC.
514.......................... Hand or wrist proc, except major thumb or
joint proc w/o CC/MCC.**
597.......................... Malignant breast disorders w MCC.
599.......................... Malignant breast disorders w/o CC/MCC.***
625.......................... Thyroid, parathyroid & thyroglossal
procedures w MCC.
659.......................... Kidney & ureter procedures for non-
neoplasm w MCC.
660.......................... Kidney & ureter procedures for non-
neoplasm w CC.
666.......................... Prostatectomy w CC.***

[[Page 23599]]

695.......................... Kidney & urinary tract signs & symptoms w
MCC.
711.......................... Testes procedures w CC/MCC.
717.......................... Other male reproductive system O.R. proc
exc malignancy w CC/MCC.
739.......................... Uterine, adnexa proc for non-ovarian/
adnexal malig w MCC.
749.......................... Other female reproductive system O.R.
procedures w CC/MCC.
754.......................... Malignancy, female reproductive system w
MCC.
802.......................... Other O.R. proc of the blood & blood
forming organs w MCC.
808.......................... Major hematol/immun diag exc sickle cell
crisis & coagul w MCC.
823.......................... Lymphoma & non-acute leukemia w other
O.R. proc w MCC.
896.......................... Alcohol/drug abuse or dependence w/o
rehabilitation therapy w MCC.
909.......................... Other O.R. procedures for injuries w/o CC/
MCC.*
928.......................... Full thickness burn w skin graft or inhal
inj w CC/MCC.
933.......................... Extensive burns or full thickness burns w
MV 96+ hrs w/o skin graft.
957.......................... Other O.R. procedures for multiple
significant trauma w MCC.
969.......................... HIV w extensive O.R. procedure w MCC.
970.......................... HIV w extensive O.R. procedure w/o MCC.**
984.......................... Prostatic O.R. procedure unrelated to
principal diagnosis w MCC.
985.......................... Prostatic O.R. procedure unrelated to
principal diagnosis w CC.
------------------------------------------------------------------------
PROPOSED QUINTILE 5
------------------------------------------------------------------------
11........................... Tracheostomy for face, mouth & neck
diagnoses w MCC.
12........................... Tracheostomy for face, mouth & neck
diagnoses w CC.
24........................... Craniotomy w major device implant or
acute complex CNS PDX w/o MCC.***
25........................... Craniotomy & endovascular intracranial
procedures w MCC.
26........................... Craniotomy & endovascular intracranial
procedures w CC.
31........................... Ventricular shunt procedures w MCC.
32........................... Ventricular shunt procedures w CC.
38........................... Extracranial procedures w CC.***
132.......................... Cranial/facial procedures w/o CC/MCC.
137.......................... Mouth procedures w CC/MCC.
226.......................... Cardiac defibrillator implant w/o cardiac
cath w MCC.
227.......................... Cardiac defibrillator implant w/o cardiac
cath w/o MCC.
242.......................... Permanent cardiac pacemaker implant w
MCC.**
243.......................... Permanent cardiac pacemaker implant w CC.
244.......................... Permanent cardiac pacemaker implant w/o
CC/MCC.
249.......................... Percutaneous cardiovasc proc w non-drug-
eluting stent w/o MCC.***
250.......................... Perc cardiovasc proc w/o coronary artery
stent or AMI w MCC.
326.......................... Stomach, esophageal & duodenal proc w
MCC.
328.......................... Stomach, esophageal & duodenal proc w/o
CC/MCC.***
330.......................... Major small & large bowel procedures w
CC.
331.......................... Major small & large bowel procedures w/o
CC/MCC.
335.......................... Peritoneal adhesiolysis w MCC.
344.......................... Minor small & large bowel procedures w
MCC.
347.......................... Anal & stomal procedures w MCC.
353.......................... Hernia procedures except inguinal &
femoral w MCC.
406.......................... Pancreas, liver & shunt procedures w
CC.***
411.......................... Cholecystectomy w c.d.e. w MCC.
414.......................... Cholecystectomy except by laparoscope w/o
c.d.e. w MCC.
415.......................... Cholecystectomy except by laparoscope w/o
c.d.e. w CC.
417.......................... Laparoscopic cholecystectomy w/o c.d.e. w
MCC.**
418.......................... Laparoscopic cholecystectomy w/o c.d.e. w
CC.
423.......................... Other hepatobiliary or pancreas O.R.
procedures w MCC.
456.......................... Spinal fusion exc cerv w spinal curv,
malig or 9+ fusions w MCC.
457.......................... Spinal fusion exc cerv w spinal curv,
malig or 9+ fusions w CC.
459.......................... Spinal fusion except cervical w MCC.
469.......................... Major joint replacement or reattachment
of lower extremity w MCC.**
470.......................... Major joint replacement or reattachment
of lower extremity w/o MCC.
477.......................... Biopsies of musculoskeletal system &
connective tissue w MCC.
480.......................... Hip & femur procedures except major joint
w MCC.
487.......................... Knee procedures w pdx of infection w/o CC/
MCC.***
488.......................... Knee procedures w/o pdx of infection w CC/
MCC.
496.......................... Local excision & removal int fix devices
exc hip & femur w CC.*
498.......................... Local excision & removal int fix devices
of hip & femur w CC/MCC.
507.......................... Major shoulder or elbow joint procedures
w CC/MCC.
514.......................... Hand or wrist proc, except major thumb or
joint proc w/o CC/MCC.***
582.......................... Mastectomy for malignancy w CC/MCC.
619.......................... O.R. procedures for obesity w MCC.
653.......................... Major bladder procedures w MCC.
656.......................... Kidney & ureter procedures for neoplasm w
MCC.

[[Page 23600]]

662.......................... Minor bladder procedures w MCC.
709.......................... Penis procedures w CC/MCC.
713.......................... Transurethral prostatectomy w CC/MCC.
746.......................... Vagina, cervix & vulva procedures w CC/
MCC.
826.......................... Myeloprolif disord or poorly diff neopl w
maj O.R. proc w MCC.
827.......................... Myeloprolif disord or poorly diff neopl w
maj O.R. proc w CC.
829.......................... Myeloprolif disord or poorly diff neopl w
other O.R. proc w CC/MCC.
836.......................... Acute leukemia w/o major O.R. procedure w/
o CC/MCC.***
855.......................... Infectious & parasitic diseases w O.R.
procedure w/o CC/MCC.*
906.......................... Hand procedures for injuries.
927.......................... Extensive burns or full thickness burns w
MV 96+ hrs w skin graft.
970.......................... HIV w extensive O.R. procedure w/o
MCC.***
------------------------------------------------------------------------
*One of the original 290 proposed low-volume MS-LTC-DRGs initially
assigned to this proposed low-volume quintile; removed from this
proposed low-volume quintile in addressing nonmonotonicity (refer to
step 6 in section II.I.4..of the preamble of this proposed rule).
**One of the original 290 proposed low-volume MS-LTC-DRGs initially
assigned to a different proposed low-volume quintile but moved to this
proposed low-volume quintile in addressing nonmonotonicity (refer to
step 6 in section II.I.4. of the preamble of this proposed rule).
***One of the original 290 proposed low-volume MS-LTC-DRGs initially
assigned to this proposed low-volume quintile but moved to a different
proposed low-volume quintile in addressing nonmonotonicity (refer to
step 6 in section II.I.4. of the preamble of this proposed rule).

We note that we will continue to monitor the volume (that is, the
number of LTCH cases) in the low-volume quintiles to ensure that our
proposed quintile assignment results in appropriate payment for such
cases and does not result in an unintended financial incentive for
LTCHs to inappropriately admit these types of cases.
4. Steps for Determining the Proposed FY 2009 MS-LTC-DRG Relative
Weights
In general, the proposed FY 2009 MS-LTC-DRG relative weights in
this proposed rule were determined based on the methodology established
in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991).
In summary, for FY 2009, we are proposing to group LTCH cases to the
appropriate proposed MS-LTC-DRG, while taking into account the proposed
low-volume MS-LTC-DRGs (as described above), before the proposed FY
2009 MS-LTC-DRG relative weights are determined. After grouping the
cases to the appropriate proposed MS-LTC-DRG (or proposed low-volume
quintile), we would calculate the proposed relative weights for FY 2009
by first removing statistical outliers and cases with a length of stay
of 7 days or less (as discussed in greater detail below). Next, we
would adjust the number of cases in each proposed MS-LTC-DRG (or
proposed low-volume quintile) for the effect of short-stay outlier
cases (as also discussed in greater detail below). The short-stay
adjusted discharges and corresponding charges are used to calculate
``relative adjusted weights'' in each proposed MS-LTC-DRG (or proposed
low-volume quintile) using the HSRV method (described above). In
general, to determine the proposed FY 2009 MS-LTC-DRG relative weights
in this proposed rule, we are proposing to use the same methodology we
used in determining the FY 2008 MS-LTC-DRG relative weights in the FY
2008 IPPS final rule with comment period (72 FR 47281 through 47299).
However, we are proposing to make a modification to our methodology for
determining proposed relative weights for MS-LTC-DRGs with no LTCH
cases (as discussed in greater detail in Step 5 below). Also, we note
that, although we are generally proposing to use the same methodology
in this proposed rule (with the exception noted above) as the
methodology used in the FY 2008 IPPS final rule with comment, the
discussion presented below of the steps for determining the proposed FY
2009 MS-LTC-DRG relative weights varies slightly from the discussion of
the steps for determining the FY 2008 MS-LTC-DRG relative weights
(presented in the FY 2008 IPPS final rule with comment) because we are
taking this opportunity to refine our description to more precisely
explain our methodology for determining the MS-LTC-DRG relative
weights.
As discussed in the FY 2008 IPPS final rule with comment when we
adopted the MS-LTC-DRGs, the adoption of the MS-LTC-DRGs with either
two or three severity levels resulted in some slight modifications of
procedures for assigning relative weights in cases of zero volume and/
or nonmonotonicity (described in detail below) from the methodology we
established when we implemented the LTCH PPS in the August 30, 2002
LTCH PPS final rule. As also discussed in the FY 2008 IPPS final rule
with comment when we adopted the MS-LTC-DRGs, we implemented the MS-
LTC-DRGs with a 2-year transition beginning in FY 2008. For FY 2008,
the first year of the transition, 50 percent of the relative weight for
a MS-LTC-DRG was based on the average LTC-DRG relative weight under
Version 24.0 of the LTC-DRG GROUPER. The remaining 50 percent of the
relative weight was based on the MS-LTC-DRG relative weight under
Version 25.0 of the MS-LTC-DRG GROUPER. In FY 2009, the MS-LTC-DRG
relative weights are based on 100 percent of the MS-LTC-DRG relative
weights. Accordingly, in determining the proposed FY 2009 MS-LTC-DRG
relative weights in this proposed rule, there is no longer a need to
include a step to calculate MS-LTC-DRG transition blended relative
weights (see Step 7 in the FY 2008 IPPS final rule with comment period
(72 FR 47295)). Therefore, in this proposed rule, we determined the
proposed FY 2009 MS-LTC-DRG relative weights based solely on the
proposed MS-LTC-DRG relative weight under proposed Version 26.0 of the
MS-LTC-DRG GROUPER, which is discussed in section II.B. of the preamble
of this proposed rule. Furthermore, we are proposing that we would
determine the final FY 2009 MS-LTC-DRG relative weights in the final
rule based on the final Version 26.0 of the MS-LTC-DRG GROUPER that
will be presented in that same final rule.
Below we discuss in detail the steps for calculating the proposed
FY 2009 MS-LTC-DRG relative weights. We note that, as we stated above
in section II.I.3.b. of the preamble of this proposed rule, we have
excluded the data of all-inclusive rate LTCHs and LTCHs that

[[Page 23601]]

are paid in accordance with demonstration projects that had claims in
the FY 2007 MedPAR file.
Step 1--Remove statistical outliers.
The first step in the calculation of the proposed FY 2009 MS-LTC-
DRG relative weights is to remove statistical outlier cases. Consistent
with our historical relative weight methodology, we are proposing to
continue to define statistical outliers as cases that are outside of
3.0 standard deviations from the mean of the log distribution of both
charges per case and the charges per day for each proposed MS-LTC-DRG.
These statistical outliers are removed prior to calculating the
proposed relative weights because we believe that they may represent
aberrations in the data that distort the measure of average resource
use. Including those LTCH cases in the calculation of the proposed
relative weights could result in an inaccurate proposed relative weight
that does not truly reflect relative resource use among the proposed
MS-LTC-DRGs.
Step 2--Remove cases with a length of stay of 7 days or less.
The MS-LTC-DRG relative weights reflect the average of resources
used on representative cases of a specific type. Generally, cases with
a length of stay of 7 days or less do not belong in a LTCH because
these stays do not fully receive or benefit from treatment that is
typical in a LTCH stay, and full resources are often not used in the
earlier stages of admission to a LTCH. If we were to include stays of 7
days or less in the computation of the proposed FY 2009 MS-LTC-DRG
relative weights, the value of many relative weights would decrease
and, therefore, payments would decrease to a level that may no longer
be appropriate. We do not believe that it would be appropriate to
compromise the integrity of the payment determination for those LTCH
cases that actually benefit from and receive a full course of treatment
at a LTCH, by including data from these very short-stays. Therefore,
consistent with our historical relative weight methodology, in
determining the proposed FY 2009 MS-LTC-DRG relative weights, we are
proposing to remove LTCH cases with a length of stay of 7 days or less.
Step 3--Adjust charges for the effects of short-stay outliers.
After removing cases with a length of stay of 7 days or less, we
are left with cases that have a length of stay of greater than or equal
to 8 days. As the next step in the calculation of the proposed FY 2009
MS-LTC-DRG relative weights, consistent with our historical relative
weight methodology, we are proposing to adjust each LTCH's charges per
discharge for those remaining cases for the effects of short-stay
outliers (as defined in Sec. 412.529(a) in conjunction with Sec.
412.503 for LTCH discharges occurring on or after October 1, 2008). (We
note that even if a case was removed in Step 2 (that is, cases with a
length of stay of 7 days or less), it was paid as a short-stay outlier
if its length of stay was less than or equal to five-sixths of the
average length of stay of the MS-LTC-DRG.)
We would make this adjustment by counting a short-stay outlier as a
fraction of a discharge based on the ratio of the length of stay of the
case to the average length of stay for the proposed MS-LTC-DRG for
nonshort-stay outlier cases. This has the effect of proportionately
reducing the impact of the lower charges for the short-stay outlier
cases in calculating the average charge for the proposed MS-LTC-DRG.
This process produces the same result as if the actual charges per
discharge of a short-stay outlier case were adjusted to what they would
have been had the patient's length of stay been equal to the average
length of stay of the proposed MS-LTC-DRG.
Counting short-stay outlier cases as full discharges with no
adjustment in determining the proposed FY 2009 MS-LTC-DRG relative
weights would lower the proposed FY 2009 MS-LTC-DRG relative weight for
affected proposed MS-LTC-DRGs because the relatively lower charges of
the short-stay outlier cases would bring down the average charge for
all cases within a proposed MS-LTC-DRG. This would result in an
``underpayment'' for nonshort-stay outlier cases and an ``overpayment''
for short-stay outlier cases. Therefore, we are proposing to adjust for
short-stay outlier cases under Sec. 412.529 in this manner because it
results in more appropriate payments for all LTCH cases.
Step 4--Calculate the proposed FY 2009 MS-LTC-DRG relative weights
on an iterative basis.
Consistent with our historical relative weight methodology, we are
proposing to calculate the proposed MS-LTC-DRG relative weights using
the HSRV methodology, which is an iterative process. First, for each
LTCH case, we calculate a hospital-specific relative charge value by
dividing the short-stay outlier adjusted charge per discharge (see step
3) of the LTCH case (after removing the statistical outliers (see step
1)) and LTCH cases with a length of stay of 7 days or less (see step 2)
by the average charge per discharge for the LTCH in which the case
occurred. The resulting ratio is then multiplied by the LTCH's case-mix
index to produce an adjusted hospital-specific relative charge value
for the case. An initial case-mix index value of 1.0 is used for each
LTCH.
For each proposed MS-LTC-DRG, the proposed FY 2009 relative weight
is calculated by dividing the average of the adjusted hospital-specific
relative charge values (from above) for the MS-LTC-DRG by the overall
average hospital-specific relative charge value across all cases for
all LTCHs. Using these recalculated MS-LTC-DRG relative weights, each
LTCH's average relative weight for all of its cases (that is, its case-
mix) is calculated by dividing the sum of all the LTCH's MS-LTC-DRG
relative weights by its total number of cases. The LTCH's hospital-
specific relative charge values above are multiplied by these hospital-
specific case-mix indexes. These hospital-specific case-mix adjusted
relative charge values are then used to calculate a new set of MS-LTC-
DRG relative weights across all LTCHs. This iterative process is
continued until there is convergence between the weights produced at
adjacent steps, for example, when the maximum difference is less than
0.0001.
Step 5--Determine a proposed FY 2009 relative weight for proposed
MS-LTC-DRGs with no LTCH cases.
As we stated above, we determine the proposed FY 2009 relative
weight for each proposed MS-LTC-DRG using total Medicare allowable
charges reported in the best available LTCH claims data (that is, the
December 2007 update of the FY 2007 MedPAR file for this proposed
rule). Of the proposed FY 2009 MS-LTC-DRGs, we identified a number of
proposed MS-LTC-DRGs for which there were no LTCH cases in the
database. That is, based on data from the FY 2007 MedPAR file used for
this proposed rule, no patients who would have been classified to those
proposed MS-LTC-DRGs were treated in LTCHs during FY 2007 and,
therefore, no charge data are available for those proposed MS-LTC-DRGs.
Thus, in the process of determining the proposed MS-LTC-DRG relative
weights, we are unable to calculate proposed relative weights for these
proposed MS-LTC-DRGs with no LTCH cases using the methodology described
in Steps 1 through 4 above. However, because patients with a number of
the diagnoses under these proposed MS-LTC-DRGs may be treated at LTCHs,
consistent with our historical methodology, we are proposing to assign
relative weights to each of the proposed no-volume MS-LTC-DRGs based on
clinical similarity and relative costliness (with the

[[Page 23602]]

exception of proposed ``transplant'' MS-LTC-DRGs and proposed ``error''
MS-LTC-DRGs as discussed below). In general, we are proposing to
determine proposed FY 2009 relative weights for the proposed MS-LTC-
DRGs with no LTCH cases in the FY 2007 MedPAR file used in this
proposed rule (that is, proposed ``no-volume MS-LTC-DRGs) by cross-
walking each proposed no-volume MS-LTC-DRG to another proposed MS-LTC-
DRG with a proposed relative weight (determined in accordance with the
proposed methodology described above). Then, under our proposed
methodology presented in this proposed rule, the proposed ``no-volume''
MS-LTC-DRG would be assigned the same proposed relative weight of the
proposed MS-LTC-DRG to which it would be cross-walked (as described in
greater detail below). As noted above, we are proposing to make a
modification to our methodology for determining proposed relative
weights for MS-LTC-DRGs with no LTCH cases in this proposed rule, which
is discussed in greater detail below. As also noted above, even where
we are not proposing changes to our existing methodology, we are taking
this opportunity to refine our description to more precisely explain
our proposed methodology for determining the MS-LTC-DRG relative
weights in this proposed rule.
Specifically, in this proposed rule, we are proposing to determine
the relative weight for each proposed MS-LTC-DRG using total Medicare
allowable charges reported in the December 2007 update of the FY 2007
MedPAR file. Of the 746 proposed MS-LTC-DRGs for FY 2009, we identified
203 proposed MS-LTC-DRGs for which there were no LTCH cases in the
database (including the 8 proposed ``transplant'' MS-LTC-DRGs and 2
proposed ``error'' MS-LTC-DRGs). For this proposed rule, as noted
above, we are proposing to assign proposed relative weights for each of
the 203 proposed no-volume MS-LTC-DRGs (with the exception of the 8
proposed ``transplant'' proposed MS-LTC-DRGs and the 2 proposed
``error'' MS-LTC-DRGs, which are discussed below) based on clinical
similarity and relative costliness to one of the remaining 543 (746 -
203 = 543) proposed MS-LTC-DRGs for which we are able to determine
relative weights, based on FY 2007 LTCH claims data. (For the remainder
of this discussion, we refer to one of the 543 proposed MS-LTC-DRGs for
which we are able to determine relative weight as the proposed ``cross-
walked'' MS-LTC-DRG.) Then we are proposing to assign the proposed no-
volume MS-LTC-DRG the proposed relative weight of the proposed cross-
walked MS-LTC-DRG. This proposed approach differs from the one we used
to determine the FY 2008 MS-LTC-DRG relative weights when there were no
LTCH cases (see 72 FR 47290). Specifically, in determining the FY 2008
MS-LTC-DRG relative weights in the FY 2008 IPPS final rule with comment
period, if the no volume MS-LTC-DRG was cross-walked to a MS-LTC-DRG
that had 25 or more cases and, therefore, was not in a low-volume
quintile, we assigned the relative weight of a quintile to a no-volume
MS-LTC-DRG (rather than assigning the relative weight of the cross-
walked MS-LTC-DRG). While we believe this approach would result in
appropriate LTCH PPS payments (because it is consistent with our
methodology for determining relative weights for MS-LTC-DRGs that have
a low volume of LTCH cases (which is discussed above in section
II.I.3.e. of this preamble)), upon further review during the
development of the proposed FY 2009 MS-LTC-DRG relative weights in this
proposed rule, we now believe that proposing to assign the proposed
relative weight of the proposed cross-walked MS-LTC-DRG to the proposed
no-volume MS-LTC-DRG would result in more appropriate LTCH PPS payments
because those cases generally require equivalent relative resource (and
therefore should generally have the same LTCH PPS payment). The
relative weight of each MS-LTC-DRG should reflect relative resource of
the LTCH cases grouped to that MS-LTC-DRG. Because the proposed no-
volume MS-LTC-DRGs would be cross-walked to other proposed MS-LTC-DRGs
based on clinical similarity and relative costliness, which usually
require equivalent relative resource use, we believe that assigning the
proposed no-volume MS-LTC-DRG the proposed relative weight of the
proposed cross-walked MS-LTC-DRG would result in appropriate LTCH PPS
payments. (As explained below in Step 6, when necessary, we are
proposing to make adjustments to account for nonmonotonicity.)
Our proposed methodology for determining the proposed relative
weights for the proposed no-volume MS-LTC-DRGs is as follows: We cross-
walk the proposed no-volume MS-LTC-DRG to a proposed MS-LTC-DRG for
which there are LTCH cases in the FY 2007 MedPAR file and to which it
is similar clinically in intensity of use of resources and relative
costliness as determined by criteria such as care provided during the
period of time surrounding surgery, surgical approach (if applicable),
length of time of surgical procedure, postoperative care, and length of
stay. We then assign the proposed relative weight of the proposed
cross-walked MS-LTC-DRG as the proposed relative weight for the
proposed no-volume MS-LTC-DRG such that both of these proposed MS-LTC-
DRGs (that is, the proposed no-volume MS-LTC-DRG and the proposed
cross-walked MS-LTC-DRG) would have the same proposed relative weight.
We note that if the proposed cross-walked MS-LTC-DRG had 25 cases or
more, its proposed relative weight, which was calculated using the
proposed methodology described in steps 1 through 4 above, would be
assigned to the proposed no-volume MS-LTC-DRG as well. Similarly, if
the proposed MS-LTC-DRG to which the proposed no-volume MS-LTC-DRG is
cross-walked has 24 or less cases, and therefore was designated to one
of the proposed low-volume quintiles for purposes of determining the
proposed relative weights, we would assign the proposed relative weight
of the applicable proposed low-volume quintile to the proposed no-
volume MS-LTC-DRG such that both of these proposed MS-LTC-DRGs (that
is, the proposed no-volume MS-LTC-DRG and the proposed cross-walked MS-
LTC-DRG) would have the same proposed relative weight. (As we noted
above, in the infrequent case where nonmonotonicity involving a
proposed no-volume MS-LTC-DRG results, additional measures as described
in Step 6 would be required in order to maintain monotonically
increasing relative weights.)
For this proposed rule, a list of the proposed no-volume FY 2009
MS-LTC-DRGs and the proposed FY 2009 MS-LTC-DRG to which it is cross-
walked (that is, the proposed cross-walked MS-LTC-DRG) is shown in the
chart below.

[[Page 23603]]

Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2009
----------------------------------------------------------------------------------------------------------------
Proposed cross-
Proposed MS-LTC-DRG (Version 26.0) Proposed MS-LTC-DRG description (version 26.0) walked MS-LTC-
DRG
----------------------------------------------------------------------------------------------------------------
9........................................ Bone marrow transplant.............................. 823
13....................................... Tracheostomy for face, mouth & neck diagnoses w/o CC/ 12
MCC.
20....................................... Intracranial vascular procedures w PDX hemorrhage w 31
MCC.
21....................................... Intracranial vascular procedures w PDX hemorrhage w 32
CC.
22....................................... Intracranial vascular procedures w PDX hemorrhage w/ 32
o CC/MCC.
33....................................... Ventricular shunt procedures w/o CC/MCC............. 32
34....................................... Carotid artery stent procedure w MCC................ 37
35....................................... Carotid artery stent procedure w CC................. 38
36....................................... Carotid artery stent procedure w/o CC/MCC........... 38
39....................................... Extracranial procedures w/o CC/MCC.................. 38
61....................................... Acute ischemic stroke w use of thrombolytic agent w 70
MCC.
62....................................... Acute ischemic stroke w use of thrombolytic agent w 71
CC.
63....................................... Acute ischemic stroke w use of thrombolytic agent w/ 72
o CC/MCC.
76....................................... Viral meningitis w/o CC/MCC......................... 75
88....................................... Concussion w MCC.................................... 89
90....................................... Concussion w/o CC/MCC............................... 89
114...................................... Orbital procedures w/o CC/MCC....................... 113
115...................................... Extraocular procedures except orbit................. 125
117...................................... Intraocular procedures w/o CC/MCC................... 125
123...................................... Neurological eye disorders.......................... 125
129...................................... Major head & neck procedures w CC/MCC or major 146
device.
130...................................... Major head & neck procedures w/o CC/MCC............. 148
131...................................... Cranial/facial procedures w CC/MCC.................. 132
134...................................... Other ear, nose, mouth & throat O.R. procedures w/o 133
CC/MCC.
138...................................... Mouth procedures w/o CC/MCC......................... 137
139...................................... Salivary gland procedures........................... 137
150...................................... Epistaxis w MCC..................................... 152
151...................................... Epistaxis w/o MCC................................... 153
215...................................... Other heart assist system implant................... 238
216...................................... Cardiac valve & oth maj cardiothoracic proc w card 237
cath w MCC.
217...................................... Cardiac valve & oth maj cardiothoracic proc w card 238
cath w CC.
218...................................... Cardiac valve & oth maj cardiothoracic proc w card 238
cath w/o CC/MCC.
219...................................... Cardiac valve & oth maj cardiothoracic proc w/o card 237
cath w MCC.
220...................................... Cardiac valve & oth maj cardiothoracic proc w/o card 238
cath w CC.
221...................................... Cardiac valve & oth maj cardiothoracic proc w/o card 238
cath w/o CC/MCC.
222...................................... Cardiac defib implant w cardiac cath w AMI/HF/shock 242
w MCC.
223...................................... Cardiac defib implant w cardiac cath w AMI/HF/shock 243
w/o MCC.
224...................................... Cardiac defib implant w cardiac cath w/o AMI/HF/ 242
shock w MCC.
225...................................... Cardiac defib implant w cardiac cath w/o AMI/HF/ 243
shock w/o MCC.
228...................................... Other cardiothoracic procedures w MCC............... 252
229...................................... Other cardiothoracic procedures w CC................ 253
230...................................... Other cardiothoracic procedures w/o CC/MCC.......... 254
231...................................... Coronary bypass w PTCA w MCC........................ 237
232...................................... Coronary bypass w PTCA w/o MCC...................... 238
233...................................... Coronary bypass w cardiac cath w MCC................ 237
234...................................... Coronary bypass w cardiac cath w/o MCC.............. 238
235...................................... Coronary bypass w/o cardiac cath w MCC.............. 237
236...................................... Coronary bypass w/o cardiac cath w/o MCC............ 238
245...................................... AICD generator procedures........................... 244
251...................................... Perc cardiovasc proc w/o coronary artery stent or 250
AMI w/o MCC.
258...................................... Cardiac pacemaker device replacement w MCC.......... 259
265...................................... AICD lead procedures................................ 259
285...................................... Circulatory disorders w AMI, expired w/o CC/MCC..... 284
295...................................... Deep vein thrombophlebitis w/o CC/MCC............... 294
296...................................... Cardiac arrest, unexplained w MCC................... 283
297...................................... Cardiac arrest, unexplained w CC.................... 284
298...................................... Cardiac arrest, unexplained w/o CC/MCC.............. 284
332...................................... Rectal resection w MCC.............................. 356
333...................................... Rectal resection w CC............................... 357
334...................................... Rectal resection w/o CC/MCC......................... 358
336...................................... Peritoneal adhesiolysis w CC........................ 335
337...................................... Peritoneal adhesiolysis w/o CC/MCC.................. 335
338...................................... Appendectomy w complicated principal diag w MCC..... 371
339...................................... Appendectomy w complicated principal diag w CC...... 372
340...................................... Appendectomy w complicated principal diag w/o CC/MCC 373
341...................................... Appendectomy w/o complicated principal diag w MCC... 371
342...................................... Appendectomy w/o complicated principal diag w CC.... 372
343...................................... Appendectomy w/o complicated principal diag w/o CC/ 373
MCC.
345...................................... Minor small & large bowel procedures w CC........... 344
346...................................... Minor small & large bowel procedures w/o CC/MCC..... 344

[[Page 23604]]

349...................................... Anal & stomal procedures w/o CC/MCC................. 348
350...................................... Inguinal & femoral hernia procedures w MCC.......... 348
351...................................... Inguinal & femoral hernia procedures w CC........... 348
352...................................... Inguinal & femoral hernia procedures w/o CC/MCC..... 348
355...................................... Hernia procedures except inguinal & femoral w/o CC/ 354
MCC.
383...................................... Uncomplicated peptic ulcer w MCC.................... 384
407...................................... Pancreas, liver & shunt procedures w/o CC/MCC....... 406
408...................................... Biliary tract proc except only cholecyst w or w/o 409
c.d.e. w MCC.
410...................................... Biliary tract proc except only cholecyst w or w/o 409
c.d.e. w/o CC/MCC.
412...................................... Cholecystectomy w c.d.e. w CC....................... 411
413...................................... Cholecystectomy w c.d.e. w/o CC/MCC................. 411
416...................................... Cholecystectomy except by laparoscope w/o c.d.e. w/o 415
CC/MCC.
419...................................... Laparoscopic cholecystectomy w/o c.d.e. w/o CC/MCC.. 418
420...................................... Hepatobiliary diagnostic procedures w MCC........... 424
421...................................... Hepatobiliary diagnostic procedures w CC............ 424
422...................................... Hepatobiliary diagnostic procedures w/o CC/MCC...... 424
425...................................... Other hepatobiliary or pancreas O.R. procedures w/o 424
CC/MCC.
434...................................... Cirrhosis & alcoholic hepatitis w/o CC/MCC.......... 433
453...................................... Combined anterior/posterior spinal fusion w MCC..... 457
454...................................... Combined anterior/posterior spinal fusion w CC...... 457
455...................................... Combined anterior/posterior spinal fusion w/o CC/MCC 457
458...................................... Spinal fusion exc cerv w spinal curv, malig or 9+ 457
fusions w/o CC/MCC.
460...................................... Spinal fusion except cervical w/o MCC............... 459
461...................................... Bilateral or multiple major joint procs of lower 480
extremity w MCC.
462...................................... Bilateral or multiple major joint procs of lower 482
extremity w/o MCC.
473...................................... Cervical spinal fusion w/o CC/MCC................... 472
479...................................... Biopsies of musculoskeletal system & connective 478
tissue w/o CC/MCC.
483...................................... Major joint & limb reattachment proc of upper 480
extremity w CC/MCC.
484...................................... Major joint & limb reattachment proc of upper 482
extremity w/o CC/MCC.
491...................................... Back & neck procedures except spinal fusion w/o CC/ 490
MCC.
499...................................... Local excision & removal int fix devices of hip & 498
femur w/o CC/MCC.
506...................................... Major thumb or joint procedures..................... 514
508...................................... Major shoulder or elbow joint procedures w/o CC/MCC. 507
509...................................... Arthroscopy......................................... 505
512...................................... Shoulder, elbow or forearm proc, exc major joint 511
proc w/o CC/MCC.
517...................................... Other musculoskelet sys & conn tiss O.R. proc w/o CC/ 516
MCC.
538...................................... Sprains, strains, & dislocations of hip, pelvis & 537
thigh w/o CC/MCC.
583...................................... Mastectomy for malignancy w/o CC/MCC................ 582
585...................................... Breast biopsy, local excision & other breast 584
procedures w/o CC/MCC.
614...................................... Adrenal & pituitary procedures w CC/MCC............. 629
615...................................... Adrenal & pituitary procedures w/o CC/MCC........... 630
620...................................... O.R. procedures for obesity w CC.................... 619
621...................................... O.R. procedures for obesity w/o CC/MCC.............. 619
627...................................... Thyroid, parathyroid & thyroglossal procedures w/o 626
CC/MCC.
654...................................... Major bladder procedures w CC....................... 653
655...................................... Major bladder procedures w/o CC/MCC................. 653
657...................................... Kidney & ureter procedures forneoplasm w CC......... 656
658...................................... Kidney & ureter procedures for neoplasm w/o CC/MCC.. 656
664...................................... Minor bladder procedures w/o CC/MCC................. 663
667...................................... Prostatectomy w/o CC/MCC............................ 666
670...................................... Transurethral procedures w/o CC/MCC................. 669
672...................................... Urethral procedures w/o CC/MCC...................... 671
675...................................... Other kidney & urinary tract procedures w/o CC/MCC.. 674
691...................................... Urinary stones w esw lithotripsy w CC/MCC........... 694
692...................................... Urinary stones w esw lithotripsy w/o CC/MCC......... 694
697...................................... Urethral stricture.................................. 688
707...................................... Major male pelvic procedures w CC/MCC............... 660
708...................................... Major male pelvic procedures w/o CC/MCC............. 661
710...................................... Penis procedures w/o CC/MCC......................... 709
712...................................... Testes procedures w/o CC/MCC........................ 711
714...................................... Transurethral prostatectomy w/o CC/MCC.............. 713
715...................................... Other male reproductive system O.R. proc for 717
malignancy w CC/MCC.
716...................................... Other male reproductive system O.R. proc for 717
malignancy w/o CC/MCC.
718...................................... Other male reproductive system O.R. proc exc 717
malignancy w/o CC/MCC.
724...................................... Malignancy, male reproductive system w/o CC/MCC..... 723
734...................................... Pelvic evisceration, rad hysterectomy & rad 717
vulvectomy w CC/MCC.
735...................................... Pelvic evisceration, rad hysterectomy & rad 717
vulvectomy w/o CC/MCC.
736...................................... Uterine & adnexa proc for ovarian or adnexal 754
malignancy w MCC.
737...................................... Uterine & adnexa proc for ovarian or adnexal 755
malignancy w CC.
738...................................... Uterine & adnexa proc for ovarian or adnexal 756
malignancy w/o CC/MCC.

[[Page 23605]]

740...................................... Uterine, adnexa proc for non-ovarian/adnexal malig w 739
CC.
741...................................... Uterine, adnexa proc for non-ovarian/adnexal malig w/ 739
o CC/MCC.
742...................................... Uterine & adnexa proc for non-malignancy w CC/MCC... 755
743...................................... Uterine & adnexa proc for non-malignancy w/o CC/MCC. 756
745...................................... D&C, conization, laparascopy & tubal interruption w/ 744
o CC/MCC.
747...................................... Vagina, cervix & vulva procedures w/o CC/MCC........ 746
748...................................... Female reproductive system reconstructive procedures 749
750...................................... Other female reproductive system O.R. procedures w/o 749
CC/MCC.
760...................................... Menstrual & other female reproductive system 744
disorders w CC/MCC.
761...................................... Menstrual & other female reproductive system 744
disorders w/o CC/MCC.
765...................................... Cesarean section w CC/MCC........................... 744
766...................................... Cesarean section w/o CC/MCC......................... 744
767...................................... Vaginal delivery w sterilization &/or D&C........... 744
768...................................... Vaginal delivery w O.R. proc except steril &/or D&C. 744
769...................................... Postpartum & post abortion diagnoses w O.R. 744
procedure.
770...................................... Abortion w D&C, aspiration curettage or hysterotomy. 744
774...................................... Vaginal delivery w complicating diagnoses........... 744
775...................................... Vaginal delivery w/o complicating diagnoses......... 744
776...................................... Postpartum & post abortion diagnoses w/o O.R. 744
procedure.
777...................................... Ectopic pregnancy................................... 744
778...................................... Threatened abortion................................. 759
779...................................... Abortion w/o D&C.................................... 759
780...................................... False labor......................................... 759
782...................................... Other antepartum diagnoses w/o medical complications 781
789...................................... Neonates, died or transferred to another acute care 781
facility.
790...................................... Extreme immaturity or respiratory distress syndrome, 781
neonate.
791...................................... Prematurity w major problems........................ 781
792...................................... Prematurity w/o major problems...................... 781
793...................................... Full term neonate w major problems.................. 781
794...................................... Neonate w other significant problems................ 781
795...................................... Normal newborn...................................... 781
799...................................... Splenectomy w MCC................................... 800
801...................................... Splenectomy w/o CC/MCC.............................. 800
803...................................... Other O.R. proc of the blood & blood forming organs 802
w CC.
804...................................... Other O.R. proc of the blood & blood forming organs 802
w/o CC/MCC.
820...................................... Lymphoma & leukemia w major O.R. procedure w MCC.... 823
821...................................... Lymphoma & leukemia w major O.R. procedure w CC..... 824
822...................................... Lymphoma & leukemia w major O.R. procedure w/o CC/ 824
MCC.
825...................................... Lymphoma & non-acute leukemia w other O.R. proc w/o 824
CC/MCC.
828...................................... Myeloprolif disord or poorly diff neopl w maj O.R. 827
proc w/o CC/MCC.
830...................................... Myeloprolif disord or poorly diff neopl w other O.R. 829
proc w/o CC/MCC.
837...................................... Chemo w acute leukemia as sdx or w high dose chemo 829
agent w MCC.
838...................................... Chemo w acute leukemia as sdx or w high dose chemo 829
agent w CC.
839...................................... Chemo w acute leukemia as sdx or w high dose chemo 829
agent w/o CC/MCC.
848...................................... Chemotherapy w/o acute leukemia as secondary 847
diagnosis w/o CC/MCC.
887...................................... Other mental disorder diagnoses..................... 881
894...................................... Alcohol/drug abuse or dependence, left ama.......... 881
915...................................... Allergic reactions w MCC............................ 918
916...................................... Allergic reactions w/o MCC.......................... 918
955...................................... Craniotomy for multiple significant trauma.......... 26
956...................................... Limb reattachment, hip & femur proc for multiple 482
significant trauma.
959...................................... Other O.R. procedures for multiple significant 958
trauma w/o CC/MCC.
986...................................... Prostatic O.R. procedure unrelated to principal 985
diagnosis w/o CC/MCC.
----------------------------------------------------------------------------------------------------------------

To illustrate this methodology for determining the proposed
relative weights for the proposed MS-LTC-DRGs with no LTCH cases, we
are providing the following example, which refers to the proposed no-
volume MS-LTC-DRGs crosswalk information for FY 2009 provided in the
chart above.
Example: There were no cases in the FY 2007 MedPAR file used for
this proposed rule for proposed MS-LTC-DRG 61 (Acute ischemic stroke w
use of thrombolytic agent w MCC). We determined that MS-LTC-DRG 70
(Nonspecific cebrovascular disorders w MCC) is similar clinically and
based on resource use to proposed MS-LTC-DRG 61. Therefore, we are
proposing to assign the same proposed relative weight of proposed MS-
LTC-DRG 70 of 0.8718 for FY 2009 to proposed MS-LTC-DRG 61 (Table 11 of
the Addendum of this proposed rule).
Furthermore, for FY 2009, consistent with our historical relative
weight methodology, we are proposing to establish MS-LTC-DRG relative
weights of 0.0000 for the following proposed transplant MS-LTC-DRGs:
Heart Transplant or Implant of Heart Assist System with MCC (MS-LTC-DRG
1); Heart Transplant or Implant of Heart Assist System without MCC (MS-
LTC-DRG 2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-
DRG 5);

[[Page 23606]]

Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-
DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8);
Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG
652). This is because Medicare will only cover these procedures if they
are performed at a hospital that has been certified for the specific
procedures by Medicare and presently no LTCH has been so certified.
Based on our research, we found that most LTCHs only perform minor
surgeries, such as minor small and large bowel procedures, to the
extent any surgeries are performed at all. Given the extensive criteria
that must be met to become certified as a transplant center for
Medicare, we believe it is unlikely that any LTCHs will become
certified as a transplant center. In fact, in the more than 20 years
since the implementation of the IPPS, there has never been a LTCH that
even expressed an interest in becoming a transplant center.
If in the future a LTCH applies for certification as a Medicare-
approved transplant center, we believe that the application and
approval procedure would allow sufficient time for us to determine
appropriate weights for the MS-LTC-DRGs affected. At the present time,
we would only include these eight proposed transplant MS-LTC-DRGs in
the GROUPER program for administrative purposes only. Because we use
the same GROUPER program for LTCHs as is used under the IPPS, removing
these proposed MS-LTC-DRGs would be administratively burdensome.
Again, we note that, as this system is dynamic, it is entirely
possible that the number of proposed MS-LTC-DRGs with no volume of LTCH
cases based on the system will vary in the future. We used the most
recent available claims data in the MedPAR file to identify no-volume
proposed MS-LTC-DRGs and to determine the proposed relative weights in
this proposed rule.
Step 6--Adjust the proposed FY 2009 MS-LTC-DRG relative weights to
account for nonmonotonically increasing relative weights.
As discussed in section II.B. of the preamble of this proposed
rule, the MS-DRGs (used under the IPPS) on which the MS-LTC-DRGs are
based provide a significant improvement in the DRG system's recognition
of severity of illness and resource usage. The proposed MS-DRGs contain
base DRGs that have been subdivided into one, two, or three severity
levels. Where there are three severity levels, the most severe level
has at least one code that is referred to as an MCC. The next lower
severity level contains cases with at least one code that is a CC.
Those cases without a MCC or a CC are referred to as without CC/MCC.
When data did not support the creation of three severity levels, the
base was divided into either two levels or the base was not subdivided.
The two-level subdivisions could consist of the CC/MCC and the without
CC/MCC. Alternatively, the other type of two level subdivision could
consist of the MCC and without MCC.
In those base MS-LTC-DRGs that are split into either two or three
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or
the ``with CC'' and ``with MCC'' MS-LTC-DRGs (in the case of a three-
level split). That is, theoretically, cases that are more severe
typically require greater expenditure of medical care resources and
will result in higher average charges. Therefore, in the three severity
levels, relative weights should increase by severity, from lowest to
highest. If the relative weights do not increase (that is, if within a
base MS-LTC-DRG, a MS-LTC-DRG with MCC has a lower relative weight than
one with CC, or the MS-LTC-DRG without CC/MCC has a higher relative
weight than either of the others, they are nonmonotonic). We continue
to believe that utilizing nonmonotonic relative weights to adjust
Medicare payments would result in inappropriate payments. Consequently,
in general, we are proposing to combine proposed MS-LTC-DRG severity
levels within a base MS-LTC-DRG for the purpose of computing a relative
weight when necessary to ensure that monotonicity is maintained. In
determining the proposed FY 2009 MS-LTC-DRG relative weights in this
proposed rule, in general, we are proposing to use the same methodology
to adjust for nonmonotonicity that we used to determine the FY 2008 MS-
LTC-DRG relative weights in the FY 2008 IPPS final rule with comment
(72 FR 47293 through 47295). However, as noted above, we are taking
this opportunity to refine our description to more precisely explain
our methodology for determining the MS-LTC-DRG relative weights in this
proposed rule. Specifically, in determining the proposed FY 2009 MS-
LTC-DRG relative weights in this proposed rule, under each of the
example scenarios provided below, we would combine severity levels
within a base MS-LTC-DRG as follows:
The first example of nonmonotonically increasing relative weights
for a MS-LTC-DRG pertains to a base MS-LTC-DRG with a three-level split
and each of the three levels has 25 or more LTCH cases and, therefore,
none of those MS-LTC-DRGs is assigned to one of the five low-volume
quintiles. In this proposed rule, if nonmonotonicity is detected in the
proposed relative weights of the proposed MS-LTC-DRGs in adjacent
severity levels (for example, the proposed relative weight of the
``with MCC'' (the highest severity level) is less than the ``with CC''
(the middle level), or the ``with CC'' is less than the ``without CC/
MCC''), we would combine the nonmonotonic adjacent proposed MS-LTC-DRGs
and re-determine a proposed relative weight based on the case-weighted
average of the combined LTCH cases of the nonmonotonic proposed MS-LTC-
DRGs. The case-weighted average charge is calculated by dividing the
total charges for all LTCH cases in both severity levels by the total
number of LTCH cases for both proposed MS-LTC-DRGs. The same proposed
relative weight would be assigned to both affected levels of the base
MS-LTC-DRG. If nonmonotonicity remains an issue because the above
process results in a proposed relative weight that is still
nonmonotonic to the remaining proposed MS-LTC-DRG relative weight
within the base MS-LTC-DRG, we would combine all three of the severity
levels to redetermine the proposed relative weights based on the case-
weighted average charge of the combined severity levels. This same
proposed relative weight is then assigned to each of the proposed MS-
LTC-DRGs in that base MS-LTC-DRG.
A second example of nonmonotonically increasing relative weights
for a base MS-LTC-DRG pertains to the situation where there are three
severity levels and one or more of the severity levels within a base
MS-LTC-DRG has less than 25 LTCH cases (that is, low-volume). In this
proposed rule, if nonmonotonicity occurs in the case where either the
highest or lowest severity level (``with MCC'' or ``without CC/MCC'')
has 25 LTCH cases or more and the other two severity levels are low-
volume (and therefore the other two severity levels would otherwise be
assigned the proposed relative weight of the applicable proposed low-
volume quintile(s)), we would combine the data for the cases in the two
adjacent proposed low-volume MS-LTC-DRGs for the purpose of determining
a proposed relative weight. If the combination results in at least 25
cases,

[[Page 23607]]

we re-determine one proposed relative weight based on the case-weighted
average charge of the combined severity levels and assign this same
proposed relative weight to each of the severity levels. If the
combination results in less than 25 cases, based on the case-weighted
average charge of the combined proposed low-volume MS-LTC-DRGs, both
proposed MS-LTC-DRGs would be assigned to the appropriate proposed low-
volume quintile (discussed above in section II.I.3.e. of this preamble)
based on the case-weighted average charge of the combined proposed low-
volume MS-LTC-DRGs. Then the proposed relative weight of the affected
proposed low-volume quintile would be redetermined and that proposed
relative weight would be assigned to each of the affected severity
levels (and all of the proposed MS-LTC-DRGs in the affected proposed
low-volume quintile). If nonmonotonicity persists, we would combine all
three severity levels and redetermine one proposed relative weight
based on the case-weighted average charge of the combined severity
levels and this same proposed relative weight would be assigned to each
of the three levels.
Similarly, in nonmonotonic cases where the middle level has 25
cases or more but either or both of the lowest or highest severity
level has less than 25 cases (that is, low volume), we would combine
the nonmonotonic proposed low-volume MS-LTC-DRG with the middle level
proposed MS-LTC-DRG of the base MS-LTC-DRG. We would redetermine one
proposed relative weight based on the case-weighted average charge of
the combined severity levels and assign this same proposed relative
weight to each of the affected proposed MS-LTC-DRGs. If nonmonotonicity
persists, we would combine all three levels for the purpose of
redetermining a proposed relative weight based on the case-weighted
average charge of the combined severity levels, and assign that
proposed relative weight to each of the three severity levels.
In the case where all three severity levels in the base MS-LTC-DRGs
are proposed low-volume MS-LTC-DRGs and two of the severity levels are
nonmonotonic in relation to each other, we would combine the two
adjacent nonmonotonic severity levels. If that combination results in
less than 25 cases, both proposed low-volume MS-LTC-DRGs would be
assigned to the appropriate proposed low-volume quintile (discussed
above in section II.I.3.e. of this preamble) based on the case-weighted
average charge of the combined proposed low-volume MS-LTC-DRGs. Then
the proposed relative weight of the affected proposed low-volume
quintile would be redetermined and that proposed relative weight would
be assigned to each of the affected severity levels (and all of the
proposed MS-LTC-DRGs in the affected proposed low-volume quintile). If
the nonmonotonicity persists, we would combine all three levels of that
base MS-LTC-DRG for the purpose of redetermining a proposed relative
weight based on the case-weighted average charge of the combined
severity levels, and assign that proposed relative weight to each of
the three severity levels. If that combination of all three severity
levels results in less than 25 cases, we would assign that ``combined''
base MS-LTC-DRG to the appropriate proposed low-volume quintile based
on the case-weighted average charge of the combined proposed low-volume
MS-LTC-DRGs. Then the proposed relative weight of the affected proposed
low-volume quintile would be redetermined and that proposed relative
weight would be assigned to each of the affected severity levels (and
all of the proposed MS-LTC-DRGs in the affected proposed low-volume
quintile).
Another example of nonmonotonicity involves a base MS-LTC-DRG with
three severity levels where at least one of the severity levels has no
cases. As discussed above in greater detail in Step 5, based on
resource use intensity and clinical similarity, we propose to cross-
walk a proposed no-volume MS-LTC-DRG to a proposed MS-LTC-DRG that has
at least one case. Under our proposed methodology for the treatment of
proposed no-volume MS-LTC-DRGs, the proposed no-volume MS-LTC-DRG would
be assigned the same proposed relative weight as the proposed MS-LTC-
DRG to which the proposed no-volume MS-LTC-DRG is cross-walked. For
many proposed no-volume MS-LTC-DRGs, as shown in the chart above in
Step 5, the application of our proposed methodology results in a
proposed cross-walk MS-LTC-DRG that is the adjacent severity level in
the same base MS-LTC-DRG. Consequently, in most instances, the proposed
no-volume MS-LTC-DRG and the adjacent proposed MS-LTC-DRG to which it
is cross-walked would not result in nonmonotonicity because both of
these severity levels would have the same proposed relative weight. (In
this proposed rule, under our proposed methodology for the treatment of
proposed no-volume MS-LTC-DRGs, in the case where the proposed no-
volume MS-LTC-DRG is either the highest or lowest severity level, the
proposed cross-walk MS-LTC-DRG would be the middle level (``with CC'')
within the same base MS-LTC-DRG, and therefore the proposed no-volume
MS-LTC-DRG (either the ``with MCC'' or the ``without CC/MCC'') and the
proposed cross-walk MS-LTC-DRG (the ``with CC'') would have the same
proposed relative weight. Consequently, no adjustment for monotonicity
would be necessary.) However, if our proposed methodology for
determining proposed relative weights for proposed no-volume MS-LTC-
DRGs results in nonmonotonicity with the third severity level in the
base-MS-LTC-DRG, all three severity levels would be combined for the
purpose of redetermining one proposed relative weight based on the
case-weighted average charge of the combined severity levels. This same
proposed relative weight would be assigned to each of the three
severity levels in the base MS-LTC-DRG.
Thus far in the discussion, we have presented examples of
nonmonotonicity in a base MS-LTC-DRG that has three severity levels. We
would apply the same process where the base MS-LTC-DRG contains only
two severity levels. For example, if nonmonotonicity occurs in a base
MS-LTC-DRG with two severity levels (that is, the proposed relative
weight of the higher severity level is less than the lower severity
level), where both of the proposed MS-LTC-DRGs have at least 25 cases
or where one or both of the proposed MS-LTC-DRGs is low volume (that
is, less than 25 cases), we would combine the two proposed MS-LTC-DRGs
of that base MS-LTC-DRG for the purpose of redetermining a proposed
relative weight based on the combined case-weighted average charge for
both severity levels. This same proposed relative weight would be
assigned to each of the two severity levels in the base MS-LTC-DRG.
Specifically, if the combination of the two severity levels would
result in at least 25 cases, we would redetermine one proposed relative
weight based on the case-weighted average charge and assign that
proposed relative weight to each of the two proposed MS-LTC-DRGs. If
the combination results in less than 25 cases, we would assign both
proposed MS-LTC-DRGs to the appropriate proposed low-volume quintile
(discussed above in section II.I.3.e. of this preamble) based on their
combined case-weighted average charge. Then the proposed relative
weight of the affected proposed low-volume quintile would be
redetermined and that proposed relative

[[Page 23608]]

weight would be assigned to each of the affected severity levels.
Step 7--Calculate the proposed FY 2009 budget neutrality factor.
As we established in the RY 2008 LTCH PPS final rule (72 FR 26882),
under the broad authority conferred upon the Secretary under section
123 of Pub. L. 106-113 as amended by section 307(b) of Pub. L. 106-554
to develop the LTCH PPS, beginning with the MS-LTC-DRG update for FY
2008, the annual update to the MS-LTC-DRG classifications and relative
weights will be done in a budget neutral manner such that estimated
aggregate LTCH PPS payments would be unaffected, that is, would be
neither greater than nor less than the estimated aggregate LTCH PPS
payments that would have been made without the MS-LTC-DRG
classification and relative weight changes. Specifically, in that same
final rule, we established under Sec. 412.517(b) that the annual
update to the MS-LTC-DRG classifications and relative weights be done
in a budget neutral manner. For a detailed discussion on the
establishment of the requirement to update the MS-LTC-DRG
classifications and relative weights in a budget neutral manner, we
refer readers to the RY 2008 LTCH PPS final rule (72 FR 26880 through
26884). Updating the MS-LTC-DRGs in a budget neutral manner results in
an annual update to the individual MS-LTC-DRG classifications and
relative weights based on the most recent available data to reflect
changes in relative LTCH resource use. To accomplish this, the MS-LTC-
DRG relative weights are uniformly adjusted to ensure that estimated
aggregate payments under the LTCH PPS would not be affected (that is,
decreased or increased). Consistent with that provision, we are
proposing to update the MS-LTC-DRG classifications and relative weights
for FY 2009 based on the most recent available data and include a
proposed budget neutrality adjustment that would be applied in
determining the proposed MS-LTC-DRG relative weights.
To ensure budget neutrality in updating the proposed MS-LTC-DRG
classifications and proposed relative weights under Sec. 412.517(b),
consistent with the budget neutrality methodology we established in the
FY 2008 IPPS final rule with comment period (72 FR 47295 through
47296), in determining the proposed budget neutrality adjustment for FY
2009 in this proposed rule, we are proposing to use a method that is
similar to the methodology used under the IPPS. Specifically, for FY
2009, after recalibrating the proposed MS-LTC-DRG relative weights as
we do under the methodology as described in detail in Steps 1 through 6
above, we would calculate and apply a normalization factor to those
relative weights to ensure that estimated payments are not influenced
by changes in the composition of case types or the changes being
proposed to the classification system. That is, the proposed
normalization adjustment is intended to ensure that the recalibration
of the proposed MS-LTC-DRG relative weights (that is, the process
itself) neither increases nor decreases total estimated payments.
To calculate the proposed normalization factor for FY 2009, we
would use the following steps: (1) We use the most recent available
claims data (FY 2007) and the proposed MS-LTC-DRG relative weights
(determined above in Steps 1 through 6 above) to calculate the average
CMI; (2) we group the same claims data (FY 2007) using the FY 2008
GROUPER (Version 25.0) and FY 2008 relative weights (established in the
FY 2008 IPPS final rule with comment period (72 FR 47295 through
47296)) and calculate the average CMI; and (3), we compute the ratio of
these average CMIs by dividing the average CMI determined in step (2)
by the average CMI determined in step (1). In determining the proposed
MS-LTC-DRG relative weights for FY 2009, based on the latest available
LTCH claims data, the normalization factor is estimated as 1.038266,
which would be applied in determining each proposed MS-LTC-DRG relative
weight. That is, each proposed MS-LTC-DRG relative weight would be
multiplied by 1.038266 in the first step of the budget neutrality
process. Accordingly, the proposed relative weights in Table 11 in the
Addendum of this proposed rule reflect this proposed normalization
factor. We also ensure that estimated aggregate LTCH PPS payments
(based on the most recent available LTCH claims data) after
reclassification and recalibration (the new proposed FY 2009 MS-LTC-DRG
classifications and relative weights) are equal to estimated aggregate
LTCH PPS payments (for the same most recent available LTCH claims data)
before reclassification and recalibration (the existing FY 2008 MS-DRG
classifications and relative weights). Therefore, we would calculate
the proposed budget neutrality adjustment factor by simulating
estimated total payments under both sets of GROUPERs and relative
weights using current LTCH PPS payment policies (RY 2008) and the most
recent available claims data (from the FY 2007 MedPAR file).
Accordingly, we are proposing to use RY 2008 LTCH PPS rates and
policies in determining the proposed FY 2009 budget neutrality
adjustment in this proposed rule, using the following steps: (1) We
simulate estimated total payments using the normalized proposed
relative weights under GROUPER Version 26.0 (as described above); (2)
we simulate estimated total payments using the FY 2008 GROUPER (Version
25.0) and FY 2008 MS-LTC-DRG relative weights (as established in the FY
2008 IPPS final rule (72 FR 47295 through 47296)); (3) we calculate the
ratio of these estimated total payments by dividing the estimated total
payments determined in step (2) by the estimated total payments
determined in step (1). Then, each of the normalized proposed relative
weights is multiplied by the proposed budget neutrality factor to
determine the budget neutral proposed relative weight for each proposed
MS-LTC-DRG.
Accordingly, in determining the proposed MS-LTC-DRG relative
weights for FY 2009 in this proposed rule, based on the most recent
available LTCH claims data, we are proposing a budget neutrality factor
of 0.99965, which would be applied to the normalized proposed relative
weights (described above). The proposed FY 2009 MS-LTC-DRG relative
weights in Table 11 in the Addendum of this proposed rule reflect this
proposed budget neutrality factor. Furthermore, we expect that we will
have established payments rates and policies for RY 2009 prior to the
development of the FY 2009 IPPS final rule. Therefore, for purposes of
determining the FY 2009 budget neutrality factor in the final rule, we
are proposing that we would simulate estimated total payments using the
most recent LTCH PPS payment policies and LTCH claims data that are
available at that time.
Table 11 in the Addendum to this proposed rule lists the proposed
MS-LTC-DRGs and their respective proposed budget neutral relative
weights, geometric mean length of stay, and five-sixths of the
geometric mean length of stay (used in the determination of short-stay
outlier payments under Sec. 412.529) for FY 2009.

J. Proposed Add-On Payments for New Services and Technologies

1. Background
Sections 1886(d)(5)(K) and (L) of the Act establish a process of
identifying and ensuring adequate payment for new medical services and
technologies (sometimes collectively referred to in this section as
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the
Act specifies

[[Page 23609]]

that a medical service or technology will be considered new if it meets
criteria established by the Secretary after notice and opportunity for
public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that
the process must apply to a new medical service or technology if,
``based on the estimated costs incurred with respect to discharges
involving such service or technology, the DRG prospective payment rate
otherwise applicable to such discharges under this subsection is
inadequate.''
The regulations implementing this provision establish three
criteria for new medical services and technologies to receive an
additional payment. First, 42CFR412.87(b)(2) states that a specific
medical service or technology will be considered new for purposes of
new medical service or technology add-on payments until such time as
Medicare data are available to fully reflect the cost of the technology
in the DRG weights through recalibration. Typically, there is a lag of
2 to 3 years from the point a new medical service or technology is
first introduced on the market (generally on the date that the
technology receives FDA approval/clearance) and when data reflecting
the use of the medical service or technology are used to calculate the
DRG weights. For example, data from discharges occurring during FY 2007
are used to calculate the FY 2009 DRG weights in this proposed rule.
Section 412.87(b)(2) of our existing regulations provides that ``a
medical service or technology may be considered new within 2 or 3 years
after the point at which data begin to become available reflecting the
ICD-9-CM code assigned to the new medical service or technology
(depending on when a new code is assigned and data on the new medical
service or technology become available for DRG recalibration). After
CMS has recalibrated the DRGs based on available data to reflect the
costs of an otherwise new medical service or technology, the medical
service or technology will no longer be considered ``new'' under the
criterion for this section.''
The 2-year to 3-year period during which a medical service or
technology can be considered new would ordinarily begin on the date on
which the medical service or technology received FDA approval or
clearance. (We note that, for purposes of this section of the proposed
rule, we refer to both FDA approval and FDA clearance as FDA
``approval.'') However, in some cases, initially there may be no
Medicare data available for the new service or technology following FDA
approval. For example, the newness period could extend beyond the 2-
year to 3-year period after FDA approval is received in cases where the
product initially was generally unavailable to Medicare patients
following FDA approval, such as in the case of a national noncoverage
determination, or if there was some documented delay in bringing the
product onto the market after that approval (for instance, component
production or drug production has been postponed following FDA approval
due to shelf life concerns or manufacturing issues). After the DRGs
have been recalibrated to reflect the costs of an otherwise new medical
service or technology, the medical service or technology is no longer
eligible for special add-on payment for new medical services or
technologies (Sec. 412.87(b)(2)). For example, an approved new
technology that received FDA approval in October 2007 and entered the
market at that time may be eligible to receive add-on payments as a new
technology for discharges occurring before October 1, 2010 (the start
of FY 2011). Because the FY 2011 DRG weights would be calculated using
FY 2009 MedPAR data, the costs of such a new technology would be fully
reflected in the FY 2011 DRG weights. Therefore, the new technology
would no longer be eligible to receive add-on payments as a new
technology for discharges occurring in FY 2011 and thereafter.
Section 412.87(b)(3) further provides that, to be eligible for the
add-on payment for new medical services or technologies, the DRG
prospective payment rate otherwise applicable to the discharge
involving the new medical services or technologies must be assessed for
adequacy. Under the cost criterion, to assess whether a new technology
would be inadequately paid under the applicable DRG-prospective payment
rate, we evaluate whether the charges for cases involving the new
technology exceed certain threshold amounts. In the FY 2004 IPPS final
rule (68 FR 45385), we established the threshold at the geometric mean
standardized charge for all cases in the DRG plus 75 percent of 1
standard deviation above the geometric mean standardized charge (based
on the logarithmic values of the charges and converted back to charges)
for all cases in the DRG to which the new medical service or technology
is assigned (or the case-weighted average of all relevant DRGs, if the
new medical service or technology occurs in more than one DRG).
However, section 503(b)(1) of Pub. L. 108-173 amended section
1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005,
CMS will apply ``a threshold * * * that is the lesser of 75 percent of
the standardized amount (increased to reflect the difference between
cost and charges) or 75 percent of one standard deviation for the
diagnosis-related group involved.'' (We refer readers to section IV.D.
of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a
discussion of the revision of the regulations to incorporate the change
made by section 503(b)(1) of Pub. L. 108-173.) Table 10 in section XIX.
of the interim final rule with comment period published in the Federal
Register on November 27, 2007, contained the final thresholds that are
being used to evaluate applications for new technology add-on payments
for FY 2009 (72 FR 66888 through 66892). An applicant must demonstrate
that the cost threshold is met using information from inpatient
hospital claims.
With regard to the issue of whether the HIPAA Privacy Rule at 45
CFR Parts 160 and 164 applies to claims information that providers
submit with applications for new technology add-on payments, we
addressed this issue in the September 7, 2001 final rule that
established the new technology add-on payment regulations (66 FR
46917). In the preamble to that final rule, we explained that health
plans, including Medicare, and providers that conduct certain
transactions electronically, including the hospitals that would be
receiving payment under the FY 2001 IPPS final rule, are required to
comply with the HIPAA Privacy Rule. We further explained how such
entities could meet the applicable HIPAA requirements by discussing how
the HIPAA Privacy Rule permitted providers to share with health plans
information needed to ensure correct payment, if they had obtained
consent from the patient to use that patient's data for treatment,
payment, or health care operations. We also explained that because the
information to be provided within applications for new technology add-
on payment would be needed to ensure correct payment, no additional
consent would be required. The HHS Office of Civil Rights has since
amended the HIPAA Privacy Rule, but the results remain. The HIPAA
Privacy Rule no longer requires covered entities to obtain consent from
patients to use or disclose protected health information for treatment,
payment, or health care operations, and expressly permits such entities
to use or to disclose protected health information for any of these
purposes. (We refer readers to 45 CFR 164.502(a)(1)(ii), and
164.506(c)(1) and (c)(3), and the Standards for Privacy of Individually
Identifiable Health Information published in the Federal

[[Page 23610]]

Register on August 14, 2002, for a full discussion of changes in
consent requirements.)
Section 412.87(b)(1) of our existing regulations provides that a
new technology is an appropriate candidate for an additional payment
when it represents ``an advance that substantially improves, relative
to technologies previously available, the diagnosis or treatment of
Medicare beneficiaries.'' For example, a new technology represents a
substantial clinical improvement when it reduces mortality, decreases
the number of hospitalizations or physician visits, or reduces recovery
time compared to the technologies previously available. (We refer
readers to the September 7, 2001 final rule for a complete discussion
of this criterion (66 FR 46902).)
The new medical service or technology add-on payment policy under
the IPPS provides additional payments for cases with relatively high
costs involving eligible new medical services or technologies while
preserving some of the incentives inherent under an average-based
prospective payment system. The payment mechanism is based on the cost
to hospitals for the new medical service or technology. Under Sec.
412.88, if the costs of the discharge (determined by applying CCRs as
described in Sec. 412.84(h)) exceed the full DRG payment, Medicare
will make an add-on payment equal to the lesser of: (1) 50 percent of
the estimated costs of the new technology (if the estimated costs for
the case including the new technology exceed Medicare's payment) or (2)
50 percent of the difference between the full DRG payment and the
hospital's estimated cost for the case. If the amount by which the
actual costs of a new medical service or technology case exceeds the
full DRG payment (including payments for IME and DSH, but excluding
outlier payments) by more than the 50-percent marginal cost factor,
Medicare payment is limited to the full DRG payment plus 50 percent of
the estimated costs of the new technology.
Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments
to annual DRG classifications and relative weights must be made in a
manner that ensures that aggregate payments to hospitals are not
affected. Therefore, in the past, we accounted for projected payments
under the new medical service and technology provision during the
upcoming fiscal year at the same time we estimated the payment effect
of changes to the DRG classifications and recalibration. The impact of
additional payments under this provision was then included in the
budget neutrality factor, which was applied to the standardized amounts
and the hospital-specific amounts. However, section 503(d)(2) of Pub.
L. 108-173 provides that there shall be no reduction or adjustment in
aggregate payments under the IPPS due to add-on payments for new
medical services and technologies. Therefore, add-on payments for new
medical services or technologies for FY 2005 and later years have not
been budget neutral.
Applicants for add-on payments for new medical services or
technologies for FY 2010 must submit a formal request, including a full
description of the clinical applications of the medical service or
technology and the results of any clinical evaluations demonstrating
that the new medical service or technology represents a substantial
clinical improvement, along with a significant sample of data to
demonstrate the medical service or technology meets the high-cost
threshold. Complete application information, along with final deadlines
for submitting a full application, will be available on our Web site
at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp#TopOfPage.
To allow interested parties to identify the new medical services or
technologies under review before the publication of the proposed rule
for FY 2010, the Web site will also list the tracking forms completed
by each applicant.
The Council on Technology and Innovation (CTI) at CMS oversees the
agency's cross-cutting priority on coordinating coverage, coding and
payment processes for Medicare with respect to new technologies and
procedures, including new drug therapies, as well as promoting the
exchange of information on new technologies between CMS and other
entities. The CTI, composed of senior CMS staff and clinicians, was
established under section 942(a) of Pub. L. 108-173. It is co-chaired
by the Director of the Center for Medicare Management (CMM), who is
also designated as the CTI's Executive Coordinator, and the Director of
the Office of Clinical Standards and Quality (OCSQ).
The specific processes for coverage, coding, and payment are
implemented by CMM, OCSQ, and the local claims-payment contractors (in
the case of local coverage and payment decisions). The CTI supplements
rather than replaces these processes by working to assure that all of
these activities reflect the agency-wide priority to promote high-
quality, innovative care, and at the same time to streamline,
accelerate, and improve coordination of these processes to ensure that
they remain up to date as new issues arise. To achieve its goals, the
CTI works to streamline and create a more transparent coding and
payment process, improve the quality of medical decisions, and speed
patient access to effective new treatments. It is also dedicated to
supporting better decisions by patients and doctors in using Medicare-
covered services through the promotion of better evidence development,
which is critical for improving the quality of care for Medicare
beneficiaries.
The agency plans to continue its Open Door forums with stakeholders
who are interested in CTI's initiatives. In addition, to improve
understanding of CMS processes for coverage, coding, and payment and
how to access them, the CTI is developing an ``innovator's guide'' to
these processes. This guide will, for example, outline regulation
cycles and application deadlines. The intent is to consolidate this
information, much of which is already available in a variety of CMS
documents and in various places on CMS's Web site, in a user-friendly
format. In the meantime, we invite any product developers with specific
issues involving the agency to contact us early in the process of
product development if they have questions or concerns about the
evidence that would be needed later in the development process for the
agency's coverage decisions for Medicare.
The CTI aims to provide information on CTI activities to
stakeholders, including Medicare beneficiaries, advocates, medical
product manufacturers, providers, and health policy experts, and other
stakeholders with useful information on CTI initiatives. Stakeholders
with further questions about Medicare's coverage, coding, and payment
processes, or who want further guidance about how they can navigate
these processes, can contact the CTI at [email protected] or from the
``Contact Us'' section of the CTI home page (http://www.cms.hhs.gov/CouncilonTechInnov/).
2. Public Input Before Publication of a Notice of Proposed Rulemaking
on Add-On Payments
Section 1886(d)(5)(K)(viii) of the Act, as amended by section
503(b)(2) of Pub. L. 108-173, provides for a mechanism for public input
before publication of a notice of proposed rulemaking regarding whether
a medical service or technology represents a substantial clinical
improvement or advancement. The process for evaluating new medical
service and technology applications requires the Secretary to--

[[Page 23611]]

Provide, before publication of a proposed rule, for public
input regarding whether a new service or technology represents an
advance in medical technology that substantially improves the diagnosis
or treatment of Medicare beneficiaries;
Make public and periodically update a list of the services
and technologies for which applications for add-on payments are
pending;
Accept comments, recommendations, and data from the public
regarding whether a service or technology represents a substantial
clinical improvement; and
Provide, before publication of a proposed rule, for a
meeting at which organizations representing hospitals, physicians,
manufacturers, and any other interested party may present comments,
recommendations, and data regarding whether a new medical service or
technology represents a substantial clinical improvement to the
clinical staff of CMS.
In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2009
before publication of the FY 2009 IPPS proposed rule, we published a
notice in the Federal Register on December 28, 2007 (72 FR 73845
through 73847), and held a town hall meeting at the CMS Headquarters
Office in Baltimore, MD, on February 21, 2008. In the announcement
notice for the meeting, we stated that the opinions and alternatives
provided during the meeting would assist us in our evaluations of
applications by allowing public discussion of the substantial clinical
improvement criterion for each of the FY 2009 new medical service and
technology add-on payment applications before the publication of the FY
2009 IPPS proposed rule.
Approximately 70 individuals attended the town hall meeting in
person, while approximately 20 additional participants listened over an
open telephone line. Each of the four FY 2009 applicants presented
information on its technology, including a focused discussion of data
reflecting the substantial clinical improvement aspect of the
technology. We received two comments during the town hall meeting,
which are summarized below. We considered each applicant's presentation
made at the town hall meeting, as well as written comments submitted on
each applicant's application, in our evaluation of the new technology
add-on applications for FY 2009 in this proposed rule. We have
summarized these comments below or, if applicable, indicated that no
comments were received at the end of the discussion of each
application.
Comment: One commenter addressed the substantial clinical
improvement criterion. A medical device association stated that CMS'
interpretation of the statutory criteria for new technology add-on
payments is narrow and makes it difficult for potential applicants,
especially small manufacturing companies, to qualify for new technology
add-on payments. The commenter urged CMS to ``deem a device to satisfy
the substantial clinical improvement criteria if it was granted a
humanitarian device exemption or priority review based on the fact that
it represents breakthrough technologies, which offer significant
advantages over existing approved alternatives, for which no
alternatives exist, or the availability of which is in the best
interests of the patients.'' In addition, the commenter remarked that
this process would simplify CMS' evaluation of applications for new
technology add-on payments and would promote access to innovative
treatments, as intended by Congress. Although the commenter also made
remarks that were unrelated to substantial clinical improvement,
because the purpose of the town hall meeting was specifically to
discuss substantial clinical improvement of pending new technology
applications, those comments are not summarized in this proposed rule.
Response: With respect to the comment that CMS has a narrow
interpretation of the statute that makes it difficult for applicants to
meet the statutory criteria for a new technology add-on payment, we
note that we have already specifically addressed the issue in the past
(71 FR 47997 and 72 FR 47301). In addition, we addressed the comment
concerning automatically deeming technologies granted a humanitarian
device exemption (HDE) at 72 FR 47302. Further, because the purpose of
the new technology town hall meeting was to discuss substantial
clinical improvement of pending applications, we are not providing a
response to the unrelated comments in this proposed rule.
Comment: One commenter, a medical technology association, submitted
comments in reference to the MS-DRGs and the need to account for
complexity as well as severity in making refinements to the DRG
classification system. The commenter also made the following comments:
CMS should raise the new technology marginal cost factor, adjust the
newness policy to begin with the issuance of an ICD-9-CM code instead
of the FDA approval date, provide access to the quarterly MedPAR
updates, and allow for the use of external data for determining new
technology payments (when CMS determines that the external data are
unbiased and valid).
Response: Section 1886(d)(5)(K)(viii) of the Act requires that CMS
accept comments, recommendations, and data from the public regarding
whether a service or technology represents a substantial clinical
improvement. Because the comments above are not related to the
substantial clinical improvement criterion of pending applications, we
are not providing a response to them in this proposed rule.
3. FY 2009 Status of Technologies Approved for FY 2008 Add-On Payments
We did not approve any applications for new technology add-on
payments for FY 2008. For additional information, refer to the FY 2008
IPPS final rule with comment period (72 FR 47305 through 47307).
4. FY 2009 Applications for New Technology Add-On Payments
We received four applications to be considered for new technology
add-on payment for FY 2009. A discussion of each of these applications
is presented below. We note that, in the past, we have considered
applications that had not yet received FDA approval, but were
anticipating FDA approval prior to publication of the IPPS final rule.
In such cases, we generally provide a more limited discussion of those
technologies in the proposed rule because it is not known if these
technologies will meet the newness criterion in time for us to conduct
a complete analysis in the final rule. This year, three out of four
applicants do not yet have FDA approval. Consequently, we have
presented a limited analysis of them in this proposed rule.
a. CardioWest^TM Temporary Total Artificial Heart System
(CardioWest^TM TAH-t)
SynCardia Systems, Inc. submitted an application for approval of
the CardioWest^TM temporary Total Artificial Heart system
(TAH-t) for new technology add-on payments for FY 2009. The TAH-t is a
technology that is used as a bridge to heart transplant device for
heart transplant-eligible patients with end-stage biventricular
failure. The TAH-t pumps up to 9.5 liters of blood per minute. This
high level of perfusion helps improve hemodynamic function in patients,
thus making them better heart transplant candidates.

[[Page 23612]]

The TAH-t was approved by the FDA on October 15, 2004, for use as a
bridge to transplant device in cardiac transplant-eligible candidates
at risk of imminent death from biventricular failure. The TAH-t is
intended to be used in hospital inpatients. Some of the FDA's post-
approval requirements include that the manufacturer agree to provide a
post-approval study demonstrating that the success of the device at one
center can be reproduced at other centers. The study was to include at
least 50 patients who will be followed up to 1 year, including (but not
limited to) the following endpoints; survival to transplant, adverse
events, and device malfunction.
Presently, Medicare does not cover artificial heart devices,
including the TAH-t. However, on February 01, 2008, CMS proposed to
reverse a national noncoverage determination that would extend coverage
to this technology within the confines of an FDA-approved clinical
study. (To view the proposed National Coverage Determination (NCD), we
refer readers to the CMS Web site at http://www.cms.hhs.gov/mcd/viewdraftdecisionmemo.asp?from2=viewdraftdecisionmemo.asp&id=211&.)
Should this proposal be finalized, it would become effective on May 01,
2008. Because Medicare's existing coverage policy with respect to this
device has precluded it from being paid for by Medicare, we would not
expect the costs associated with this technology to be currently
reflected in the data used to determine MS-DRGs relative weights. As we
have indicated in the past, although we generally believe that the
newness period would begin on the date that FDA approval was granted,
in cases where the applicant can demonstrate a documented delay in
market availability subsequent to FDA approval, we would consider
delaying the start of the newness period. This technology's situation
represents one such case. We also note that section
1886(d)(5)(K)(ii)(II) of the Act requires that we provide for the
collection of cost data for a new medical service or technology for a
period of at least 2 years and no more than 3 years ``beginning on the
date on which an inpatient hospital code is issued with respect to the
service or technology.'' Furthermore, the statute specifies that the
term ``inpatient hospital code'' means any code that is used with
respect to inpatient hospital services for which payment may be made
under the IPPS and includes ICD-9-CM codes and any subsequent
revisions. Although the TAH-t has been described by the ICD-9-CM
code(s) (described below in the cost threshold discussion) since the
time of its FDA approval, because the TAH-t has not been covered under
the Medicare program (and, therefore, no Medicare payment has been made
for this technology), this code is not ``used with respect to inpatient
hospital services for which payment'' is made under the IPPS, and thus
we assume that none of the costs associated with this technology would
be reflected in the Medicare claims data used to recalibrate the MS-DRG
weights. For this reason, despite its FDA approval date, it appears
that this technology would still be eligible to be considered ``new''
for purposes of the new technology add-on payment if and when the
proposal to reverse the national noncoverage determination concerning
this technology is finalized. Therefore, based on this information, it
appears that the TAH-t would meet the newness criterion on the date
that Medicare coverage begins, should the proposed NCD be finalized.
In an effort to demonstrate that TAH-t would meet the cost
criterion, the applicant submitted data based on 28 actual cases of the
TAH-t. The data included 6 cases (or 21.4 percent of cases) from 2005,
13 cases (or 46.5 percent of cases) from 2006, 7 cases (or 25 percent
of cases) from 2007, and 2 cases (or 7.1 percent of cases) from 2008.
Currently, cases involving the TAH-t are assigned to MS-DRG 215 (Other
Heart Assist System Implant). As discussed below in this section, we
are proposing to remove the TAH-t from MS-DRG 215 and reassign the TAH-
t to 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). Therefore, to determine if the technology meets the cost
criterion, it is appropriate to compare the average standardized charge
per case to the thresholds for MS-DRGs 001, 002, and 215 included in
Table 10 of the November 27, 2007 interim final rule (72 FR 66888
through 66889). The thresholds for MS-DRGs 001, 002, and 215 from Table
10 are $345,031, $178,142, and $151,824, respectively. Based on the 28
cases the applicant submitted, the average standardized charge per case
was $731,632. Because the average standardized charge per case is much
greater than the thresholds cited above for MS-DRG 215 (and MS-DRGs 001
and 002, should the proposal to reassign the TAH-t be finalized), the
applicant asserted that the TAH-t meets the cost criterion whether or
not the costs were analyzed by using either a case-weighted threshold
or case-weighted standardized charge per case.
In addition to analyzing the costs of actual cases involving the
TAH-t, the applicant searched the FY 2006 MedPAR file to identify cases
involving patients who would have potentially been eligible to receive
the TAH-t. The applicant submitted three different MedPAR analyses. The
first MedPAR analysis involved a search for cases using ICD-9-CM
diagnosis code 428.0 (Congestive heart failure) in combination with
ICD-9-CM procedure code 37.66 (Insertion of implantable heart assist
system), and an inpatient hospital length of stay greater than or equal
to 60 days. The applicant found two cases that met this criterion,
which had an average standardized charge per case of $821,522. The
second MedPAR analysis searched for cases with ICD-9-CM diagnosis code
428.0 (Congestive heart failure) and one or more of the following ICD-
9-CM procedure codes: 37.51 (Heart transplant), 37.52 (Implantation of
total heart replacement system), 37.64 (Removal of heart assist
system), 37.66 (Insertion of implantable heart assist system), or 37.68
(Insertion of percutaneous external heart assist device), and a length
of stay greater than or equal to 60 days. The applicant found 144 cases
that met this criterion, which had an average standardized charge per
case of $841,827. The final MedPAR analysis searched for cases with
ICD-9-CM procedure code 37.51 (Heart transplant) in combination with
one of the following ICD-9-CM procedure codes: 37.52 (Implantation of
total heart replacement system), 37.65 (Implantation of external heart
system), or 37.66 (Insertion of implantable heart assist system). The
applicant found 37 cases that met this criterion, which had an average
standardized charge per case of $896,601. Because only two cases met
the criterion for the first analysis, consistent with historical
practice, we would not consider it to be of statistical significance
and, therefore, would not rely upon it to demonstrate whether the TAH-t
would meet the cost threshold. However, both of the additional analyses
seem to provide an adequate number of cases to demonstrate whether the
TAH-t would meet the cost threshold. We assume that none of the costs
associated with this technology would be reflected in the MedPAR
analyses that the applicant used to demonstrate that the technology
would meet the cost criterion. We note that, under all three of the
analyses the applicant performed, it identified cases that would have
been eligible for the TAH-t, but did not remove charges that

[[Page 23613]]

were unrelated to the TAH-t, nor did the applicant insert a proxy of
charges related to the TAH-t. However, as stated above, the average
standardized charge per case is much greater than any of the thresholds
for MS-DRGs 001, 002, and 215. Therefore, even if the applicant were to
approximate what the costs of cases eligible to receive the TAH-t would
have been by removing non-TAH-t associated charges and inserting
charges related to the TAH-t, it appears that the average standardized
charges per case for cases eligible for the TAH-t would exceed the
relevant thresholds from Table 10 (as discussed above) and would
therefore appear to meet the cost criterion. We invite public comment
on whether TAH-t meets the cost criterion.
As noted in section II.G. of this preamble, we are proposing to
remove the TAH-t from MS-DRG 215 and reassign the TAH-t to MS-DRGs 001
and 002. As stated earlier, CMS is proposing to reverse a national
noncoverage determination that would extend coverage to artificial
heart devices within the confines of an FDA-approved clinical study,
effective May 1, 2008. If this proposal is finalized, the MCE will
require both the procedure code 37.52 (Implantation of total
replacement heart system) and the diagnosis code reflecting clinical
trial--V70.7 (Examination of participant in clinical trial). As we have
previously mentioned, the TAH-t appears to meet the cost thresholds for
MS-DRGs 001, 002, and 215. Therefore, its proposed reassignment from
MS-DRG 215 to MS-DRGs 001 and 002 should have no material effect on
meeting the cost thresholds in MS-DRGs 001 and 002 should the
reassignment proposal be finalized.
The manufacturer states that the TAH-t is the only mechanical
circulatory support device intended as a bridge-to-transplant for
patients with irreversible biventricular failure. It also asserts that
the TAH-t improves clinical outcomes because it has been shown to
reduce mortality in patients who are otherwise in end-stage heart
failure. In addition, the manufacturer claims that the TAH-t provides
greater hemodynamic stability and end-organ perfusion, thus making
patients who receive it better candidates for eventual heart
transplant. We welcome comments from the public regarding whether the
TAH-t represents a substantial clinical improvement.
We did not receive any written comments or public comments at the
town hall meeting regarding the substantial clinical improvement
aspects of this technology.
b. Emphasys Medical Zephyr[reg] Endobronchial Valve (Zephyr[reg] EBV)
Emphasys Medical submitted an application for new technology add-on
payments for FY 2009 for the Emphasys Medical Zephyr[reg] Endobronchial
Valve (Zephyr[reg] EBV). The Zephyr[reg] EBV is intended to treat
patients with emphysema by reducing volume in the diseased,
hyperinflated portion of the emphysematous lung with fewer risks and
complications than with more invasive surgical alternatives.
Zephyr[reg] EBV therapy involves placing small, one-way valves in the
patients' airways to allow air to flow out of, but not into, the
diseased portions of the lung thus reducing the hyperinflation. A
typical procedure involves placing three to four valves in the target
lobe using a bronchoscope, and the procedure takes approximately 20 to
40 minutes to complete. The Zephyr[reg] EBVs are designed to be
relatively easy to place, and are intended to be removable so that,
unlike more risky surgical alternatives such as Lung Volume Reduction
Surgery (LVRS) or Lung Transplant, the procedure has the potential to
be fully reversible.
Currently, the Zephyr[reg] EBV has yet to receive approval from the
FDA, but the manufacturer indicated to CMS that it expects to receive
its FDA approval in the second or third quarter of 2008. Because the
technology is not yet approved by the FDA, we will limit our discussion
of this technology to data that the applicant submitted, rather than
make specific proposals with respect to whether the device would meet
the new technology add-on criteria.
In an effort to demonstrate that the Zephyr[reg] EBV would meet the
cost criterion, the applicant searched the FY 2006 MedPAR file for
cases with one of the following ICD-9-CM diagnosis codes: 492.0
(Emphysematous bleb), 492.8 (Other emphysema, NEC), or 496 (Chronic
airway obstruction, NEC). Based on the diagnosis codes searched by the
applicant, cases of the Zephyr[reg] EBV would be most prevalent in MS-
DRGs 190 (Chronic Obstructive Pulmonary Disease with MCC), 191 (Chronic
Obstructive Pulmonary Disease with CC), and 192 (Chronic Obstructive
Pulmonary Disease without CC/MCC). The applicant found 1,869 cases (or
12.8 percent of cases) in MS-DRG 190, 5,789 cases (or 39.5 percent of
cases) in MS-DRG 191, and 6,995 cases (or 47.7 percent of cases) in MS-
DRG 192 (which equals a total of 14,653 cases). The average
standardized charge per case was $21,567 for MS-DRG 190, $15,494 for
MS-DRG 191, and $11,826 for MS-DRG 192. The average standardized charge
per case does not include charges related to the Zephyr[reg] EBV;
therefore, it is necessary to add the charges related to the device to
the average standardized charge per case in evaluating the cost
threshold criteria. Although the applicant submitted data related to
the estimated cost of the Zephyr[reg] EBV per case, the applicant noted
that the cost of the device was proprietary information because the
device is not yet available on the open market. The applicant estimates
$23,920 in charges related to the Zephyr[reg] EBV (based on a 100
percent charge markup of the cost of the device). In addition to case-
weighting the data based on the amount of cases that the applicant
found in the FY 2006 MedPAR file, the applicant case-weighted the data
based on its own projections of how many Medicare cases it would expect
to map to MS-DRGs 190, 191, and 192 in FY 2009. The applicant projects
that, 5 percent of the cases would map to MS-DRG 190, 15 percent of the
cases would map to MS-DRG 191, and 80 percent of the cases would map to
MS-DRG 192. Adding the charges related to the device to the average
standardized charge per case (based on the applicant's projected case
distribution) resulted in a case-weighted average standardized charge
per case of $36,782 ($12,862 plus $23,920). Using the thresholds
published in Table 10 (72 FR 66889), the case-weighted threshold for
MS-DRGs 190, 191, and 192 was $18,394. Because the case-weighted
average standardized charge per case for the applicable MS-DRGs exceed
the case-weighted threshold amount, the applicant maintains that the
Zephyr[reg] EBV would meet the cost criterion. As noted above, the
applicant also performed a case-weighted analysis of the data based on
the 14,653 cases the applicant found in the FY 2006 MedPAR file. Based
on this analysis, the applicant found that the case-weighted average
standardized charge per case ($38,441 based on the 14,653 cases)
exceeded the case-weighted threshold ($20,606 based on the 14,653
cases). Based on both analyses described above, it appears that the
applicant would meet the cost criterion. We invite public comment on
whether Zephyr[reg] EBV meets the cost criterion.
The applicant asserts that the Zephyr[reg] EBV is a substantial
clinical improvement because it provides a new therapy along the
continuum of care for patients with emphysema that offers improvement
in lung function over standard medical therapy while incurring
significantly less risk than more invasive treatments such as LVRS

[[Page 23614]]

and lung transplant. Specifically, the applicant submitted data from
the ongoing pivotal Endobronchial Valve for Emphysema Palliation (VENT)
trial,\14\ which compared 220 patients who received EBV treatment to
101 patients who received standard medical therapy, including
bronchodilators, steroids, mucolytics, and supplemental oxygen. At 6
months, patients who received the Zephyr[reg] EBV had an average of 7.2
percent and 5.8 percent improvement (compared to standard medical
therapy) in the primary effectiveness endpoints of the Forced
Expiratory Volume in 1 second test (FEV1), and the 6 Minute Walk Test
(6MWT), respectively. Both results were determined by the applicant to
be statistically significant. The FEV1 results were determined using
the t-test parametric confidence intervals (the p value determined
using the one-side t-test adjusted for unequal variance) and the 6MWT
results were determined using the Mann-Whitney nonparametric confidence
intervals (the p value was calculated using the one-sided Wilcoxon rank
sum test). However, the data also showed that patients who received the
Zephyr[reg] EBV experienced a number of adverse events, including
hemoptyis, pneumonia, respiratory failure, pneumothorax, and COPD
exacerbations, as well as valve migrations and expectorations that, in
some cases, required repeat bronchoscopy. The manufacturer also
submitted the VENT pivotal trial 1-year follow-up data, but has
requested that the data not be disclosed because it has not yet been
presented publicly nor published in a peer-reviewed journal.
---------------------------------------------------------------------------

\14\ Strange, Charlie., et al., design of the Endobronchial
Valve for Emphysema Palliation trial (VENT): A Nonsurgical Method of
Lung Volume Reduction, BMC Pulmonary Medicine. 2007; 7:10.
---------------------------------------------------------------------------

While CMS recognizes that the Zephyr[reg] EBV therapy is
significantly less risky than LVRS and lung transplant, we are
concerned that the benefits as shown in the VENT pivotal trial may not
outweigh the risks when compared with medical therapy alone. Further,
we note that, according to the applicant, the Zephyr[reg] EBV is
intended for use in many patients who are ineligible for LVRS and/or
lung transplant (including those too sick to undergo more invasive
surgery and those with lower lobe predominant disease distribution),
but that certain patients (that is, those with upper lobe predominant
disease distribution) could be eligible for either surgery or the
Zephyr[reg] EBV. We welcome comments from the public on both the
patient population who would be eligible for the technology, and
whether the Zephyr[reg] EBV represents a substantial clinical
improvement in the treatment of patients with emphysema.
We received written comments from the manufacturer and its
presenters at the town hall meeting clarifying some questions that were
raised at the town hall meeting. Specifically, these commenters
explained that, in general, the target population for the Zephyr[reg]
EBV device was the same population that could benefit from LVRS, and
also includes some patients who were too sick to undergo surgery. The
commenters also explained that patients with emphysema with more
heterogeneous lung damage were more likely to benefit from the device.
We welcome public comments regarding where exactly this technology
falls in the continuum of care of patients with emphysema, and for whom
the risk/benefit ratio is most favorable.
c. Oxiplex[reg]
FzioMed, Inc. submitted an application for new technology add-on
payments for FY 2009 for Oxiplex[reg]. Oxiplex[reg] is an absorbable,
viscoelastic gel made of carboxymethylcellulose (CMC) and polyethylene
oxide (PEO) that is intended to be surgically implanted during a
posterior discectomy, laminotomy, or laminectomy. The manufacturer
asserts that the gel reduces the potential for inflammatory mediators
that injure, tether, or antagonize the nerve root in the epidural space
by creating an acquiescent, semi-permeable environment to protect
against localized debris. These proinflammatory mediators
(phospholipase A and nitric oxide), induced or extruded by
intervertebral discs, may be responsible for increased pain during
these procedures. The manufacturer also asserts that Oxiplex[reg] is a
unique material in that it coats tissue, such as the nerve root in the
epidural space, to protect the nerve root from the effects of
inflammatory mediators originating from either the nucleus pulposus,
from blood derived inflammatory cells, or cytokines during the healing
process.
Oxiplex[reg] is expecting to receive premarket approval from the
FDA by June 2008. Because the technology is not yet approved by the
FDA, we will limit our discussion of this technology to data that the
applicant submitted, rather than make specific proposals with respect
to whether the device would meet the new technology add-on payment
criteria.
With regard to the newness criterion, we are concerned that
Oxiplex[reg] may be substantially similar to adhesion barriers that
have been on the market for several years. We also note that
Oxiplex[reg] has been marketed as an adhesion barrier in other
countries outside of the United States. The manufacturer maintains that
Oxiplex[reg] is different from adhesion barriers in several ways,
including chemical composition, method of action, surgical application
(that is, it is applied liberally to the nerve root and surrounding
neural tissues as opposed to minimally only to nerve elements), and
tissue response (noninflammatory as opposed to inflammatory). We
welcome comments from the public on this issue.
In an effort to demonstrate that the technology meets the cost
criterion, the applicant searched the FY 2006 MedPAR file for cases
with ICD-9-CM procedure codes 03.09 (Other exploration and
decompression of spinal canal) or 80.51 (Excision of interveterbral
disc) that mapped to CMS DRGs 499 and 500 (CMS DRGs 499 and 500 are
crosswalked to MS-DRGs 490 and 491 (Back and Neck Procedures except
Spinal Fusion with or without CC)). Because these cases do not include
charges associated with the technology, the applicant determined it was
necessary to add an additional $7,143 in charges to the average
standardized charge per case of cases that map to MS-DRGs 490 and 491.
(To do this, the applicant used a methodology of inflating the costs of
the technology by the average CCR computed by using the average costs
and charges for supplies for cases with ICD-9-CM procedure codes 03.09
and 80.51 that map to MS-DRGs 490 and 491). Of the 221,505 cases the
applicant found, 95,340 cases (or 43 percent of cases) would map to MS-
DRG 490, which has an average standardized charge of $60,301, and
126,165 cases (or 57 percent of cases) would map to MS-DRG 491, which
has an average standardized charge per case of $43,888. This resulted
in a case-weighted average standardized charge per case of $50,952. The
case-weighted threshold for MS-DRGs 490 and 491 was $27,481. Because
the case-weighted average standardized charge per case exceeds the
case-weighted threshold in MS-DRGs 490 and 491, the applicant maintains
that Oxiplex[reg] would meet the cost criterion. We invite public
comment on whether Oxiplex[reg] meets the cost criterion.
The manufacturer maintains that Oxiplex[reg] is a substantial
clinical improvement because it ``creates a protective environment
around the neural tissue that limits nerve root exposure to post-
surgical irritants and damage and thus reduces adverse outcomes
associated with Failed Back

[[Page 23615]]

Surgery Syndrome (FBSS) following surgery.'' The manufacturer also
claims that the Oxiplex[reg] gel reduces leg and back pain after
discectomy, laminectomy, and laminotomy. The manufacturer also asserts
that the use of Oxiplex[reg] is consistent with fewer revision
surgeries. (During the FDA Investigational Device Exemption (IDE)
trial, one Oxiplex[reg] patient required revision surgery compared to
six control patients.) However, as we noted previously in this section,
we are concerned that Oxiplex[reg] may be substantially similar to
adhesion barriers that have been on the market for several years. We
are also concerned that even if we were to determine that Oxiplex is
not substantially similar to existing adhesion barriers, there may
still be insufficient evidence to support the manufacturer's claims
that Oxiplex[reg] reduces pain associated with spinal surgery. In
addition, we have found no evidence to support the manufacturer's
claims regarding mode of action, degree of dural healing, degree of
wound healing, and local tissue response such as might be shown in
animal studies. We welcome comments from the public regarding whether
Oxiplex[reg] represents a substantial clinical improvement.
We did not receive any written comments or public comments at the
town hall meeting regarding the substantial clinical improvement
aspects of this technology.
d. TherOx Downstream[reg] System
TherOx, Inc. submitted an application for new technology add-on
payments for FY 2009 for the TherOx Downstream[reg] System
(Downstream[reg] System). The Downstream[reg] System uses
SuperSaturatedOxygen Therapy (SSO2) that is designed to limit
myocardial necrosis by minimizing microvascular damage in acute
myocardial infarction (AMI) patients following intervention with
Percutaneous Transluminal Coronary Angioplasty (PTCA), and coronary
stent placement by perfusing the affected myocardium with blood that
has been supersaturated with oxygen. SSO2 therapy refers to the
delivery of superoxygenated arterial blood directly to areas of
myocardial tissue that have been reperfused using PTCA and stent
placement, but which may still be at risk. The desired effect of SSO2
therapy is to reduce infarct size and thus preserve heart muscle and
function. The DownStream[reg] System is the console portion of a
disposable cartridge-based system that withdraws a small amount of the
patient's arterial blood, mixes it with a small amount of saline, and
supersaturates it with oxygen to create highly oxygen-enriched blood.
The superoxygenated blood is delivered directly to the infarct-related
artery via the TherOx infusion catheter. SSO2 therapy is a catheter
laboratory-based procedure. Additional time in the catheter lab area is
an average of 100 minutes. The manufacturer claims that the SSO2
therapy duration lasts 90 minutes and requires an additional 10 minutes
post-procedure preparation for transfer time. The TherOx
Downstream[reg] System is currently not FDA approved; however, the
manufacturer states that it expects to receive FDA approval in the
second quarter of 2008. Because the technology is not yet approved by
the FDA, we will limit our discussion of this technology to data that
the applicant submitted, rather than make specific proposals with
respect to whether the device would meet the new technology add-on
criteria.
In an effort to demonstrate that it would meet the cost criterion,
the applicant submitted two analyses. The applicant believes that cases
that would be eligible for the Downstream[reg] System would most
frequently group to MS-DRGs 246 (Percutaneous Cardiovascular Procedure
with Drug-Eluting Stent with MCC or 4+Vessels/Stents), 247
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without
MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting
Stent with MCC or 4+Vessels/Stents), and 249 (Percutaneous
Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC). The
first analysis used data based on 83 clinical trial patients from 10
clinical sites. Of the 83 cases, 78 were assigned to MS-DRGs 246, 247,
248, or 249. The data showed that 32 of these patients were 65 years
old or older. There were 12 cases (or 15.4 percent of cases) in MS-DRG
246, 56 cases (or 71.8 percent of cases) in MS-DRG 247, 2 cases (or 2.6
percent of cases) in MS-DRG 248, and 8 cases (or 10.3 percent of cases)
in MS-DRG 249. (The remaining five cases grouped to MS-DRGs that the
technology would not frequently group to and therefore are not included
in this analysis.) The average standardized charge per case for MS-DRGs
246, 247, 248, and 249 was $66,730, $53,963, $54,977, and $41,594,
respectively. The case-weighted average standardized charge per case
for the four MS-DRGs listed above is $54,665. Based on the threshold
from Table 10 (72 FR 66890), the case-weighted threshold for the four
MS-DRGs listed above was $49,303. The applicant also searched the FY
2006 MedPAR file to identify cases that would be eligible for the
Downstream[reg] System. The applicant specifically searched for cases
with primary ICD-9-CM diagnosis code 410.00 (Acute myocardial
infarction of anterolateral wall with episode of care unspecified),
410.01 (Acute myocardial infarction of anterolateral wall with initial
episode of care), 410.10 (Acute myocardial infarction of other anterior
wall with episode of care unspecified), or 410.11 (Acute myocardial
infarction of other anterior wall with initial episode of care) in
combination with ICD-9-CM procedure code of 36.06 (Insertion of non-
drug-eluting coronary artery stent(s)) or 36.07 (Insertion of drug-
eluting coronary artery stent(s)). The applicant's search found 13,527
cases within MS-DRGs 246, 247, 248, and 249 distributed as follows:
2,287 cases (or 16.9 percent of cases) in MS-DRG 246; 9,691 cases (or
71.6 percent of cases) in MS-DRG 247; 402 cases (or 3 percent of cases)
in MS-DRG 248; and 1,147 cases (or 8.5 percent of cases) in MS-DRG 249.
Not including the charges associated with the technology, the geometric
mean standardized charge per case for MS-DRGs 246, 247, 248, and 249
was $59,631, $42,357, $49,718 and $37,446, respectively. Therefore,
based on this analysis, the total case-weighted geometric mean
standardized charge per case across these MS-DRGs was $45,080. The
applicant estimated that it was necessary to add an additional $21,620
in charges to the total case-weighted geometric mean standardized
charge per case. The applicant included charges for supplies and tests
related to the technology, charges for 100 minutes of additional
procedure time in the catheter laboratory and charges for the
technology itself in the additional charge amount referenced above. The
inclusion of these charges would result in a total case-weighted
geometric mean standardized charge per case of $66,700. The case-
weighted threshold for MS-DRGs 246, 247, 248, and 249 (from Table 10
(72 FR 66889)) was $49,714. Because the total case-weighted average
standardized charge per case from the first analysis and the case-
weighted geometric mean standardized charge per case from the second
analysis exceeds the applicable case-weighted threshold, the applicant
maintains the Downstream[reg] System would meet the cost criterion. We
invite public comment on whether Downstream[reg] System meets the cost
criterion.
The applicant asserts that the Downstream[reg] System is a
substantial clinical improvement because it reduces infarct size in
acute AMI where PTCA and stent placement have also been performed. Data
was submitted from the Acute Myocardial Infarction Hyperbaric

[[Page 23616]]

Oxygen Treatment (AMIHOT) II trial, which was presented at the October
2007 Transcatheter Cardiovascular Therapeutics conference, but has not
been published in peer reviewed literature, that showed an average of
6.5 percent reduction in infarct size as measured with Tc-99m Sestamibi
imaging in patients who received supersaturated oxygen therapy. We note
that those patients also showed a significantly higher incidence of
bleeding complications. While we recognize that a reduction of infarct
size may correlate with improved clinical outcomes, we question whether
the degree of infarct size reduction found in the trial represents a
substantial clinical improvement, particularly in light of the apparent
increase in bleeding complications. We welcome comments from the public
on this matter.
We received one written comment from the manufacturer clarifying
questions that were raised at the town hall meeting. Specifically, the
commenter explained the methodology of Tc-99m Sestamibi scanning and
interpretation in the AMIHOT II trial. In addition, the commenter
explained that the AMIHOT \15\ and AMIHOT II trials did not attempt to
measure differences in heart failure outcomes nor mortality outcomes.
---------------------------------------------------------------------------

\15\ Oneill, WW., et al., Acute Myocardial Infarction with
Hyperoxemic Therapy (AMIHOT): A Prospective Randomized Trial of
Intracoronary Hyperoxemic Reperfusion after Percutaneous Coronary
Intervention. Journal of the American College of Cardiology, Vol.
50, No. 5, 2007, pp. 397-405.
---------------------------------------------------------------------------

5. Proposed Regulatory Change
Section 1886(d)(5)(K)(i) of the Act directs us to establish a
mechanism to recognize the cost of new medical services and
technologies under the IPPS, with such mechanism established after
notice and opportunity for public comment. In accordance with this
authority, we established at Sec. 412.87(b) of our regulations
criteria that a medical service or technology must meet in order to
qualify for the additional payment for new medical services and
technologies. Specifically, we evaluate applications for new medical
service or technology add-on payment by determining whether they meet
the criteria of newness, adequacy of payment, and substantial clinical
improvement.
As stated in section III.J.1. of the preamble of this proposed
rule, Sec. 412.87(b)(2) of our existing regulations provides that a
specific medical service or technology will be considered new for
purposes of new medical service or technology add-on payments after the
point at which data begin to become available reflecting the ICD-9-CM
code assigned to the new service or technology. The point at which
these data become available typically begins when the new medical
service or technology is first introduced on the market, generally on
the date that the medical service or technology receives FDA approval.
Accordingly, for purposes of the new medical service or technology add-
on payment, a medical service or technology cannot be considered new
prior to the date on which FDA approval is granted.
In addition, as stated in section III.J.1. of the preamble of this
proposed rule, Sec. 412.87(b)(3) of our existing regulations provides
that, to be eligible for the add-on payment for new medical services or
technologies, the DRG prospective payment rate otherwise applicable to
the discharge involving the new medical service or technology must be
assessed for adequacy. Under the cost criterion, to assess the adequacy
of payment for a new medical service or technology paid under the
applicable DRG prospective payment rate, we evaluate whether the
charges for cases involving the new medical service or technology
exceed certain threshold amounts.
Section 412.87(b)(1) of our existing regulations provides that, to
be eligible for the add-on payment for new medical services or
technologies, the new medical service or technology must represent an
advance that substantially improves, relative to technologies
previously available, the diagnosis or treatment of Medicare
beneficiaries. In addition, Sec. 412.87(b)(1) states that CMS will
announce its determination as to whether a new medical service or
technology meets the substantial clinical improvement criteria in the
Federal Register as part of the annual updates and changes to the IPPS.
Since the implementation of the policy on add-on payments for new
medical services and technologies, we accept applications for add-on
payments for new medical services and technologies on an annual basis
by a specified deadline. For example, applications for FY 2009 were
submitted in November 2007. After accepting applications, CMS then
evaluates them in the annual IPPS proposed and final rules to determine
whether the medical service or technology is eligible for the new
medical service or technology add-on payment. If an application meets
each of the eligibility criteria, the medical service or technology is
eligible for new medical service or technology add-on payments
beginning on the first day of the new fiscal year (that is, October 1).
We have advised prior and potential applicants that we evaluate
whether a medical service or technology is eligible for the new medical
service or technology add-on payments prior to publication of the final
rule setting forth the annual updates and changes to the IPPS, with the
results of our determination announced in the final rule. We announce
our results in the final rule for each fiscal year because we believe
predictability is an important aspect of the IPPS and that it is
important to apply a consistent payment methodology for new medical
services or technologies throughout the entire fiscal year. For
example, hospitals must train their billing and other staff after
publication of the final rule to properly implement the coding and
payment changes for the upcoming fiscal year set forth in the final
rule. In addition, hospitals' budgetary process and clinical decisions
regarding whether to utilize new technologies are based in part on the
applicable payment rates under the IPPS for the upcoming fiscal year,
including whether the new medical services or technologies qualify for
the new medical service or technology add-on payment. If CMS were to
make multiple payment changes under the IPPS during a fiscal year,
these changes could adversely affect the decisions hospitals implement
at the beginning of the fiscal year. For these reasons, we believe
applications for new medical service or technology add-on payments
should be evaluated prior to publication of the final IPPS rule for
each fiscal year. Therefore, if an application does not meet the new
medical service or technology add-on payment criteria prior to
publication of the final rule, it will not be eligible for the new
medical service or technology add-on payments for the fiscal year for
which it applied for the add-on payments.
Because we make our determination regarding whether a medical
service or technology meets the eligibility criteria for the new
medical service or technology add-on payments prior to publication of
the final rule, we have advised both past and potential applicants that
their medical service or technology must receive FDA approval early
enough in the IPPS rulemaking cycle to allow CMS enough time to fully
evaluate the application prior to the publication of the IPPS final
rule. Moreover, because new medical services or technologies that have
not received FDA approval do not meet the newness criterion, it would
not be necessary or prudent for us to make a final determination
regarding whether a new

[[Page 23617]]

medical service or technology meets the cost threshold and substantial
clinical improvement criteria prior to the medical service or
technology receiving FDA approval. In addition, we do not believe it is
appropriate for CMS to determine whether a medical service or
technology represents a substantial clinical improvement over existing
technologies before the FDA makes a determination as to whether the
medical service or technology is safe and effective. For these reasons,
we first determine whether a medical service or technology meets the
newness criteria, and only if so, do we then make a determination as to
whether the technology meets the cost threshold and represents a
substantial clinical improvement over existing medical services or
technologies. For example, even if an application has FDA approval, if
the medical service or technology is beyond the timeline of 2-3 years
to be considered new, in the past we have not made a determination on
the cost threshold and substantial clinical improvement. Further, as we
have discussed in prior final rules (69 FR 49018-49019 and 70 FR
47344), it is our past and present practice to analyze the new medical
service or technology add-on payment criteria in the following
sequence: Newness, cost threshold, and finally substantial clinical
improvement. Under our proposal in this proposed rule, we would
continue this practice of analyzing the eligibility criteria in this
sequence and announce in the annual Federal Register as part of the
annual updates and changes to the IPPS our determination on whether a
medical service or technology meets the eligibility criteria in Sec.
412.87(b).
In the interest of more clearly defining the parameters under which
CMS can fully and completely evaluate new medical service or technology
add-on payment applications, we are proposing to amend the regulations
at Sec. 412.87 by adding a new paragraph (c) to codify our current
policy and specify that CMS will consider whether a new medical service
or technology meets the eligibility criteria in Sec. 412.87(b) and
announce the results in the Federal Register as part of the annual
updates and changes to the IPPS. As a result, we are proposing to
remove the duplicative text in Sec. 412.87(b)(1) that specifies that
CMS will determine whether a new medical service or technology meets
the substantial clinical improvement criteria and announce the results
of its determination in the Federal Register as part of the annual
updates and changes to the IPPS. We note that this proposal is not a
change to our current policy, as we have always given consideration to
whether an application meets the new medical service or technology
eligibility criteria in the annual IPPS proposed and final rules.
Rather, this proposal simply codifies our current practice of fully
evaluating new medical service or technology add-on payment
applications prior to publication of the final rule in order to
maintain predictability within the IPPS for the upcoming fiscal year.
In addition, we are proposing in new paragraph (c) of Sec. 412.87
to set July 1 of each year as the deadline by which IPPS new medical
service or technology add-on payment applications must receive FDA
approval. This proposed deadline should provide us with enough time to
fully consider all of the new medical service or technology add-on
payment criteria for each application and maintain predictability in
the IPPS for the coming fiscal year.
Finally, under this proposal, applications that have not received
FDA approval by July 1 would not be considered in the final rule, even
if they were summarized in the corresponding IPPS proposed rule.
However, applications that receive FDA approval of the medical service
or technology after July 1 would be able to reapply for the new medical
service or technology add-on payment the following year (at which time
they would be given full consideration in both the IPPS proposed and
final rules).
In summary, for the reasons cited above, we are proposing to revise
Sec. 412.87 to remove the second sentence of (b)(1) and add a new
paragraph (c) to codify our current practice of how CMS evaluates new
medical service or technology add-on payment applications and establish
in paragraph (c) a deadline of July 1 of each year as the deadline by
which IPPS new medical service or technology add-on payment
applications must receive FDA approval in order to be fully evaluated
in the applicable IPPS final rule each year.

III. Proposed Changes to the Hospital Wage Index

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary must adjust the standardized amounts ``for area differences
in hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level.'' In
accordance with the broad discretion conferred under the Act, we
currently define hospital labor market areas based on the definitions
of statistical areas established by the Office of Management and Budget
(OMB). A discussion of the proposed FY 2009 hospital wage index based
on the statistical areas, including OMB's revised definitions of
Metropolitan Areas, appears under section III.C. of this preamble.
Beginning October 1, 1993, section 1886(d)(3)(E) of the Act
requires that we update the wage index annually. Furthermore, this
section provides that the Secretary base the update on a survey of
wages and wage-related costs of short-term, acute care hospitals. The
survey must exclude the wages and wage-related costs incurred in
furnishing skilled nursing services. This provision also requires us to
make any updates or adjustments to the wage index in a manner that
ensures that aggregate payments to hospitals are not affected by the
change in the wage index. The proposed adjustment for FY 2009 is
discussed in section II.B. of the Addendum to this proposed rule.
As discussed below in section III.I. of this preamble, we also take
into account the geographic reclassification of hospitals in accordance
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating
IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the
Secretary is required to adjust the standardized amounts so as to
ensure that aggregate payments under the IPPS after implementation of
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the
Act are equal to the aggregate prospective payments that would have
been made absent these provisions. The proposed budget neutrality
adjustment for FY 2009 is discussed in section II.A.4.b. of the
Addendum to this proposed rule.
Section 1886(d)(3)(E) of the Act also provides for the collection
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in
order to construct an occupational mix adjustment to the wage index. A
discussion of the occupational mix adjustment that we are proposing to
apply beginning October 1, 2008 (the FY 2009 wage index) appears under
section III.D. of this preamble.

B. Requirements of Section 106 of the MIEA-TRHCA

1. Wage Index Study Required Under the MIEA-TRHCA
Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required

[[Page 23618]]

MedPAC to submit to Congress, not later than June 30, 2007, a report on
the Medicare wage index classification system applied under the
Medicare IPPS. Section 106(b) of MIEA-TRHCA required 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, section 106(b)(2) of the MIEA-TRHCA instructed the
Secretary of Health and Human Services, taking into account MedPAC's
recommendations on the Medicare wage index classification system, to
include in this 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. The proposal (or proposals) must
consider each of the following:
Problems associated with the definition of labor markets
for the wage index adjustment.
The modification or elimination of geographic
reclassifications and other adjustments.
The use of Bureau of Labor of Statistics data or other
data or methodologies to calculate relative wages for each geographic
area.
Minimizing variations in wage index adjustments between
and within MSAs and statewide rural areas.
The feasibility of applying all components of CMS'
proposal to other settings.
Methods to minimize the volatility of wage index
adjustments while maintaining the principle of budget neutrality.
The effect that the implementation of the proposal would
have on health care providers on each region of the country.
Methods for implementing the proposal(s) including methods
to phase in such implementations.
Issues relating to occupational mix such as staffing
practices and any evidence on quality of care and patient safety
including any recommendation for alternative calculations to the
occupational mix.
In its June 2007 Report to Congress, ``Report to the Congress:
Promoting Greater Efficiency in Medicare'' (Chapter 6 with Appendix),
MedPAC made three broad recommendations regarding the wage index:
(1) Congress should repeal the existing hospital wage index
statute, including reclassifications and exceptions, and give the
Secretary authority to establish a new wage index system;
(2) The Secretary should establish a hospital compensation index
that--
Uses wage data from all employers and industry-specific
occupational weights;
Is adjusted for geographic differences in the ratio of
benefits to wages;
Is adjusted at the county level and smoothes large
differences between counties; and
Is implemented so that large changes in wage index values
are phased in over a transition period; and
(3) The Secretary should use the hospital compensation index for
the home health and skilled nursing facility prospective payment
systems and evaluate its use in the other Medicare fee-for-service
prospective payment systems.
The full June 2007 Report to Congress is available at the Web site:
http://www.medpac.gov/documents/Jun07_EntireReport.pdf).
In the presentation and analysis of its alternative wage index
system, MedPAC addressed almost all of the nine points for
consideration under section 106(b)(2) of Pub. L. 109-432. Following are
the highlights of the alternative wage index system recommended by
MedPAC:
Although the MedPAC recommended wage index generally
retains the current labor market definitions, it supplements the
metropolitan areas with county-level adjustments and eliminates single
wage index values for rural areas.
In the MedPAC recommended wage index, the county-level
adjustments, together with a smoothing process that constrains the
magnitude of differences between and within contiguous wage areas,
serve as a replacement for geographical reclassifications.
The MedPAC recommended wage index uses BLS data instead of
the CMS hospital wage data collected on the Medicare cost report.
MedPAC adjusts the BLS data for geographic differences in the ratio of
benefits to wages using Medicare cost report data.
The BLS data are collected from a sample of all types of
employers, not just hospitals. The MedPAC recommended wage index could
be adapted to other providers such as HHAs and SNFs by replacing
hospital occupational weights with occupational weights appropriate for
other types of providers.
In the MedPAC recommended wage index, volatility over time
is addressed by the use of BLS data, which is based on a 3-year rolling
sample design.
MedPAC recommends a phased implementation for its
recommended wage index in order to cushion the effect of large wage
index changes on individual hospitals.
MedPAC suggests that using BLS data automatically
addresses occupational mix differences, because the BLS data are
specific to health care occupations, and national industry-wide
occupational weights are applied to all geographic areas.
The MedPAC report does not provide any evidence of the
impact of its wage index on staffing practices or the quality of care
and patient safety.
To assist CMS in meeting the requirements of section 106(b)(2) of
Pub. L. 109-432, in February 2008, CMS awarded a Task Order under its
Expedited Research and Demonstration Contract, to Acumen, LLC. The two
general responsibilities of the Task Order are to (1) conduct a
detailed impact analysis that compares the effects of MedPAC's wage and
hospital compensation indexes with the CMS wage index and (2) assist
CMS in developing a proposal (or proposals) that addresses the nine
points for consideration under section 106(b)(2) of Pub. L. 109-432.
Specifically, the tasks under the Task Order include, but are not
limited to, an evaluation of whether differences between the two types
of wage data (that is, CMS cost report and occupational mix data and
BLS data) produce significant differences in wage index values among
labor market areas, a consideration of alternative methods of
incorporating benefit costs into the construction of the wage index, a
review of past and current research on alternative labor market area
definitions, and a consideration of how aspects of the MedPAC
recommended wage index can be applied to the CMS wage data in
constructing a new methodology for the wage index. We will present any
analyses and proposals resulting from this Task Order in the FY 2009
IPPS final rule or in a special Federal Register notice issued after
the final rule is published.
2. CMS Proposals in Response to Requirements Under Section 106(b) of
the MIEA-TRHCA
As discussed in section III.A. of this preamble, the purpose of the
hospital wage index is to adjust the IPPS standardized payment to
reflect labor market area differences in wage levels. The geographic
reclassification system exists in order to assist ``hospitals which are
disadvantaged by their current geographic classification because they
compete with hospitals that are located in the geographic area to which
they seek to be reclassified'' (56 FR 25469). Geographic
reclassification is

[[Page 23619]]

established under section 1886(d)(10) of the Act and is implemented
through 42 CFR Part 412, Subpart L. (We refer readers to section III.I.
of this preamble for a detailed discussion of the geographic
reclassification system and other area wage index exceptions.)
In its June 2007 Report to Congress, MedPAC discussed its findings
that geographic reclassification, and numerous other area wage index
exceptions added to the system over the years, have created major
complexities and ``troubling anomalies'' in the hospital wage index. A
review of the IPPS final rules reveals a long history of legislative
changes that have permitted certain hospitals, that otherwise would not
be able to reclassify under section 1886(d)(10) of the Act, to receive
a higher wage index than calculated for their geographic area. MedPAC
reports that more than one-third of hospitals now receive a higher wage
index due to geographic reclassification or other wage index
exceptions. We are concerned about the integrity of the current system,
and agree with MedPAC that the process has become burdensome.
As noted above, MedPAC recommended the elimination of geographic
reclassification and other wage index exceptions. In addition, the
President's FY 2009 Budget included a proposal to apply the geographic
reclassification budget neutrality requirement at the State level
rather than by adjusting the standardized rate for hospitals
nationwide. Given the language in section 1886(d)(10) of the Act
establishing the MGCRB, we believe a statutory change would be required
to make these changes. However, we do have the authority to make some
regulatory changes to the reclassification system as discussed below.
We note that these proposals do not preclude future consideration of
MedPAC's recommendations that could be implemented through additional
changes to our regulations, once our analysis of those recommendations
is complete (after the publication of the FY 2009 IPPS proposed rule).
a. Proposed Revision of the Reclassification Average Hourly Wage
Comparison Criteria
Regulations at 42 CFR 413.230(d)(1) set forth the average hourly
wage comparison criteria that an individual hospital must meet in order
for the MGCRB to approve a geographic reclassification application. Our
current criteria (requiring an urban hospital to demonstrate that its
average hourly wage is at least 108 percent of the average hourly wage
of hospitals in the area in which the hospital is located and at least
84 percent of the average hourly wage of hospitals in the area to which
it seeks redesignation) were adopted in the FY 1993 IPPS final rule (57
FR 39825). In that final rule, we explained that the 108 percent
threshold ``is based on the national average hospital wage as a
percentage of its area wage (96 percent) plus one standard deviation
(12 percent).'' We also explained that we would use the 84-percent
threshold to reflect the average hospital wage of the hospital as a
percentage of its area wage less one standard deviation. We stated that
``to qualify for a wage index reclassification, a hospital must have an
average hourly wage that is more than one national standard deviation
above its original labor market area and not less than one national
standard deviation below its new labor market area'' (57 FR 39770). In
response to numerous public comments we received, we expressed our
policy and legal justifications for adopting the specific thresholds.
Among other things, we stated that geographic reclassifications must be
viewed not just in terms of those hospitals that are reclassifying, but
also in terms of the nonreclassifying hospitals that, through a budget
neutrality adjustment, are required to bear a financial burden
associated with the higher wage indices received by those hospitals
that reclassify. We also indicated that the Secretary has ample legal
authority under section 1886(d)(10) of the Act to set the wage
comparison thresholds and to revise such thresholds upon further
review. We refer readers to that final rule for a full discussion of
our justifications for the standards.
In the FY 2000 IPPS final rule (65 FR 47089 through 47090), the
wage comparison criteria for rural hospitals seeking individual
hospital reclassifications were reduced to 82 percent and 106 percent
to compensate for the historic economic underperformance of rural
hospitals. The 2-percent drop in both thresholds was determined to
allow a significant benefit to some hospitals that were close to
meeting the existing criteria but would not make the reclassification
standards overly liberal for rural hospitals.
CMS has not evaluated or recalibrated the average hourly wage
criteria for geographic reclassification since they were established in
FY 1993. In consideration of the MIEA-TRHCA requirements and MedPAC's
finding that over one-third of hospitals are receiving a reclassified
wage index or other wage index adjustment, we decided to reevaluate the
average hourly wage criteria for geographic reclassification. We ran
simulations with more recent wage data to determine what would be the
appropriate average hourly wage criteria. We found that the average
hospital average hourly wage as a percentage of its area's wage has
increased from approximately 96 percent in FY 1993 to closer to 98
percent over FYs 2006, 2007, and 2008 (97.8, 98.2, and 98 percent,
respectively). We also determined that the standard deviation has been
reduced from approximately 12 percent in FY 1993 to closer to 10
percent over the same 3-year period (10.7, 10.4, and 10.4 percent,
respectively); that is, assuming normal distributions, approximately 68
percent of all hospitals would have an average hourly wage that
deviates less than 10 percentage points above or below the mean. This
assessment indicates that the new baseline criteria for
reclassification should be set to 88/108 percent. While the 108
criterion appears not to require adjustment, the current 84 percent
standard appears to be too low a threshold to serve the purpose of
establishing wage comparability with a proximate labor market area.
To assess the impact that these changes would have had on hospitals
that reclassified in FY 2008, we ran models that set urban individual
reclassification standards to 88/108 percent and the county group
reclassification standard to 88 percent. We retained the 2-percent
benefit for rural hospitals by setting an 86/106 percent standard. We
used 3-year average hourly wage figures from the 2005, 2006, and 2007
wage surveys and compared them to 3-year average hourly wage figures
for CBSAs over the same 3-year period.
Of the 295 hospitals that applied for and received individual
reclassifications in FY 2008, 45 of them (15.3 percent) would not meet
the proposed 88/86 percent threshold. Of the 66 hospitals that applied
for and received county group reclassification in FY 2008, 6 hospitals
(9.1 percent) in 3 groups would not have qualified with the new
standards. We also ran comparisons for hospitals that reclassified in
FY 2006 and FY 2007 to determine if they would have been able to
reclassify in FY 2008, using 3-year averages available in FY 2008. We
found that, of all hospitals that were reclassified in FY 2008 (that
is, applications approved for FYs 2006 through 2008), 14.7 percent of
individual reclassifications and 8.5 percent of county group
reclassification would not have qualified to reclassify in FY 2008.

[[Page 23620]]

Section 106 of MIEA-TRHCA requires us to propose revisions to the
hospital wage index system after considering the recommendations of
MedPAC. To address this requirement, we are proposing that the 84/108
criteria for urban hospital reclassifications and the 82/106 criteria
for rural hospital reclassifications be recalibrated using the
methodology published in the FY 1993 final rule and more recent wage
data (that is, data used in computing the FYs 2006, 2007, 2008 wage
indices). We believe that hospitals that are seeking to reclassify to
another area should be required to demonstrate more similarity to the
area than the current criteria permit, and our recent analysis
demonstrates that those criteria are no longer appropriate. Therefore,
we are proposing to change the criterion for the comparison of a
hospital's average hourly wage to that of the area to which the
hospital seeks reclassification to 88 percent for urban hospitals and
86 percent for rural hospitals for new reclassifications beginning with
the FY 2010 wage index and, accordingly, revise our regulations at 42
CFR 412.230 to reflect these changes. The criterion for the comparison
of a hospital's average hourly wage to that of its geographic area
would be unchanged (108 percent for urban hospitals and 106 percent for
rural hospitals). We also are proposing that, when there are
significant changes in labor market area definitions, such as CMS'
adoption of new OMB CBSA definitions based upon the decennial census
(69 FR 49027), we would again reevaluate and, if warranted, recalibrate
these criteria. This would allow CMS to consider the effects of
periodic changes in labor market boundaries and provide a regular
timeline for updating and validating the reclassification criteria.
Finally, we are proposing to adjust the 85 percent criterion for both
urban and rural county group reclassifications to be equal to the
proposed 88 percent standard for urban reclassifications, and to revise
the regulations at 42 CFR 412.232 and 412.234 to reflect the change.
The urban and rural county group average hourly wage standard has
always been equivalent for both urban and rural county groups and has
always been 1 percent higher than the 84 percent urban area individual
reclassification standard. We would continue the policy of having an
equivalent wage comparison criterion for both urban and rural county
groups, as these groups have always used the same wage comparison
criteria. We also would use the individual urban hospital
reclassification standard of 88 percent because this threshold would
ensure that the hospitals in the county group are at least as
comparable to the proximate area as are individual hospitals within
their own areas. Also, we do not believe it would be appropriate to
have a group reclassification standard lower than the individual
reclassification standards, thus potentially creating a situation where
all of the hospitals in a county could reclassify, even though no
single hospital within such county would be able to meet any average
hourly wage-related comparisons for an individual reclassification.
We considered raising the group reclassification criterion to 89
percent in order to preserve the historical policy of the standard
being set at 1 percent higher than the individual reclassification
standard. However, we determined that making the group standard equal
to the individual standard would adequately address our stated
concerns.
We note that the proposed changes in the reclassification criteria
apply only to new reclassifications beginning with the FY 2010 wage
index. Any hospital or county group that is in the midst of a 3-year
reclassification in FY 2010 will not be affected by the proposed
criteria change until they reapply for a geographic reclassification.
Therefore, we are proposing the effective date for these changes would
be September 1, 2008, the deadline for hospitals to submit applications
for reclassification for the FY 2010 wage index.
b. Within-State Budget Neutrality Adjustment for the Rural and Imputed
Floors
Section 4410 of the Balanced Budget Act of 1997 (BBA) established
the rural floor by requiring that the wage index for a hospital in an
urban area of a State cannot be less than the area wage index
determined for that State's rural area. Section 4410(b) of the BBA
imposed the budget neutrality requirement and stated that the Secretary
shall ``adjust the area wage index referred to in subsection (a) for
hospitals not described in such subsection.'' Therefore, in order to
compensate for the increased wage indices of urban hospitals receiving
the rural floor, a nationwide budget neutrality adjustment is applied
to the wage index to account for the additional payment to these
hospitals. As a result, urban hospitals that qualify for their State's
rural floor wage index receive enhanced payments at the expense of all
rural hospitals nationwide and all other urban hospitals that do not
receive their State's rural floor. In the FY 2009 proposed wage index,
266 hospitals in 27 States benefit from the rural floor. The first
chart below lists the percentage of total payments each State either
received or contributed to fund the current rural floor and imputed
floor provisions with national budget neutrality adjustments (as
indicated in the discussion of the imputed floor below in this section
III.B.2.b.). The second chart below provides a graphical depiction of
the proposed FY 2009 impacts.

FY 2009 IPPS Estimated Payments with Proposed Within-State Rural Floor
and Imputed Floor Budget Neutrality
------------------------------------------------------------------------
Proposed policy
Current policy application of
application of rural floor and
State national rural imputed floor
floor and imputed budget
floor budget neutrality within
neutrality each state
------------------------------------------------------------------------
Alabama........................... -0.1 0.3
Alaska............................ 0.0 -0.2
Arizona........................... -0.2 0.3
Arkansas.......................... -0.1 0.3
California........................ 0.7 -0.8
Colorado.......................... 0.0 -0.1
Connecticut....................... 2.1 -2.2
Delaware.......................... -0.2 0.3
Washington, DC.................... -0.2 0.3

[[Page 23621]]

Florida........................... 0.0 0.0
Georgia........................... -0.1 0.3
Hawaii............................ -0.1 0.3
Idaho............................. -0.1 0.3
Illinois.......................... -0.2 0.1
Indiana........................... -0.1 0.0
Iowa.............................. 0.1 -0.1
Kansas............................ -0.1 0.3
Kentucky.......................... -0.1 0.3
Louisiana......................... -0.1 0.0
Maine............................. -0.1 0.3
Massachusetts..................... -0.2 0.3
Michigan.......................... -0.2 0.3
Minnesota......................... -0.2 0.3
Mississippi....................... -0.1 0.3
Missouri.......................... -0.1 0.0
Montana........................... -0.1 0.2
Nebraska.......................... -0.1 0.3
Nevada............................ -0.2 0.3
New Hampshire..................... 1.1 -1.2
New Jersey........................ 0.7 -0.8
New Mexico........................ -0.1 0.0
New York.......................... -0.2 0.3
North Carolina.................... -0.1 0.1
North Dakota...................... 0.1 -0.1
Ohio.............................. -0.1 0.1
Oklahoma.......................... -0.1 0.1
Oregon............................ -0.1 0.0
Pennsylvania...................... -0.1 0.1
Rhode Island...................... -0.2 0.3
South Carolina.................... -0.1 0.0
South Dakota...................... -0.1 0.3
Tennessee......................... 0.0 0.0
Texas............................. -0.1 0.1
Utah.............................. -0.1 0.3
Vermont........................... 3.5 -3.4
Virginia.......................... -0.1 0.0
Washington........................ -0.1 -0.1
West Virginia..................... 0.0 -0.1
Wisconsin......................... -0.1 -0.1
Wyoming........................... 0.0 0.1
------------------------------------------------------------------------

[[Page 23622]]

[GRAPHIC][TIFF OMITTED]TP30AP08.018

The above charts demonstrate how, at a State-by-State level, the
rural floor is creating a benefit for a minority of States that is then
funded by a majority of States, including States that are
overwhelmingly rural in character. The intent behind the rural floor
seems to have been to address anomalous occurrences where certain urban
areas in a State have unusually depressed wages when compared to the
State's rural areas. However, because these comparisons occur at the
State level, we believe it also would be sound policy to make the
budget neutrality adjustment specific to the State, redistributing
payments among hospitals within the State, rather than adjusting
payments to hospitals in other States.
In addition, a statewide budget neutrality adjustment would address
the situation we discussed in the FY 2008 IPPS final rule with comment
period (72 FR 47324) in which rural CAHs were converting to IPPS
status, apparently to raise the State's rural wage index to a level
whereby all urban hospitals in the State would receive the rural floor.
Medicare payments to CAHs are based on 101 percent of reasonable costs
while the IPPS pays hospitals a fixed rate per discharge. In addition,
as a CAH, a hospital is guaranteed to recover its costs, while an IPPS
hospital is provided with incentives to increase efficiency to cover
its costs. Thus, we stated that the identified CAHs were converting
back to IPPS, even though the conversion would not directly benefit
them. Because these hospitals' wage levels are higher than most, if not
all, of the urban hospitals in the State, the wage indices for most, if
not all, of the State's urban hospitals would increase as a result of
the rural floor provision if the CAHs convert to IPPS status. In
simulating the effect of the hospitals setting the State's rural floor,
we estimated that payment to hospitals in the State would increase in
excess of $220 million in a single year. The MedPAC, in its June 2007
Report to the Congress stated, ``The fact that the movement of one or
two CAHs in or out of the [I]PPS system can increase (or decrease)
Medicare payments by $220 million suggests there is a flaw in the
design of the wage index system.'' (We refer readers to page 131 of the
report.)
For the above reasons, we are proposing to apply a State level
rural floor budget neutrality adjustment to the wage index beginning in
FY 2009. States that have no hospitals receiving a rural floor wage
index would no longer have a negative budget neutrality adjustment
applied to their wage indices. Conversely, hospitals in States with
hospitals receiving a rural floor would

[[Page 23623]]

have their wage indices downwardly adjusted to achieve budget
neutrality within the State. All hospitals within each State would, in
effect, be responsible for funding the rural floor adjustment
applicable within that specific State.
In the FY 2005 IPPS final rule and the FY 2008 IPPS final rule with
comment period (69 FR 49109 and 72 FR 47321, respectively), we
temporarily adopted an ``imputed'' floor measure to address a concern
by some individuals that hospitals in all-urban States were
disadvantaged by the absence of rural hospitals. Because no rural wage
index could be calculated, no rural floor could be applied within such
States. We originally limited application of the policy to FYs 2005
through 2007 and then extended it one additional year, through FY 2008.
We are proposing to extend the imputed floor for 3 additional years,
through FY 2011, and to revise the introductory text of Sec.
412.64(h)(4) of our regulations to reflect this extension. For FY 2009,
26 hospitals in New Jersey (33.8 percent) would receive the imputed
floor. Rhode Island, the only other all-urban State, has no hospitals
that would receive the imputed floor. In past years, we applied a
national budget neutrality adjustment to the standardized amount to
ensure that payments remained constant to payments that would have
occurred in the absence of the imputed floor policy. As a result,
payments to all other hospitals in the Nation were adjusted downward to
subsidize the higher payments to New Jersey hospitals receiving the
imputed floor. As the intent of the imputed floor is to create a
protection to all-urban States similar to the protection offered to
urban-rural mixed States by the rural floor, and the effect of the
measure is also State-specific like the rural floor, we believe that
the budget neutrality adjustments for the imputed floor and the rural
floor should be applied in the same manner. Therefore, beginning with
FY 2009, we are also proposing to apply the imputed floor budget
neutrality adjustment to the wage index and at the State level.
Based on our impact analysis of these proposals for FY 2009, of the
49 States (Maryland is excluded because it is under a State waiver),
the District of Columbia, and Puerto Rico, 39 would see either no
change or an increase in total Medicare payments as a result of
applying a budget neutrality adjustment to the wage index for the rural
and imputed floors at the State level rather than the national level.
The total payments of the remaining 12 States would decrease 0.1
percent to 3.4 percent compared to continuing our prior national
adjustment policy. The full impact analysis is reflected in the two
charts presented earlier in this section III.B.2.b. of the preamble of
this proposed rule. Tables 4D-1 and 4D-2 in the Addendum to this
proposed rule reflect the proposed FY 2009 State level budget
neutrality adjustments for the rural and imputed floors. We are
specifically requesting public comments from national and State
hospital associations regarding these proposals, particularly the
national associations, as they represent member hospitals that are both
positively and negatively affected by our proposed policies, and are,
therefore, in the best position to comment on the policy merits of
these proposals. We will view the absence of any comments from the
national hospital associations as a sign that they do not object to our
proposed policies.
c. Within-State Budget Neutrality Adjustment for Geographic
Reclassification
Currently, section 1886(d)(8)(D) of the Act requires us to adjust
the standardized amount to ensure that the effects of geographic
reclassification do not increase aggregate IPPS payments. This means
that, in the case of a reclassification, budget neutrality is achieved
by reducing the standardized amount for all hospitals nationwide. The
FY 2009 President's Budget includes a legislative proposal to apply
geographic reclassification budget neutrality at the State level
(available at the Web site: www.hhs.gov/budget/09budget/2009BudgetInBrief.pdf under FY 2009 Medicare Proposals, page 54). If
this proposal is enacted by the Congress, budget neutrality would be
achieved by adjusting the wage index for all hospitals within the State
rather than reducing the standardized amount for all hospitals
nationwide.
As noted also in MedPAC's June 2007 Report to Congress, over the
years, there have been many changes to the Medicare law that are
intended to broaden the ability for a hospital to receive a wage index
that is higher than the value that is calculated for its geographic
area and not be subject to the proximity or wage level criteria for
geographic reclassification established under section 1886(d)(10) of
the Act. These more targeted geographic reclassification provisions are
creating inequities in the wage index by sometimes allowing hospitals
to be reclassified to areas where other hospitals that are closer in
proximity are ineligible to reclassify. Applying budget neutrality at
the State level would focus the costs of geographic reclassification
closer to the areas where hospitals that benefit from the
reclassification are located. We expect that a legislative provision on
applying geographic reclassification budget neutrality at the State
level would be applied to all reclassifications and wage index
exceptions that are implemented through 42 CFR Part 412, Subpart L, and
certain provisions of the Social Security Act that permit hospitals to
receive a higher wage index than is calculated for their geographic
area. (As discussed above, as a proposed regulatory matter, there also
would be a separate within-State budget neutrality adjustment for the
imputed and rural floors.) We expect that reclassification budget
neutrality at the State level would operate through adjustments to the
IPPS payments to hospitals in the State in which the reclassifying
hospital is geographically located.
We are seeking public comments regarding MedPAC's recommendations
for reforming the wage index, our plan for our contractor's review of
the wage index, and the regulatory proposals for modifying the current
hospital wage index system. We also welcome additional suggestions for
reforming the hospital wage index.

C. Core-Based Statistical Areas for the Hospital Wage Index

The wage index is calculated and assigned to hospitals on the basis
of the labor market area in which the hospital is located. In
accordance with the broad discretion under section 1886(d)(3)(E) of the
Act, beginning with FY 2005, we define hospital labor market areas
based on the Core-Based Statistical Areas (CBSAs) established by OMB
and announced in December 2003 (69 FR 49027). For a discussion of OMB's
revised definitions of CBSAs and our implementation of the CBSA
definitions, we refer readers to the preamble of the FY 2005 IPPS final
rule (69 FR 49026 through 49032).
As with the FY 2008 final rule, for FY 2009 we are proposing to
provide that hospitals receive 100 percent of their wage index based
upon the CBSA configurations. Specifically, for each hospital, we will
determine a wage index for FY 2009 employing wage index data from FY
2005 hospital cost reports and using the CBSA labor market definitions.
We consider CBSAs that are MSAs to be urban, and CBSAs that are
Micropolitan Statistical Areas as well as areas outside of CBSAs to be
rural. In addition, it has been our longstanding policy that where an
MSA has been divided into Metropolitan Divisions, we consider the
Metropolitan Division to comprise the labor market areas for purposes
of calculating the

[[Page 23624]]

wage index (69 FR 49029). We are proposing to codify this longstanding
policy into our regulations at Sec. 412.64(b)(1)(ii)(A).
On November 20, 2007, OMB announced the revision of titles for
eight urban areas (OMB Bulletin No. 08-01). The revised titles are as
follows:
Hammonton, New Jersey qualifies as a new principal city of
the Atlantic City, New Jersey CBSA. The new title is Atlantic City-
Hammonton, New Jersey CBSA;
New Brunswick, New Jersey, located in the Edison, New
Jersey Metropolitan Division, qualifies as a new principal city of the
New York-Northern New Jersey-Long Island, New York, New Jersey,
Pennsylvania CBSA. The new title for the Metropolitan Division is
Edison-New Brunswick, New Jersey CBSA;
Summerville, South Carolina qualifies as a new principal
city of the Charleston-North Charleston, South Carolina CBSA. The new
title is Charleston-North Charleston-Summerville, South Carolina;
Winter Haven, Florida qualifies as a new principal city of
the Lakeland, Florida CBSA. The new title is Lakeland-Winter Haven,
Florida;
Bradenton, Florida replaces Sarasota, Florida as the most
populous principal city of the Sarasota-Bradenton-Venice, Florida CBSA.
The new title is Bradenton-Sarasota-Venice, Florida. The new CBSA code
is 14600;
Frederick, Maryland replaces Gaithersburg, Maryland as the
second most populous principal city in the Bethesda-Gaithersburg-
Frederick, Maryland CBSA. The new title is Bethesda-Frederick-
Gaithersburg, Maryland;
North Myrtle Beach, South Carolina replaces Conway, South
Carolina as the second most populous principal city of the Myrtle
Beach-Conway-North Myrtle Beach, South Carolina CBSA. The new title is
Myrtle Beach-North Myrtle Beach-Conway, South Carolina;
Pasco, Washington replaces Richland, Washington as the
second most populous principal city of the Kennewick-Richland-Pasco,
Washington CBSA. The new title is Kennewick-Pasco-Richland, Washington.
The OMB bulletin is available on the OMB Web site at https://www.whitehouse.gov/OMB-- go to ``Bulletins'' or ``Statistical Programs
and Standards.'' CMS will apply these changes to the IPPS beginning
October 1, 2008.

D. Proposed Occupational Mix Adjustment to the Proposed FY 2009 Wage
Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for
the collection of data every 3 years on the occupational mix of
employees for each short-term, acute care hospital participating in the
Medicare program, in order to construct an occupational mix adjustment
to the wage index, for application beginning October 1, 2004 (the FY
2005 wage index). The purpose of the occupational mix adjustment is to
control for the effect of hospitals' employment choices on the wage
index. For example, hospitals may choose to employ different
combinations of registered nurses, licensed practical nurses, nursing
aides, and medical assistants for the purpose of providing nursing care
to their patients. The varying labor costs associated with these
choices reflect hospital management decisions rather than geographic
differences in the costs of labor.
1. Development of Data for the Proposed FY 2009 Occupational Mix
Adjustment
On October 14, 2005, we published a notice in the Federal Register
(70 FR 60092) proposing to use a new survey, the 2006 Medicare Wage
Index Occupational Mix Survey (the 2006 survey) to apply an
occupational mix adjustment to the FY 2008 wage index. In the proposed
2006 survey, we included several modifications based on the comments
and recommendations we received on the 2003 survey, including (1)
allowing hospitals to report their own average hourly wage rather than
using BLS data; (2) extending the prospective survey period; and (3)
reducing the number of occupational categories but refining the
subcategories for registered nurses.
We made the changes to the occupational categories in response to
MedPAC comments to the FY 2005 IPPS final rule (69 FR 49036).
Specifically, MedPAC recommended that CMS assess whether including
subcategories of registered nurses would result in a more accurate
occupational mix adjustment. MedPAC believed that including all
registered nurses in a single category may obscure significant wage
differences among the subcategories of registered nurses, for example,
the wages of surgical registered nurses and floor registered nurses may
differ. Also, to offset additional reporting burden for hospitals,
MedPAC recommended that CMS should combine the general service
categories that account for only a small percentage of a hospital's
total hours with the ``all other occupations'' category because most of
the occupational mix adjustment is correlated with the nursing general
service category.
In addition, in response to the public comments on the October 14,
2005 notice, we modified the 2006 survey. On February 10, 2006, we
published a Federal Register notice (71 FR 7047) that solicited
comments and announced our intent to seek OMB approval on the revised
occupational mix survey (Form CMS-10079 (2006)). OMB approved the
survey on April 25, 2006.
The 2006 survey provides for the collection of hospital-specific
wages and hours data, a 6-month prospective reporting period (that is,
January 1, 2006, through June 30, 2006), the transfer of each general
service category that comprised less than 4 percent of total hospital
employees in the 2003 survey to the ``all other occupations'' category
(the revised survey focuses only on the mix of nursing occupations),
additional clarification of the definitions for the occupational
categories, an expansion of the registered nurse category to include
functional subcategories, and the exclusion of average hourly rate data
associated with advance practice nurses.
The 2006 survey included only two general occupational categories:
nursing and ``all other occupations.'' The nursing category has four
subcategories: Registered nurses, licensed practical nurses, aides,
orderlies, attendants, and medical assistants. The registered nurse
subcategory includes two functional subcategories: management personnel
and staff nurses or clinicians. As indicated above, the 2006 survey
provided for a 6-month data collection period, from January 1, 2006
through June 30, 2006. However, we allowed flexibility for the
reporting period beginning and ending dates to accommodate some
hospitals' biweekly payroll and reporting systems. That is, the 6-month
reporting period had to begin on or after December 25, 2005, and end
before July 9, 2006.
We are proposing to use the entire 6-month 2006 survey data to
calculate the occupational mix adjustment for the FY 2009 wage index.
The original timelines for the collection, review, and correction of
the 2006 occupational mix data were discussed in detail in the FY 2007
IPPS final rule (71 FR 48008). The revision and correction process for
all of the data, including the 2006 occupational mix survey data to be
used for computing the FY 2009 wage index, is discussed in detail in
section III.K. of the preamble of this proposed rule.

[[Page 23625]]

2. Calculation of the Proposed Occupational Mix Adjustment for FY 2009
For FY 2009 (as we did for FY 2008), we are proposing to calculate
the occupational mix adjustment factor using the following steps:
Step 1--For each hospital, determine the percentage of the total
nursing category attributable to a nursing subcategory by dividing the
nursing subcategory hours by the total nursing category's hours
(registered nurse management personnel and registered nurse staff
nurses or clinicians are treated as separate nursing subcategories).
Repeat this computation for each of the five nursing subcategories:
registered nurse management personnel; registered nurse staff nurses or
clinicians; licensed practical nurses; nursing aides, orderlies, and
attendants; and medical assistants.
Step 2--Determine a national average hourly rate for each nursing
subcategory by dividing a subcategory's total salaries for all
hospitals in the occupational mix survey database by the subcategory's
total hours for all hospitals in the occupational mix survey database.
Step 3--For each hospital, determine an adjusted average hourly
rate for each nursing subcategory by multiplying the percentage of the
total nursing category (from Step 1) by the national average hourly
rate for that nursing subcategory (from Step 2). Repeat this
calculation for each of the five nursing subcategories.
Step 4--For each hospital, determine the adjusted average hourly
rate for the total nursing category by summing the adjusted average
hourly rate (from Step 3) for each of the nursing subcategories.
Step 5--Determine the national average hourly rate for the total
nursing category by dividing total nursing category salaries for all
hospitals in the occupational mix survey database by total nursing
category hours for all hospitals in the occupational mix survey
database.
Step 6--For each hospital, compute the occupational mix adjustment
factor for the total nursing category by dividing the national average
hourly rate for the total nursing category (from Step 5) by the
hospital's adjusted average hourly rate for the total nursing category
(from Step 4).
If the hospital's adjusted average hourly rate is less than the
national average hourly rate (indicating the hospital employs a less
costly mix of nursing employees), the occupational mix adjustment
factor would be greater than 1.0000. If the hospital's adjusted average
hourly rate is greater than the national average hourly rate, the
occupational mix adjustment factor would be less than 1.0000.
Step 7--For each hospital, calculate the occupational mix adjusted
salaries and wage-related costs for the total nursing category by
multiplying the hospital's total salaries and wage-related costs (from
Step 5 of the unadjusted wage index calculation in section III.G. of
this preamble) by the percentage of the hospital's total workers
attributable to the total nursing category (using the occupational mix
survey data, this percentage is determined by dividing the hospital's
total nursing category salaries by the hospital's total salaries for
``nursing and all other'') and by the total nursing category's
occupational mix adjustment factor (from Step 6 above).
The remaining portion of the hospital's total salaries and wage-
related costs that is attributable to all other employees of the
hospital is not adjusted by the occupational mix. A hospital's all
other portion is determined by subtracting the hospital's nursing
category percentage from 100 percent.
Step 8--For each hospital, calculate the total occupational mix
adjusted salaries and wage-related costs for a hospital by summing the
occupational mix adjusted salaries and wage-related costs for the total
nursing category (from Step 7) and the portion of the hospital's
salaries and wage-related costs for all other employees (from Step 7).
To compute a hospital's occupational mix adjusted average hourly
wage, divide the hospital's total occupational mix adjusted salaries
and wage-related costs by the hospital's total hours (from Step 4 of
the unadjusted wage index calculation in section III.G. of this
preamble).
Step 9--To compute the occupational mix adjusted average hourly
wage for an urban or rural area, sum the total occupational mix
adjusted salaries and wage-related costs for all hospitals in the area,
then sum the total hours for all hospitals in the area. Next, divide
the area's occupational mix adjusted salaries and wage-related costs by
the area's hours.
Step 10--To compute the national occupational mix adjusted average
hourly wage, sum the total occupational mix adjusted salaries and wage-
related costs for all hospitals in the Nation, then sum the total hours
for all hospitals in the Nation. Next, divide the national occupational
mix adjusted salaries and wage-related costs by the national hours. The
proposed FY 2009 occupational mix adjusted national average hourly wage
is $32.2252.
Step 11--To compute the occupational mix adjusted wage index,
divide each area's occupational mix adjusted average hourly wage (Step
9) by the national occupational mix adjusted average hourly wage (Step
10).
Step 12--To compute the Puerto Rico specific occupational mix
adjusted wage index, follow Steps 1 through 11 above. The proposed FY
2009 occupational mix adjusted Puerto Rico specific average hourly wage
is $13.7851.
The table below is an illustrative example of the proposed
occupational mix adjustment.
BILLING CODE 4120-01-P

[[Page 23626]]

[GRAPHIC][TIFF OMITTED]TP30AP08.019

[[Page 23627]]

[GRAPHIC][TIFF OMITTED]TP30AP08.020

BILLING CODE 4120-01-C

[[Page 23628]]

Because the occupational mix adjustment is required by statute, all
hospitals that are subject to payments under the IPPS, or any hospital
that would be subject to the IPPS if not granted a waiver, must
complete the occupational mix survey, unless the hospital has no
associated cost report wage data that are included in the proposed FY
2009 wage index.
For the FY 2008 wage index, if a hospital did not respond to the
occupational mix survey, or if we determined that a hospital's
submitted data were too erroneous to include in the wage index, we
assigned the hospital the average occupational mix adjustment for the
labor market area (72 FR 47314). We believed this method had the least
impact on the wage index for other hospitals in the area. For areas
where no hospital submitted data for purposes of calculating the
occupational mix adjustment, we applied the national occupational mix
factor of 1.0000 in calculating the area's FY 2008 occupational mix
adjusted wage index. We indicated in the FY 2008 IPPS final rule that
we reserve the right to apply a different approach in future years,
including potentially penalizing nonresponsive hospitals (72 FR 47314).
For the FY 2009 wage index, we are proposing to handle the data for
hospitals that did not respond to the occupational mix survey (neither
the 1st quarter nor 2nd quarter data) in the same manner as discussed
above for the FY 2008 wage index. In addition, if a hospital submits
survey data for either the 1st quarter or 2nd quarter, but not for both
quarters, we are proposing to use the data the hospital submitted for
one quarter to calculate the hospital's proposed FY 2009 occupational
mix adjustment factor. Lastly, if a hospital submits a survey(s), but
that survey data can not be used because we determine it to be
aberrant, we will also assign the hospital the average occupational mix
adjustment for its labor market area. For example, if a hospital's
individual nurse category average hourly wages are out of range (that
is, unusually high or low), and the hospital does not provide
sufficient documentation to explain the aberrancy, or the hospital does
not submit any registered nurse staff salaries or hours data, we will
assign the hospital the average occupational mix adjustment for the
labor market area in which it is located.
In calculating the average occupational mix adjustment factor for a
labor market area, we replicated Steps 1 through 6 of the calculation
for the occupational mix adjustment. However, instead of performing
these steps at the hospital level, we aggregated the data at the labor
market area level. In following these steps, for example, for CBSAs
that contain providers that did not submit occupational mix survey
data, the occupational mix adjustment factor ranged from a low of
0.8968 (CBSA 39820, Redding, CA), to a high of 1.0775 (CBSA 43300,
Sherman-Denison, TX). Also, in computing a hospital's occupational mix
adjusted salaries and wage-related costs for nursing employees (Step 7
of the calculation), in the absence of occupational mix survey data, we
multiplied the hospital's total salaries and wage-related costs by the
percentage of the area's total workers attributable to the area's total
nursing category. For FY 2009, there was one CBSA for which we did not
have occupational mix data for any of its providers (CBSA 12020,
Athens-Clark County, GA). In the absence of any data in this labor
market area, we applied an occupational mix adjustment factor of 1.0 to
all provider(s).
In the FY 2007 IPPS final rule, we also indicated that we would
give serious consideration to applying a hospital-specific penalty if a
hospital does not comply with regulations requiring submission of
occupational mix survey data in future years. We stated that we believe
that section 1886(d)(5)(I)(i) of the Act provides us with the authority
to penalize hospitals that do not submit occupational mix survey data.
That section authorizes us to provide for exceptions and adjustments to
the payment amounts under IPPS as the Secretary deems appropriate. We
also indicated that we would address this issue in the FY 2008 IPPS
proposed rule.
In the FY 2008 IPPS proposed rule, we solicited comments and
suggestions for a hospital-specific penalty for hospitals that do not
submit occupational mix survey data. In response to the FY 2008 IPPS
proposed rule, some commenters suggested a 1-percent to 2-percent
reduction in the hospital's wage index value or a set percentage of the
standardized amount. We noted that any penalty that we would determine
for nonresponsive hospitals would apply to a future wage index, not the
FY 2008 wage index.
In the FY 2008 final rule with comment period, we assigned
nonresponsive hospitals the average occupational mix adjustment for the
labor market area. For areas where no hospital submitted survey data,
we applied the national occupational mix adjustment factor of 1.0000 in
calculating the area's FY 2008 occupational mix adjusted wage index. We
appreciate the suggestions we received regarding future penalties for
hospitals that do not submit occupational mix survey data. We stated in
the FY 2008 final rule with comment period that we may consider
proposing a policy to penalize hospitals that do not submit
occupational mix survey data for FY 2010, the first year of the
application of the new 2007-2008 occupational mix survey, and that we
expected that any such penalty would be proposed in the FY 2009 IPPS
proposed rule so hospitals would be aware of the policy before the
deadline for submitting the data to the fiscal intermediaries/MAC. At
this time, however, we are not proposing a penalty for FY 2010. Rather,
we are reserving the right to propose a penalty in the FY 2010 IPPS
proposed rule, once we collect and analyze the FY 2007-2008
occupational mix survey data. Hospitals are still on notice that any
failure to submit occupational mix data for the FY 2007-2008 survey
year may result in a penalty in FY 2010, thus achieving our policy goal
of ensuring that hospitals are aware of the consequences of failure to
submit data in response to the most recent survey.
3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index
As stated earlier, section 304(c) of Pub. L. 106-554 amended
section 1886(d)(3)(E) of the Act to require CMS to collect data every 3
years on the occupational mix of employees for each short-term, acute
care hospital participating in the Medicare program. We used
occupational mix data collected on the 2006 survey to compute the
proposed occupational mix adjustment for FY 2009. In the FY 2008 IPPS
final rule with comment period (72 FR 47315), we discussed how we
modified the occupational mix survey. The revised 2007-2008
occupational mix survey provides for the collection of hospital-
specific wages and hours data for the 1-year period of July 1, 2007,
through June 30, 2008, additional clarifications to the survey
instructions, the elimination of the registered nurse subcategories,
some refinements to the definitions of the occupational categories, and
the inclusion of additional cost centers that typically provide nursing
services. The revised 2007-2008 occupational mix survey will be applied
beginning with the FY 2010 wage index.
On February 2, 2007, we published in the Federal Register a notice
soliciting comments on the proposed revisions to the occupational mix
survey (72 FR 5055). The comment period for the notice ended on April
3, 2007. After considering the comments we received, we made a few
minor editorial changes

[[Page 23629]]

and published the final 2007-2008 occupational mix survey on September
14, 2007 (72 FR 52568). OMB approved the survey without change on
February 1, 2008 (OMB Control Number 0938 0907). The 2007-2008 Medicare
occupational mix survey (Form CMS-10079 (2008)) is available on the CMS
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage, and through the fiscal intermediaries/MAC.
Hospitals must submit their completed surveys to their fiscal
intermediaries/MAC by September 1, 2008. The preliminary, unaudited
2007-2008 occupational mix survey data will be released in early
October 2008, along with the FY 2006 Worksheet S-3 wage data, for the
FY 2010 wage index review and correction process.

E. Worksheet S-3 Wage Data for the Proposed FY 2009 Wage Index

The proposed FY 2009 wage index values (to be effective for
hospital discharges occurring on or after October 1, 2008, and before
October 1, 2009) in section II.B. of the Addendum to this proposed rule
are based on the data collected from the Medicare cost reports
submitted by hospitals for cost reporting periods beginning in FY 2005
(the FY 2008 wage index was based on FY 2004 wage data).
1. Included Categories of Costs
The proposed FY 2009 wage index includes the following categories
of data associated with costs paid under the IPPS (as well as
outpatient costs):
Salaries and hours from short-term, acute care hospitals
(including paid lunch hours and hours associated with military leave
and jury duty).
Home office costs and hours.
Certain contract labor costs and hours (which includes
direct patient care, certain top management, pharmacy, laboratory, and
nonteaching physician Part A services, and certain contract indirect
patient care services (as discussed in the FY 2008 final rule with
comment period (72 FR 47315).
Wage-related costs, including pensions and other deferred
compensation costs. We note that, on March 28, 2008, CMS published a
technical clarification to the cost reporting instructions for pension
and deferred compensation costs (sections 2140 through 2142.7 of the
Provider Reimbursement Manual, Part I). These instructions are used for
developing pension and deferred compensation costs for purposes of the
wage index, as discussed in the instructions for Worksheet S-3, Part
II, Lines 13 through 20 and in the FY 2006 final rule (70 FR 47369).
2. Excluded Categories of Costs
Consistent with the wage index methodology for FY 2008, the
proposed wage index for FY 2009 also excludes the direct and overhead
salaries and hours for services not subject to IPPS payment, such as
SNF services, home health services, costs related to GME (teaching
physicians and residents) and certified registered nurse anesthetists
(CRNAs), and other subprovider components that are not paid under the
IPPS. The proposed FY 2009 wage index also excludes the salaries,
hours, and wage-related costs of hospital-based rural health clinics
(RHCs), and Federally qualified health centers (FQHCs) because Medicare
pays for these costs outside of the IPPS (68 FR 45395). In addition,
salaries, hours, and wage-related costs of CAHs are excluded from the
wage index, for the reasons explained in the FY 2004 IPPS final rule
(68 FR 45397).
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals
Under the IPPS
Data collected for the IPPS wage index are also currently used to
calculate wage indices applicable to other providers, such as SNFs,
home health agencies, and hospices. In addition, they are used for
prospective payments to IRFs, IPFs, and LTCHs, and for hospital
outpatient services. We note that, in the IPPS rules, we do not address
comments pertaining to the wage indices for non-IPPS providers. Such
comments should be made in response to separate proposed rules for
those providers.

F. Verification of Worksheet S-3 Wage Data

The wage data for the proposed FY 2009 wage index were obtained
from Worksheet S-3, Parts II and III of the FY 2005 Medicare cost
reports. Instructions for completing Worksheet S-3, Parts II and III
are in the Provider Reimbursement Manual (PRM), Part II, sections
3605.2 and 3605.3. The data file used to construct the proposed wage
index includes FY 2005 data submitted to us as of February 29, 2008. As
in past years, we performed an intensive review of the wage data,
mostly through the use of edits designed to identify aberrant data.
We asked our fiscal intermediaries/MAC to revise or verify data
elements that resulted in specific edit failures. For the proposed FY
2009 wage index, we identified and excluded 37 providers with data that
was too aberrant to include in the proposed wage index, although if
data elements for some of these providers are corrected, we intend to
include some of these providers in the FY 2009 final wage index. We
instructed fiscal intermediaries/MACs to complete their data
verification of questionable data elements and to transmit any changes
to the wage data no later than April 14, 2008. We believe all
unresolved data elements will be resolved by the date the final rule is
issued. The revised data will be reflected in the FY 2009 IPPS final
rule.
In constructing the proposed FY 2009 wage index, we included the
wage data for facilities that were IPPS hospitals in FY 2005; inclusive
of those facilities that have since terminated their participation in
the program as hospitals, as long as those data did not fail any of our
edits for reasonableness. We believe that including the wage data for
these hospitals is, in general, appropriate to reflect the economic
conditions in the various labor market areas during the relevant past
period and to ensure that the current wage index represents the labor
market area's current wages as compared to the national average of
wages. However, we excluded the wage data for CAHs as discussed in the
FY 2004 IPPS final rule (68 FR 45397). For this proposed rule, we
removed 20 hospitals that converted to CAH status between February 16,
2007, the cut-off date for CAH exclusion from the FY 2008 wage index,
and February 18, 2008, the cut-off date for CAH exclusion from the FY
2009 wage index. After removing hospitals with aberrant data and
hospitals that converted to CAH status, the proposed FY 2009 wage index
is calculated based on 3,533 hospitals.
1. Wage Data for Multicampus Hospitals
In the FY 2008 final rule with comment period (72 FR 47317), we
discussed our policy for allocating a multicampus hospital's wages and
hours data, by full-time equivalent (FTE) staff, among the different
labor market areas where its campuses are located. During the FY 2009
wage index desk review process, we requested fiscal intermediaries/MACs
to contact multicampus hospitals that had campuses in different labor
market areas to collect the data for the allocation. The proposed FY
2009 wage index in this proposed rule includes separate wage data for
campuses of three multicampus hospitals.
As with the FY 2008 wage index, we allowed hospitals the option of
allocating their wages and hours for the FY 2009 wage index based on
either FTE staff or discharge data. Again, we

[[Page 23630]]

are providing this option until a revised cost report is available that
will allow a multicampus hospital to report the number of FTEs by
location of its different campuses. Two of the three multicampus
hospitals chose to have their wage data allocated by their Medicare
discharge data. One of the hospitals provided FTE staff data for the
allocation. The average hourly wage associated with each geographical
location of a multicampus hospital is reflected in Table 2 of the
Addendum to this proposed rule.
2. New Orleans' Post-Katrina Wage Index
Since 2005 when Hurricane Katrina devastated the Gulf States, we
have received numerous comments suggesting that current Medicare
payments to hospitals in New Orleans, Louisiana are inadequate, and the
wage index does not accurately reflect the increase in labor costs
experienced by the city after the storm. The post-Katrina effects on
the New Orleans wage index will not be realized in the wage index until
FY 2010, when the wage index will be based on cost reporting periods
beginning during FY 2006 (that is, beginning on or after October 1,
2005 and before October 1, 2006).
In responding to the health-related needs of people affected by the
hurricane, the Federal Government, through the Deficit Reduction Act of
2005 (DRA), appropriated $2 billion in FY 2006. These funds allowed the
Secretary to make available $160 million in February 2007 to Louisiana,
Mississippi, and Alabama for payments to hospitals and skilled nursing
facilities facing financial stress because of changing wage rates not
yet reflected in Medicare payment methodologies. In March and May 2007,
the Department provided two additional DRA grants of $15 million and
$35 million, respectively, to Louisiana for professional health care
workforce recruitment and sustainability in the greater New Orleans
area, namely the Orleans, Jefferson, St. Bernard, and Plaquemines
Parishes. In addition, the Department issued a supplemental award of
$60 million in provider stabilization grant funding to Louisiana,
Mississippi, and Alabama to continue to help health care providers meet
changing wage rates not yet reflected by Medicare's payment policies.
On July 23, 2007, HHS awarded to Louisiana a new $100 million Primary
Care Grant to help increase access to primary care in the Greater New
Orleans area. The resulting stabilization and expansion of the
community based primary care infrastructure, post Katrina, helps
provide a viable alternative to local hospital emergency rooms for all
citizens of New Orleans, especially those who are poor and uninsured.
In other Department efforts, the OIG has performed an in-depth review
of the post-Katrina infrastructure of five New Orleans hospitals,
including the hospitals' staffing levels and wage costs. The OIG's
final reports and recommendations are scheduled to be published in
Spring 2008.

G. Method for Computing the Proposed FY 2009 Unadjusted Wage Index

The method used to compute the proposed FY 2009 wage index without
an occupational mix adjustment follows:
Step 1--As noted above, we based the proposed FY 2009 wage index on
wage data reported on the FY 2005 Medicare cost reports. We gathered
data from each of the non-Federal, short-term, acute care hospitals for
which data were reported on the Worksheet S-3, Parts II and III of the
Medicare cost report for the hospital's cost reporting period beginning
on or after October 1, 2004, and before October 1, 2005. In addition,
we included data from some hospitals that had cost reporting periods
beginning before October 2004 and reported a cost reporting period
covering all of FY 2004. These data are included because no other data
from these hospitals would be available for the cost reporting period
described above, and because particular labor market areas might be
affected due to the omission of these hospitals. However, we generally
describe these wage data as FY 2005 data. We note that, if a hospital
had more than one cost reporting period beginning during FY 2005 (for
example, a hospital had two short cost reporting periods beginning on
or after October 1, 2004, and before October 1, 2005), we included wage
data from only one of the cost reporting periods, the longer, in the
wage index calculation. If there was more than one cost reporting
period and the periods were equal in length, we included the wage data
from the later period in the wage index calculation.
Step 2--Salaries--The method used to compute a hospital's average
hourly wage excludes certain costs that are not paid under the IPPS.
(We note that, beginning with FY 2008 (72 FR 47315), we include lines
22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services
in the wage index. However, we note that the wages and hours on these
lines are not incorporated into line 101, column 1 of Worksheet A,
which, through the electronic cost reporting software, flows directly
to line 1 of Worksheet S-3, Part II. Therefore, the first step in the
wage index calculation for FY 2009 is to compute a ``revised'' Line 1,
by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours
respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In
calculating a hospital's average salaries plus wage-related costs, we
subtract from Line 1 (total salaries) the GME and CRNA costs reported
on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3,
5 and 5.01, home office salaries reported on Line 7, and exclude
salaries reported on Lines 8 and 8.01 (that is, direct salaries
attributable to SNF services, home health services, and other
subprovider components not subject to the IPPS). We also subtract from
Line 1 the salaries for which no hours were reported. To determine
total salaries plus wage-related costs, we add to the net hospital
salaries the costs of contract labor for direct patient care, certain
top management, pharmacy, laboratory, and nonteaching physician Part A
services (Lines 9 and 10), home office salaries and wage-related costs
reported by the hospital on Lines 11 and 12, and nonexcluded area wage-
related costs (Lines 13, 14, and 18).
We note that contract labor and home office salaries for which no
corresponding hours are reported are not included. In addition, wage-
related costs for nonteaching physician Part A employees (Line 18) are
excluded if no corresponding salaries are reported for those employees
on Line 4.
Step 3--Hours--With the exception of wage-related costs, for which
there are no associated hours, we compute total hours using the same
methods as described for salaries in Step 2.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocate overhead
costs to areas of the hospital excluded from the wage index
calculation. First, we determine the ratio of excluded area hours (sum
of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours
(Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01,
7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts
of overhead salaries and hours to be allocated to excluded areas by
multiplying the above ratio by the total overhead salaries and hours
reported on Line 13 of Worksheet S-3, Part III. Next, we compute the
amounts of overhead wage-related costs to be allocated to excluded
areas using three steps: (1) We determine the ratio of overhead hours
(Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to
revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line
1 minus the sum of

[[Page 23631]]

Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01, 22.01, 26.01, and
27.01). (We note that for the FY 2008 and subsequent wage index
calculations, we are excluding the sum of lines 22.01, 26.01, and 27.01
from the determination of the ratio of overhead hours to revised hours,
since hospitals typically do not provide fringe benefits (wage-related
costs) to contract personnel. Therefore, it is not necessary for the
wage index calculation to exclude overhead wage-related costs for
contract personnel. Further, if a hospital does contribute to wage-
related costs for contracted personnel, the instructions for lines
22.01, 26.01, and 27.01 require that associated wage-related costs be
combined with wages on the respective contract labor lines.); (2) we
compute overhead wage-related costs by multiplying the overhead hours
ratio by wage-related costs reported on Part II, Lines 13, 14, and 18;
and (3) we multiply the computed overhead wage-related costs by the
above excluded area hours ratio. Finally, we subtract the computed
overhead salaries, wage-related costs, and hours associated with
excluded areas from the total salaries (plus wage-related costs) and
hours derived in Steps 2 and 3.
Step 5--For each hospital, we adjust the total salaries plus wage-
related costs to a common period to determine total adjusted salaries
plus wage-related costs. To make the wage adjustment, we estimate the
percentage change in the employment cost index (ECI) for compensation
for each 30-day increment from October 14, 2003, through April 15,
2005, for private industry hospital workers from the BLS' Compensation
and Working Conditions. We use the ECI because it reflects the price
increase associated with total compensation (salaries plus fringes)
rather than just the increase in salaries. In addition, the ECI
includes managers as well as other hospital workers. This methodology
to compute the monthly update factors uses actual quarterly ECI data
and assures that the update factors match the actual quarterly and
annual percent changes. We also note that, since April 2006 with the
publication of March 2006 data, the BLS' ECI uses a different
classification system, the North American Industrial Classification
System (NAICS), instead of the Standard Industrial Codes (SICs), which
no longer exist. We have consistently used the ECI as the data source
for our wages and salaries and other price proxies in the IPPS market
basket and are not proposing to make any changes to the usage at this
time. The factors used to adjust the hospital's data were based on the
midpoint of the cost reporting period, as indicated below.

Midpoint of cost reporting period
------------------------------------------------------------------------
Adjustment
After Before factor
------------------------------------------------------------------------
10/14/2004.................................... 11/15/2004 1.05390
11/14/2004.................................... 12/15/2004 1.05035
12/14/2004.................................... 01/15/2005 1.04690
01/14/2005.................................... 02/15/2005 1.04342
02/14/2005.................................... 03/15/2005 1.03992
03/14/2005.................................... 04/15/2005 1.03641
04/14/2005.................................... 05/15/2005 1.03291
05/14/2005.................................... 06/15/2005 1.02940
06/14/2005.................................... 07/15/2005 1.02596
07/14/2005.................................... 08/15/2005 1.02264
08/14/2005.................................... 09/15/2005 1.01943
09/14/2005.................................... 10/15/2005 1.01627
10/14/2005.................................... 11/15/2005 1.01308
11/14/2005.................................... 12/15/2005 1.00987
12/14/2005.................................... 01/15/2006 1.00661
01/14/2006.................................... 02/15/2006 1.00333
02/14/2006.................................... 03/15/2006 1.00000
03/14/2006.................................... 04/15/2006 0.99670
------------------------------------------------------------------------

For example, the midpoint of a cost reporting period beginning
January 1, 2005, and ending December 31, 2005, is June 30, 2005. An
adjustment factor of 1.02596 would be applied to the wages of a
hospital with such a cost reporting period. In addition, for the data
for any cost reporting period that began in FY 2005 and covered a
period of less than 360 days or more than 370 days, we annualize the
data to reflect a 1-year cost report. Dividing the data by the number
of days in the cost report and then multiplying the results by 365
accomplishes annualization.
Step 6--Each hospital is assigned to its appropriate urban or rural
labor market area before any reclassifications under section
1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the
Act. Within each urban or rural labor market area, we add the total
adjusted salaries plus wage-related costs obtained in Step 5 for all
hospitals in that area to determine the total adjusted salaries plus
wage-related costs for the labor market area.
Step 7--We divide the total adjusted salaries plus wage-related
costs obtained under both methods in Step 6 by the sum of the
corresponding total hours (from Step 4) for all hospitals in each labor
market area to determine an average hourly wage for the area.
Step 8--We add the total adjusted salaries plus wage-related costs
obtained in Step5 for all hospitals in the Nation and then divide the
sum by the national sum of total hours from Step 4 to arrive at a
national average hourly wage. Using the data as described above, the
proposed national average hourly wage (unadjusted for occupational mix)
is $32.2489.
Step 9--For each urban or rural labor market area, we calculate the
hospital wage index value, unadjusted for occupational mix, by dividing
the area average hourly wage obtained in Step 7 by the national average
hourly wage computed in Step 8.
Step 10--Following the process set forth above, we develop a
separate Puerto Rico-specific wage index for purposes of adjusting the
Puerto Rico standardized amounts. (The national Puerto Rico
standardized amount is adjusted by a wage index calculated for all
Puerto Rico labor market areas based on the national average hourly
wage as described above.) We add the total adjusted salaries plus wage-
related costs (as calculated in Step 5) for all hospitals in Puerto
Rico and divide the sum by the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an overall proposed average hourly
wage (unadjusted for occupational mix) of $13.7956 for Puerto Rico. For
each labor market area in Puerto Rico, we calculate the Puerto Rico-
specific wage index value by dividing the area average hourly wage (as
calculated in Step 7) by the overall Puerto Rico average hourly wage.
Step 11--Section 4410 of Pub. L. 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is located in an urban area of a State may not be
less than the area wage index applicable to hospitals located in rural
areas in that State. For FY 2009, this proposed change would affect 266
hospitals in 69 urban areas. The areas affected by this provision are
identified by a footnote in Table 4A in the Addendum of this proposed
rule.
In the FY 2005 IPPS final rule (69 FR 49109), we adopted the
``imputed'' floor as a temporary 3-year measure to address a concern by
some individuals that hospitals in all-urban States were disadvantaged
by the absence of rural hospitals to set a wage index floor in those
States. The imputed floor was originally set to expire in FY 2007, but
we extended it an additional year in the FY 2008 IPPS final rule with
comment period (72FR47321). As explained in section III.B.2.b. of the
preamble of this proposed rule, we are proposing to extend the imputed
floor for an additional 3 years, through FY 2011.

H. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2009 Occupational Mix Adjusted Wage
Index

As discussed in section III.D. of this preamble, for FY 2009, we
are proposing to apply the occupational mix adjustment to 100 percent
of the FY

[[Page 23632]]

2009 wage index. We calculated the occupational mix adjustment using
data from the 2006 occupational mix survey data, using the methodology
described in section III.D.3. of this preamble.
Using the 1st and 2nd quarter occupational mix survey data and
applying the occupational mix adjustment to 100 percent of the proposed
FY2009 wage index results in a proposed national average hourly wage of
$32.2252 and a proposed Puerto-Rico specific average hourly wage of
$13.7851. After excluding data of hospitals that either submitted
aberrant data that failed critical edits, or that do not have FY 2005
Worksheet S-3 cost report data for use in calculating the proposed
FY2009 wage index, we calculated the proposed FY 2009 wage index using
the occupational mix survey data from 3,364 hospitals. Using the
Worksheet S-3 cost report data of 3,533 hospitals and occupational mix
1st and/or 2nd quarter survey data from 3,364 hospitals represents a
95.2 percent survey response rate. The proposed FY2009 national average
hourly wages for each occupational mix nursing subcategory as
calculated in Step 2 of the occupational mix calculation are as
follows:

------------------------------------------------------------------------
Average
Occupational mix nursing subcategory hourly wage
------------------------------------------------------------------------
National RN Management..................................... $38.6341
National RN Staff.......................................... $33.4795
National LPN............................................... $19.2316
National Nurse Aides, Orderlies, and Attendants............ $13.6954
National Medical Assistants................................ $15.7714
National Nurse Category.................................... $28.7291
------------------------------------------------------------------------

The proposed national average hourly wage for the entire nurse
category as computed in Step 5 of the occupational mix calculation is
$28.7291. Hospitals with a nurse category average hourly wage (as
calculated in Step 4) of greater than the national nurse category
average hourly wage receive an occupational mix adjustment factor (as
calculated in Step 6) of less than 1.0. Hospitals with a nurse category
average hourly wage (as calculated in Step 4) of less than the national
nurse category average hourly wage receive an occupational mix
adjustment factor (as calculated in Step 6) of greater than 1.0.
Based on the January through June 2006 occupational mix survey
data, we determined (in Step 7 of the occupational mix calculation)
that the proposed national percentage of hospital employees in the
Nurse category is 42.99 percent, and the proposed national percentage
of hospital employees in the All Other Occupations category is 57.01
percent. At the CBSA level, the percentage of hospital employees in the
Nurse category ranged from a low of 27.26 percent in one CBSA, to a
high of 85.30 percent in another CBSA.
The proposed wage index values for FY 2009 (except those for
hospitals receiving wage index adjustments under section 1886(d)(13) of
the Act) are shown in Tables 4A, 4B, 4C, and 4F in the Addendum to this
proposed rule.
Tables 3A and 3B in the Addendum to this proposed rule list the 3-
year average hourly wage for each labor market area before the
redesignation of hospitals based on FYs 2007, 2008, and 2009 cost
reporting periods. Table 3A lists these data for urban areas and Table
3B lists these data for rural areas. In addition, Table 2 in the
Addendum to this proposed rule includes the adjusted average hourly
wage for each hospital from the FY 2003 and FY 2004 cost reporting
periods, as well as the FY 2005 period used to calculate the proposed
FY 2009 wage index. The 3-year averages are calculated by dividing the
sum of the dollars (adjusted to a common reporting period using the
method described previously) across all 3 years, by the sum of the
hours. If a hospital is missing data for any of the previous years, its
average hourly wage for the 3-year period is calculated based on the
data available during that period.
The proposed wage index values in Tables 2, 4A, 4B, 4C, and 4F and
the average hourly wages in Tables 2, 3A, and 3B in the Addendum to
this proposed rule include the proposed occupational mix adjustment.
The proposed wage index values in Tables 2, 4A, 4B, and 4C also include
the proposed State-specific rural floor and imputed floor budget
neutrality adjustments that are discussed in section III.B.2. of this
preamble. The proposed State budget neutrality adjustments for the
rural and imputed floors are included in Tables 4D-1 and 4D-2 in the
Addendum to this proposed rule.

I. Proposed Revisions to the Wage Index Based on Hospital
Redesignations

1. General
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. Hospitals must apply to the MGCRB to
reclassify 13 months prior to the start of the fiscal year for which
reclassification is sought (generally by September 1). Generally,
hospitals must be proximate to the labor market area to which they are
seeking reclassification and must demonstrate characteristics similar
to hospitals located in that area. The MGCRB issues its decisions by
the end of February for reclassifications that become effective for the
following fiscal year (beginning October 1). The regulations applicable
to reclassifications by the MGCRB are located in 42 CFR 412.230 through
412.280.
Section 1886(d)(10)(D)(v) of the Act provides that, beginning with
FY 2001, a MGCRB decision on a hospital reclassification for purposes
of the wage index is effective for 3 fiscal years, unless the hospital
elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of
the Act provides that the MGCRB must use average hourly wage data from
the 3 most recently published hospital wage surveys in evaluating a
hospital's reclassification application for FY 2003 and any succeeding
fiscal year.
Section 304(b) of Pub. L. 106-554 provides that the Secretary must
establish a mechanism under which a statewide entity may apply to have
all of the geographic areas in the State treated as a single geographic
area for purposes of computing and applying a single wage index, for
reclassifications beginning in FY 2003. The implementing regulations
for this provision are located at 42 CFR 412.235.
Section 1886(d)(8)(B) of the Act requires the Secretary to treat a
hospital located in a rural county adjacent to one or more urban areas
as being located in the MSA to which the greatest number of workers in
the county commute, if the rural county would otherwise be considered
part of an urban area under the standards for designating MSAs and if
the commuting rates used in determining outlying counties were
determined on the basis of the aggregate number of resident workers who
commute to (and, if applicable under the standards, from) the central
county or counties of all contiguous MSAs. In light of the CBSA
definitions and the Census 2000 data that we implemented for FY 2005
(69 FR 49027), we undertook to identify those counties meeting these
criteria. Eligible counties are discussed and identified under section
III.I.5. of this preamble.
2. Effects of Reclassification/Redesignation
Section 1886(d)(8)(C) of the Act provides that the application of
the wage index to redesignated hospitals is dependent on the
hypothetical impact that the wage data from these hospitals would have
on the wage index value for the area to which they have been
redesignated. These requirements for determining the wage index values
for

[[Page 23633]]

redesignated hospitals are applicable both to the hospitals deemed
urban under section 1886(d)(8)(B) of the Act and hospitals that were
reclassified as a result of the MGCRB decisions under section
1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C)
of the Act, the wage index values were determined by considering the
following:
If including the wage data for the redesignated hospitals
would reduce the wage index value for the area to which the hospitals
are redesignated by 1 percentage point or less, the area wage index
value determined exclusive of the wage data for the redesignated
hospitals applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
reduces the wage index value for the area to which the hospitals are
redesignated by more than 1 percentage point, the area wage index
determined inclusive of the wage data for the redesignated hospitals
(the combined wage index value) applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
increases the wage index value for the urban area to which the
hospitals are redesignated, both the area and the redesignated
hospitals receive the combined wage index value. Otherwise, the
hospitals located in the urban area receive a wage index excluding the
wage data of hospitals redesignated into the area.
Rural areas whose wage index values would be reduced by excluding
the wage data for hospitals that have been redesignated to another area
continue to have their wage index values calculated as if no
redesignation had occurred (otherwise, redesignated rural hospitals are
excluded from the calculation of the rural wage index). The wage index
value for a redesignated rural hospital cannot be reduced below the
wage index value for the rural areas of the State in which the hospital
is located.
CMS has also adopted the following policies:
The wage data for a reclassified urban hospital is
included in both the wage index calculation of the area to which the
hospital is reclassified (subject to the rules described above) and the
wage index calculation of the urban area where the hospital is
physically located.
In cases where urban hospitals have reclassified to rural
areas under 42 CFR 412.103, the urban hospital wage data are: (a)
Included in the rural wage index calculation, unless doing so would
reduce the rural wage index; and (b) included in the urban area where
the hospital is physically located.
3. FY 2009 MGCRB Reclassifications
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. The specific procedures and rules that apply
to the geographic reclassification process are outlined in 42 CFR
412.230 through 412.280.
At the time this proposed rule was constructed, the MGCRB had
completed its review of FY 2009 reclassification requests. There were
314 hospitals approved for wage index reclassifications by the MGCRB
for FY 2009. Because MGCRB wage index reclassifications are effective
for 3 years, hospitals reclassified during FY 2007 or FY 2008 are
eligible to continue to be reclassified based on prior
reclassifications to current MSAs during FY 2009. There were 175
hospitals approved for wage index reclassifications in FY 2007 and 324
hospitals approved for wage index reclassifications in FY 2008. Of all
of the hospitals approved for reclassification for FY 2007, FY 2008,
and FY 2009, 813 hospitals are in a reclassification status for FY
2009.
Under 42 CFR 412.273, hospitals that have been reclassified by the
MGCRB are permitted to withdraw their applications within 45 days of
the publication of a proposed rule. The request for withdrawal of an
application for reclassification or termination of an existing 3-year
reclassification that would be effective in FY 2009 must be received by
the MGCRB within 45 days of the publication of this proposed rule. If a
hospital elects to withdraw its wage index application after the MGCRB
has issued its decision, but within 45 days of publication of this
proposed rule date, it may later cancel its withdrawal in a subsequent
year and request the MGCRB to reinstate its wage index reclassification
for the remaining fiscal year(s) of the 3-year period (42 CFR
412.273(b)(2)(i)). The request to cancel a prior withdrawal or
termination must be in writing to the MGCRB no later than the deadline
for submitting reclassification applications for the following fiscal
year (42 CFR 412.273(d)). For further information about withdrawing,
terminating, or canceling a previous withdrawal or termination of a 3-
year reclassification for wage index purposes, we refer the reader to
42 CFR 412.273, as well as the August 1, 2002 IPPS final rule (67 FR
50065), and the August 1, 2001 IPPS final rule (66 FR 39887).
Changes to the wage index that result from withdrawals of requests
for reclassification, wage index corrections, appeals, and the
Administrator's review process will be incorporated into the wage index
values published in the FY 2009 final rule. These changes may affect
not only the wage index value for specific geographic areas, but also
the wage index value redesignated hospitals receive; that is, whether
they receive the wage index that includes the data for both the
hospitals already in the area and the redesignated hospitals. Further,
the wage index value for the area from which the hospitals are
redesignated may be affected.
Applications for FY 2010 reclassifications are due to the MGCRB by
September 2, 2008 (the first working day of September 2008). We note
that this is also the deadline for canceling a previous wage index
reclassification withdrawal or termination under 42 CFR 412.273(d).
Applications and other information about MGCRB reclassifications may be
obtained, beginning in mid-July 2008, via the CMS Internet Web site at:
http://cms.hhs.gov/providers/prrb/mgcinfo.asp, or by calling the MGCRB
at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord
Baltimore Drive, Suite L, Baltimore, MD 21244-2670.
4. FY 2008 Policy Clarifications and Revisions
We note below several policies related to geographic
reclassification that were clarified or revised in the FY 2008 IPPS
final rule with comment period (72 FR 47333):
Reinstating Reclassifications--As provided for in 42 CFR
412.273(b)(2), once a hospital (or hospital group) accepts a newly
approved reclassification, any previous reclassification is permanently
terminated.
Geographic Reclassification for Multicampus Hospitals--
Because campuses of a multicampus hospital can now have their wages and
hours data allocated by FTEs or discharge data, a hospital campus
located in a geographic area distinct from the geographic area
associated with the provider number of the multicampus hospital will
have official wage data to supplement an individual or group
reclassification application (Sec. 412.230(d)(2)(v)).
New England Deemed Counties--Hospitals in New England
deemed counties are treated the same as Lugar hospitals in calculating
the wage index. That is, the area is considered rural, but the
hospitals within the area are deemed to be urban (Sec.
412.64(b)(3)(ii)).
``Fallback'' Reclassifications--A hospital will
automatically be given its most recently approved reclassification

[[Page 23634]]

(thereby permanently terminating any previously approved
reclassifications) unless it provides written notice to the MGCRB
within 45 days of publication of the notice of proposed rulemaking that
it wishes to withdraw its most recently approved reclassification and
``fall back'' to either its prior reclassification or its home area
wage index for the following fiscal year.
5. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
Section 1886(d)(8)(B) of the Act requires us to treat a hospital
located in a rural county adjacent to one or more urban areas as being
located in the MSA if certain criteria are met. Effective beginning FY
2005, we use OMB's 2000 CBSA standards and the Census 2000 data to
identify counties in which hospitals qualify under section
1886(d)(8)(B) of the Act to receive the wage index of the urban area.
Hospitals located in these counties have been known as ``Lugar''
hospitals and the counties themselves are often referred to as
``Lugar'' counties. We provide the proposed FY 2009 chart below with
the listing of the rural counties containing the hospitals designated
as urban under section 1886(d)(8)(B) of the Act. For discharges
occurring on or after October 1, 2008, hospitals located in the rural
county in the first column of this chart will be redesignated for
purposes of using the wage index of the urban area listed in the second
column.

Rural Counties Containing Hospitals Redesignated as Urban Under Section 1886(D)(8)(B) of the Act
[Based on CBSAs and Census 2000 Data]
----------------------------------------------------------------------------------------------------------------
Rural county CBSA
----------------------------------------------------------------------------------------------------------------
Cherokee, AL........................... Rome, GA
Macon, AL.............................. Auburn-Opelika, AL
Talladega, AL.......................... Anniston-Oxford, AL
Hot Springs, AR........................ Hot Springs, AR
Windham, CT............................ Hartford-West Hartford-East Hartford, CT
Bradford, FL........................... Gainesville, FL
Hendry, FL............................. West Palm Beach-Boca Raton-Boynton, FL
Levy, FL............................... Gainesville, FL
Walton, FL............................. Fort Walton Beach-Crestview-Destin, FL
Banks, GA.............................. Gainesville, GA
Chattooga, GA.......................... Chattanooga, TN-GA
Jackson, GA............................ Atlanta-Sandy Springs-Marietta, GA
Lumpkin, GA............................ Atlanta-Sandy Springs-Marietta, GA
Morgan, GA............................. Atlanta-Sandy Springs-Marietta, GA
Peach, GA.............................. Macon, GA
Polk, GA............................... Atlanta-Sandy Springs-Marietta, GA
Talbot, GA............................. Columbus, GA-AL
Bingham, ID............................ Idaho Falls, ID
Christian, IL.......................... Springfield, IL
DeWitt, IL............................. Bloomington-Normal, IL
Iroquois, IL........................... Kankakee-Bradley, IL
Logan, IL.............................. Springfield, IL
Mason, IL.............................. Peoria, IL
Ogle, IL............................... Rockford, IL
Clinton, IN............................ Lafayette, IN
Henry, IN.............................. Indianapolis-Carmel, IN
Spencer, IN............................ Evansville, IN-KY
Starke, IN............................. Gary, IN
Warren, IN............................. Lafayette, IN
Boone, IA.............................. Ames, IA
Buchanan, IA........................... Waterloo-Cedar Falls, IA
Cedar, IA.............................. Iowa City, IA
Allen, KY.............................. Bowling Green, KY
Assumption Parish, LA.................. Baton Rouge, LA
St. James Parish, LA................... Baton Rouge, LA
Allegan, MI............................ Holland-Grand Haven, MI
Montcalm, MI........................... Grand Rapids-Wyoming, MI
Oceana, MI............................. Muskegon-Norton Shores, MI
Shiawassee, MI......................... Lansing-East Lansing, MI
Tuscola, MI............................ Saginaw-Saginaw Township North, MI
Fillmore, MN........................... Rochester, MN
Dade, MO............................... Springfield, MO
Pearl River, MS........................ Gulfport-Biloxi, MS
Caswell, NC............................ Burlington, NC
Davidson, NC........................... Greensboro-High Point, NC
Granville, NC.......................... Durham, NC
Harnett, NC............................ Raleigh-Cary, NC
Lincoln, NC............................ Charlotte-Gastonia-Concord, NC-SC
Polk, NC............................... Spartanburg, NC
Los Alamos, NM......................... Santa Fe, NM
Lyon, NV............................... Carson City, NV
Cayuga, NY............................. Syracuse, NY
Columbia, NY........................... Albany-Schenectady-Troy, NY
Genesee, NY............................ Rochester, NY

[[Page 23635]]

Greene, NY............................. Albany-Schenectady-Troy, NY
Schuyler, NY........................... Ithaca, NY
Sullivan, NY........................... Poughkeepsie-Newburgh-Middletown, NY
Wyoming, NY............................ Buffalo-Niagara Falls, NY
Ashtabula, OH.......................... Cleveland-Elyria-Mentor, OH
Champaign, OH.......................... Springfield, OH
Columbiana, OH......................... Youngstown-Warren-Boardman, OH-PA
Cotton, OK............................. Lawton, OK
Linn, OR............................... Corvallis, OR
Adams, PA.............................. York-Hanover, PA
Clinton, PA............................ Williamsport, PA
Greene, PA............................. Pittsburgh, PA
Monroe, PA............................. Allentown-Bethlehem-Easton, PA-NJ
Schuylkill, PA......................... Reading, PA
Susquehanna, PA........................ Binghamton, NY
Clarendon, SC.......................... Sumter, SC
Lee, SC................................ Sumter, SC
Oconee, SC............................. Greenville, SC
Union, SC.............................. Spartanburg, SC
Meigs, TN.............................. Cleveland, TN
Bosque, TX............................. Waco, TX
Falls, TX.............................. Waco, TX
Fannin, TX............................. Dallas-Plano-Irving, TX
Grimes, TX............................. College Station-Bryan, TX
Harrison, TX........................... Longview, TX
Henderson, TX.......................... Dallas-Plano-Irving, TX
Milam, TX.............................. Austin-Round Rock, TX
Van Zandt, TX.......................... Dallas-Plano-Irving, TX
Willacy, TX............................ Brownsville-Harlingen, TX
Buckingham, VA......................... Charlottesville, VA
Floyd, VA.............................. Blacksburg-Christiansburg-Radford, VA
Middlesex, VA.......................... Virginia Beach-Norfolk-Newport News, VA
Page, VA............................... Harrisonburg, VA
Shenandoah, VA......................... Winchester, VA-WV
Island, WA............................. Seattle-Bellevue-Everett, WA
Mason, WA.............................. Olympia, WA
Wahkiakum, WA.......................... Longview, WA
Jackson, WV............................ Charleston, WV
Roane, WV.............................. Charleston, WV
Green, WI.............................. Madison, WI
Green Lake, WI......................... Fond du Lac, WI
Jefferson, WI.......................... Milwaukee-Waukesha-West Allis, WI
Walworth, WI........................... Milwaukee-Waukesha-West Allis, WI
----------------------------------------------------------------------------------------------------------------

As in the past, hospitals redesignated under section 1886(d)(8)(B)
of the Act are also eligible to be reclassified to a different area by
the MGCRB. Affected hospitals are permitted to compare the reclassified
wage index for the labor market area in Table 4C in the Addendum to
this proposed rule into which they have been reclassified by the MGCRB
to the wage index for the area to which they are redesignated under
section 1886(d)(8)(B) of the Act. Hospitals may withdraw from an MCGRB
reclassification within 45 days of the publication of this proposed
rule.
6. Reclassifications Under Section 1886(d)(8)(B) of the Act
As discussed in last year's FY 2008 IPPS final rule with comment
period (72 FR 47336-47337), Lugar hospitals are treated like
reclassified hospitals for purposes of determining their applicable
wage index and receive the reclassified wage index (Table 4C in the
Addendum to this proposed rule) for the urban area to which they have
been redesignated. Because Lugar hospitals are treated like
reclassified hospitals, when they are seeking reclassification by the
MCGRB, they are subject to the rural reclassification rules set forth
at 42 CFR 412.230. The procedural rules set forth at Sec. 412.230 list
the criteria that a hospital must meet in order to reclassify as a
rural hospital. Lugar hospitals are subject to the proximity criteria
and payment thresholds that apply to rural hospitals. Specifically, the
hospital must be no more than 35 miles from the area to which it seeks
reclassification (Sec. 412.230(b)(1)); and the hospital must show that
its average hourly wage is at least 106 percent of the average hourly
wage of all other hospitals in the area in which the hospital is
located (Sec. 412.230(d)(1)(iii)(C)). Under current rules, the
hospital must also demonstrate that its average hourly wage is equal to
at least 82 percent of the average hourly wage of hospitals in the area
to which it seeks redesignation (Sec. 412.230(d)(1)(iv)(C)). However,
we are proposing to increase this threshold to 86 percent (as discussed
in section III.B.2.a. of this preamble).
Hospitals not located in a Lugar County seeking reclassification to
the urban area where the Lugar hospitals have been redesignated are not
permitted to measure to the Lugar County to demonstrate proximity (no
more than 15 miles for an urban

[[Page 23636]]

hospital, and no more than 35 miles for a rural hospital or the closest
urban or rural area for RRCs or SCHs) in order to be reclassified to
such urban area. These hospitals must measure to the urban area
exclusive of the Lugar County to meet the proximity or nearest urban or
rural area requirement. As discussed in the FY 2008 final rule with
comment period, we treat New England deemed counties in a manner
consistent with how we treat Lugar counties. (We refer readers to 72 FR
47337 for a discussion of this policy.)

J. Proposed FY 2009 Wage Index Adjustment Based on Commuting Patterns
of Hospital Employees

In accordance with the broad discretion under section 1886(d)(13)
of the Act, as added by section 505 of Pub. L. 108-173, beginning with
FY 2005, we established a process to make adjustments to the hospital
wage index based on commuting patterns of hospital employees (the
``out-migration'' adjustment). The process, outlined in the FY 2005
IPPS final rule (69 FR 49061), provides for an increase in the wage
index for hospitals located in certain counties that have a relatively
high percentage of hospital employees who reside in the county but work
in a different county (or counties) with a higher wage index. Such
adjustments to the wage index are effective for 3 years, unless a
hospital requests to waive the application of the adjustment. A county
will not lose its status as a qualifying county due to wage index
changes during the 3-year period, and counties will receive the same
wage index increase for those three years. However, a county that
qualifies in any given year may no longer qualify after the 3-year
period, or it may qualify but receive a different adjustment to the
wage index level. Hospitals that receive this adjustment to their wage
index are not eligible for reclassification under section 1886(d)(8) or
section 1886(d)(10) of the Act. Adjustments under this provision are
not subject to the budget neutrality requirements under section
1886(d)(3)(E) of the Act.
Hospitals located in counties that qualify for the wage index
adjustment are to receive an increase in the wage index that is equal
to the average of the differences between the wage indices of the labor
market area(s) with higher wage indices and the wage index of the
resident county, weighted by the overall percentage of hospital workers
residing in the qualifying county who are employed in any labor market
area with a higher wage index. Beginning with the FY 2008 wage index,
we use post-reclassified wage indices when determining the out-
migration adjustment (72 FR 47339).
For the proposed FY 2009 wage index, we calculated the out-
migration adjustment using the same formula described in the FY 2005
IPPS final rule (69 FR 49064), with the addition of using the post-
reclassified wage indices, to calculate the out-migration adjustment.
This adjustment is calculated as follows:
Step 1. Subtract the wage index for the qualifying county from the
wage index of each of the higher wage area(s) to which hospital workers
commute.
Step 2. Divide the number of hospital employees residing in the
qualifying county who are employed in such higher wage index area by
the total number of hospital employees residing in the qualifying
county who are employed in any higher wage index area. For each of the
higher wage index areas, multiply this result by the result obtained in
Step 1.
Step 3. Sum the products resulting from Step 2 (if the qualifying
county has workers commuting to more than one higher wage index area).
Step 4. Multiply the result from Step 3 by the percentage of
hospital employees who are residing in the qualifying county and who
are employed in any higher wage index area.
These adjustments will be effective for each county for a period of
3 fiscal years. For example, hospitals that received the adjustment for
the first time in FY 2008 will be eligible to retain the adjustment for
FY 2009. For hospitals in newly qualified counties, adjustments to the
wage index are effective for 3 years, beginning with discharges
occurring on or after October 1, 2008.
Hospitals receiving the wage index adjustment under section
1886(d)(13)(F) of the Act are not eligible for reclassification under
sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-
migration adjustment. Consistent with our FY 2005, 2006, 2007, and 2008
IPPS final rules, we are proposing that hospitals redesignated under
section 1886(d)(8) of the Act or reclassified under section 1886(d)(10)
of the Act will be deemed to have chosen to retain their redesignation
or reclassification. Section 1886(d)(10) hospitals that wish to receive
the out-migration adjustment, rather than their reclassification,
should follow the termination/withdrawal procedures specified in 42 CFR
412.273 and section III.I.3. of the preamble of this proposed rule.
Otherwise, they will be deemed to have waived the out-migration
adjustment. Hospitals redesignated under section 1886(d)(8) of the Act
will be deemed to have waived the out-migration adjustment, unless they
explicitly notify CMS within 45 days from the publication of this
proposed rule that they elect to receive the out-migration adjustment
instead. These notifications should be sent to the following address:
Centers for Medicare and Medicaid Services, Center for Medicare
Management, Attention: Wage Index Adjustment Waivers, Division of Acute
Care, Room C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Table 4J in the Addendum to this proposed rule lists the proposed
out-migration wage index adjustments for FY 2009. Hospitals that are
not otherwise reclassified or redesignated under section 1886(d)(8) or
section 1886(d)(10) of the Act will automatically receive the listed
adjustment. In accordance with the procedures discussed above,
redesignated/reclassified hospitals would be deemed to have waived the
out-migration adjustment unless CMS is otherwise notified. Hospitals
that are eligible to receive the out-migration wage index adjustment
and that withdraw their application for reclassification would
automatically receive the wage index adjustment listed in Table 4J in
the Addendum to this proposed rule.

K. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational
mix survey data files for the FY 2009 wage index were made available on
October 5, 2007, through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
In the interest of meeting the data needs of the public, beginning
with the proposed FY 2009 wage index, we posted an additional public
use file on our Web site that reflects the actual data that are used in
computing the proposed wage index. The release of this new file does
not alter the current wage index process or schedule. We notified the
hospital community of the availability of these data as we do with the
current public use wage data files through our Hospital Open Door
forum. We encourage hospitals to sign up for automatic notifications of
information about hospital issues and the scheduling of the Hospital
Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.
In a memorandum dated October 5, 2007, we instructed all fiscal

[[Page 23637]]

intermediaries/MACs to inform the IPPS hospitals they service of the
availability of the wage index data files and the process and timeframe
for requesting revisions (including the specific deadlines listed
below). We also instructed the fiscal intermediaries/MACs to advise
hospitals that these data were also made available directly through
their representative hospital organizations.
If a hospital wished to request a change to its data as shown in
the October 5, 2007 wage and occupational mix data files, the hospital
was to submit corrections along with complete, detailed supporting
documentation to its fiscal intermediary/MAC by December 7, 2007.
Hospitals were notified of this deadline and of all other possible
deadlines and requirements, including the requirement to review and
verify their data as posted on the preliminary wage index data files on
the Internet, through the October 5, 2007 memorandum referenced above.
In the October 5, 2007 memorandum, we also specified that a
hospital requesting revisions to its 1st and/or 2nd quarter
occupational mix survey data was to copy its record(s) from the CY 2006
occupational mix preliminary files posted to our Web site in October,
highlight the revised cells on its spreadsheet, and submit its
spreadsheet(s) and complete documentation to its fiscal intermediary/
MAC no later than December 7, 2007.
The fiscal intermediaries (or, if applicable, the MACs) notified
the hospitals by mid-February 2008 of any changes to the wage index
data as a result of the desk reviews and the resolution of the
hospitals' early-December revision requests. The fiscal intermediaries/
MACs also submitted the revised data to CMS by mid-February 2008. CMS
published the proposed wage index public use files that included
hospitals' revised wage index data on February 25, 2008. In a
memorandum also dated February 25, 2008, we instructed fiscal
intermediaries/MACs to notify all hospitals regarding the availability
of the proposed wage index public use files and the criteria and
process for requesting corrections and revisions to the wage index
data. Hospitals had until March 11, 2008 to submit requests to the
fiscal intermediaries/MACs for reconsideration of adjustments made by
the fiscal intermediaries/MACs as a result of the desk review, and to
correct errors due to CMS's or the fiscal intermediary's (or, if
applicable, the MAC's) mishandling of the wage index data. Hospitals
were also required to submit sufficient documentation to support their
requests.
After reviewing requested changes submitted by hospitals, fiscal
intermediaries/MACs are to transmit any additional revisions resulting
from the hospitals' reconsideration requests by April 14, 2008. The
deadline for a hospital to request CMS intervention in cases where the
hospital disagreed with the fiscal intermediary's (or, if applicable,
the MAC's) policy interpretations is April 21, 2008.
Hospitals should also examine Table 2 in the Addendum to this
proposed rule. Table 2 in the Addendum to this proposed rule contains
each hospital's adjusted average hourly wage used to construct the wage
index values for the past 3 years, including the FY 2005 data used to
construct the proposed FY 2009 wage index. We note that the hospital
average hourly wages shown in Table 2 only reflect changes made to a
hospital's data and transmitted to CMS by February 29, 2008.
We will release the final wage index data public use files in early
May 2008 on the Internet at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. The May 2008 public use files will be made
available solely for the limited purpose of identifying any potential
errors made by CMS or the fiscal intermediary/MAC in the entry of the
final wage index data that result from the correction process described
above (revisions submitted to CMS by the fiscal intermediaries/MACs by
April 14, 2008). If, after reviewing the May 2008 final files, a
hospital believes that its wage or occupational mix data are incorrect
due to a fiscal intermediary or MAC or CMS error in the entry or
tabulation of the final data, the hospital should send a letter to both
its fiscal intermediary or MAC and CMS that outlines why the hospital
believes an error exists and to provide all supporting information,
including relevant dates (for example, when it first became aware of
the error). CMS and the fiscal intermediaries (or, if applicable, the
MACs) must receive these requests no later than June 9, 2008. Requests
mailed to CMS should be sent to: Centers for Medicare & Medicaid
Services, Center for Medicare Management, Attention: Wage Index Team,
Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore,
MD 21244-1850.
Each request also must be sent to the fiscal intermediary or the
MAC. The fiscal intermediary or the MAC will review requests upon
receipt and contact CMS immediately to discuss its findings.
At this point in the process, that is, after the release of the May
2008 wage index data files, changes to the wage and occupational mix
data will only be made in those very limited situations involving an
error by the fiscal intermediary or the MAC or CMS that the hospital
could not have known about before its review of the final wage index
data files. Specifically, neither the fiscal intermediary or the MAC
nor CMS will approve the following types of requests:
Requests for wage index data corrections that were
submitted too late to be included in the data transmitted to CMS by
fiscal intermediaries or the MACs on or before April 21, 2008.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the February 25,
2008 wage index public use files.
Requests to revisit factual determinations or policy
interpretations made by the fiscal intermediary or the MAC or CMS
during the wage index data correction process.
Verified corrections to the wage index data received timely by CMS
and the fiscal intermediaries or the MACs (that is, by June 9, 2008)
will be incorporated into the final wage index in the FY 2009 IPPS
final rule, which will be effective October 1, 2008.
We created the processes described above to resolve all substantive
wage index data correction disputes before we finalize the wage and
occupational mix data for the FY 2009 payment rates. Accordingly,
hospitals that do not meet the procedural deadlines set forth above
will not be afforded a later opportunity to submit wage index data
corrections or to dispute the fiscal intermediary's (or, if applicable
the MAC's) decision with respect to requested changes. Specifically,
our policy is that hospitals that do not meet the procedural deadlines
set forth above will not be permitted to challenge later, before the
Provider Reimbursement Review Board, the failure of CMS to make a
requested data revision. (See W. A. Foote Memorial Hospital v. Shalala,
No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v.
Thompson, No. 99-1230 (D.D.C. 2003).) We refer the reader also to the
FY 2000 final rule (64 FR 41513) for a discussion of the parameters for
appealing to the PRRB for wage index data corrections.
Again, we believe the wage index data correction process described
above provides hospitals with sufficient opportunity to bring errors in
their wage and occupational mix data to the fiscal intermediary's (or,
if applicable, the MAC's) attention. Moreover, because

[[Page 23638]]

hospitals will have access to the final wage index data by early May
2008, they have the opportunity to detect any data entry or tabulation
errors made by the fiscal intermediary or the MAC or CMS before the
development and publication of the final FY 2009 wage index by August
1, 2008, and the implementation of the FY 2009 wage index on October 1,
2008. If hospitals availed themselves of the opportunities afforded to
provide and make corrections to the wage and occupational mix data, the
wage index implemented on October 1 should be accurate. Nevertheless,
in the event that errors are identified by hospitals and brought to our
attention after June 9, 2008, we retain the right to make midyear
changes to the wage index under very limited circumstances.
Specifically, in accordance with 42 CFR 412.64(k)(1) of our
existing regulations, we make midyear corrections to the wage index for
an area only if a hospital can show that: (1) The fiscal intermediary
or the MAC or CMS made an error in tabulating its data; and (2) the
requesting hospital could not have known about the error or did not
have an opportunity to correct the error, before the beginning of the
fiscal year. For purposes of this provision, ``before the beginning of
the fiscal year'' means by the June deadline for making corrections to
the wage data for the following fiscal year's wage index. This
provision is not available to a hospital seeking to revise another
hospital's data that may be affecting the requesting hospital's wage
index for the labor market area. As indicated earlier, since CMS makes
the wage index data available to hospitals on the CMS Web site prior to
publishing both the proposed and final IPPS rules, and the fiscal
intermediaries or the MAC notify hospitals directly of any wage index
data changes after completing their desk reviews, we do not expect that
midyear corrections will be necessary. However, under our current
policy, if the correction of a data error changes the wage index value
for an area, the revised wage index value will be effective
prospectively from the date the correction is made.
In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR
412.64(k)(2) to specify that, effective on October 1, 2005, that is
beginning with the FY 2006 wage index, a change to the wage index can
be made retroactive to the beginning of the Federal fiscal year only
when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS
made an error in tabulating data used for the wage index calculation;
(2) the hospital knew about the error and requested that the fiscal
intermediary (or if applicable the MAC) and CMS correct the error using
the established process and within the established schedule for
requesting corrections to the wage index data, before the beginning of
the fiscal year for the applicable IPPS update (that is, by the June 9,
2008 deadline for the FY 2009 wage index); and (3) CMS agreed that the
fiscal intermediary (or if applicable, the MAC) or CMS made an error in
tabulating the hospital's wage index data and the wage index should be
corrected.
In those circumstances where a hospital requested a correction to
its wage index data before CMS calculates the final wage index (that
is, by the June deadline), and CMS acknowledges that the error in the
hospital's wage index data was caused by CMS's or the fiscal
intermediary's (or, if applicable, the MAC's) mishandling of the data,
we believe that the hospital should not be penalized by our delay in
publishing or implementing the correction. As with our current policy,
we indicated that the provision is not available to a hospital seeking
to revise another hospital's data. In addition, the provision cannot be
used to correct prior years' wage index data; it can only be used for
the current Federal fiscal year. In other situations where our policies
would allow midyear corrections, we continue to believe that it is
appropriate to make prospective-only corrections to the wage index.
We note that, as with prospective changes to the wage index, the
final retroactive correction will be made irrespective of whether the
change increases or decreases a hospital's payment rate. In addition,
we note that the policy of retroactive adjustment will still apply in
those instances where a judicial decision reverses a CMS denial of a
hospital's wage index data revision request.

L. Labor-Related Share for the Proposed Wage Index for FY 2009

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust
the proportion of the national prospective payment system base payment
rates that are attributable to wages and wage-related costs by a factor
that reflects the relative differences in labor costs among geographic
areas. It also directs the Secretary to estimate from time to time the
proportion of hospital costs that are labor-related: ``The Secretary
shall adjust the proportion (as estimated by the Secretary from time to
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates * * *'' We refer to
the portion of hospital costs attributable to wages and wage-related
costs as the labor-related share. The labor-related share of the
prospective payment rate is adjusted by an index of relative labor
costs, which is referred to as the wage index.
Section 403 of Pub. L. 108-173 amended section 1886(d)(3)(E) of the
Act to provide that the Secretary must employ 62 percent as the labor-
related share unless this ``would result in lower payments to a
hospital than would otherwise be made.'' However, this provision of
Pub. L. 108-173 did not change the legal requirement that the Secretary
estimate ``from time to time'' the proportion of hospitals costs that
are ``attributable to wages and wage-related costs.'' We interpret this
to mean that hospitals receive payment based on either a 62-percent
labor-related share, or the labor-related share estimated from time to
time by the Secretary, depending on which labor-related share resulted
in a higher payment.
We have continued our research into the assumptions employed in
calculating the labor-related share. Our research involves analyzing
the compensation share separately for urban and rural hospitals, using
regression analysis to determine the proportion of costs influenced by
the area wage index, and exploring alternative methodologies to
determine whether all or only a portion of professional fees and
nonlabor intensive services should be considered labor-related.
In the FY 2006 IPPS final rule (70 FR 47392), we presented our
analysis and conclusions regarding the methodology for updating the
labor-related share for FY 2006. We also recalculated a labor-related
share of 69.731 percent, using the FY 2002-based PPS market basket for
discharges occurring on or after October 1, 2005. In addition, we
implemented this revised and rebased labor-related share in a budget
neutral manner, but consistent with section 1886(d)(3)(E) of the Act,
we did not take into account the additional payments that would be made
as a result of hospitals with a wage index less than or equal to 1.0
being paid using a labor-related share lower than the labor-related
share of hospitals with a wage index greater than 1.0.
The labor-related share is used to determine the proportion of the
national PPS base payment rate to which the area wage index is applied.
In this proposed rule, we are not proposing to make any changes to the
national average proportion of operating costs that are attributable to
wages and salaries, fringe benefits, professional fees, contract labor,
and labor intensive services. Therefore, we are proposing to continue
to use a labor-related share of 69.731

[[Page 23639]]

percent for discharges occurring on or after October 1, 2008. Tables 1A
and 1B in the Addendum to this proposed rule reflect this proposed
labor-related share. We note that section 403 of Pub. L. 108-173
amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to
provide that the Secretary must employ 62 percent as the labor-related
share unless this employment ``would result in lower payments to a
hospital than would otherwise be made.''
We also are proposing to continue to use a labor-related share for
the Puerto Rico-specific standardized amounts of 58.7 percent for
discharges occurring on or after October 1, 2008. Consistent with our
methodology for determining the national labor-related share, we added
the Puerto Rico-specific relative weights for wages and salaries,
fringe benefits, contract labor, nonmedical professional fees, and
other labor-intensive services to determine the labor-related share.
Puerto Rico hospitals are paid based on 75 percent of the national
standardized amounts and 25 percent of the Puerto Rico-specific
standardized amounts. For Puerto Rico hospitals, the national labor-
related share will always be 62 percent because the wage index for all
Puerto Rico hospitals is less than 1.0. A Puerto Rico-specific wage
index is applied to the Puerto Rico-specific portion of payments to the
hospitals. The labor-related share of a hospital's Puerto Rico-specific
rate will be either 62 percent or the Puerto Rico-specific labor-
related share depending on which results in higher payments to the
hospital. If the hospital has a Puerto Rico-specific wage index of
greater than 1.0, we will set the hospital's rates using a labor-
related share of 62 percent for the 25 percent portion of the
hospital's payment determined by the Puerto Rico standardized amounts
because this amount will result in higher payments. Conversely, a
hospital with a Puerto Rico-specific wage index of less than 1.0 will
be paid using the Puerto Rico-specific labor-related share of 58.7
percent of the Puerto Rico-specific rates because the lower labor-
related share will result in higher payments. The proposed Puerto Rico
labor-related share of 58.7 percent for FY 2008 is reflected in the
Table 1C of the Addendum to this proposed rule.

IV. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and GME Costs

A. Proposed Changes to the Postacute Care Transfer Policy (Sec. 412.4)

1. Background
Existing regulations at Sec. 412.4(a) define discharges under the
IPPS as situations in which a patient is formally released from an
acute care hospital or dies in the hospital. Section 412.4(b) defines
transfers from one acute care hospital to another. 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, the transferring hospital is paid based on a per
diem rate for each day of the stay, not to exceed the full MS-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 MS-DRG payment by the geometric mean length of stay
for the MS-DRG. Based on an analysis that showed that the first day of
hospitalization is the most expensive (60 FR 5804), our policy
generally provides for payment that is double the per diem amount for
the first day, with each subsequent day paid at the per diem amount up
to the full DRG payment (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
(adjusted for geographic variations in costs), divided by the geometric
mean length of stay for the MS-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 patients to another hospital, a SNF, or home under
a written plan of care for home health services early in the patients''
stay in order to minimize costs while still receiving the full MS-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, a DRG would be 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 made 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 adopted for FY 2008 were a significant revision
to the CMS DRG system (72 FR 47141). Because the MS-DRGs were not
reflected in Version 23.0 of the DRG Definitions Manual, consistent
with Sec. 412.4, we established policy to recalculate the 55th
percentile thresholds in order to determine which MS-DRGs would be
subject to the postacute care transfer policy (72 FR 47186 through
47188). Further, under

[[Page 23640]]

the MS-DRGs, the subdivisions within the base DRGs are different than
those under the previous CMS DRGs. Unlike the 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 previous policy under which both CMS DRGs in a
CC/non-CC pair were qualifying DRGs if one of the pair qualified, we
established that each MS-DRG that shared a base MS-DRG will be a
qualifying DRG if one of the MS-DRGs that shared the base DRG
qualifies. We revised Sec. 412.4(d)(3)(ii) to codify this policy.
Similarly, the adoption of the MS-DRGs also necessitated 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.
In addition, the hospital will receive 50 percent of the per diem
amount for each subsequent day of the stay, up to the full MS-DRG
payment amount. A CMS DRG was subject to the special payment
methodology if it met the criteria of Sec. 412.4(f)(5). Section
412.4(f)(5)(iv) specifies that, for discharges occurring on or after
October 1, 2005, and prior to October 1, 2007, 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 was no longer applicable under the MS-DRG system, in the FY
2008 final rule with comment period, we added a new Sec. 412.4(f)(6)
(42 FR 47188 and 47410). Section 412.4(f)(6) provides that, for
discharges on or after October 1, 2007, if an MS-DRG meets the criteria
specified under Sec. Sec. 412.4(f)(6)(i) through (f)(6)(iii), any
other MS-DRG that is part of the same MS-DRG group is also subject to
the special payment methodology. We updated this criterion so that it
conformed to the changes associated with adopting MS-DRGs for FY 2008.
The revision makes 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.
Section 1886(d)(5)(J) of the Act provides that, effective for
discharges on or after October 1, 1998, a ``qualified discharge'' from
one of DRGs selected by the Secretary to a postacute care provider
would be treated as a transfer case. This section required the
Secretary to define and pay as transfers all cases assigned to one of
the DRGs selected by the Secretary, if the individuals are discharged
to one of the following postacute care settings:
A hospital or hospital unit that is not a subsection
1886(d) hospital. (Section 1886(d)(1)(B) of the Act identifies the
hospitals and hospital units that are excluded from the term
``subsection (d) hospital'' as psychiatric hospitals and units,
rehabilitation hospitals and units, children's hospitals, long-term
care hospitals, and cancer hospitals.)
A SNF (as defined at section1819(a) of the Act).
Home health services provided by a home health agency, if
the services relate to the condition or diagnosis for which the
individual received inpatient hospital services, and if the home health
services are provided within an appropriate period (as determined by
the Secretary). In the FY 1999 IPPS final rule (63 FR 40975 through
40976 and 40979 through 40981), we specified that a patient discharged
to home would be considered transferred to postacute care if the
patient received home health services within 3 days after the date of
discharge. In addition, in the FY 1999 IPPS final rule, we did not
include patients transferred to a swing-bed for skilled nursing care in
the definition of postacute care transfer cases (63 FR 40977).
2. Proposed Policy Change Relating to Transfers to Home with a Written
Plan for the Provision of Home Health Services
As noted above, in the FY 1999 IPPS final rule (63 FR 40975 through
40976 and 40979 through 40981), we determined that 3 days is an
appropriate period within which home health services should begin
following a beneficiary's discharge to the home in order for the
discharge to be considered a ``qualified discharge'' subject to the
payment adjustment for postacute care transfer cases. In that same
final rule, we noted that we would monitor whether 3 days would remain
an appropriate timeframe.
Section 1886(d)(5)(J)(ii)(III) of the Act provides that the
discharge of an individual who receives home health services upon
discharge will be treated as a transfer if ``such services are provided
within an appropriate period as determined by the Secretary * * *''.
The statute thus confers upon the Secretary the authority to determine
an appropriate timeframe for the application of the postacute care
transfer policy in cases where home health services commence subsequent
to discharge from an acute care hospital. In the FY 1999 final IPPS
rule, we established the policy that the postacute care transfer policy
would apply to cases in which the home health care begins within 3 days
of the discharge from an acute care policy. We noted in that rule that
we did not believe that it was appropriate to limit the transfer
definition to cases in which home health care begins on the same day as
the patient is discharged from the hospital. We observed that data
indicated that less than 8 percent of discharged patients who receive
home health care begin receiving those services on the date of
discharge. It is unreasonable to expect that patients who are
discharged later in the day would receive a home health visit that same
day. Furthermore, we believed that the financial incentive to delay
needed home health care for only a matter of hours would be
overwhelming if we limited the timeframe to one day. At the time of
that final rule, we explained that we believed that 3 days would be a
more appropriate timeframe because it would mitigate the incentive to
delay home health services to avoid the application of the postacute
care transfer policy, and because a 3-day timeframe was consistent with
existing patterns of care.
In that final rule, we also noted that a number of commenters had
raised issues and questions concerning the proposal to adopt 3 days as
the appropriate timeframe for the application of the postacute care
transfer policy in these cases. While most of the commenters advocated
shorter timeframes, on the grounds that postacute care beginning 3 days
after a discharge should not be considered a substitute for inpatient
hospital care, others suggested that a 3-day window might still allow
for needlessly prolonged hospital care or delayed home health in order
to avoid the application of the postacute care transfer policy.
Although MedPAC agreed with the commenters who asserted that home
health care services furnished after a delay of more than one day may
not necessarily be regarded as substituting for inpatient acute care,
they also noted that a 3-day window allows for the fact that most home
health patients do not receive care every day, as well as for those
occasions in which there may be a delay in arranging for the provision
of planned care (for

[[Page 23641]]

example, an intervening weekend). The commission also stated that a
shorter period may create a stronger incentive to delay the provision
of necessary care beyond the window so that the hospital will receive
the full DRG payment. In the light of these comments and, in
particular, of the concern that a 3-day timeframe still allowed for
some incentive to delay necessary home health services in order to
avoid the application of the postacute care transfer policy, we
indicated that we would continue to monitor this policy in order to
track any changes in practices that may indicate the need for revising
the window.
Since the adoption of this policy in FY 1999, we have continued to
receive reports that some providers discharge patients prior to the
geometric mean length of stay but intentionally delay home health
services beyond 3 days after the acute hospital discharge in order to
avoid the postacute care transfer payment adjustment policy. These
reports, and the concerns expressed by some commenters in FY 1999 about
the adequacy of a 3-day window to reduce such incentives, have prompted
us to examine the available data concerning the initiation and program
payments for home health care subsequent to discharge from postacute
care.
We merged the FY 2004 MedPAR file with postacute care bill files
matching beneficiary identification numbers and discharge and admission
dates and looked at the 10 DRGs that were subject to the postacute care
transfer policy from FYs 1999 through 2003 (DRG 14 (Intracranial
Hemorrhage and Stroke with Infarction (formerly ``Specific
Cerebrovascular Disorders Except Transient Ischemic Attack'')); DRG 113
(Amputation for Circulatory System Disorders Except Upper Limb and
Toe); DRG 209 (Major Joint Limb Reattachment Procedures of Lower
Extremity); DRG 210 (Hip and Femur Procedures Except Major Joint
Procedures <=17 with CC); DRG 211 (Hip and Femur Procedures Except
Major Joint Procedures Age <=17 without CC); DRG 236 (Fractures of Hip
and Pelvis); DRG 263 (Skin Graft and/or Debridement for Skin Ulcer or
Cellulitis with CC); DRG 264 (Skin Graft and/or Debridement for Skin
Ulcer or Cellulitis without CC); DRG 429 (Organic Disturbances and
Mental Retardation); and DRG 483 (Tracheostomy with Mechanical
Ventiliation 96+ Hours or Principal Diagnosis Except Face, Mouth, and
Neck Diagnoses (formerly ``Tracheostomy Except for Face, Mouth, and
Neck Diagnoses'')). We selected the original 10 ``qualified DRGs''
because they were the DRGs to which the postacute care transfer policy
applied for FYs 1999 through 2003 and because we expect that trends
that we found in the data with those DRGs would be likely to accurately
reflect provider practices after the inception of the postacute care
transfer policy. We expect that provider practices for the original 10
DRGs would be consistent even with the expansion of the DRGs that are
subject to the postacute care transfer policy. We note that providers
may have even a greater incentive to delay the initiation of home
health care in an effort to avoid the postacute care transfer policy
now that there are more DRGs to which the policy applies. We compared
data on home health services provided to patients who were discharged
prior to the geometric mean length of stay to patients who were
discharged at or beyond the geometric mean length of stay. For purposes
of this analysis, we assumed that home health was the first discharge
designation from the acute care hospital setting.
The data showed that, on average, the Medicare payment per home
health visit was higher for patients who were discharged prior to the
geometric mean length of stay (as compared to patients who were
discharged at or beyond the geometric mean length of stay).
Additionally, we found some evidence in the data suggesting that, for
patients discharged prior to the geometric mean length of stay for many
DRGs, hospitals may indeed be discharging patients earlier than
advisable, providing less than the optimal amount of acute inpatient
care, and are instead substituting home health care for inpatient
services, resulting in higher home health care payments under the
Medicare program. One generally would expect that patients discharged
prior to the geometric mean length of stay are genuinely less severely
ill than patients discharged at or after the geometric mean length of
stay because patients in the former group are judged to be appropriate
for discharge after less acute inpatient care. However, our data paint
a different picture. For example, the data on the average per day
Medicare payments for home health care for those patients who are
discharged from the hospital prior to the geometric mean length of stay
in the DRGs to which the postacute care transfer policy applies, as
compared to Medicare payments for patients discharged from the hospital
at or after the geometric mean length of stay, show patterns other than
what might be expected if hospitals are generally discharging patients
for home health care only after the full amount of acute inpatient
care. Specifically, average Medicare payments per home health care
visit are consistently higher for patients discharged prior to the
geometric mean length of stay than for patients discharged at or after
the geometric mean length of stay. The average home health care per
visit payments for patients treated for the relevant DRGs and
discharged before the geometric mean length of stay are $204 when the
initiation of home health care began on the second day after discharge,
$199 on the third day, and $182 on the sixth day, compared to $177,
$163, and $171, respectively for patients discharged on or after the
geometric mean length of stay. Furthermore, the ratio of the payments
for these two groups actually increases from 1.16 on the third day
after discharge to 1.22 on the fourth day, before falling again to
1.04, 1.07, and 1.08 on the fifth, sixth, and seventh days. This
suggests the possibility that home health care for some relatively
sicker patients is being delayed until just beyond the 3-day window
during which the postacute care transfer policy applies. In the light
of these data, we believe that it is appropriate to propose extending
the applicable timeframe in order to reduce the incentive for providers
to delay home health care when discharging patients from the acute care
setting. Further examination of the data indicates that the average per
day Medicare payments for home health care for those patients, in the
DRGs to which the postacute care transfer policy applies, who are
discharged from the hospital prior to the geometric mean length of
stay, stabilizes at a somewhat lower amount when the initiation of home
health visits begins on the seventh and subsequent days after
discharge. Specifically, average payments per visit for this group fall
from $182 when home health services began on the sixth day after the
acute care hospital discharge to $174 on the seventh day, and then
remain relatively steady at $171, $177, and $172 on the eighth, ninth,
and tenth days. This suggests that a 7-day period would be an
appropriate point at which to establish a new timeframe. The
stabilization of average home health care visit payments at and after
the seventh day suggests that this may be the point at which the
incentives to delay the start of home health care in order to avoid the
application of the postacute care transfer policy are reduced. As a
consequence of this analysis, in this proposed rule, we are proposing
to revise Sec. 412.4(c)(3) to extend the timeframe to within 7 days of
discharge to home under a written

[[Page 23642]]

plan for the provision of home health services, effective October 1,
2008. We believe that extending the applicable timeframe will lessen
the incentive for providers to delay the start of home health care
after discharging patients from the acute care hospital setting. During
the comment period on this proposed rule, we plan to continue to search
our data on postacute care discharges to home health services. We
welcome comments and suggestions on other data analyses that can be
performed to determine an appropriate timeframe for which the postacute
care transfer policy would apply.
In addition to the reasons noted above, we believe that 7 days is
currently an appropriate timeframe because we believe that accommodates
current practices and it is sufficiently long enough to lessen the
likelihood that providers would delay the initiation of necessary home
health services. At the same time, we believe that 7 days is narrow
enough that we would still expect the majority of the home health
services to be related to the condition to which the acute inpatient
hospital stay was necessary. Further, we note that there may be some
cases for which it is not clinically appropriate to begin home health
services immediately following an acute care discharge, and that even
when home health services are clinically appropriate sooner than within
7 days of acute care discharge, home health services may not be
immediately available.
We note that, as we stated in the FY 2000 IPPS final rule (65 FR
47081), if the hospital's continuing care plan for the patient is not
related to the purpose of the inpatient hospital admission, a condition
code 42 must be entered on the claim. If the continuing care plan is
related to the purpose of the inpatient hospital admission but begins
after 7 days (formerly after 3 days) of discharge, a condition code 43
must be entered on the claim. The presence of either of these condition
codes in conjunction with patient status discharge code 06 (Discharged/
Transferred to Home under Care of Organized Home Health Service
Organization in Anticipation of Covered Skilled Care) will result in
full payment rather than the transfer payment amount.
3. Evaluation of MS-DRGs Under Postacute Care Transfer Policy for FY
2009
For FY 2009, we are not proposing to make any changes to the
criteria by which an MS-DRG would qualify for inclusion in the
postacute care transfer policy. However, because we are proposing to
revise some existing MS-DRGs and to add one new MS-DRG (discussed under
section II.G. of this preamble), we are proposing to evaluate those MS-
DRGs under our existing postacute care transfer criteria in order to
determine whether any of the revised or new MS-DRGs will meet the
postacute care transfer criteria for FY 2009. Therefore, for 2009, we
are evaluating MS-DRGs 001, 002, 215, 245, 901 through 909, 913 through
923, 955 through 959, and 963 through 965. Any revisions made would not
constitute a change to the application of the postacute care transfer
policy. A list indicating which MS-DRGs would be subject to the
postacute care transfer policy for FY 2009 can be found in Table 5 in
the Addendum to this proposed rule.

B. Reporting of Hospital Quality Data for Annual Hospital Payment
Update (Sec. 412.64(d)(2))

1. Background
a. Overview
CMS is transforming the Medicare program from a passive payer to an
active purchaser of higher quality, more efficient health care. Such
care will contribute to the sustainability of the Medicare program,
encourage the delivery of high quality care while avoiding unnecessary
costs, and help ensure high value for beneficiaries. To support this
transformation, CMS has worked with stakeholders to develop and
implement quality measures, make provider and plan performance public,
link payment incentives to reporting on measures, and ultimately is
working to link payment to actual performance on these measures.
Commonly referred to as value-based purchasing, this policy aligns
payment incentives with the quality of care as well as the resources
used to deliver care to encourage the delivery of high-value health
care.
The success of this transformation is supported by and dependent
upon an increasing number of widely-agreed upon quality measures. The
Medicare program has defined measures of quality in almost every
setting and measures some aspect of care for almost all Medicare
beneficiaries. These measures include clinical processes, patient
perception of their care experience, and, increasingly, outcomes.
The Medicare program has established mechanisms for collecting
information on these measures, such as QualityNet, an Internet-based
process that hospitals use to report all-payer information. Initial
voluntary efforts were supplemented beginning in FY 2005 by a provision
in the Medicare Prescription Drug Improvement and Modernization Act
(MMA), which provided the full annual payment update only to
``subsection (d) hospitals'' (that is, hospitals paid under the IPPS)
that successfully reported on a set of widely-agreed upon quality
measures. Since FY 2007, as required by subsequent legislation (the
Deficit Reduction Act (DRA)) the number of quality measures and the
amount of the financial incentive have increased.
As a result, the great majority of hospitals now report on quality
measures for heart failure, heart disease, pneumonia, and surgical
infection and received the full annual update for FY 2008. The number
of measures has continued to grow and the types of measures have grown
as well, with the addition of outcomes measures, such as heart attack
and heart failure mortality measures, and the HCAHPS measure of patient
satisfaction. In section IV.B.2. of this preamble, we are seeking
public comments on proposed additional quality measures.
Reporting on these measures provides hospitals a greater awareness
of the quality of care they provide and provides actionable information
for consumers to make more informed decisions about their health care
providers and treatments.
Moving beyond reporting to performance, CMS has designed a Hospital
Value-Based Purchasing Plan that would link hospital payments to their
actual performance on quality measures. In accordance with the DRA, the
Plan was submitted to Congress in November 2007. We discuss the Plan
more fully in section IV.C. of this preamble.
The ongoing CMS Premier Hospital Quality Incentive Demonstration
project is another effort linking payments to quality performance.
Launched in 2003, the Premier Hospital Quality Incentive Demonstration
project promotes measurable improvements in the quality of care,
examining whether economic incentives to hospitals are effective at
improving the quality of care. Early evidence from the project
indicates that linking payments to quality performance can be
effective.
As required by section 5001(c) the DRA, CMS also has implemented a
program intended to encourage the prevention of certain avoidable or
preventable hospital-acquired conditions (HACs), including infections,
that may occur during a hospital stay. Beginning October 1, 2007, CMS
required hospitals to begin reporting information on Medicare claims
specifying whether certain diagnoses were present on admission (POA).
Beginning October 1, 2008, CMS will no

[[Page 23643]]

longer pay hospitals for a DRG using the higher-paying CC or MCC
associated with one or more of these conditions (if no other condition
meeting the higher paying CC or MCC criteria is present) unless the
condition was POA (that is, not acquired during the hospital stay).
Linking a payment incentive to hospitals' prevention of avoidable or
preventable HACs is a strong approach for encouraging high quality
care. Combating these HACs can reduce morbidity and mortality as well
as reducing unnecessary costs. In the FY 2008 IPPS final rule with
comment period (72 FR 47217), CMS identified eight HACs. In section
II.F. of this preamble, CMS is seeking comment on additional proposed
conditions.
CMS is committed to enhancing these value-based purchasing
programs, in close collaboration with stakeholders, through the
development and use of new measures for quality reporting, expanded
public reporting, greater and more widespread incentives in the payment
system for reporting on such measures, and ultimately performance on
those measures. These initiatives hold the potential to transform the
delivery of health care by rewarding quality of care and delivering
higher value to Medicare beneficiaries.
A critical element of value-based purchasing is well-accepted
measures. Hospitals can then measure their performance relative to
other hospitals. Further, this information can be posted for consumers
to use to make more informed choices about their care. In this section
IV.B. of this preamble, we describe past and current efforts to make
this information available and proposals to expand these efforts and
make even more useful hospital quality information available to the
public.
b. Voluntary Hospital Quality Data Reporting
In December 2002, the Secretary announced a partnership with
several collaborators intended to promote hospital quality improvement
and public reporting of hospital quality information. These
collaborators included the American Hospital Association (AHA), the
Federation of American Hospitals (FAH), the Association of American
Medical Colleges (AAMC), the Joint Commission on Accreditation of
Healthcare Organizations (the Joint Commission), the National Quality
Forum (NQF), the American Medical Association (AMA), the Consumer-
Purchaser Disclosure Project, the American Association of Retired
Persons (AARP), the American Federation of Labor-Congress of Industrial
Organizations (AFL-CIO), the Agency for Healthcare Research and Quality
(AHRQ), as well as CMS and others. In July 2003, CMS began the National
Voluntary Hospital Reporting Initiative. This initiative is now known
as the Hospital Quality Alliance: Improving Care through Information
(HQA).
We established the following ``starter set'' of 10 quality measures
for voluntary reporting as of November 1, 2003:
Heart Attack (Acute Myocardial Infarction or AMI)
Was aspirin given to the patient upon arrival to the
hospital?
Was aspirin prescribed when the patient was discharged?
Was a beta blocker given to the patient upon arrival to
the hospital?
Was a beta blocker prescribed when the patient was
discharged?
Was an Angiotensin Converting Enzyme (ACE) Inhibitor given
for the patient with heart failure?
Heart Failure (HF)
Did the patient get an assessment of his or her heart
function?
Was an Angiotensin Converting Enzyme (ACE) Inhibitor given
to the patient?
Pneumonia (PN)
Was an antibiotic given to the patient in a timely way?
Had the patient received a pneumococcal vaccination?
Was the patient's oxygen level assessed?
This starter set of 10 quality measures was endorsed by the NQF.
The NQF is a voluntary consensus standard-setting organization
established to standardize health care quality measurement and
reporting through its consensus development process. In addition, this
starter set is a subset of measures currently collected for the Joint
Commission as part of its hospital inpatient certification program.
We chose these 10 quality measures in order to collect data that
would: (1) Provide useful and valid information about hospital quality
to the public; (2) provide hospitals with a sense of predictability
about public reporting expectations; (3) begin to standardize data and
data collection mechanisms; and (4) foster hospital quality
improvement.
Hospitals submit quality data through the QualityNet secure Web
site (formerly known as QualityNet Exchange) (www.qualitynet.org). This
Web site meets or exceeds all current Health Insurance Portability and
Accountability Act requirements for security of personal health
information. Data from this initiative are used to populate the
Hospital Compare Web site, www.hospitalcompare.hhs.gov. This Web site
assists beneficiaries and the general public by providing information
on hospital quality of care for consumers who need to select a
hospital. It further serves to encourage consumers to work with their
doctors and hospitals to discuss the quality of care hospitals provide
to patients, thereby providing an additional incentive to improve the
quality of care that they furnish.
c. Hospital Quality Data Reporting Under Section 501(b) of Pub. L. 108-
173
Section 1886(b)(3)(B)(vii) of the Act, as added by section 501(b)
of Pub. L. 108-173, revised the mechanism used to update the
standardized amount of payment for inpatient hospital operating costs.
Specifically, the statute provided for a reduction of 0.4 percentage
points to the update percentage increase (also known as the market
basket update) for each of FYs 2005 through 2007 for any subsection (d)
hospital that does not submit data on a set of 10 quality indicators
established by the Secretary as of November 1, 2003. The statute also
provided that any reduction would apply only to the fiscal year
involved, and would not be taken into account in computing the
applicable percentage increase for a subsequent fiscal year. This
measure established an incentive for IPPS hospitals to submit data on
the quality measures established by the Secretary.
We initially implemented section 1886(b)(3)(B)(vii) of the Act in
the FY 2005 IPPS final rule (69 FR 49078). In addition, we established
the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU)
program and added 42 CFR 412.64(d)(2) to our regulations. We adopted
additional requirements under the RHQDAPU program in the FY 2006 IPPS
final rule (70 FR 47420).
d. Hospital Quality Data Reporting Under Section 5001(a) of Pub. L.
109-171
Section 5001(a) of the Deficit Reduction Act of 2005, Pub. L. 109-
171 (DRA), further amended section 1886(b)(3)(B) of the Act to revise
the mechanism used to update the standardized amount for payment for
hospital inpatient operating costs. Specifically, sections
1886(b)(3)(B)(viii)(I) and (II) of the Act provide that the payment
update for FY 2007 and each subsequent fiscal year be reduced by 2.0
percentage points for any subsection (d) hospital that does not

[[Page 23644]]

submit certain quality data in a form and manner, and at a time,
specified by the Secretary. Section 1886(b)(3)(B)(viii)(III) of the Act
requires that the Secretary expand the ``starter set'' of 10 quality
measures that were established by the Secretary as of November 1, 2003,
as the Secretary determines to be appropriate for the measurement of
the quality of care furnished by a hospital in inpatient settings. In
expanding this set of measures, section 1886(b)(3)(B)(viii)(IV) of the
Act requires that, effective for payments beginning with FY 2007, the
Secretary begin to adopt the baseline set of performance measures as
set forth in a December 2005 report issued by the Institute of Medicine
(IOM) of the National Academy of Sciences under section 238(b) of the
MMA.\16\
---------------------------------------------------------------------------

\16\ Institute of Medicine, ``Performance Measurement:
Accelerating Improvement,'' December 1, 2005, available at:
www.iom.edu/CMS/3809/19805/31310.aspx.
---------------------------------------------------------------------------

The IOM measures include: 21 HQA quality measures (including the
``starter set'' of 10 quality measures); the HCAHPS patient experience
of care survey; and 3 structural measures. The structural measures are:
(1) Implementation of computerized provider order entry for
prescriptions; (2) staffing of intensive care units with intensivists;
and (3) evidence-based hospital referrals. These structural measures
constitute the Leapfrog Group's original ``three leaps,'' and are part
of the NQF's 30 Safe Practices for Better Healthcare.
Sections 1886(b)(3)(B)(viii)(V) and (VI) of the Act require that,
effective for payments beginning with FY 2008, the Secretary add other
quality measures that reflect consensus among affected parties, and to
the extent feasible and practicable, have been set forth by one or more
national consensus building entities, and provide the Secretary with
the discretion to replace any quality measures or indicators in
appropriate cases, such as where all hospitals are effectively in
compliance with a measure, or the measures or indicators have been
subsequently shown to not represent the best clinical practice. Thus,
the Secretary is granted broad discretion to replace measures that are
no longer appropriate for the RHQDAPU program.
Section 1886(b)(3)(B)(viii)(VII) of the Act requires that the
Secretary establish procedures for making quality data available to the
public after ensuring that a hospital would have the opportunity to
review its data before these data are made public. In addition, this
section requires that the Secretary report quality measures of process,
structure, outcome, patients' perspective of care, efficiency, and
costs of care that relate to services furnished in inpatient settings
on the CMS Web site.
Section 1886(b)(3)(B)(viii)(I) of the Act also provides that any
reduction in a hospital's payment update will apply only with respect
to the fiscal year involved, and will not be taken into account for
computing the applicable percentage increase for a subsequent fiscal
year.
In the FY 2007 IPPS final rule (71 FR 48045), we amended our
regulations at 42 CFR 412.64(d)(2) to reflect the 2.0 percentage point
reduction in the payment update for FY 2007 and subsequent fiscal years
for subsection (d) hospitals that do not comply with requirements for
reporting quality data, as provided for under section
1886(b)(3)(B)(viii) of the Act. In the FY 2007 IPPS final rule, we also
added 11 additional quality measures to the 10-measure starter set to
establish an expanded set of 21 quality measures (71 FR 48033 through
48037).
Commenters on the FY 2007 IPPS proposed rule requested that we
notify the public as far in advance as possible of any proposed
expansions of the measure set and program procedures in order to
encourage broad collaboration and to give hospitals time to prepare for
any anticipated change. Taking these concerns into account, in the CY
2007 OPPS/ASC final rule with comment period (71 FR 68201), we adopted
six additional quality measures for the FY 2008 IPPS update, for a
total of 27 measures. The measure set that we adopted for the FY 2008
payment determination was as follows:

------------------------------------------------------------------------
Topic Quality measure
------------------------------------------------------------------------
Heart Attack (Acute Myocardial Aspirin at arrival.*
Infarction)..
Aspirin prescribed at
discharge.*
Angiotensin Converting
Enzyme Inhibitor (ACE-I) or
Angiotensin II Receptor
Blocker (ARB) for left
ventricular systolic
dysfunction.*
Beta blocker at
arrival.*
Beta blocker
prescribed at discharge.*
Fibrinolytic
(thrombolytic) agent received
within 30 minutes of hospital
arrival.**
Percutaneous Coronary
Intervention (PCI) received
within 120 minutes of hospital
arrival.**
Adult smoking
cessation advice/counseling.**
------------------------------------------------------------------------
Heart Failure (HF)..................... Left ventricular
function assessment.*
Angiotensin Converting
Enzyme Inhibitor (ACE-I) or
Angiotensin II Receptor
Blocker (ARB) for left
ventricular systolic
dysfunction.
Discharge
instructions.**
Adult smoking
cessation advice/counseling.**
------------------------------------------------------------------------
Pneumonia (PN)......................... Initial antibiotic
received within 4 hours of
hospital arrival *
Oxygenation
assessment.*
Pneumococcal
vaccination status.*
Blood culture
performed before first
antibiotic received in
hospital.**
Adult smoking
cessation advice/counseling.**
Appropriate initial
antibiotic selection.**
Influenza vaccination
status.**
------------------------------------------------------------------------
Surgical Care Improvement Project Prophylactic
(SCIP)--named SIP for discharges prior antibiotic received within 1
to July 2006 (3Q06). hour prior to surgical
incision.**
Prophylactic
antibiotics discontinued
within 24 hours after surgery
end time.**

[[Page 23645]]

SCIP-VTE-1: Venous
thromboembolism (VTE)
prophylaxis ordered for
surgery patients.***
SCIP-VTE-2: VTE
prophylaxis within 24 hours
pre/post surgery.***
SCIP Infection 2:
Prophylactic antibiotic
selection for surgical
patients.***
------------------------------------------------------------------------
Mortality Measures (Medicare patients). Acute Myocardial
Infarction 30-day mortality
Medicare patients***
Heart Failure 30-day
mortality Medicare
patients.***
------------------------------------------------------------------------
Patients' Experience of Care........... HCAHPS patient survey.***
------------------------------------------------------------------------
*Measure included in 10 measure starter set.
**Measure included in 21 measure expanded set.
***Measure added in CY 2007 OPPS/ASC final rule with comment period
(data submission required as of January 2007 for three additional SCIP
measures).

For FY 2008, hospitals were required to submit data on 25 of the 27
measures. No data submission was required for the two mortality outcome
measures (30-Day Risk Standardized Mortality Rates for Heart Failure
and AMI), because they were calculated using existing administrative
Medicare claims data. The measures used for the payment determination
included, for the first time, the HCAHPS patient experience of care
survey as well as two outcome measures. These measures expanded the
types of measures available for public reporting as required under
section 1886(b)(3)(B)(viii) of the Act. In addition, the outcome
measures, which are claims-based measures, did not increase the data
submission requirements for hospitals, thereby reducing the burden
associated with collection of data for quality reporting.
In the FY 2008 IPPS proposed rule (72 FR 24805), we proposed to add
1 outcome measure and 4 process measures to the existing 27-measure set
to establish a new set of 32 quality measures to be used under the
RHQDAPU program for the FY 2009 IPPS annual payment determination. We
proposed to add the following five measures for the FY 2009 IPPS annual
payment determination:
PN 30-day mortality measure (Medicare patients)
SCIP Infection 4: Cardiac Surgery Patients with Controlled
6AM Postoperative
Serum Glucose
SCIP Infection 6: Surgery Patients with Appropriate Hair
Removal
SCIP Infection 7: Colorectal Patients with Immediate
Postoperative
Normothermia
SCIP Cardiovascular 2: Surgery Patients on a Beta Blocker
Prior to Arrival Who Received a Beta Blocker During the Perioperative
Period
We stated that we planned to formally adopt these measures a year
in advance in order to provide time for hospitals to prepare for
changes related to the RHQDAPU program. We also stated that we
anticipated that the proposed measures would be endorsed by the NQF, as
a national consensus building entity. Finally, we stated that any
proposed measure that was not endorsed by the NQF by the time that we
published the FY 2008 IPPS final rule with comment period would not be
finalized in that final rule.
At the time we published the FY 2008 IPPS final rule with comment
period, only the PN 30-day mortality measure had been endorsed by the
NQF. Therefore, we finalized only that measure as part of the FY 2009
IPPS measure set and stated that we would further address adding
additional measures in the CY 2008 OPPS/ASC final rule and, if
necessary, in the FY 2009 IPPS proposed and final rules. We also
responded to comments we had received on the five proposed measures (72
FR 47348 through 47351).
In the CY 2008 OPPS/ASC final rule with comment period (72 FR
66875), we noted that the NQF had endorsed the following additional
process measures that we had proposed to include in the FY 2009 RHQDAPU
program measure set:
SCIP Infection 4: Cardiac Surgery Patients with Controlled
6AM Postoperative
Serum Glucose
SCIP Infection 6: Surgery Patients with Appropriate Hair
Removal
As we stated in the FY 2008 IPPS proposed rule (72 FR 24805), these
measures reflect our continuing commitment to quality improvement in
both clinical care and quality. These quality measures reflect
consensus among affected parties as demonstrated by endorsement by a
national consensus building entity. The addition of these two measures
for the FY 2009 measure set bring the total number of measures in that
measure set to 30 (72 FR 66876).
The measure set to be used for FY 2009 annual payment determination
is as follows:

[[Page 23646]]

Angiotensin Converting
Enzyme Inhibitor (ACE-I) or
Angiotensin II Receptor
Blocker (ARB) for left
ventricular systolic
dysfunction*.
Discharge
instructions**.
Adult smoking
cessation advice/counseling**.
------------------------------------------------------------------------
Pneumonia (PN)......................... Initial antibiotic
received within 4 hours of
hospital arrival*.
Oxygenation
assessment*.
Pneumococcal
vaccination status*.
Blood culture
performed before first
antibiotic received in
hospital**.
Adult smoking
cessation advice/counseling**.
Appropriate initial
antibiotic selection**.
Influenza vaccination
status**.
------------------------------------------------------------------------
Surgical Care Improvement Project Prophylactic
(SCIP)--named SIP for discharges prior antibiotic received within 1
to July 2006 (3Q06). hour prior to surgical
incision**.
Prophylactic
antibiotics discontinued
within 24 hours after surgery
end time**.
SCIP-VTE-1: Venous
thromboembolism (VTE)
prophylaxis ordered for
surgery patients***.
SCIP-VTE-2: VTE
prophylaxis within 24 hours
pre/post surgery***.
SCIP Infection 2:
Prophylactic antibiotic
selection for surgical
patients***.
SCIP-Infection 4:
Cardiac Surgery Patients with
Controlled 6AM Postoperative
Serum Glucose*****.
SCIP Infection 6:
Surgery Patients with
Appropriate Hair Removal*****.
------------------------------------------------------------------------
Mortality Measures (Medicare patients). Acute Myocardial
Infarction 30-day mortality
Medicare patients***.
Heart Failure 30-day
mortality Medicare
patients***.
Pneumonia 30-day
mortality Medicare
patients****.
------------------------------------------------------------------------
Patients' Experience of Care........... HCAHPS patient
survey***.
------------------------------------------------------------------------
* Measure included in 10 measure starter set.
** Measure included in 21 measure expanded set.
*** Measure added in CY 2007 OPPS/ASC final rule with comment period.
**** Measure added in FY 2008 IPPS final rule with comment period.
***** Measure added in CY 2008 OPPS/ASC final rule with comment period
(data submission required effective with discharges starting January
1, 2008).

We also stated in the FY 2008 IPPS final rule with comment period
and the CY 2008 OPPS/ASC final rule with comment period that the
RHQDAPU program participation requirements for the FY 2009 program
would apply to additional measures we adopt for the FY 2009 program (72
FR 47361; 72 FR 66877).
Therefore, hospitals are required to start submitting data for SCIP
Infection 4 and SCIP Infection 6 starting with first quarter calendar
year 2008 discharges and subsequent quarters until further notice.
Hospitals must submit their aggregate population and sample size counts
for Medicare and non-Medicare patients. These requirements are
consistent with the requirements for the other AMI, HF, PN, and SCIP
process measures included in the FY 2009 measure set. The complete list
of procedures for participating in the RHQDAPU program for FY 2009 are
provided in the FY 2008 IPPS final rule with comment period (72 FR
47359 through 47361).
Because SCIP Cardiovascular 2 and SCIP Infection 7 had not been
endorsed by a national consensus building entity by the publishing
deadline for the CY 2008 OPPS/ASC final rule with comment period, we
did not adopt these measures as part of the FY 2009 IPPS measure set.
In the FY 2008 IPPS proposed rule, we also solicited public
comments on 18 measures and 8 measure sets that could be selected for
future inclusion in the RHQDAPU program (72 FR 24805). These measures
and measure sets highlight our interest in improving patient safety and
outcomes of care, with a particular focus on the quality of surgical
care and patient outcomes. In order to engender a broad review of
potential performance measures, the list included measures that have
not yet received endorsement by a national consensus review process for
public reporting. The list also included measures developed by
organizations other than CMS as well as measures that can be calculated
using administrative data (such as claims).
We solicited public comment not only on the measures and measure
sets that were listed, but also on whether there were any critical gaps
or ``missing'' measures or measure sets. We specifically requested
input concerning the following issues:
Which of the measures or measure sets should be included
in the FY 2009 RHQDAPU program or in subsequent years?
What challenges for data collection and reporting are
posed by the identified measures and measure sets?
What improvements could be made to data collection or
reporting that might offset or otherwise address those challenges?
In the FY 2008 IPPS final rule with comment period (72 FR 47351),
after consideration of the public comments received, we decided not to
adopt any of these measures or measure sets for FY 2009. We indicated
that we will continue to consider some of these measures and measure
sets for subsequent years.
2. Proposed Quality Measures for FY 2010 and Subsequent Years
a. Proposed Quality Measures for FY 2010
For FY 2010, we are proposing to require continued submission of
data on 26 of the 30 existing AMI, Heart Failure,

[[Page 23647]]

Pneumonia, HCAHPS, and SCIP measures adopted for FY 2009. As noted
above, the three outcome measures do not require hospitals to submit
data. In addition, we are proposing to remove the Pneumonia Oxygenation
Assessment measure from the RHQDAPU program measure set. We are
proposing to discontinue requiring hospitals to submit data on the
Pneumonia Oxygenation Assessment measure, effective with discharges
beginning January 1, 2009. Section 1886(b)(3)(B)(viii)(VI) of the Act
provides the Secretary with the discretion to replace any quality
measures or indicators in appropriate cases, such as where all
hospitals are effectively in compliance with a measure. We interpret
this to authorize the Secretary to remove or retire measures from the
RHQDAPU program.
In the case of the Pneumonia Oxygenation Assessment measure, the
vast majority of hospitals are performing near 100 percent. In
addition, oxygenation assessment is routinely performed by hospitals
for admitted patients without regard to the specific diagnosis. Thus,
the measure is topped out so completely across virtually all hospitals
as to provide no significant opportunity for improvement. We believe
that the burden to hospitals to abstract and report these data
outweighs the benefit in publicly reporting hospital level data with
very little variation among hospitals. We do not expect that the
retirement of the Pneumonia Oxygenation Assessment measure will result
in the deterioration of care. However, if we determine otherwise, we
may seek to reintroduce the measure.
The proposed removal of the Pneumonia Oxygenation Assessment
measure for FY 2010 represents the first instance of retiring a
measure. We intend to review other existing chart-abstracted measures
recognizing the significant burden to hospitals that chart abstraction
requires. In this way, we seek to maximize the value of the RHQDAPU
program to promote quality improvement by hospitals and to report
information that the public will find beneficial in choosing inpatient
hospital services. We invite comment on the retirement of the Pneumonia
Oxygenation Assessment measure. In addition, we invite comment on other
measures that may be suitable for retirement from the RHQDAPU program
measure set. Finally, we invite comment on the following general
considerations relevant to retiring measures:
Should CMS retire a RHQDAPU program measure when hospital
performance on the measure has reached a high threshold (that is,
performance on the measure has topped out) even if the measure still
reflects best practice?
Are there reasons to consider retiring a measure other
than high overall performance?
When a measure is retired on the basis of substantially
complete compliance by hospitals, should data collection on the measure
again be required after 1 or 2 years to assure that a high compliance
level remains, or should some other way of monitoring continued
hospital compliance be used?
The specifications for two of the existing measures have been
updated by the NQF, effective May 2007, with respect to the applicable
timing interval. For the measures previously identified as:
AMI--Primary Percutaneous Coronary Intervention (PCI)
received within 120 minutes of hospital arrival, the NQF has revised
its endorsement of the specifications to reflect that the timing
interval has been changed to PCI within 90 minutes of arrival.
Pneumonia--Initial antibiotic received within 4 hours of
hospital arrival, the NQF has revised its endorsement of the
specifications to reflect that the initial antibiotic must be received
within 6 hours of arrival.
In the FY 2008 IPPS final rule with comment period, one commenter
``urged CMS to develop a policy to harmonize measures that related to
payment, such as the NQF's move from a 4-hour timeframe for initial
antibiotic administration for pneumonia patients to a 6-hour timeframe
(72 FR 47357).'' Another commenter raised the issue of the timing for
PCI in the AMI topic (72 FR 47347-8). In response to these comments, we
responded that if we believe that a change is an appropriate change for
the RHQDAPU program, we would expect to adopt it.
Because the NQF is now endorsing different timing intervals with
respect to these measures, we are proposing to also update these
measures for the purposes of the FY 2010 RHQDAPU program. The updated
measures are as follows:
AMI--Timing of Receipt of Primary Percutaneous Coronary
Intervention (PCI); and
Pneumonia--Timing of receipt of initial antibiotic
following hospital arrival.
We note that the technical specifications for these measures will
not change, and hospitals will continue to submit the same data that
they currently submit. However, beginning with discharges on or after
January 1, 2009, CMS will calculate the measures using the updated
timing intervals.
The NQF updated these two measures to reflect the most current
consensus standards effective May 2007. Because this was after we
issued the FY 2008 IPPS proposed rule, we could not adopt the updated
measures in the FY 2008 IPPS final rule with comment period or CY 2008
OPPS/ASC final rule with comment period. We also recognized that we did
not have in place a subregulatory process that would have permitted us
to update the measures. Therefore, we announced that hospitals could
suppress the public reporting of the quality data for the two measures
for hospital discharges starting with April 1, 2007 discharges. We did
this because we believe that hospitals should not be held to out-of-
date consensus standards for public reporting pending the next
regulatory cycle.
We propose, in the future, to act on updates to existing RHQDAPU
program measures made by a consensus building entity such as the NQF
through a subregulatory process. This is necessary to be able to
utilize the most up-to-date consensus standards in the RHQDAPU program,
and recognizes that neither scientific advances nor consensus building
entity standard updates are linked to the timing of regulatory actions.
We propose to implement updates to existing RHQDAPU program measures
and provide notification through the Qualitynet Web site, and
additionally in the CMS/Joint Commission Specifications Manual for
National Hospital Inpatient Quality Measures where data collection and
measure specifications changes are necessary. We invite comment on this
proposal.
Under section 1886(b)(3)(B)(viii)(III) of the Act, the Secretary
shall expand the RHQDAPU program measures beyond the measures specified
as of November 1, 2003. Under section 1886(b)(3)(B)(viii)(V) of the
Act, these measures, to the extent feasible and practicable, shall
include measures set forth by one or more national consensus building
entities.
We are proposing to add the following 43 measures for the FY 2010
payment determination: a SCIP measure that we proposed last year; 4
nursing sensitive measures; 3 readmission measures; 6 Venous
Thromboembolism measures; 5 stroke measures; 9 AHRQ measures; and 15
cardiac surgery measures.
We are proposing to add SCIP Cardiovascular 2, Surgery Patients on
a Beta Blocker Prior to Arrival Who Received a Beta Blocker During the
Perioperative Period. This measure was initially proposed last year in
the FY 2008 IPPS proposed rule, but because the NQF had not endorsed
this measure

[[Page 23648]]

at the time we issued the FY 2008 IPPS final rule with comment period
or the CY 2008 OPPS/ASC final rule with comment period, we did not
adopt it. For the purposes of proposing the FY 2010 RHQDAPU program
measure set, CMS believes that NQF endorsement of a measure represents
a standard for consensus among affected parties as specified in section
1886(b)(3)(B)(viii)(V) of the Act. The NQF is an independent health
care quality endorsement organization with a diverse representation of
consumer, purchaser, provider, academic, clinical, and other health
care stakeholder organizations.
In November 2007, the NQF endorsed SCIP Cardiovascular 2. CMS
believes that this measure targets an important process of care, beta
blocker administration for noncardiac surgery patients. Therefore, we
are now proposing to add SCIP Cardiovascular 2 to the RHQDAPU program
measures for FY 2010. The specifications and data collection tools are
currently available through the Qualitynet Web site and in the CMS/
Joint Commission Specifications Manual for National Hospital Inpatient
Quality Measures for hospitals to utilize and submit data for this
measure. We are proposing that hospitals be required to submit data on
this measure beginning with January 1, 2009 discharges.
We also are proposing to add four nursing sensitive measures to the
RHQDAPU program measure set for FY 2010. The four measures are:
Failure to Rescue
Pressure Ulcer Prevalence and Incidence by Severity (Joint
Commission developed measure; all patient data from chart abstraction)
Patient Falls Prevalence
Patient Falls with Injury
These measures broaden the ability of the RHQDAPU program measure
set to assess care generally associated with nursing staff. In
addition, these measures are directed toward outcomes that are
underrepresented among the RHQDAPU program measures. These measures
apply to the vast majority of inpatient stays and provide a great deal
of critical information about hospital quality to consumers and
stakeholders. The specifications and data collection tools are
scheduled to be available in the specifications manual by December 2008
for hospitals to utilize and submit data for these measures. We are
proposing that hospitals be required to submit data on these four
measures effective with discharges beginning April 1, 2009. While these
measures are endorsed by NQF, the Joint Commission has initiated
rigorous field testing of the measures, which may not be completed
until late 2008. Therefore, it is possible that the endorsement status
of these measures may change in the next several months. If this
rigorous field testing results in uncertainty as to the NQF endorsement
status at the time we issue the FY 2009 IPPS final rule, we will defer
our final decision on whether to require these measures for the RHQDAPU
program for FY 2010 until the time that we issue the CY 2009 OPPS/ASC
final rule with comment period. This deferral is consistent with our
measure expansion during the past 2 years, when we finalized some
RHQDAPU program measures in the annual OPPS/ASC final rules.
We are proposing to adopt three readmission measures for FY 2010
that will be calculated using Medicare administrative claims data. The
proposed measures are:
Pneumonia (PN) 30-Day Risk Standardized Readmission
Measure (Medicare patients)
Heart Attack (AMI) 30-Day Risk Standardized Readmission
Measure (Medicare patients)
Heart Failure (HF) 30-Day Risk Standardized Readmission
Measure (Medicare patients)
These readmission measures assess both quality of care and
efficiency of care. They also promote coordination of care among
hospitals and other providers. They compliment the existing 30-Day Risk
Standardized Mortality Measures for Pneumonia, Heart Attack, and Heart
Failure. These measures require no additional data collection from
hospitals. The measures are risk adjusted to account for differences
between hospitals in the characteristics of their patient populations.
These three claims-based readmission measures are pending NQF
endorsement. The NQF endorsement decision on these three measures is
expected before we issue the FY 2009 IPPS final rule. We are proposing
to add these three measures contingent upon NQF endorsement. We are
also proposing to defer our decision on whether to include these
measures until we issue the CY 2009 OPPS/ASC final rule, in the event
that NQF endorsement status is still pending when we issue the FY 2009
IPPS final rule. This deferral is consistent with our measure expansion
during the past 2 years, when we finalized some RHQDAPU program
measures in the annual OPPS/ASC final rules.
We are also proposing to add six Venous Thromboembolism (VTE)
measures. These measures comprehensively address a major cause of
morbidity and mortality among hospitalized patients.
VTE-1: VTE Prophylaxis
VTE-2: VTE Prophylaxis in the ICU
VTE-4: Patients with overlap in anticoagulation therapy
VTE-5/6: (as combined measure) Patients with UFH dosages
who have platelet count monitoring and adjustment of medication per
protocol or nomogram
VTE-7: Discharge instructions to address: follow-up
monitoring, compliance, dietary restrictions and adverse drug
reactions/interactions
VTE-8: Incidence of preventable VTE
These VTE measures are pending NQF endorsement. The NQF endorsement
decision on these measures is expected before we issue the FY 2009 IPPS
final rule. We are proposing to add these measures contingent upon NQF
endorsement. We also are proposing to defer our decision on whether to
include these measures until we issue the CY 2009 OPPS/ASC final rule
with comment period, in the event that NQF endorsement status is still
pending when we issue the FY 2009 IPPS final rule. This deferral is
consistent with our measure expansion during the past 2 years, when we
finalized some RHQDAPU program measures in the annual OPPS/ASC final
rules. We are proposing that hospitals be required to submit data on
these six measures effective with discharges beginning January 1, 2009.
We also are proposing to add five Stroke measures that will apply
only to certain identified groups under specific ICD-9-CM codes as
specified in the specifications manual. These measures comprehensively
address an important condition not currently covered by the RHQDAPU
program that is associated with significant morbidity and mortality.
STK-1 DVT Prophylaxis
STK-2 Discharged on Antithrombotic Therapy
STK-3 Patients with Atrial Fibrillation Receiving
Anticoagulation Therapy
STK-5 Antithrombotic Medication By End of Hospital Day Two
STK-7 Dysphasia Screening
These Stroke measures are pending NQF endorsement. The NQF
endorsement decision on these measures is expected before we issue the
FY 2009 IPPS final rule. We are proposing to add these measures
contingent upon NQF endorsement. We also are proposing to defer our
adoption of these measures until we issue the CY 2009 OPPS/ASC final
rule with comment period in the event that NQF

[[Page 23649]]

endorsement status is still pending as of the time we issue the FY 2009
IPPS final rule. This approach is consistent with our measure expansion
during the past 2 years, when CMS finalized some RHQDAPU program
measures in the annual OPPS/ASC final rules. We are proposing that
hospitals be required to submit data on these five measures effective
with discharges beginning July 1, 2009.
We also are proposing to add the following nine AHRQ Patient Safety
Indicators (PSI) and Inpatient Quality Indicators (IQI) that have been
endorsed by the NQF:
Patient Safety Indicator (PSI) 4--Death among surgical
patients with treatable serious complications
PSI 6--Iatrogenic pneumothorax, adult
PSI 14--Postoperative wound dehiscence
PSI 15--Accidental puncture or laceration
Inpatient Quality Indicator (IQI) 4 and 11--Abdominal
aortic aneurysm (AAA) mortality rate (with or without volume)
IQI 19--Hip fracture morality rate
IQI Mortality for selected medical conditions (composite)
IQI Mortality for selected surgical procedures (composite)
IQI Complication/patient safety for selected indicators
(composite)
These are claims-based outcome measures. They are important
additional measures that can be calculated for hospital inpatients
without the burden of additional chart abstraction. Hospitals currently
collect and submit these data to CMS and other insurers for
reimbursement. These measures will be calculated using all-payer claims
data that hospitals currently collect with respect to each patient
discharge. We are proposing to require hospitals to submit to CMS the
all-payer claims data that we specify in the technical specifications
manual as necessary to calculate the AHRQ PSI/IQI measures. We are
proposing that hospitals begin submitting data on a quarterly basis on
these measures to CMS by April 1, 2010 beginning with October 1, 2009
discharges.
However, we are aware that a large number of hospitals already
submit these data on a voluntary basis to third party data aggregators
such as State health agencies or State hospital associations. We seek
comments on whether a hospital that already submits the data necessary
to calculate these measures to such entities should be permitted to
authorize such an entity to transmit these data to CMS, in accordance
with applicable confidentiality laws, on their behalf. This would
relieve the hospital of the burden of having to submit the same data
directly to CMS via the QIO Clinical Warehouse.
As an alternative to requiring that hospitals submit all-payer
claims data for purposes of calculating the AHRQ PSI/IQI measures, CMS
is considering whether it should initially calculate the AHRQ PSI/IQI
measures using Medicare claims data only, and at a subsequent date
require submission of all-payer claims data. We also seek comment on
this alternative.
We also are proposing to add 15 cardiac surgery measures. Cardiac
surgical procedures carry a significant risk of morbidity and
mortality. We believe that the nationwide public reporting of these
cardiac surgery measures would provide highly meaningful information
for the public.
Currently, over 85 percent of hospitals with a cardiac surgery
program submit data on the proposed cardiac surgery measures listed
below to the Society of Thoracic Surgeons (STS) Cardiac Surgery
Clinical Data Registry. We are proposing to accept these data from the
STS registry beginning on July 1, 2009, on a quarterly basis for
discharges on or after January 1, 2009. Hospitals that participate in
the RHQDAPU program, but that do not submit data on the proposed
cardiac surgery measures to the STS registry for discharges on or after
January 1, 2009, would need to submit such data to CMS. Although we
would accept cardiac surgery data from other clinical data registries,
we are unaware of any other registries that collect all of the data
necessary to support calculation of the proposed cardiac surgery
measures. Hospitals and CMS would need to establish appropriate legal
arrangements, to the extent such arrangements are necessary, to ensure
that the transfer of these data from the STS registry to CMS complies
with all applicable laws. By accepting these registry-based data, only
those hospitals with cardiac surgery programs that do not already
collect such data to submit to the STS registry will have any
additional data submission burden. All of the proposed measures are
currently NQF-endorsed. We are proposing that hospitals begin
submitting data by July 1, 2009, on a quarterly basis on the following
15 cardiac surgery measures to the STS data registry or CMS for 1st
quarter calendar year 2009 discharges:
Participation in a Systematic Database for Cardiac Surgery
Pre-Operative Beta Blockade
Prolonged Intubation
Deep Sternal Wound Infection Rate
Stroke/CVA
Post-Operative Renal Insufficiency
Surgical Reexploration
Anti-Platelet Medication at Discharge
Beta Blockade Therapy at Discharge
Anti-Lipid Treatment at Discharge
Risk-Adjusted Operative Mortality for CABG
Risk-Adjusted Operative Mortality for Aortic Valve
Replacement
Risk-Adjusted Operative Mortality for Mitral Valve
Replacement/Repair
Risk-Adjusted Mortality for Mitral Valve Replacement and
CABG Surgery
Risk-Adjusted Mortality for Aortic Valve Replacement and
CABG Surgery
The following table lists the 72 proposed measures for FY 2010:

[[Page 23650]]

HF-3 Angiotensin
Converting Enzyme Inhibitor
(ACE-I) or Angiotensin II
Receptor Blocker (ARB) for
left ventricular systolic
dysfunction *.
HF-1 Discharge
instructions**.
HF-4 Adult smoking
cessation advice/counseling**.
------------------------------------------------------------------------
Pneumonia (PN)......................... PN-2 Pneumococcal
vaccination status *.
PN-3b Blood culture
performed before first
antibiotic received in
hospital**.
PN-4 Adult smoking
cessation advice/counseling**.
PN-6 Appropriate
initial antibiotic
selection**.
PN-7 Influenza
vaccination status**.
PN-5c Timing of
receipt of initial antibiotic
following hospital
arrival******.
------------------------------------------------------------------------
Surgical Care Improvement Project SCIP-1 Prophylactic
(SCIP)--named SIP for discharges prior antibiotic received within 1
to July 2006 (3Q06). hour prior to surgical
incision**.
SCIP-3 Prophylactic
antibiotics discontinued
within 24 hours after surgery
end time**.
SCIP-VTE-1: Venous
thromboembolism (VTE)
prophylaxis ordered for
surgery patients***.
SCIP-VTE-2: VTE
prophylaxis within 24 hours
pre/post surgery***.
SCIP Infection 2:
Prophylactic antibiotic
selection for surgical
patients***.
SCIP-Infection 4:
Cardiac Surgery Patients with
Controlled 6AM Postoperative
Serum Glucose*****.
SCIP Infection 6:
Surgery Patients with
Appropriate Hair Removal*****.
SCIP Cardiovascular 2:
Surgery Patients on a Beta
Blocker Prior to Arrival Who
Received a Beta Blocker During
the Perioperative
Period******.
------------------------------------------------------------------------
Mortality Measures (Medicare patients). MORT-30-AMI Acute
Myocardial Infarction 30-day
mortality Medicare
patients***.
MORT-30-HF Heart
Failure 30-day mortality
Medicare patients***.
MORT-30-PN Pneumonia
30-day mortality Medicare
patients****.
------------------------------------------------------------------------
Patients' Experience of Care........... HCAHPS patient
survey***.
------------------------------------------------------------------------
Readmission Measures (Medicare Heart Attack (AMI) 30-
patients). Day Risk Standardized
Readmission Measure (Medicare
patients)******.
Heart Failure (HF) 30-
Day Risk Standardized
Readmission Measure (Medicare
patients)******.
Pneumonia (PN) 30-Day
Risk Standardized Readmission
Measure (Medicare patients)
******.
------------------------------------------------------------------------
Inpatient Stroke Care.................. STK-1 DVT
Prophylaxis******.
STK-2 Discharged on
Antithrombotic Therapy******.
STK-3 Patients with
Atrial Fibrillation Receiving
Anticoagulation Therapy******.
STK-5 Antithrombotic
Medication By End of Hospital
Day Two******.
STK-7 Dysphasia
Screening******.
------------------------------------------------------------------------
Venous Thromboembolic Care............. VTE-1: VTE
Prophylaxis******.
VTE-2: VTE Prophylaxis
in the ICU******.
VTE-4: Patients with
overlap in anticoagulation
therapy******.
VTE-5/6: (as combined
measure) patients with UFH
dosages who have platelet
count monitoring and
adjustment of medication per
protocol or nomagram******.
VTE-7: Discharge
instructions to address:
followup monitoring,
compliance, dietary
restrictions, and adverse drug
reactions/interactions******.
VTE-8: Incidence of
preventable VTE******.
------------------------------------------------------------------------
AHRQ Patient Safety Indicators......... Death among surgical
patients with treatable
serious complications******.
Iatrogenic
pneumothorax, adult******.
Postoperative wound
dehiscence******.
Accidental puncture or
laceration******.
------------------------------------------------------------------------
AHRQ Inpatient Quality Indicators (IQI) Abdominal aortic
aneurysm (AAA) mortality rate
(with or without volume)
******.
Hip fracture morality
rate******.
------------------------------------------------------------------------
AHRQ IQI Composite Measures............ Mortality for selected
surgical procedures
(composite) ******.

[[Page 23651]]

Complication/patient
safety for selected indicators
(composite) ******.
Mortality for selected
medical conditions (composite)
******.
------------------------------------------------------------------------
Nursing Sensitive Measures............. Failure to
Rescue******.
Pressure Ulcer
Prevalence and Incidence by
Severity ******.
Patient Falls
Prevalence******.
Patient Falls with
Injury******.
------------------------------------------------------------------------
Cardiac Surgery Measures............... Participation in a
Systematic Database for
Cardiac Surgery ******.
Pre-operative Beta
Blockade******.
Prolonged
Intubation******.
Deep Sternal Wound
Infection Rate******.
Stroke/CVA******.
Postoperative Renal
Insufficiency******.
Surgical
Reexploration******.
Anti-platelet
Medication at Discharge******.
Beta Blockade Therapy
at Discharge******.
Anti-lipid Treatment
at Discharge******.
Risk-Adjusted
Operative Mortality for
CABG******.
Risk-Adjusted
Operative Mortality for Aortic
Valve Replacement******.
Risk-Adjusted
Operative Mortality for Mitral
Valve Replacement/
Repair******.
Risk-Adjusted
Mortality for Mitral Valve
Replacement and CABG
Surgery******.
Risk-Adjusted
Mortality for Aortic Valve
Replacement and CABG Surgery
******.
------------------------------------------------------------------------
*Measure included in 10 measure starter set.
**Measure included in 21 measure expanded set.
***Measure added in CY 2007 OPPS/ASC final rule with comment period.
****Measure added in FY 2008 IPPS final rule with comment period.
*****Measure added in CY 2008 OPPS/ASC final rule with comment period.
******Measure proposed in FY 2009 IPPS proposed rule.

In summary, we are proposing to increase the RHQDAPU program
measures from 30 measures for FY 2009 to a total of 72 measures for FY
2010. The following table lists the increase in the RHQDAPU program
measure set since the program's inception:

----------------------------------------------------------------------------------------------------------------
Number of
RHQDAPU
IPPS payment year program Topics covered
quality
measures
----------------------------------------------------------------------------------------------------------------
2005-2006........................... 10 AMI, HF, PN.
2007................................ 21 AMI, HF, PN, SCIP.
2008................................ 27 AMI, HF, PN, SCIP, Mortality, HCAHPS.
2009................................ 30 AMI, HF, PN, SCIP, Mortality, HCAHPS.
2010................................ 72 AMI, HF, PN, SCIP, Mortality, HCAHPS, Nursing Sensitive,
Readmission, VTE, Stroke, AHRQ IQI/PSI measures and
composites, Cardiac Surgery.
----------------------------------------------------------------------------------------------------------------

The above measures reflect our continuing commitment to quality
improvement in both clinical care and patient safety. These additional
measures also demonstrate our commitment to include in the RHQDAPU
program only those quality measures that reflect consensus among the
affected parties and that have been reviewed by a consensus building
process.
To the extent that the proposed measures have not already been
endorsed by a consensus building entity such as the NQF, we anticipate
that they will be endorsed prior to the time that we issue the FY 2009
IPPS final rule. We intend to finalize the FY 2010 RHQDAPU program
measure set in the FY 2009 IPPS final rule, contingent on the
endorsement status of the proposed measures. However, to the extent
that a measure has not received NQF endorsement by the time we issue
the FY 2009 IPPS final rule, we intend to finalize that measure for the
FY 2010 RHQDAPU program measure set in the CY 2009 OPPS/ASC final rule
with comment period if the measure is endorsed prior to the time we
issue the CY-2009-OPPS/ASC final rule with comment period. We are
requesting public comment on these measures.
b. Possible New Quality Measures, Measure Sets, and Program
Requirements for FY 2011 and Subsequent Years
The following table contains a list of 59 measures and 4 measure
sets from which additional quality measures could be selected for
inclusion in the RHQDAPU program. It includes measures and measure sets
that highlight CMS' interest in improving patient safety and outcomes
of care, with a particular focus on the quality of surgical care and
patient outcomes. In order to engender a broad review of potential
performance measures, the list includes measures that have not yet

[[Page 23652]]

been considered for approval by the HQA or endorsed by a consensus
review process such as the NQF. It also includes measures developed by
organizations other than CMS as well as measures that are to be derived
from administrative data (such as claims) that may need to be modified
for specific use by the Medicare program if implemented under the
RHQDAPU program.
We are seeking public comment on the measures and measure sets that
are listed as well as any critical gaps or missing measures or measure
sets. We specifically request input concerning the following:
Which of the measures or measure sets should be included
in the RHQDAPU program for FY 2011 or in subsequent years?
What challenges for data collection and reporting are
posed by the identified measures and measure sets? What improvements
could be made to data collection or reporting that might offset or
otherwise address those challenges?
We are soliciting public comment on the following measure sets for
consideration in FY 2011 and subsequent years:

Possible Measures and Measure Sets for the RHQDAPU Program for FY 2011
and Subsequent Years
------------------------------------------------------------------------
Topic Quality measure
------------------------------------------------------------------------
Chronic Pulmonary Obstructive Disease
Measures:
Complications of Vascular Surgery.. AAA stratified by open and
endovascular methods.
Carotid Endarterectomy.
Lower extremity bypass.
------------------------------------------------------------------------
Inpatient Diabetes Care Measures:
Healthcare Associated Infection.... Central Line-Associated Blood
Stream Infections.
------------------------------------------------------------------------
Surgical Site Infections.
Timeliness of Emergency Care Measures, Median Time from ED Arrival to
including Timeliness. ED Departure for Admitted ED
Patients.
Median Time from ED Arrival to
ED Departure for Discharged ED
Patients.
Admit Decision Time to ED
Departure Time for Admitted
Patients.
------------------------------------------------------------------------
Surgical Care Improvement Project SCIP Infection 8--Short Half-
(SCIP)--named SIP for discharges prior life Prophylactic Administered
to July 2006 (3Q06). Preoperatively Redosed Within
4 Hours After Preoperative
Dose.
SCIP Cardiovascular 3--Surgery
Patients on a Beta Blocker
Prior to Arrival Receiving a
Beta Blocker on Postoperative
Days 1 and 2.
------------------------------------------------------------------------
Complication Measures (Medicare
patients):
Healthcare Acquired Conditions..... Serious reportable events in
healthcare (never events).
Pressure ulcer prevalence and
incidence by severity.
Catheter-associated UTI.
------------------------------------------------------------------------
Hospital Inpatient Cancer Care Measures Patients with early stage
breast cancer who have
evaluation of the axilla.
College of American
Pathologists breast cancer
protocol.
Surgical resection includes at
least 12 nodes.
College of American
Pathologists Colon and rectum
protocol.
Completeness of pathologic
reporting.
------------------------------------------------------------------------
Serious Reportable Events in Healthcare Surgery performed on the wrong
(``Never Events''). body part.
Surgery performed on the wrong
patient.
Wrong surgical procedure on a
patient.
Retention of a foreign object
in a patient after surgery or
other procedure.
Intraoperative or immediately
post-operative death in a
normal health patient (defined
as a Class 1 patient for
purposes of the American
Society of Anesthesiologists
patient safety initiative).
Patient death or serious
disability associated with the
use of contaminated drugs,
devices, or biologics provided
by the healthcare facility.
Patient death or serious
disability associated with the
use or function of a device in
patient care in which the
device is used or functions
other than as intended.
Patient death or serious
disability associated with
intravascular air embolism
that occurs while being cared
for in a healthcare facility.
Patient death or serious
disability associated with
patient elopement
(disappearance) for more than
four hours.
Patient suicide, or attempted
suicide resulting in serious
disability, while being cared
for in a healthcare facility.
Patient death or serious
disability associated with a
medication error (e.g., error
involving the wrong drug,
wrong dose, wrong patient,
wrong time, wrong rate, wrong
preparation, or wrong route of
administration).
Patient death or serious
disability associated with a
hemolytic reaction due to the
administration of ABO-
incompatible blood or blood
products.

[[Page 23653]]

Patient death or serious
disability associated with
hypoglycemia, the onset of
which occurs while the patient
is being cared for in a health
care facility.
Stage 3 or 4 pressure ulcers
acquired after admission to a
health care facility.
Patient death or serious
disability due to spinal
manipulative therapy.
Patient death or serious
disability associated with an
electric shock while being
cared for in a healthcare
facility.
Any incident in which a line
designated for oxygen or other
gas to be delivered to a
patient contains the wrong gas
or is contaminated by toxic
substances.
Patient death or serious
disability associated with a
burn incurred from any source
while being cared for in a
health care facility.
Patient death associated with a
fall while being cared for in
a health care facility.
Patient death or serious
disability associated with the
use of restraints or bedrails
while being cared for in a
health care facility.
Any instance of care ordered by
or provided by someone
impersonating a physician,
nurse, pharmacist, or other
licensed health care provider.
Abduction of a patient of any
age.
Sexual assault on a patient
within or on the grounds of a
health care facility.
Death or significant injury of
a patient or staff member
resulting from a physical
assault (i.e., battery) that
occurs within or on the
grounds of a health care
facility.
------------------------------------------------------------------------
Average Length of Stay Coupled with
Global Readmission Measure:
Preventable Hospital-Acquired Catheter-Associated Urinary
Conditions (HACs). Tract Infection (UTI).
Vascular Catheter-Associated
Infection.
Surgical Site Infections--
Mediastinitis after Coronary
Artery Bypass Graft (CABG).
Surgical Site Infections
following Elective Procedures--
Total Knee Replacement,
Laparoscopic Gastric Bypass,
Litigation and Stripping of
Varicose Veins.
Legionnaires' Disease.
Glycemic Control--Diabetic
Ketoacidosis, Nonketotic
Hypersmolar Coma, Hypoglycemic
Coma.
Iatrogenic pneumothorax.
Delirium.
Ventilator-Associated Pneumonia
(VAP).
Deep Vein Thrombosis (DVT)/
Pulmonary Embolism (PE).
Staphylococcus aureus
Septicemia.
Clostridium-Difficile
Associated Disease (CDAD).
Methicillin-Resistant
Staphylococcus aureus (MRSA).
------------------------------------------------------------------------

c. Considerations in Expanding and Updating Quality Measures Under the
RHQDAPU Program
The RHQDAPU program has significantly expanded from an initial set
of 10 measures to 30 measures for the FY 2009 payment determination.
Initially, the conditions covered by the RHQDAPU program measures were
limited to Acute Myocardial Infarction, Heart Failure, and Pneumonia,
three high-cost and high-volume conditions. In expanding the process
measures, Surgical Infection Prevention was the first additional focus,
now supplemented by the two Venous Thromboembolism SCIP measures SCIP
VTE-1 and SCIP VTE-2 for surgical patients. Of the 30 current measures,
27 require data collection from chart abstraction and surveying
patients and submission of detailed data elements.
In looking forward to further expansion of the RHQDAPU program, we
believe it is important to take several goals into consideration. These
include: (a) Expanding the types of measures beyond process of care
measures to include an increased number of outcome measures, efficiency
measures, and experience-of-care measures; (b) expanding the scope of
hospital services to which the measures apply; (c) considering the
burden on hospitals in collecting chart-abstracted data; (d)
harmonizing the measures used in the RHQDAPU program with other CMS
quality programs to align incentives and promote coordinated efforts to
improve quality; (e) seeking to use measures based on alternative
sources of data that do not require chart abstraction or that utilize
data already being broadly reported by hospitals, such as clinical data
registries or all-payer claims data bases; and (f) weighing the
meaningfulness and utility of the measures compared to the burden on
hospitals in submitting data under the RHQDAPU program.
We request comments on how to reduce burden on the hospitals
participating in the RHQDAPU program. We realize that our proposal to
expand the RHQDAPU program measure set from submission of 30 measures
in FY 2009 to 72 measures in FY 2010 is potentially burdensome.
However, to minimize hospitals' burden, the proposed expansion uses
many existing

[[Page 23654]]

data sources, including Medicare claims and registry data. We also
request comment about which measures would be most useful while
minimizing burden.
(1) Expanding the Types of Measures
Section 1886(b)(3)(B)(viii)(III) of the Act requires the Secretary
to add other quality measures that the Secretary determines to be
appropriate for the measurement of the quality of care furnished by
hospitals in inpatient settings. We intend to expand outcome measures
such as mortality measures and measures of complications. For FY 2010,
the proposed measure set includes:
Patient Experience of Care. HCAHPS collects data regarding
a patient's experience of care in the hospital and provides a very
meaningful perspective from the patient standpoint.
Efficiency. Efficiency is a Quality Domain, as defined by
the IOM, that relates Quality and Cost. The three proposed readmission
measures address hospital efficiency. These are considered efficiency
measures because higher hospital readmission rates are linked to higher
costs and also to lower quality of care received during hospitalization
and after the initial hospital stay. We are also seeking additional
ways in which to address efficiency.
Outcomes. The three 30-day mortality measures, the STS
cardiac surgery measures, the AHRQ PSI/IQI measures, and the four
outcome-related nursing sensitive measures represent significant
expansion of the RHQDAPU program outcome measures. Additional outcome
measures are provided in the list under consideration for inclusion in
the RHQDAPU program for FY 2010 and beyond.
(2) Expanding the Scope of Hospital Services To Which Measures Apply
Many of the most common and high-cost Medicare DRGs were posted on
the Hospital Compare Web site in March 2008 as part of the President's
transparency initiative. We have assessed these DRGs and have found
that the FY 2009 RHQDAPU program measure set does not capture data
regarding care in important areas such as Inpatient Diabetes Care,
Chronic Obstructive Pulmonary Disease (COPD), and Chest Pain. These are
areas for which we currently do not have quality measures but which
constitute a significant portion of the top paying DRGs for Medicare
beneficiaries. We intend to develop measures in these areas in order to
provide additional quality information on the most common and high-cost
conditions that affect Medicare beneficiaries. In the proposed FY 2010
measure set, measures have been expanded to comprehensively address
services related to preventing Venous Thromboembolism, treatment of
stroke, and nursing services.
(3) Considering the Burden on Hospitals in Collecting Chart-Abstracted
Data for Measures
Although we are proposing to add additional chart-abstracted
measures for FY 2010, we also are proposing to stagger the dates for
which data collection for these measures must begin, which we believe
will lessen the burden on hospitals as they incorporate these new
measures into their systems. We also intend to work to simplify the
data abstraction specifications that add to the burden of data
collection.
(4) Harmonizing With Other CMS Programs
We intend to harmonize measures across settings and other CMS
programs as evidenced by the implementation of the readmission measures
not only for the RHQDAPU program but also for the QIOs' 9th Scope of
Work (SOW) Patient Pathways/Care Transitions Theme, which also uses the
30-Day Readmission Measures and will provide assistance to engage
hospitals in improving care. The 9th SOW also focuses on disparities in
health care, which is another important area of interest for CMS. We
plan to analyze current RHQDAPU measures to identify particular RHQDAPU
program measures needed to evaluate the existence of health care
disparities, to require data elements that would support better
identification of health care disparities, and to find more efficient
ways to ascertain this information from claims data. In addition, at
least some of the CY 2008 Physician Quality Reporting Initiative (PQRI)
measures align with the current RHQDAPU program AMI and SCIP measures
reported starting with the FY 2007 RHQDAPU measure set. In other words,
there are financial incentives that cover the same clinical processes
of care across different providers and settings. For example, Aspirin
for Heart Attack corresponds to PQRI measure number 28, and Surgical
Infection Antibiotic Timing corresponds to PQRI measure number 20.
Outpatient quality measures under the Hospital Outpatient Data Quality
Data Reporting Program (HOP QDRP) are also aligned with the RHQDAPU
program measures. For example, the HOP QDRP addresses Acute Myocardial
Infarction treatment for transferred patients and surgical infection
prevention for outpatient surgery.
(5) Using Alternative Data Sources Not Requiring Chart Abstraction
We are actively pursuing alternative data sources, including data
sources that are electronically maintained. Alternative data submission
methodologies that we are proposing in this rule include:
Use of registry-collected clinical data for which there is
broad existing hospital participation as previously described with the
STS registry.
Use of data collected by State data organizations, State
hospital associations, Federal entities such as AHRQ, and/or other data
warehouses.
In addition, we are considering adopting the following methods of
data collection in the future and request comments on these methods:
Use of the CMS Continuity Assessment Record & Evaluation
(CARE) tool, a standardized data collection instrument, which would
allow data to be transmitted in ``real time.'' This recently developed,
Internet-based, quality data collection tool was developed as a part of
the Post Acute Care Reform Demonstration Program mandated by section
5008 of the DRA. The CARE tool consists of a core set of assessment
items, common to all patients and all care settings (meeting criteria
of being predictive of cost, utilization, outcomes, among others),
organized under five major domains: Medical, Functional, Social,
Environmental, and Cognitive--Continuity of Care. The Internet-based
CARE tool will communicate critical information across settings
accurately, quickly, and efficiently with reduced time burden to
providers and is intended to enhance beneficiaries' safe transitions
between settings to prevent avoidable, costly events such as
unnecessary rehospitalizations or medication errors. We believe that
the CARE tool may provide a vehicle for collection of data elements to
be used for calculating RHQDAPU program quality measures. CMS is
considering utilizing the CARE tool in this manner. The Care tool is
available at: www.cms.hhs.gov/PaperworkReductionActof1995/PRAL/list.asp#TopOfPage. (Viewers should select ``Show only items with the
word ``10243'', click on show items, select CMS-10243, click on
downloads, and open Appendices A & B, pdf files.)
We are particularly interested in receiving public comment on this
tool. Our goal is to have a standardized, efficient, effective,
interoperable, common assessment tool to capture key

[[Page 23655]]

patient characteristics that will help CMS capture information related
to resource utilization; expected costs as well as clinical outcomes;
and post-discharge disposition. The CARE tool will also be useful for
guiding payment and quality policies.
Specifically, we are interested in receiving public comments on how
CARE might advance the use of health information technology in
automating the process for collecting and submitting quality data.
Submission of data derived from electronic versions of
laboratory test reports that are issued by the laboratory in accordance
with CLIA to the ordering provider and maintained by the hospital as
part of the patient's medical record during and after the patient's
course of treatment at the hospital. We are considering using these
data to support risk adjustment for claims-based outcome measures (for
example, mortality measures) and to develop other outcomes measures.
This would support use of electronically maintained data and our goal
of reducing manual data collection burden on hospitals.
Submission of data currently being collected by clinical
data registries in addition to the STS registry. This would support and
leverage existing clinical data registries and existing voluntary
clinical data collection efforts, such as:
American College of Cardiology (ACC) data registry for
Cardiac Measures.
ACC data registry for ICD.
ACC data registry for Carotid Stents.
Vascular Surgery Registry for Vascular Surgical
Procedures.
ACC-sponsored ``Get with the Guidelines'' registry for
Stroke Care.
(6) Weighing the Meaningfulness and Utility of the Measures Compared to
the Burden on Hospitals in Submitting Data Under the RHQDAPU Program
We are proposing to retire one measure from the RHQDAPU program for
FY 2010 because we have determined that the burden on hospitals in
abstracting the data outweighs the meaningful benefit that we can
ascertain from the measure. As we explained more fully above, we are
seeking comments on the applicability to the RHQDAPU program of
criteria currently described in the Hospital VBP Issues Paper for
inclusion and retirement of measures. The Hospital VBP Issues Paper is
located on the CMS Web site at the following location: http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/hospital_VBP_plan_issues_paper.pdf.
3. Form and Manner and Timing of Quality Data Submission
In the FY 2007 IPPS final rule (71 FR 48031 through 48045), we set
out RHQDAPU program procedures for data submission, program withdrawal,
data validation, attestation, public display of hospitals'' quality
data, and reconsiderations. Section 1886(b)(3)(B)(viii)(I) of the Act
requires that subsection (d) hospitals submit data on measures selected
under that clause with respect to the applicable fiscal year. In
addition, section 1886(b)(3)(B)(viii)(II) of the Act requires that each
subsection (d) hospital submit data on measures selected under that
clause to the Secretary in a form and manner, and at a time, specified
by the Secretary. The technical specifications for each RHQDAPU program
measure are listed in the CMS/Joint Commission Specifications Manual
for National Inpatient Hospital Quality Measures (Specifications
Manual). We update this manual semiannually or more frequently in
unusual cases, and include detailed instructions and calculation
algorithms for hospitals to collect and submit the data for the
required measures.
The maintenance of the specifications for the measures selected by
the Secretary occurs through publication of the Specifications Manual.
Thus, measure selection by the Secretary occurs through the rulemaking
process; whereas the maintenance of the technical specifications for
the selected measures occurs through a subregulatory process so as to
best maintain the specifications consistent with current science and
consensus. The data submission, Specifications Manual, and submission
deadlines are posted on the QualityNet Web site at www.qualitynet.org.
We require that hospitals submit data in accordance with the
specifications for the appropriate discharge periods. When measure
specifications are updated, we are proposing to require that hospitals
submit all of the data required to calculate the required measures as
outlined in the Specifications Manual current as of the patient
discharge date.
4. Current and Proposed RHQDAPU Program Procedures
a. RHQDAPU Program Procedures for FY 2009
In the FY 2008 IPPS final rule with comment period, we stated that
the requirements for FY 2008 would continue to apply for FY 2009 (72 FR
47361). The ``Reporting Hospital Quality Data for Annual Payment Update
Reference Checklist'' section of the QualityNet Web site contains all
of the forms to be completed by hospitals participating in the RHQDAPU
program.
Under these requirements hospitals must--
Register with QualityNet, before participating hospitals
initially begin reporting data, regardless of the method used for
submitting data.
[dec221] Identify a QualityNet Administrator who follows the
registration process located on the QualityNet Web site
(www.qualitynet.org).
[dec221] Complete the revised RHQDAPU program Notice of
Participation form (only for hospitals that did not submit a form prior
to August 15, 2007). For hospitals that share the same Medicare
Provider Number (now CMS Certification Number (CCN)), report the name
and address of each hospital on this form.
[dec221] Collect and report data for each of the required measures
except the Medicare mortality measures (AMI, HF, and PN 30-day
Mortality for Medicare Patients). Hospitals must continuously report
these data. Hospitals must submit the data to the QIO Clinical
Warehouse using the CMS Abstraction & Reporting Tool (CART), The Joint
Commission ORYX[supreg] Core Measures Performance Measurement System,
or another third-party vendor tool that has met the measurement
specification requirements for data transmission to QualityNet. All
submissions will be executed through QualityNet. Because the
information in the QIO Clinical Warehouse is considered QIO
information, it is subject to the stringent QIO confidentiality
regulations in 42 CFR Part 480. The QIO Clinical Warehouse will submit
the data to CMS on behalf of the hospitals.
Submit complete data regarding the quality measures in
accordance with the joint CMS/Joint Commission sampling requirements
located on the QualityNet Web site for each quality measure that
requires hospitals to collect and report data. These requirements
specify that hospitals must submit a random sample or complete
population of cases for each of the topics covered by the quality
measures. Hospitals must meet the sampling requirements for these
quality measures for discharges in each quarter.
Submit to CMS on a quarterly basis aggregate population
and sample size counts for Medicare and non-Medicare discharges for the
four topic areas (AMI, HF, PN, and SCIP).
Continuously collect and submit HCAHPS data in accordance
with the HCAHPS Quality Assurance Guidelines, Version 3.0, located at
the Web site: www.hcahpsonline.org. The QIO

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Clinical Warehouse has been modified to accept zero HCAHPS-eligible
discharges. We remind the public to refer to the QualityNet Web site
for any questions about how to submit ``zero cases'' information.
For the AMI 30-day, HF 30-day, and PN 30-day mortality measures,
CMS uses Part A and Part B claims for Medicare fee-for-service patients
to calculate the mortality measures. For FY 2009, hospital inpatient
claims (Part A) from July 1, 2006 to June 30, 2007, will be used to
identify the relevant patients and the index hospitalizations.
Inpatient claims for the index hospitalizations and Part A and Part B
claims for all inpatient, outpatient, and physician services received
one year prior to the index hospitalizations are used to determine
patient comorbidity, which is used in the risk adjustment calculation
(see the Web site: www.qualitynet.org/dcs/ContentServer?cid=1163010398556&pagename=QnetPublic%2FPage%2FQnetTier2&c=Page). No other hospital data submission is required to calculate the
mortality rates.
b. Proposed RHQDAPU Program Procedures for FY 2010
We are proposing to continue requiring the FY 2009 RHQDAPU program
procedures for FY 2010 for hospitals participating in the RHQDAPU
program, with the following modifications:
Notice of Participation. New subsection (d) hospitals and
existing hospitals that wish to participate in RHQDAPU for the first
time must complete a revised ``Reporting Hospital Quality Data for
Annual Payment Update Notice of Participation'' that includes the name
and address of each hospital that shares the same CCN.
Data Submission. In order to reduce the burden on
hospitals that treat a low number of patients who are covered by the
submission requirements, we are proposing the following:
[dec221] AMI. We are proposing that a hospital that has five or
fewer AMI discharges (both Medicare and non-Medicare combined) in a
quarter will not be required to submit AMI patient level data for that
quarter. We are proposing to begin implementing this requirement with
discharges on or after January 1, 2009. However, the hospital must
still submit its aggregate AMI population and sample size counts to CMS
for that quarter as part of its quarterly RHQDAPU data submission.
[dec221] HCAHPS. We are proposing that a hospital that has five or
fewer HCAHPS-eligible discharges in any month will not be required to
submit HCAHPS surveys for that month. However, the hospital must still
submit its total number of HCAHPS-eligible cases for that month as part
of its quarterly HCAHPS data submission. We are proposing to begin
implementing this requirement with discharges on or after January 1,
2009.
[dec221] HF. We are proposing that a hospital that has five or
fewer HF discharges (both Medicare and non-Medicare combined) in a
quarter will not be required to submit HF patient level data for that
quarter. However, the hospital must still submit its aggregate HF
population and sample size counts to CMS for that quarter as part of
its quarterly RHQDAPU data submission. We are proposing to begin
implementing this requirement with discharges on or after January 1,
2009.
[dec221] PN. We are proposing that a hospital that has five or
fewer PN discharges (both Medicare and non-Medicare combined) in a
quarter will not be required to submit PN patient level data for that
quarter. However, the hospital must still submit its aggregate PN
population and sample size counts to CMS for that quarter as part of
its quarterly RHQDAPU data submission. We are proposing to begin
implementing this requirement with discharges on or after January 1,
2009.
[dec221] SCIP. We are proposing that a hospital that has five or
fewer SCIP discharges (both Medicare and non-Medicare combined) in a
quarter will not be required to submit SCIP patient level data for that
quarter. However, the hospital must still submit its aggregate SCIP
population and sample size counts to CMS for that quarter as part of
its quarterly RHQDAPU data submission. We are proposing to begin
implementing this requirement with discharges on or after January 1,
2009.
In addition, we are proposing the following quarterly deadlines for
hospitals to submit the FY 2010 AMI, HF, SCIP, PN, Stroke, VTE, and
nursing sensitive measure data:
The data submission deadline for hospitals to submit the
patient level measure data for 1st calendar quarter of 2009 discharges
would be August 15, 2009. Data must be submitted for each of these
measures 4.5 months after the end of the preceding quarter. The
specific deadlines will be listed on the QualityNet Web site.
Even though data on applicable measures will not be due
until 4.5 months after the end of the preceding quarter, hospitals must
submit their aggregate population and sample size counts no later than
4 months after the end of the preceding quarter (the exact dates will
be posted on the QualityNet Web site). This deadline falls
approximately 15 days before the data submission deadline for the
clinical process measures, and we are proposing it so that we can
inform hospitals about their data submission status for the quarter
before the 4.5 month clinical process measure deadline. We have found
from past experience that hospitals need sufficient time to submit
additional data when their counts differ from Medicare claims counts
generated by CMS. We will provide hospitals with these Medicare claims
counts and submitted patient level data counts on the QualityNet Web
site approximately 2 weeks before the quarterly submission deadline. We
plan to use the aggregate population and sample size data to assess
submission completeness and adherence to sampling requirements for
Medicare and non-Medicare patients.
We propose the following quarterly deadlines for hospitals to
submit cardiac surgery and the AHRQ PSI/IQI measure data to CMS or
other entities:
The data submission deadline for hospitals to submit
cardiac surgery patient level measure data to CMS or STS data registry
for 1st calendar quarter of 2009 discharges would be June 1, 2009. Data
must be submitted for each of these measures 2 months after the end of
the preceding quarter. The specific deadlines will be listed on the
QualityNet Web site.
The data submission deadline for hospitals to submit the
AHRQ PSI/IQI measure data to CMS for 4th calendar quarter of 2009
discharges would be April 1, 2010. Data must be submitted for each of
these measures 3 months after the end of the preceding quarter. The
specific deadlines will be listed on the QualityNet Web site.
We are proposing these quarterly submission deadlines for cardiac
surgery and AHRQ PSI/IQI measure data to coordinate submission
deadlines with external data registries and provide more timely
information to the consumers. We are proposing this quarterly
submission deadline for cardiac surgery measure data to coincide with
the STS quarterly submission deadline that is approximately 2 months
following the discharge quarter. We also propose to shorten the time
lag between the date of discharge and the public reporting of these
quality measures to provide more timely consumer information.
5. Current and Proposed HCAHPS Requirements
a. FY 2009 HCAHPS Requirements
For FY 2009, hospitals must continuously collect and submit HCAHPS
data to the QIO Clinical

[[Page 23657]]

Warehouse by the data submission deadlines posted on the Web site at:
www.hcahpsonline.org. The data submission deadline for first quarter CY
2008 (January through March) discharges is July 9, 2008. To collect
HCAHPS data, a hospital can either contract with an approved HCAHPS
survey vendor that will conduct the survey and submit data on the
hospital's behalf to the QIO Clinical Warehouse, or a hospital can
self-administer the survey without using a survey vendor, provided that
the hospital meets Minimum Survey Requirements as specified on the Web
site at: www.hcahpsonline.org. A current list of approved HCAHPS survey
vendors can be found on the Web site at: www.hcahpsonline.org.
Every hospital choosing to contract with a survey vendor should
provide the sample frame of hospital-eligible discharges to its survey
vendor with sufficient time to allow the survey vendor to begin
contacting each sampled patient within 6 weeks of discharge from the
hospital (see the Quality Assurance Guidelines for details about HCAHPS
eligibility and sample frame creation) and must authorize the survey
vendor to submit data via QualityNet on the hospital's behalf. CMS
strongly recommends that the hospitals employing a survey vendor
promptly review the two HCAHPS Feedback Reports (the Provider Survey
Status Summary Report and the Data Submission Detail Report) that are
available after the survey vendor submits the data to the QIO Clinical
Warehouse. These reports enable a hospital to ensure that its survey
vendor has submitted the data on time and it has been accepted into the
Warehouse.
In the FY 2008 IPPS final rule with comment period (72 FR 47362),
we stated that hospitals and survey vendors must participate in a
quality oversight process conducted by the HCAHPS project team.
Starting in July 2007, we began asking hospitals/survey vendors to
correct any problems that were found and provide followup documentation
of corrections for review within a defined time period. If the HCAHPS
project team finds that the hospital has not made these corrections,
CMS may determine that the hospital is not submitting HCAHPS data that
meet the requirements for the RHQDAPU program. As part of these
activities, HCAHPS project staff reviews and discusses with survey
vendors and hospitals self-administering the survey their specific
Quality Assurance Plans, survey management procedures, sampling and
data collection protocols, and data preparation and submission
procedures.
b. Proposed FY 2010 HCAHPS Requirements
For FY 2010, we are proposing continuous collection of HCAHPS in
accordance with the Quality Assurance Guidelines located at the Web
site: www.hcahpsonline.org, by the quarterly data submission deadlines
posted on the Web site: www.hcahpsonline.org. As stated above, starting
with January 1, 2009 discharges, we are proposing that hospitals that
have five or fewer HCAHPS-eligible discharges in a month would not be
required to submit HCAHPS patient-level data for that month as part of
the quarterly data submission that includes that month, but they would
still be required to submit the number of HCAHPS-eligible cases for
that month as part of their HCAHPS quarterly data submission.
With respect to HCAHPS oversight, we are proposing that the HCAHPS
Project Team will continue to conduct site visits and/or conference
calls with hospitals/survey vendors to ensure the hospital's compliance
with the HCAHPS requirements. During the onsite visit or conference
call, the HCAHPS Project Team will review the hospital's/survey
vendor's survey systems and will assess protocols based upon the most
recent Quality Assurance Guidelines. All materials relevant to survey
administration will be subject to review. The systems and program
review includes, but it is not necessarily limited to: (a) survey
management and data systems; (b) printing and mailing materials and
facilities; (c) telephone/IVR materials and facilities; (d) data
receipt, entry and storage facilities; and (e) written documentation of
survey processes. Organizations will be given a defined time period in
which to correct any problems and provide followup documentation of
corrections for review. Hospitals/survey vendors will be subject to
followup site visits and/or conference calls, as needed. If CMS
determines that a hospital is noncompliant with HCAHPS program
requirements, CMS may determine that the hospital is not submitting
HCAHPS data that meet the requirements of the RHQDAPU program.
6. Current and Proposed Chart Validation Requirements
a. Chart Validation Requirements for FY 2009
In the FY 2008 IPPS final rule with comment period (72 FR 47361),
we stated that, until further notice, we would continue to require that
hospitals meet the chart validation requirements that we implemented in
the FY 2006 IPPS final rule (70 FR 47421 and 47422). These
requirements, as well as additional information on validation
requirements, continue and are being placed on the QualityNet Web site.
We also stated in the FY 2008 IPPS final rule with comment period
that, until further notice, hospitals must pass our validation
requirement that requires a minimum of 80-percent reliability, based
upon our chart-audit validation process (72 FR 47361).
In the FY 2008 IPPS final rule with comment period (72 FR 47362),
we indicated that, for the FY 2009 update, all FY 2008 validation
requirements would apply, except for the following modifications. We
would modify the validation requirement to pool the quarterly
validation estimates for 4th quarter CY 2006 through 3rd quarter 2007
discharges. We would also expand the list of validated measures in the
FY 2009 update to add SCIP Infection-2, SCIP VTE-1, and SCIP VTE-2
(starting with 4th quarter CY 2006 discharges). We would also drop the
current two-step process to determine if the hospital is submitting
validated data. For the FY 2009 update, we stated that we will pool
validation estimates covering the four quarters (4th quarter CY 2006
discharges through 3rd quarter 2007 discharges) in a similar manner to
the current 3rd quarter pooled confidence interval.
In summary, the following chart validation requirements apply for
the FY 2009 RHQDAPU program:
The 21-measure expanded set will be validated using 4th
quarter CY 2006 (4Q06) through 3rd quarter CY 2007 (3Q07) discharges.
SCIP VTE-1, VTE-2, and SCIP Infection 2 will be validated
using 2nd quarter CY 2007 and 3rd quarter CY 2007 discharges.
SCIP Infection 4 and SCIP Infection 6 must be submitted
starting with 1st quarter CY 2008 discharges but will not be validated.
HCAHPS data must continuously be submitted and will be
reviewed as discussed above.
AMI, HF, and PN 30-day mortality measures will be
calculated as discussed below.
In the FY 2008 IPPS final rule with comment period (72 FR 47364),
we stated that, for the FY 2008 update and in subsequent years, we
would revise and post up-to-date confidence interval information on the
QualityNet Web site explaining the application of the confidence
interval to the overall validation results. The data are being
validated at several levels. There are consistency and internal edit
checks to

[[Page 23658]]

ensure the integrity of the submitted data; there are external edit
checks to verify expectations about the volume of the data received.
b. Proposed Chart Validation Requirements for FY 2010
For FY 2010, we are proposing the following chart validation
requirements to reflect the proposed 72-measure set:
The following 21 measures from the FY 2009 RHQDAPU program
measure set will be validated using data from 4th quarter 2007 through
3rd quarter 2008 discharges.

------------------------------------------------------------------------
Quality measure validated from
Topic 4th quarter 2007 through 3rd
quarter 2008 discharges
------------------------------------------------------------------------
Heart Attack (Acute Myocardial Aspirin at arrival
Infarction).
Aspirin prescribed at discharge
Angiotensin Converting Enzyme
Inhibitor (ACE-I) or
Angiotensin II Receptor
Blocker (ARB) for left
ventricular systolic
dysfunction
Beta blocker at arrival
Beta blocker prescribed at
discharge
Fibrinolytic (thrombolytic)
agent received within 30
minutes of hospital arrival
Adult smoking cessation advice/
counseling
------------------------------------------------------------------------
Heart Failure (HF)..................... Left ventricular function
assessment
Angiotensin Converting Enzyme
Inhibitor (ACE-I) or
Angiotensin II Receptor
Blocker (ARB) for left
ventricular systolic
dysfunction
Discharge instructions
Adult smoking cessation advice/
counseling
------------------------------------------------------------------------
Pneumonia (PN)......................... Pneumococcal vaccination status
Blood culture performed before
first antibiotic received in
hospital
Adult smoking cessation advice/
counseling
Appropriate initial antibiotic
selection
Influenza vaccination status
------------------------------------------------------------------------
Surgical Care Improvement Project Prophylactic antibiotic
(SCIP)--named SIP for discharges prior received within 1 hour prior
to July 2006 (3Q06). to surgical incision
SCIP-VTE-1: Venous
thromboembolism (VTE)
prophylaxis ordered for
surgery patients***
SCIP-VTE-2: VTE prophylaxis
within 24 hours pre/post
surgery***
SCIP Infection 2: Prophylactic
antibiotic selection for
surgical patients***
SCIP-Infection 3: Prophylactic
antibiotics discontinued
within 24 hours after surgery
end time
------------------------------------------------------------------------

SCIP Infection 4 and Infection 6 will be validated using
data from 2nd and 3rd quarter CY 2008 discharges.
In addition, we are proposing to include the following three
measures in the FY 2010 RHQDAPU program validation process that are
included the FY 2009 RHQDAPU program measure set but have been updated
or deleted for the FY 2010 measure set:
Pneumonia antibiotic prophylaxis timing within 4 hours
will be validated using data from 4th quarter 2007 through 3rd quarter
2008 discharges.
Percutaneous Coronary Intervention (PCI) Timing within 120
minutes will be validated using data from 4th quarter 2007 through 3rd
quarter 2008 discharges.
Pneumonia Oxygenation Assessment will be validated using
data from 4th quarter through 3rd quarter 2008 discharges.
These measures will be submitted by hospitals during 2008 and early
2009, and are available to be validated by CMS in time for the FY 2010
RHQDAPU program payment eligibility determination.
As explained above, will also revise and post up-to-date confidence
interval information on the QualityNet Web site explaining the
application of the confidence interval to the overall validation
results.
c. Chart Validation Methods and Requirements Under Consideration for FY
2011 and Subsequent Years
Under the current and proposed RHQDAPU program chart validation
process, we validate measures by reabstracting on a quarterly basis a
random sample of five patient records for each hospital. This quarterly
sample results in an annual combined sample of 20 patient records
across 4 calendar quarters, but because the samples are random, they do
not necessarily include patient records covering each of the clinical
topics.
We anticipate that the proposed expansion of the RHQDAPU program
measure set to include additional clinical topics will decrease the
percentage of RHQDAPU clinical topics, as well as the total number of
measures, covered in many hospitals' annual chart validation. In
addition to the measures for which hospitals must submit data for FY
2009 (with the exception of the Pneumonia Oxygenation Assessment
measure), we have proposed that hospitals will submit data on the
proposed five stroke measures, six VTE measures, and four nursing
sensitive measures for FY 2010 using chart abstraction. CMS is
considering the addition of these measures to the current RHQDAPU
program validation process for FY 2011 and future years.
However, we are considering whether registries and other external
parties that may be collecting data on proposed RHQDAPU program
measures could validate the accuracy of those measures beginning in FY
2011. In addition, we note that the proposed readmission measures are
calculated using Medicare claims information and do not require chart
validation.
We are interested in receiving public comments from a broad set of
stakeholders on the impact of adding measures to the validation
process, as well as modifications to the current validation process
that could improve

[[Page 23659]]

the reliability and validity of the methodology. We specifically
request input concerning the following:
Which of the measures or measure sets should be included
in the FY 2010 RHQDAPU program chart validation process or in the chart
validation process for subsequent years?
What validation challenges are posed by the RHQDAPU
program measures and measure sets? What improvements could be made to
validation or reporting that might offset or otherwise address those
challenges?
Should CMS switch from its current quarterly validation
sample of five charts per hospital to randomly selecting a sample of
hospitals, and selecting more charts on an annual basis to improve
reliability of hospital level validation estimates?
Should CMS select the validation sample by clinical topic
to ensure that all publicly reported measures are covered by the
validation sample?
7. Data Attestation Requirements
a. Proposed Change to Requirements for FY 2009
In the FY 2008 IPPS final rule with comment period (72 FR 47364),
we stated that we would require for FY 2008 and subsequent years that
hospitals attest each quarter to the completeness and accuracy of their
data, including the volume of data, submitted to the QIO Clinical
Warehouse in order to improve aspects of the validation checks. We
stated that we would provide additional information to explain this
attestation requirement, as well as provide the relevant form to be
completed on the QualityNet Web site, at the same time as the
publication of the FY 2008 IPPS final rule with comment period.
We are now proposing to defer the requirement in FY 2009 for
hospitals to separately attest to the accuracy and completeness of
their submitted data due to the burden placed on hospitals to report
paper attestation forms on a quarterly basis. We continue to expect
that hospitals will submit quality data that are accurate to the best
of their knowledge and ability.
b. Proposed Requirements for FY 2010
For FY 2010 and subsequent years, we are soliciting public comment
on the electronic implementation of the attestation requirement at the
point of data submission to the QIO Clinical Warehouse. Hospitals would
electronically pledge to CMS that their submitted data are accurate and
complete to the best of their knowledge. Hospitals would be required to
designate an authorized contact to CMS for attestation in their
patient-level data submission.
Resubmissions would continue to be allowed before the quarterly
submission deadline, and hospitals would be required to electronically
update their pledges about data accuracy at the time of resubmission.
We welcome comments on this approach.
8. Public Display Requirements
Section 1886(b)(3)(B)(viii)(VII) of the Act provides that the
Secretary shall establish procedures for making data submitted under
the RHQDAPU program available to the public. The RHQDAPU program
quality measures are posted on the Hospital Compare Web site (http://www.hospitalcompare.hhs.gov). CMS requires that hospitals sign a
``Reporting Hospital Quality Data for Annual Payment Update Notice of
Participation'' form when they first register to participate in the
RHQDAPU program. Once a hospital has submitted a form, the hospital is
considered to be an active RHQDAPU program participant until such time
as the hospital submits a withdrawal form to CMS (72 FR 47360).
Hospitals signing this form agree that they will allow CMS to publicly
report the quality measures as required in the applicable year's
RHQDAPU program requirements.
We are proposing to continue to display quality information for
public viewing as required by section 1886(b)(3)(B)(viii)(VII) of the
Act. Before we display this information, hospitals will be permitted to
review their information as recorded in the QIO Clinical Warehouse.
Currently, hospitals that share the same CCN (formerly known as
Medicare Provider Number (MPN)) must combine data collection and
submission across their multiple campuses (for both clinical measures
and for HCAHPS). These measures are then publicly reported as if they
apply to a single hospital. We estimate that approximately 5 to 10
percent of the hospitals reported on the Hospital Compare Web site
share CCNs. Beginning with the FY 2008 RHQDAPU program, hospitals must
report the name and address of each hospital that shares the same CCN.
This information will be gathered through the RHQDAPU program Notice of
Participation form for new hospitals participating in the RHQDAPU
program. To increase transparency in public reporting and improve the
usefulness of the Hospital Compare Web site, we will note on the Web
site where publicly reported measures combine results from two or more
hospitals.
9. Proposed Reconsideration and Appeal Procedures
For FY 2009, we are proposing to continue the current RHQDAPU
program reconsideration and appeal procedures finalized in the FY 2008
IPPS final rule with comment period. The deadline for submitting a
request for reconsideration in connection with the FY 2009 payment
determination is November 1, 2008. We also are proposing to use the
same procedural rules finalized in the FY 2008 IPPS final rule with
comment period (72 FR 47365). We posted these rules on the QualityNet
Web site for the FY 2008 RHQDAPU program reconsideration process.
Under the procedural rules, in order to receive reconsideration for
FY 2009, the hospital must--
Submit to CMS, via QualityNet, a Reconsideration Request
form (available on the QualityNet Web site) containing the following
information:
[cir] Hospital Medicare ID number.
[cir] Hospital Name.
[cir] CMS-identified reason for failure (as provided in the CMS
notification of failure letter to the hospital).
[cir] Hospital basis for requesting reconsideration. (This must
identify the hospital's specific reason(s) for believing it met the
RHQDAPU program requirements and should receive the full FY 2009 IPPS
annual payment update.)
[cir] CEO contact information, including name, e-mail address,
telephone number, and mailing address (must include physical address,
not just the post office box).
[cir] QualityNet System Administrator contact information,
including name, e-mail address, telephone number, and mailing address
(must include physical address, not just the post office box).
The request must be signed by the hospital's CEO.
Following receipt of a request for reconsideration, CMS
will--
Provide an e-mail acknowledgement, using the contact
information provided in the reconsideration request, to the CEO and the
QualityNet Administrator that the letter has been received.
Provide a formal response to the hospital CEO, using the
contact information provided in the reconsideration request, notifying
the facility of the outcome of the reconsideration process. CMS expects
the process to take 60 to 90 days from the due date of November 1,
2008.
If a hospital is dissatisfied with the result of a RHQDAPU program

[[Page 23660]]

reconsideration decision, the hospital may file a claim under 42 CFR
part 405, subpart R (a Provider Reimbursement Review Board (PRRB)
appeal).
10. Proposed RHQDAPU Program Withdrawal Deadline for FYs 2009 and 2010
We propose to accept RHQDAPU program withdrawal forms for FY 2009
from hospitals through August 15, 2008. We are proposing this deadline
to provide CMS with sufficient time to update the RHQDAPU FY 2009
payment to hospitals starting on October 1, 2008. If a hospital
withdraws from the program for FY 2009, it will receive a 2.0
percentage point reduction in its FY 2009 annual payment update.
We also propose to accept RHQDAPU program withdrawal forms for FY
2010 from hospitals through August 15, 2009. If a hospital withdraws
from the program for FY 2010, it will receive a 2.0 percentage point
reduction in its FY 2010 annual payment update.
11. Requirements for New Hospitals
In the FY 2008 IPPS final rule with comment period (72 FR 47366),
we stated that a new hospital that receives a provider number on or
after October 1 of each year (beginning with October 1, 2007) will be
required to report RHQDAPU program data beginning with the first day of
the quarter following the date the hospital registers to participate in
the RHQDAPU program. For example, a hospital that receives its CCN on
October 2, 2008, and signs up to participate in the RHQDAPU program on
November 1, 2007, will be expected to meet all of the data submission
requirements for discharges on or after January 1, 2009.
In addition, we strongly recommend that each new hospital
participate in an HCAHPS dry run, if feasible, prior to beginning to
collect HCAHPS data on an ongoing basis to meet RHQDAPU program
requirements. We refer readers to the Web site at www.hcahpsonline.org
for a schedule of upcoming dry runs. The dry run will give newly
participating hospitals the opportunity to gain first-hand experience
collecting and transmitting HCAHPS data without the public reporting of
results. Using the official survey instrument and the approved modes of
administration and data collection protocols, hospitals/survey vendors
will collect HCAHPS data and submit the data to QualityNet.
12. Electronic Medical Records
In the FY 2006 IPPS final rule, we encouraged hospitals to take
steps toward the adoption of electronic medical records (EMRs) that
will allow for reporting of clinical quality data from the EMRs
directly to a CMS data repository (70 FR 47420). We intend to begin
working toward creating measures' specifications, and a system or
mechanism, or both, that will accept the data directly without
requiring the transfer of the raw data into an XML file as is currently
done. The Department continues to work cooperatively with other Federal
agencies in the establishment of Federal Health Architecture (FHA) data
standards. We encouraged hospitals that are developing systems to
conform them to industry standards, and in particular to FHA data
standards, once identified, taking measures to ensure that the data
necessary for quality measures are captured. Ideally, such systems will
also provide point-of-care decision support that enables detection of
high levels of performance on the measures. Hospitals using EMRs to
produce data on quality measures will be held to the same performance
expectations as hospitals not using EMRs.
Due to the low volume of comments we received on this issue in
response to the FY 2006 proposed IPPS rule, in the FY 2007 IPPS
proposed (71 FR 24095), we again invited public comment on these
requirements and related options. In the FY 2007 IPPS final rule (71 FR
48045), we summarized and addressed the additional comments we
received. In the FY 2008 IPPS proposed rule (72 FR 24809), we noted
that we would welcome additional comments on this issue.
In the FY 2008 IPPS final rule with comment period (72 FR 47366),
we responded to the additional comments we received and noted that CMS
plans to continue working with the American Health Information
Community (AHIC) and other entities to explore processes through which
an EMR could speed the collection and minimize the resources necessary
for quality reporting. (The AHIC is a Federal advisory body, chartered
in 2005 to make recommendations to the Secretary on how to accelerate
the development and adoption of health information technology.) In
addition, we noted that we will continue to participate in appropriate
HHS studies and workgroups, as mentioned by a GAO report (GAO-07-320)
about hospital quality data and their use of information technology. As
appropriate, CMS will inform interested parties regarding progress in
the implementation of HIT for the collection and submission of hospital
quality data as specific steps, including timeframes and milestones,
are identified. Current mechanisms include publication in the Federal
Register as well as ongoing collaboration with external stakeholders
such as the HQA, the AHA, the FAH, the AAMC, and the Joint Commission.
We further anticipate that as HIT is implemented, a formal plan,
including training, will be developed to assist providers in
understanding and utilizing HIT in reporting quality data. In addition,
we will assess the effectiveness of our communications with providers
and stakeholders as it relates to all information dissemination
pertinent to collecting hospital quality data as part of an independent
and comprehensive external evaluation of the RHQDAPU program.
We are again soliciting comments on the issues and challenges
associated with EMRs. Specifically, we invite comment on our proposed
changes to our data submission requirements to be more aligned with
currently implemented HIT systems, including data collection from
registries and laboratory data.
We recognize the potential burden on hospitals of increased data
reporting requirements for process measures that require chart
abstraction. In FY 2007 IPPS rulemaking, we listed a variety of
additional possible measures for future years. The measures included
and emphasized additional outcomes measures. Additional measures were
included for which the data sources are claims. For these, no
additional data abstraction or submission would be required for
reporting hospitals beyond the claims data. In proposing measures for
FY 2010, we seek to emphasize outcome measures and to minimize any
additional data collection burden. In addition, as provided in section
1886(b)(3)(B)(viii)(VI) and discussed in section IV.B.2.a. of this
proposed rule, we are proposing to retire one measure where there is no
meaningful difference among hospitals as a means of reducing data
collection burden.

C. Medicare Hospital Value-Based Purchasing (VBP)

1. Medicare Hospital VBP Plan Report to Congress
Through section 5001(b) of the Deficit Reduction Act of 2005,
Congress authorized the development of a plan to implement value-based
purchasing (VBP) beginning FY 2009 for IPPS hospital services. By
statute, the plan must address: (a) The ongoing development, selection,
and modification process for measures of quality and efficiency in
hospital inpatient settings; (b) reporting, collection, and validation
of quality

[[Page 23661]]

data; (c) the structure, size, and source of value-based payment
adjustments; and (d) public disclosure of hospital performance data.
To develop the plan, CMS created a Hospital VBP Workgroup with
members from various CMS components and the Office of the Assistant
Secretary for Planning and Evaluation. The Workgroup completed an
environmental scan of existing hospital VBP programs, an issue paper
outlining the topics to be addressed in the plan, and an options paper
presenting design alternatives for the plan.
CMS hosted two public Listening Sessions in early 2007 to solicit
comments from interested parties on outstanding design questions
associated with development of the plan. The perspectives expressed by
stakeholders (including hospitals, consumers, and purchasers) during
these sessions and in writing assisted the Workgroup in creating the
Medicare Hospital VBP Plan Report to Congress. The Report was submitted
to Congress on November 21, 2007.
The Medicare Hospital VBP Plan builds on the foundation of
Medicare's current RHQDAPU program (discussed in section IV.B. of the
preamble of this proposed rule), which, since FY 2005, has provided
differential payments to hospitals that report their performance on a
defined set of inpatient measures for public posting on the Hospital
Compare Web site. If authorized by Congress, the VBP Plan would replace
the current quality reporting program with a new program that would
include both public reporting and financial incentives to drive
improvements in clinical quality, patient-centeredness, and efficiency.
The proposed plan contains the following key components: (a) A
performance assessment model that incorporates measures from different
quality domains (that is, clinical process of care, patient experience
of care, outcomes, among others) to calculate a hospital's total
performance score; (b) options for translating this score into an
incentive payment that would make a portion of the hospital's base DRG
payment contingent on its total performance score; (c) criteria for
selecting performance measures for the financial incentive and
candidate measures for FY 2009 and beyond; (d) a phased approach for
transitioning from the RHQDAPU program to the VBP plan; (e) proposed
enhancements to the current data transmission and validation
infrastructure to support VBP program requirements; (f) refinements to
the Hospital Compare Web site to support expanded public reporting; and
(g) an approach to monitoring VBP impacts.
The Medicare Hospital VBP Plan Report to Congress is available on
the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf.
2. Testing and Further Development of the Medicare Hospital VBP Plan
The Hospital VBP Workgroup has undertaken testing of the VBP Plan.
This ``dry run'' or ``simulation'' of the Plan will use the most recent
clinical process-of-care and HCAHPS measurement data available from the
RHQDAPU program. New information generated by the VBP Plan testing will
include: (a) Performance scores by domain; (b) total performance
scores; and (c) financial impacts. Following a process similar to that
used in developing the Plan, CMS will analyze this information by
individual IPPS hospital, by segment of the hospital industry (that is,
geographic location, size, teaching status, among others), and in
aggregate for all IPPS hospitals.
The results of VBP Plan testing will be used to further develop the
Plan. Priorities for Plan completion include addressing the small
numbers issue (described on pages 74 and 75 of the Hospital VBP Plan
Report to Congress) and developing a scoring methodology for the
outcomes domain (pages 57-58 of the Hospital VBP Plan Report to
Congress), which will become an additional aspect of the performance
model. After completion, the Plan will be retested.
We are seeking public comments on how to take full advantage of the
new information generated through this testing and further Plan
development. For example: Should the testing and retesting results be
publicly posted? If the testing results were to be posted, would the
best location be the Hospital Compare Web site or the CMS Web site at:
http://www.cms.hhs.gov? In what format would public posting be most
useful to potential audiences? At what level would the data be posted--
individual hospital or some higher level? Which data elements from the
testing results would be most useful to share?

D. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small Rural
Hospitals (MDHs): Volume Decrease Adjustment (Sec. Sec. 412.92 and
412.108)

1. Background
Under the IPPS, special payment protections are provided to a sole
community hospital (SCH). Section 1886(d)(5)(D)(iii) of the Act defines
an SCH as a hospital that, by reason of factors such as isolated
location, weather conditions, travel conditions, absence of other like
hospitals (as determined by the Secretary), or historical designation
by the Secretary as an essential access community hospital, is the sole
source of inpatient hospital services reasonably available to Medicare
beneficiaries. The regulations that set forth the criteria that a
hospital must meet to be classified as an SCH are located in 42 CFR
412.92 of the regulations.
Under the IPPS, separate special payment protections also are
provided to a Medicare-dependent, small rural hospital (MDH). Section
1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is
located in a rural area, has not more than 100 beds, is not an SCH, and
has a high percentage of Medicare discharges (not less than 60 percent
in its 1987 cost reporting year or in 2 of its most recent 3 audited
and settled Medicare cost reporting years). The regulations that set
forth the criteria that a hospital must meet to be classified as an MDH
are located in 42 CFR 412.108.
Although SCHs and MDHs are paid under special payment
methodologies, they are hospitals that are paid under section 1886(d)
of the Act. Like all IPPS hospitals paid under section 1886(d) of the
Act, SCHs and MDHs are paid for their discharges based on the DRG
weights calculated under section 1886(d)(4) of the Act.
Effective with hospital cost reporting periods beginning on or
after October 1, 2000, section 1886(d)(5)(D)(i) of the Act (as amended
by section 6003(e) of Pub. L. 101-239) and section 1886(b)(3)(I) of the
Act (as added by section 405 of Pub. L. 106-113 and further amended by
section 213 of Pub. L. 106-554), provide that SCHs are paid based on
whichever of the following rates yields the greatest aggregate payment
to the hospital for the cost reporting period:
The Federal rate applicable to the hospital;
The updated hospital-specific rate based on FY 1982 costs
per discharge;
The updated hospital-specific rate based on FY 1987 costs
per discharge; or
The updated hospital-specific rate based on FY 1996 costs
per discharge.
For purposes of payment to SCHs for which the FY 1996 hospital-
specific rate yields the greatest aggregate payment, payments for
discharges during FYs 2001, 2002, and 2003 were based on a blend of the
FY 1996 hospital-specific rate and the greater of the Federal rate or
the updated FY 1982 or FY 1987

[[Page 23662]]

hospital-specific rate. For discharges during FY 2004 and subsequent
fiscal years, payments based on the FY 1996 hospital-specific rate are
100 percent of the updated FY 1996 hospital-specific rate.
Through and including FY 2006, under section 1886(d)(5)(G) of the
Act, MDHs are paid based on the Federal rate or, if higher, the Federal
rate plus 50 percent of the difference between the Federal rate and the
updated hospital-specific rate based on FY 1982 or FY 1987 costs per
discharge, whichever is higher. However, section 5003 of Pub. L. 109-
171 (DRA) modified these rules for discharges occurring on or after
October 1, 2006. Section 5003(c) changed the 50 percent adjustment to
75 percent. Section 5003(b) requires that an MDH use the 2002 cost
reporting year as its base year (that is, the FY 2002 updated hospital-
specific rate), if that use results in a higher payment. MDHs do not
have the option to use their FY 1996 hospital-specific rate.
For each cost reporting period, the fiscal intermediary/MAC
determines which of the payment options will yield the highest
aggregate payment. Interim payments are automatically made at the
highest rate using the best data available at the time the fiscal
intermediary/MAC makes the determination. However, it may not be
possible for the fiscal intermediary/MAC to determine in advance
precisely which of the rates will yield the highest aggregate payment
by year's end. In many instances, it is not possible to forecast the
outlier payments, the amount of the DSH adjustment, or the IME
adjustment, all of which are applicable only to payments based on the
Federal rate and not to payments based on the hospital-specific rate.
The fiscal intermediary/MAC makes a final adjustment at the close of
the cost reporting period after it determines precisely which of the
payment rates would yield the highest aggregate payment to the
hospital.
If a hospital disagrees with the fiscal intermediary's or MAC's
determination regarding the final amount of program payment to which it
is entitled, it has the right to appeal the fiscal intermediary's or
MAC's decision in accordance with the procedures set forth in 42 CFR
Part 405, Subpart R, which concern provider payment determinations and
appeals.
2. Volume Decrease Adjustment for SCHs and MDHs: Data Sources for
Determining Core Staff Values
Section 1886(d)(5)(D)(ii) of the Act requires that the Secretary
make a payment adjustment to an SCH that experiences a decrease of more
than 5 percent in its total number of inpatient discharges from one
cost reporting period to the next, if the circumstances leading to the
decline in discharges were beyond the SCH's control. Section
1886(d)(5)(G)(iii) of the Act requires that the Secretary make a
payment adjustment to an MDH that experiences a decrease of more than 5
percent in its total number of inpatient discharges from one cost
reporting period to the next, if the circumstances leading to the
decline in discharges were beyond the MDH's control. These adjustments
were designed to compensate an SCH or MDH for the fixed costs it incurs
in the year in which the reduction in discharges occurred, which it may
be unable to reduce. Such costs include the maintenance of necessary
core staff and services. Our records indicate that less than 10 SCHs/
MDHs request and receive this payment adjustment each year.
We believe that not all staff costs can be considered fixed costs.
Using a standardized formula specified by us, the SCH or MDH must
demonstrate that it appropriately adjusted the number of staff in
inpatient areas of the hospital based on the decrease in the number of
inpatient days. This formula examines nursing staff in particular. If
an SCH or MDH has an excess number of nursing staff, the cost of
maintaining those staff members is deducted from the total adjustment.
One exception to this policy is that no SCH or MDH may reduce its
number of staff to a level below what is required by State or local
law. In other words, an SCH or MDH will not be penalized for
maintaining a level of staff that is consistent with State or local
requirements.
The process for determining the amount of the volume decrease
adjustment can be found in Section 2810.1 of the Provider Reimbursement
Manual, Part 1 (PRM-1). Fiscal intermediaries/MACs are responsible for
establishing whether an SCH or MDH is eligible for a volume decrease
adjustment and, if so, the amount of the adjustment. To qualify for
this adjustment, the SCH or MDH must demonstrate that: (a) a decrease
of more than 5 percent in total number of inpatient discharges has
occurred; and (b) the circumstance that caused the decrease in
discharges was beyond the control of the hospital. Once the fiscal
intermediary/MAC has established that the SCH or MDH satisfies these
two requirements, it will calculate the adjustment. The adjustment
amount is determined by subtracting the second year's DRG payment from
the lesser of: (a) the second year's costs minus any adjustment for
excess staff; or (b) the previous year's costs multiplied by the
appropriate IPPS update factor minus any adjustment for excess staff.
The SCH or MDH receives the difference in a lump-sum payment.
In order to determine whether or not the hospital's nurse staffing
level is appropriate, the fiscal intermediary/MAC compares the
hospital's actual number of nursing staff in each area with the
staffing of like-size hospitals in the same census region. If a
hospital employs more than the reported average number of nurses for
hospitals of its size and census region, the fiscal intermediary/MAC
reduces the amount of the adjustment by the cost of maintaining the
additional staff. The amount of the reduction is calculated by
multiplying the actual number of nursing staff above the reported
average by the average nurse salary for that hospital as reported on
the Medicare cost report. The complete process for determining the
amount of the adjustment can be found at Section 2810.1 of the PRM-1.
Prior to FY 2007, our policy was for fiscal intermediaries/MACs to
obtain average nurse staffing data from the AHA HAS/Monitrend Data
Book. However, in light of concerns that the Data Book had been
published in 1989 and is no longer updated, in the FY 2007 IPPS rule,
we proposed and finalized our policy to update the data sources and
methodology used to determine the core staffing factors (that is, the
average nursing staff for similar bed size and census region) for
purposes of calculating the volume decrease adjustment (71 FR 48056
through 48060). We specified that for adjustment requests for decreases
in discharges beginning with FY 2007 (that is, a decrease in discharges
in 2007 as compared to 2006), an SCH or MDH could opt to use one of two
data sources: the AHA Annual Survey or the Occupational Mix Survey, but
could not use the HAS/Monitrend Data Book. (For any open adjustment
requests prior to FY 2007, we allowed SCHs and MDHs the option of using
the results of any of three sources: (1) The 2006 Occupational Mix
Survey for cost reporting periods beginning in FY 2006; (2) the AHA
Annual Survey (where available); or (3) the AHA HAS/Monitrend Data
Book. We also specified a methodology for calculating those core
staffing factors. For purposes of explaining the methodology, we
applied it to the 2003 Occupational Mix Survey data. In our
explanation, we recognized that some of the 2003 data seemed anomalous,
and we solicited comments on a possible alternative methodology.
However, there were no suggested alternative methodologies from the

[[Page 23663]]

commenters. We also explained that, while we used the 2003 Occupational
Mix Survey data ``for purposes of describing how we would implement
this methodology,'' the final policy was to use FY 2006 Occupational
Mix Survey data going forward. At the time we published the proposed
and final rules, however, we had not yet processed the FY 2006 data,
and could not present the core staffing figures that resulted from such
data.
We have now processed the 2006 Occupational Mix Survey data using
the methodology specified in the FY 2007 IPPS final rule and continue
to see some results that cause us to believe that the methodology for
calculating the core staffing factors should be slightly revised from
the methodology discussed in the FY 2007 IPPS final rule (71 FR 48056
through 48060). The new methodology uses a revised formula to remove
outliers from the core staffing values.
a. Occupational Mix Survey
In the FY 2007 IPPS final rule (71 FR 48055), we explained the
methodology we would use for calculating core staffing values from the
Occupational Mix Survey. We stated that we would calculate the nursing
hours per patient day for each SCH or MDH by dividing the number of
paid nursing hours (for registered nurses, licensed practical nurses
and nursing aides) reported on the Occupational Mix Survey by the
number of patients days reported on the Medicare cost report. The
results would be grouped in the same bed-size groups and census regions
as were used in the HAS/Monitrend Data Book.
We indicated that we would publish the mean number of nursing hours
per patient day, for each census region and bed-size group, in the
Federal Register and on the CMS Web site. For purposes of the volume
decrease adjustment, the published data would be utilized in the same
way as the HAS/Monitrend data: The fiscal intermediary/MAC would
multiply the SCH's and MDH's number of patient days by the applicable
published hours per patient day. This figure would be divided by the
average number of worked hours per year per nurse (for example, 2,080
for a standard 40-hour week). The result would be the target number of
core nursing staff for the particular SCH or MDH. If necessary, the
cost of any excess staff (number of FTEs that exceed the published
number) would be removed from the second year's costs or, if
applicable, the previous year's costs multiplied by the IPPS update
factor when determining the volume decrease adjustment.
In the FY 2007 IPPS final rule (71 FY 48057), we stated that we
would use the results of the FY 2006 Occupational Mix Survey and begin
applying the methodology for adjustments resulting from a decrease in
discharges in FY 2007. Because the occupational mix survey is conducted
once every 3 years, we would update the data set every 3 years.
However, at the time of the FY 2007 IPPS final rule, the FY 2006
Occupational Mix Survey data were not available. In that final rule, we
described our methodology using the FY 2003 occupational mix data and
the FY 2003 Medicare cost report file. However, these data were used
only in order to present an example of how our methodology would work.
Our final policy was to use FY 2006 occupational mix and cost report
data when actually processing adjustment requests.
In the FY 2007 IPPS final rule, to illustrate how we would
calculate the average number of nursing hours per patient day by bed
size and region, we first merged the FY 2003 Occupational Mix Survey
data with the FY 2003 Medicare cost report file. We eliminated all
observations for non-IPPS providers, providers who failed to complete
the occupational mix survey and the providers for which provider
numbers, bed counts, and/or days counts were missing.
For each provider in the pool, we calculated the number of nursing
hours by adding the number of registered nurses, licensed practical
nurses, and nursing aide hours reported on the Occupational Mix Survey.
We divided the result of this calculation by the total number of
inpatient days reported on the cost report to determine the number of
nursing hours per patient day. For purposes of calculating the census
regional averages for the various bed-size groups, we finalized our
rule to only include observations that fell within three standard
deviations of the mean of all observations, thus removing potential
outliers in the data.
When the FY 2006 Occupational Mix Survey data became available, our
analysis of the results indicated that the methodology for computing
core staffing factors should be further revised in order to further
eliminate outlier data.
After consulting with the Office of the Actuary on appropriate
statistical methods to remove outlier data, we are proposing to modify
our methodology for calculating the average nursing hours per patient
day using the FY 2006 Occupational Mix Survey data and FY 2006 Medicare
cost report data. Similar to what was finalized in the FY 2007 IPPS
rule, we are proposing to merge the FY 2006 Occupational Mix Survey
data with the FY 2006 Medicare cost report file. We would then
eliminate all observations for non-IPPS providers, providers who failed
to complete the occupational mix survey and the providers for which
provider numbers, bed counts and/or days counts were missing. We would
annualize the results so that the nursing hours from the Occupational
Mix Survey and the patient days reported on the Medicare cost report is
representative of one year.
For each provider in the pool, we would calculate the number of
nursing hours by adding the number of registered nurses, licensed
practical nurses, and nursing aide hours reported on the Occupational
Mix Survey. We would divide the result of this calculation by the total
number of patient days reported on line 12 on Worksheet S-3, Part I,
Column 6 of the Medicare cost report. This includes patient days in the
general acute care area and the intensive care unit area. The result is
the number of nursing hours per patient day.
For purposes of calculating the census regional averages for the
various bed-size groups, we are proposing a different method to remove
outliers in the data. First, we would calculate the difference between
the observations in the 75th percentile and the 25th percentile, which
is the inter-quartile range. We would remove observations that are
greater than the 75th percentile plus 1.5 times the inter-quartile
range and less than the 25th percentile minus 1.5 times the inter-
quartile range. This methodology, known as the Tukey method, is a
common statistical method used by the Office of the Actuary. Under the
standard deviation method described in the FY 2007 IPPS final rule, the
mean and standard deviation can be influenced by extreme values
(because the standard deviation is increased by the very observations
that would otherwise be discarded from the analysis). Our proposed
methodology is a more robust technique because it uses the quartile
values instead of variance to describe the spread of the data, and
quartiles are less influenced by extreme outlier values that may be
present in the data.
Our proposed method would prevent the mean from being influenced by
extreme observations and assumes that the middle 50 percent of the data
has no outlier observations. The application of this methodology would
result in a pool of approximately 2,578 providers. Each census region
and bed group category required at least three providers in order for
their average to be published. The results of the average nursing hours
per patient day by bed size and region using

[[Page 23664]]

the FY 2006 Occupational Mix Survey Data and the FY 2006 hospital cost
report data are shown in the table below. As stated in the FY 2007 IPPS
final rule (71 FR 48059), the results of the FY 2006 Occupational Mix
Survey may be used for the volume decrease adjustment calculations for
decreases in discharges beginning with cost reporting periods beginning
in FYs 2006, 2007, and 2008.

Paid Nursing Hours per Patient Day
--------------------------------------------------------------------------------------------------------------------------------------------------------
Census Region
-----------------------------------------------------------------------------------------------------------
Number of beds New Middle South East North East South West North West South
England Atlantic Atlantic Central Central Central Central Mountain Pacific
(1) (2) (3) (4) (5) (6) (7) (8) (9)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0-49........................................ 25.47 20.60 21.08 24.52 20.27 25.92 22.16 24.52 20.99
50-99....................................... 20.99 18.51 20.36 23.44 19.00 22.44 20.44 22.54 18.89
100-199..................................... 18.12 16.31 17.31 18.87 17.43 19.50 17.01 18.70 16.25
200-399..................................... 16.92 13.80 16.23 17.79 16.06 18.66 14.56 16.82 16.63
400+........................................ 17.52 14.43 16.68 18.41 14.14 16.90 16.25 15.50 18.15
--------------------------------------------------------------------------------------------------------------------------------------------------------

b. AHA Annual Survey
In the FY 2007 IPPS final rule (71 FR 48058), we also allowed SCHs
or MDHs that experienced a greater than 5 percent reduction in the
number of discharges in a cost reporting period the option of using the
AHA Annual Survey results, where available, to compare the number of
hospital's core staff with other like-sized hospitals in its geographic
area. Our methodology for calculating the nursing hours per patient day
using the AHA Annual Survey data and the Medicare hospital cost report
was similar to the methodology using the Occupational Mix Survey data
(eliminating outliers outside of three standard deviations from the
mean). For this reason, as with the occupational mix data, both
standard deviations and the mean could be influenced by extreme values.
Therefore, we are proposing to refine our methodology to calculate the
core staffing factors using the AHA Annual Survey data as well. The AHA
Annual Survey contains FTE counts for registered nurses, practical and
vocational nurses, nursing assistive personnel, and other personnel in
both inpatient and outpatient areas of the hospital. This is consistent
with the Occupational Mix Survey which collects data on both the
inpatient and outpatient areas of the hospital.
In the FY 2007 IPPS final rule, we stated we would calculate the
nursing hours per patient day using the AHA Annual Survey data in a
similar method to the Occupational Mix Survey. Consistent with the HAS/
Monitrend Data book, we would only calculate the average number of
nursing staff for a bed-size/census group if there are data available
for three or more hospitals. First, we would merge the AHA Annual
Survey Data with the corresponding Medicare cost report. We would
eliminate all observations for non-IPPS providers, providers with
hospital-based SNFs, and the providers for which provider numbers, bed
counts, and/or days counts were missing. We would multiply the number
of nurse, licensed practical nurse, and nursing aide FTEs reported on
the AHA Annual Survey by 2,080 hours to derive the number of nursing
hours per year (based on a 40-hour work week). We would then divide
this number by the total number of patient days reported on line 12 on
Worksheet S-3, Part I, Column 6 of the Medicare cost report. In the FY
2007 IPPS final rule (71 FR 48060), we had stated that we would
eliminate all providers with results beyond three standard deviations
from the mean. However, to be consistent with our methodology with the
Occupational Mix Survey data, we are also proposing that we would
remove outliers from the AHA Annual Survey data by calculating the
difference between the observations in the 75th percentile and the 25th
percentile, which is the inter-quartile range. Then, we are proposing
to remove observations that are greater than the 75th percentile plus
1.5 times the inter-quartile range and less than the 25th percentile
minus 1.5 times the inter-quartile range. After removing the outliers,
we would group the hospitals by bed size and census area to calculate
the average number of nursing hours per patient day for each category.
Using the 2006 AHA Annual Survey data as an example, this would result
in a pool of approximately 1,205 providers. The results of the nursing
hours per patient day using the 2006 AHA Annual Survey data and the
Medicare cost report data are shown below. The 2006 Survey would be
used for the volume decrease adjustment calculations for decreases in
discharges occurring during cost reporting periods beginning in FY
2006. As we stated in the FY 2007 IPPS final rule, for other years, the
corresponding AHA Annual Survey would be used for the year in which the
decreased occurred. For example, if a hospital experienced a decrease
between its 2004 and 2005 cost reporting periods, the fiscal
intermediary/MAC would compare the hospital's 2005 staffing with the
results of the 2005 AHA Annual Survey, using the methodology discussed
above.

[[Page 23665]]

100-199..................................... 18.89 17.46 18.43 20.08 19.64 20.23 19.02 18.80 18.71
200-399..................................... 18.89 14.96 15.75 17.02 15.07 19.81 15.85 18.17 18.01
400+........................................ 18.98 16.66 17.39 21.59 16.47 17.71 15.06 17.76 21.11
--------------------------------------------------------------------------------------------------------------------------------------------------------

E. Rural Referral Centers (RRCs) (Sec. 412.96)

Under the authority of section 1886(d)(5)(C)(i) of the Act, the
regulations at Sec. 412.96 set forth the criteria that a hospital must
meet in order to qualify under the IPPS as an RRC. For discharges
occurring before October 1, 1994, RRCs received the benefit of payment
based on the other urban standardized amount rather than the rural
standardized amount. Although the other urban and rural standardized
amounts are the same for discharges occurring on or after October 1,
1994, RRCs continue to receive special treatment under both the DSH
payment adjustment and the criteria for geographic reclassification.
Section 402 of Pub. L. 108-173 raised the DSH adjustment for other
rural hospitals with less than 500 beds and RRCs. Other rural hospitals
with less than 500 beds are subject to a 12-percent cap on DSH
payments. RRCs are not subject to the 12-percent cap on DSH payments
that is applicable to other rural hospitals (with the exception of
rural hospitals with 500 or more beds). RRCs are not subject to the
proximity criteria when applying for geographic reclassification, and
they do not have to meet the requirement that a hospital's average
hourly wage must exceed the average hourly wage of the labor market
area where the hospital is located by a certain percentage (106/108
percent in FY 2008).
Section 4202(b) of Pub. L. 105-33 states, in part, ``[a]ny hospital
classified as an RRC by the Secretary * * * for fiscal year 1991 shall
be classified as such an RRC for fiscal year 1998 and each subsequent
year.'' In the August 29, 1997 final rule with comment period (62 FR
45999), we reinstated RRC status for all hospitals that lost the status
due to triennial review or MGCRB reclassification, but did not
reinstate the status of hospitals that lost RRC status because they
were now urban for all purposes because of the OMB designation of their
geographic area as urban. However, subsequently, in the August 1, 2000
final rule (65 FR 47089), we indicated that we were revisiting that
decision. Specifically, we stated that we would permit hospitals that
previously qualified as an RRC and lost their status due to OMB
redesignation of the county in which they are located from rural to
urban to be reinstated as an RRC. Otherwise, a hospital seeking RRC
status must satisfy the applicable criteria. We used the definitions of
``urban'' and ``rural'' specified in Subpart D of 42 CFR Part 412.
One of the criteria under which a hospital may qualify as a RRC is
to have 275 or more beds available for use (Sec. 412.96(b)(1)(ii)). A
rural hospital that does not meet the bed size requirement can qualify
as an RRC if the hospital meets two mandatory prerequisites (a minimum
CMI and a minimum number of discharges), and at least one of three
optional criteria (relating to specialty composition of medical staff,
source of inpatients, or referral volume) (Sec. 412.96(c)(1) through
(c)(5) and the September 30, 1988 Federal Register (53 FR 38513)). With
respect to the two mandatory prerequisites, a hospital may be
classified as an RRC if--
The hospital's CMI is at least equal to the lower of the
median CMI for urban hospitals in its census region, excluding
hospitals with approved teaching programs, or the median CMI for all
urban hospitals nationally; and
The hospital's number of discharges is at least 5,000 per
year, or, if fewer, the median number of discharges for urban hospitals
in the census region in which the hospital is located. (The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year, as specified in section 1886(d)(5)(C)(i) of the
Act.)
1. Case-Mix Index
Section 412.96(c)(1) provides that CMS establish updated national
and regional CMI values in each year's annual notice of prospective
payment rates for purposes of determining RRC status. The methodology
we used to determine the national and regional CMI values is set forth
in the regulations at Sec. 412.96(c)(1)(ii). The proposed national
median CMI value for FY 2009 includes all urban hospitals nationwide,
and the proposed regional values for FY 2009 are the median CMI values
of urban hospitals within each census region, excluding those hospitals
with approved teaching programs (that is, those hospitals that train
residents in an approved GME program as provided in Sec. 413.75).
These values are based on discharges occurring during FY 2007 (October
1, 2006 through September 30, 2007), and include bills posted to CMS'
records through December 2007.
We are proposing that, in addition to meeting other criteria, if
rural hospitals with fewer than 275 beds are to qualify for initial RRC
status for cost reporting periods beginning on or after October 1,
2008, they must have a CMI value for FY 2007 that is at least--
1.4285; or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 413.75) calculated by CMS for the census region in
which the hospital is located.
The proposed median CMI values by region are set forth in the
following table:

------------------------------------------------------------------------
Case-mix index
Region value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)............... 1.2515
2. Middle Atlantic (PA, NJ, NY)....................... 1.2691
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 1.3589

[[Page 23666]]

4. East North Central (IL, IN, MI, OH, WI)............ 1.3572
5. East South Central (AL, KY, MS, TN)................ 1.3040
6. West North Central (IA, KS, MN, MO, NE, ND, SD).... 1.3557
7. West South Central (AR, LA, OK, TX)................ 1.4405
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).......... 1.4692
9. Pacific (AK, CA, HI, OR, WA)....................... 1.3872
------------------------------------------------------------------------

The preceding numbers will be revised in the FY 2009 IPPS final
rule to the extent required to reflect the updated FY 2007 MEDPAR file,
which will contain data from additional bills received through March
2008.
Hospitals seeking to qualify as RRCs or those wishing to know how
their CMI value compares to the criteria should obtain hospital-
specific CMI values (not transfer-adjusted) from their fiscal
intermediaries. Data are available on the Provider Statistical and
Reimbursement (PS&R) System. In keeping with our policy on discharges,
these CMI values are computed based on all Medicare patient discharges
subject to the IPPS DRG-based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that CMS set forth the national
and regional numbers of discharges in each year's annual notice of
prospective payment rates for purposes of determining RRC status. As
specified in section 1886(d)(5)(C)(ii) of the Act, the national
standard is set at 5,000 discharges. We are proposing to update the
regional standards based on discharges for urban hospitals' cost
reporting periods that began during FY 2006 (that is, October 1, 2005
through September 30, 2006), which is the latest cost report data
available at the time this proposed rule was developed.
Therefore, we are proposing that, in addition to meeting other
criteria, a hospital, if it is to qualify for initial RRC status for
cost reporting periods beginning on or after October 1, 2008, must have
as the number of discharges for its cost reporting period that began
during FY 2006 a figure that is at least--
5,000 (3,000 for an osteopathic hospital); or
The median number of discharges for urban hospitals in the
census region in which the hospital is located, as indicated in the
following table.

------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)............... 8,158
2. Middle Atlantic (PA, NJ, NY)....................... 10,443
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 10,344
4. East North Central (IL, IN, MI, OH, WI)............ 8,900
5. East South Central (AL, KY, MS, TN)................ 7,401
6. West North Central (IA, KS, MN, MO, NE, ND, SD).... 7,988
7. West South Central (AR, LA, OK, TX)................ 5,816
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).......... 9,919
9. Pacific (AK, CA, HI, OR, WA)....................... 8,600
------------------------------------------------------------------------

These numbers will be revised in the FY 2009 IPPS final rule based
on the latest available cost reports.
We note that the median number of discharges for hospitals in each
census region is greater than the national standard of 5,000
discharges. Therefore, 5,000 discharges is the minimum criterion for
all hospitals.
We reiterate that, if an osteopathic hospital is to qualify for RRC
status for cost reporting periods beginning on or after October 1,
2008, the hospital would be required to have at least 3,000 discharges
for its cost reporting period that began during FY 2005.

F. Indirect Medical Education (IME) Adjustment (Sec. 412.105)

1. Background
Section 1886(d)(5)(B) of the Act provides for an additional payment
amount under the IPPS for hospitals that have residents in an approved
graduate medical education (GME) program in order to reflect the higher
indirect patient care costs of teaching hospitals relative to
nonteaching hospitals. The regulations regarding the calculation of
this additional payment, known as the indirect medical education (IME)
adjustment, are located at Sec. 412.105.
The Balanced Budget Act of 1997 (Pub. L. 105-33) established a
limit on the number of allopathic and osteopathic residents that a
hospital may include in its full-time equivalent (FTE) resident count
for direct GME and IME payment purposes. Under section 1886(h)(4)(F) of
the Act, for cost reporting periods beginning on or after October 1,
1997, a hospital's unweighted FTE count of residents for purposes of
direct GME may not exceed the hospital's unweighted FTE count for its
most recent cost reporting period ending on or before December 31,
1996. Under section 1886(d)(5)(B)(v) of the Act, a similar limit on the
FTE resident count for IME purposes is effective for discharges
occurring on or after October 1, 1997.
2. IME Adjustment Factor for FY 2009
The IME adjustment to the MS-DRG payment is based in part on the
applicable IME adjustment factor. The IME adjustment factor is
calculated by using a hospital's ratio of residents to beds, which is
represented as r, and a formula multiplier, which is represented as c,
in the following equation: c x [{1 + r{time} ^.405 - 1]. The
formula is traditionally described in terms of a certain percentage
increase in payment for every 10-percent increase in the resident-to-
bed ratio.
Section 502(a) of Pub. L. 108-173 modified the formula multiplier
(c) to be used in the calculation of the IME adjustment. Prior to the
enactment of Pub. L. 108-173, the formula multiplier was fixed at 1.35
for discharges occurring during FY 2003 and thereafter. In the FY 2005
IPPS final rule, we announced the schedule of formula multipliers to be
used in the calculation of the IME adjustment and incorporated the
schedule in our

[[Page 23667]]

regulations at Sec. 412.105(d)(3)(viii) through (d)(3)(xii). Section
502(a) modifies the formula multiplier beginning midway through FY 2004
and provides for a new schedule of formula multipliers for FYs 2005 and
thereafter as follows:
For discharges occurring on or after April 1, 2004, and
before October 1, 2004, the formula multiplier is 1.47.
For discharges occurring during FY 2005, the formula
multiplier is 1.42.
For discharges occurring during FY 2006, the formula
multiplier is 1.37.
For discharges occurring during FY 2007, the formula
multiplier is 1.32.
For discharges occurring during FY 2008 and fiscal years
thereafter, the formula multiplier is 1.35.
Accordingly, for discharges occurring during FY 2009, the formula
multiplier would be 1.35. We estimate that application of this formula
multiplier for FY 2009 IME adjustment will result in an increase in IME
payment of 5.5 percent for every approximately 10-percent increase in
the hospital's resident-to-bed ratio.

G. Medicare GME Affiliation Provisions for Teaching Hospitals in
Certain Emergency Situations; Technical Correction (Sec.
413.79(f)(6)(iv))

1. Background
Under section 1886(h) of the Act, as amended by section 9202 of the
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L.
99-272), the Secretary is authorized to make payments to hospitals for
the direct costs of approved GME programs. Section 1886(d)(5)(B) of the
Act provides that prospective payment acute care hospitals that have
residents in an approved GME program receive an additional payment for
a Medicare discharge to reflect the higher patient care costs of
teaching hospitals, that is, IME costs. Sections 1886(h)(4)(F) and
1886(d)(5)(B)(v) of the Act establish limits on the number of
allopathic and osteopathic residents that hospitals may count for
purposes of calculating direct GME payments and the IME adjustment,
respectively, establishing hospital-specific direct GME and IME FTE
resident caps. Under the authority granted by section 1886(h)(4)(H)(ii)
of the Act, the Secretary issued rules to allow institutions that are
members of the same affiliated group to apply their direct GME and IME
FTE resident caps on an aggregate basis through a Medicare GME
affiliation agreement. The Medicare regulations at Sec. Sec. 413.75
and 413.76 permit hospitals, through a Medicare GME affiliation
agreement, to adjust IME and direct GME FTE resident caps to reflect
the rotation of residents among affiliated hospitals.
In response to circumstances in the aftermath of Hurricanes Katrina
and Rita, we supplemented regulations in the April 12, 2006 interim
final rule with comment period published in the Federal Register (71 FR
18654). The regulatory changes allowed certain hospitals to engage in
emergency Medicare GME affiliations so that Medicare funding for GME is
maintained while there are displaced residents training at various host
hospitals even as the hurricane-affected hospitals are rebuilding their
training programs. The modifications to the regulations at Sec.
413.75(b) and Sec. 413.76(f) provided flexibility for home hospitals
whose residency programs have been disrupted due to an emergency to
enter into emergency Medicare GME affiliation agreements with host
hospitals where the hospitals may not otherwise meet the regulatory
requirements to form Medicare GME affiliations. (We note that on
November 27, 2007, we issued a second interim final rule with comment
period providing further flexibility relating to emergency Medicare GME
affiliation agreements (72 FR 66893 through 66898). We expect to
address the public comments received on both interim final rules with
comment period and finalize our policies in the FY 2009 IPPS final rule
scheduled to be published in August 2008.)
2. Technical Correction
In the April 12, 2006 interim final rule, we revised Sec.
413.79(f) by adding a new paragraph (6) to provide for more flexibility
in Medicare GME affiliations for home hospitals located in section 1135
emergency areas to allow the home hospitals to efficiently find
training sites for displaced residents. We have discovered that, under
Sec. 413.79(f)(6)(iv), in our provisions on the host hospital
exception from the rolling average for the period from August 29, 2005
to June 30, 2006, we included an incorrect cross-reference to the
rolling average requirements for direct GME as ``Sec. 413.75(d).'' The
correct citation to the rolling average requirements for direct GME is
Sec. 413.79(d). We are proposing to correct the cross-reference under
Sec. 413.79(f)(6)(iv) to read ``paragraph (d) of this section''.

H. Payments to Medicare Advantage Organizations: Collection of Risk
Adjustment Data (Sec. 422.310)

Section 1853 of the Act requires CMS to make advance monthly
payments to a Medicare Advantage (MA) organization for each beneficiary
enrolled in an MA plan offered by the organization for coverage of
Medicare Part A and Part B benefits. Section 1853(a)(1)(C) of the Act
requires CMS to adjust the monthly payment amount for each enrollee to
take into account the health status of the MA plan's enrollees. Under
the CMS-Hierarchical Condition Category (HCC) risk adjustment payment
methodology, CMS determines risk scores for MA enrollees for a year and
adjusts the monthly payment amount using the appropriate enrollee risk
score.
Under section 1853(a)(3)(B) of the Act, MA organizations are
required to ``submit data regarding inpatient hospital services . . .
and data regarding other services and other information as the
Secretary deems necessary'' in order to implement a methodology for
``risk adjusting'' payments made to MA organizations. Risk adjustments
to payments are made in order to take into account ``variations in per
capita costs based on [the] health status'' of the Medicare
beneficiaries enrolled in an MA plan offered by the organization.
Submission of data on inpatient hospital services has been required
with respect to services beginning on or after July 1, 1997. Submission
of data on other services has been required since July 1, 1998.
While we initially required the submission of comprehensive data
regarding services provided by MA organizations, including
comprehensive inpatient hospital encounter data, we subsequently
permitted MA organizations to submit an ``abbreviated'' set of data.
Our regulations at 42 CFR 422.310(d)(1) currently explicitly provide MA
organizations with the option of submitting an abbreviated data set.
Under this provision, we currently collect limited risk adjustment data
from MA organizations, primarily diagnosis data.
From calendar years 2000 through 2006, application of risk
adjustment to MA payments was ``phased in'' with an increasing
percentage of the monthly capitation payment subjected to risk
adjustment. Beginning with calendar year 2007, 100 percent of payments
to MA organizations are risk-adjusted. Given the increased importance
of the accuracy of our risk adjustment methodology, we are proposing to
amend Sec. 422.310 to provide that CMS will collect data from MA
organizations regarding each item and service provided to an MA plan
enrollee. This will allow us to include utilization data and other
factors that CMS can use in developing the CMS-HCC risk

[[Page 23668]]

adjustment models in order to reflect patterns of diagnoses and
expenditures in the MA program.
Specifically, we are proposing to revise Sec. 422.310(a) to
clarify that risk adjustment data are data used not only in the
application of risk adjustment to MA payments, but also in the
development of risk adjustment models. For example, once encounter data
for MA enrollees are available, CMS would have beneficiary-specific
information on the utilization of services by MA plan enrollees. These
data could be used to calibrate the CMS-HCC risk adjustment models
using MA patterns of diagnoses and expenditures.
We are proposing to revise Sec. Sec. 422.310(b), (c), (d)(3), and
(g) to clarify that the term ``services'' includes items and services.
We are proposing to revise Sec. 422.310(d) to clarify that CMS has
the authority to require MA organizations to submit encounter data for
each item and service provided to an MA plan enrollee. The proposed
revision also would clarify that CMS will determine the formats for
submitting encounter data, which may be more abbreviated than those
used for the fee-for-service claims data submission process.
We are proposing to revise Sec. 422.310(f) to clarify that one of
the ``other'' purposes for which CMS may use risk adjustment data
collected under this section would be to update risk adjustment models
with data from MA enrollees. In addition, when providing that CMS may
use risk adjustment data for purposes other than adjusting payments as
described at Sec. Sec. 422.304(a) and (c), we are proposing to delete
the phrase ``except for medical records data'' from paragraph (f). Any
use of medical records data collected under paragraph (e) of Sec.
422.310 is governed by the Privacy Act and the privacy provisions in
the HIPAA. Furthermore, there may be occasions when we learn from
analysis of medical record review data that some organizations have
misunderstood our guidance on how to implement an operational
instruction. We want to be able to provide improved guidance to MA
organizations based on any insights that may emerge during analysis of
the medical record review data.
In addition, we are proposing a technical correction to Sec.
422.310(f) to clarify that risk adjustment data are used not only to
adjust payments to plans described at Sec. Sec. 422.301(a)(1), (a)(2),
and (a)(3) (which refer to coordinated care plans and private fee-for-
service plans), but also to adjust payments for ESRD enrollees and
payments to MSA plans and Religious Fraternal Benefit society plans, as
described at Sec. 422.301(c).
Under Sec. 422.310(g), we would continue to provide that data that
CMS receives after the final deadline for a payment year will not be
accepted for purposes of the reconciliation. However, we are proposing
to revise paragraph (g)(2) of Sec. 422.310 to change the deadline from
``December 31'' of the payment year to ``January 31'' of the year
following the payment year. We are also proposing to add language to
provide that CMS may adjust deadlines as appropriate.

I. Hospital Emergency Services under EMTALA (Sec. 489.24)

1. Background
Sections 1866(a)(1)(I), 1866(a)(1)(N), and 1867 of the Act impose
specific obligations on certain Medicare-participating hospitals and
CAHs. (Throughout this section of this proposed rule, when we reference
the obligation of a ``hospital'' under these sections of the Act and in
our regulations, we mean to include CAHs as well.) These obligations
concern individuals who come to a hospital emergency department and
request examination or treatment for a medical condition, and apply to
all of these individuals, regardless of whether they are beneficiaries
of any program under the Act.
The statutory provisions cited above are frequently referred to as
the Emergency Medical Treatment and Labor Act (EMTALA), also known as
the patient antidumping statute. EMTALA was passed in 1986 as part of
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA),
Pub. L. 99-272. Congress incorporated these antidumping provisions
within the Social Security Act to ensure that individuals with
emergency medical conditions are not denied essential lifesaving
services. Under section 1866(a)(1)(I)(i) of the Act, a hospital that
fails to fulfill its EMTALA obligations under these provisions may be
subject to termination of its Medicare provider agreement, which would
result in loss of all Medicare and Medicaid payments.
Section 1867 of the Act sets forth requirements for medical
screening examinations for individuals who come to the hospital and
request examination or treatment for a medical condition. The section
further provides that if a hospital finds that such an individual has
an emergency medical condition, it is obligated to provide that
individual with either necessary stabilizing treatment or an
appropriate transfer to another medical facility where stabilization
can occur.
The EMTALA statute also outlines the obligation of hospitals to
receive appropriate transfers from other hospitals. Section 1867(g) of
the Act states that a participating hospital that has specialized
capabilities or facilities (such as burn units, shock-trauma units,
neonatal intensive care units, or, with respect to rural areas,
regional referral centers as identified by the Secretary in regulation)
shall not refuse to accept an appropriate transfer of an individual who
requires these specialized capabilities or facilities if the hospital
has the capacity to treat the individual. The regulations implementing
section 1867 of the Act are found at 42 CFR 489.24. The regulations at
42 CFR 489.20(l), (m), (q), and (r) also refer to certain EMTALA
requirements. The Interpretive Guidelines concerning EMTALA are found
at Appendix V of the CMS State Operations Manual.
2. EMTALA Technical Advisory Group (TAG) Recommendations
Section 945 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA), Pub. L. 108-173, required the
Secretary to establish a Technical Advisory Group (TAG) to advise the
Secretary on issues related to the regulations and implementation of
EMTALA. The MMA specified that the EMTALA TAG be composed of 19
members, including the Administrator of CMS, the Inspector General of
HHS, hospital representatives and physicians representing specific
specialties, patient representatives, and representatives of
organizations involved in EMTALA enforcement.
The EMTALA TAG's functions, as identified in the charter for the
EMTALA TAG, were as follows: (1) Review EMTALA regulations; (2) provide
advice and recommendations to the Secretary concerning these
regulations and their application to hospitals and physicians; (3)
solicit comments and recommendations from hospitals, physicians, and
the public regarding the implementation of such regulations; and (4)
disseminate information concerning the application of these regulations
to hospitals, physicians, and the public. The TAG met 7 times during
its 30-month term, which ended on September 30, 2007. At its meetings,
the TAG heard testimony from representatives of physician groups,
hospital associations, and others regarding EMTALA issues and concerns.
During each meeting, the three subcommittees established by the TAG
(the On-Call Subcommittee, the Action Subcommittee, and the Framework
Subcommittee) developed

[[Page 23669]]

recommendations, which were then discussed and voted on by members of
the TAG. In total, the TAG submitted 55 recommendations to the
Secretary. If implemented, some of the recommendations would require
regulatory changes. Of the 55 recommendations developed by the TAG, 5
have already been implemented by CMS. A complete list of TAG
recommendations will be available shortly in the Emergency Medical
Treatment and Labor Act Technical Advisory Group final report available
at the Web site: http://www.cms.hhs.gov/FACA/07_emtalatag.asp. The
following recommendations have already been implemented by CMS:
That CMS revise, in the EMTALA regulations [42 CFR
489.24(b)], the following sentence contained in the definition of
``labor'': ``A woman experiencing contractions is in true labor unless
a physician certifies that, after a reasonable time of observation, the
woman is in false labor.''
This recommendation was adopted with modification in the FY 2007
IPPS final rule (71 FR 48143). We revised the definition of ``labor''
in the regulations at Sec. 489.24(b) to permit a physician, certified
nurse-midwife, or other qualified medical person, acting within his or
her scope of practice in accordance with State law and hospital bylaws,
to certify that a woman is experiencing false labor. We issued Survey
and Certification Letter S&C-06-32 on September 29, 2006, to clarify
the regulation change. (The Survey and Certification Letter can be
found at the following Web site: http://www.cms.hhs.gov/SurveyCertificationGenInfo/PMSR/list.asp).
That hospitals with specialized capabilities (as defined
in the EMTALA regulations) that do not have a dedicated emergency
department be bound by the same responsibilities under EMTALA as
hospitals with specialized capabilities that do have a dedicated
emergency department.
This recommendation was adopted in the FY 2007 IPPS final rule (71
FR 48143). We added language at Sec. 489.24(f) that makes explicit the
current policy that all Medicare-participating providers with
specialized capabilities are required to accept an appropriate transfer
if they have the capacity to treat the individual. We issued Survey and
Certification Letter S&C-06-32 on September 29, 2006, to clarify the
regulation change. (The Survey and Certification Letter can be found at
the following Web site: http://www.cms.hhs.gov/SurveyCertificationGenInfo/PMSR/list.asp).
That CMS clarify the intent of regulations regarding
obligations under EMTALA to receive individuals who arrive by
ambulance. Specifically, the TAG recommended that CMS revise a letter
of guidance that had been issued by the agency to clarify its position
on the practice of delaying the transfer of an individual from an
emergency medical service provider's stretcher to a bed in a hospital's
emergency department.
This recommendation was adopted with modification by CMS in Survey
and Certification Letter S&C-07-20, which was released on April 27,
2007. (The Survey and Certification Letter can be found at the
following Web site: http://www.cms.hhs.gov/SurveyCertificationGenInfo/PMSR/list.asp).
That CMS clarify that a hospital may not refuse to accept
an individual appropriately transferred under EMTALA on the grounds
that it (the receiving hospital) does not approve the method of
transfer arranged by the attending physician at the sending hospital
(for example, a receiving hospital may not require the sending hospital
to use an ambulance transport designated by the receiving hospital). In
addition, CMS should improve its communication of such clarifications
with its regional offices.
This recommendation was adopted and implemented by CMS in Survey
and Certification Letter S&C-07-20, which was released on April 27,
2007. (The Survey and Certification Letter can be found at the
following Web site: http://www.cms.hhs.gov/SurveyCertificationGenInfo/PMSR/list.asp).
That CMS strike the language in the Interpretive
Guidelines (CMS State Operations Manual, Appendix V) that addresses
telehealth/telemedicine (relating to the regulations at Sec.
489.24(j)(1)) and replace it with language that clarifies that the
treating physician ultimately determines whether an on-call physician
should come to the emergency department and that the treating physician
may use a variety of methods to communicate with the on-call physician.
A potential violation occurs only if the treating physician requests
that the on-call physician come to the emergency department and the on-
call physician refuses.
This recommendation was adopted and implemented by CMS in Survey
and Certification Letter S&C-07-23, which was released on June 22,
2007. (The Survey and Certification Letter can be found at the
following Web site: http://www.cms.hhs.gov/SurveyCertificationGenInfo/PMSR/list.asp).
We are considering the remaining recommendations of the EMTALA TAG
and may address them through future changes to or clarifications of the
existing regulations or the Interpretive Guidelines, or both.
At the end of its term, the EMTALA TAG compiled a final report to
the Secretary. This report includes, among other materials, minutes
from each TAG meeting as well as a comprehensive list of all of the
TAG's recommendations. The final report will be available shortly at
the following Web site: http://www.cms.hhs.gov/FACA/07_emtalatag.asp.
3. Proposed Changes Relating to Applicability of EMTALA Requirements to
Hospital Inpatients
While many issues pertaining to EMTALA involve individuals
presenting to a hospital's dedicated emergency department, questions
have been raised regarding the applicability of the EMTALA requirements
to inpatients. We have previously discussed the applicability of the
EMTALA requirements to hospital inpatients in both the May 9, 2002 IPPS
proposed rule (67 FR 31475) and the September 9, 2003 stand alone final
rule on EMTALA (68 FR 53243). As we stated in both of the
aforementioned rules, in 1999, the United States Supreme Court
considered a case (Roberts v. Galen of Virginia, 525 U.S. 249 (1999))
that involved, in part, the question of whether EMTALA applies to
inpatients in a hospital. In the context of that case, the United
States Solicitor General advised the Court that HHS would develop a
regulation clarifying its position on that issue. In the 2003 final
rule, CMS took the position that a hospital's obligation under EMTALA
ends when that hospital, in good faith, admits an individual with an
unstable emergency medical condition as an inpatient to that hospital.
In that rule, CMS noted that other patient safeguards protected
inpatients, including the CoPs as well as State malpractice law.
However, in the 2003 final rule, CMS did not directly address the
question of whether EMTALA's ``specialized care'' requirements (section
1867(g) of the Act) applied to inpatients.
As noted in section IV.I.2. of this preamble, the EMTALA TAG has
developed a set of recommendations to the Secretary. One of those
recommendations calls for CMS to revise its regulations to address the
situation of an individual who: (1)

[[Page 23670]]

Presents to a hospital that has a dedicated emergency department and is
determined to have an unstabilized emergency medical condition; (2) is
admitted to the hospital as an inpatient; and (3) the hospital
subsequently determines that stabilizing the individual's emergency
medical condition requires specialized care only available at another
hospital.
We believe that the obligation of EMTALA does not end for all
hospitals once an individual has been admitted as an inpatient to the
hospital where the individual first presented with a medical condition
that was determined to be an emergency medical condition. Rather, once
the individual is admitted, admission only impacts on the EMTALA
obligation of the hospital where the individual first presented.
(Throughout this section of the preamble of this proposed rule, we will
refer to the hospital where the individual first presented as the
``admitting hospital.'') Section 1867(g) of the Act states:
``Nondiscrimination--A participating hospital that has specialized
capabilities or facilities (such as burn units, shock-trauma units,
neonatal intensive care units, or (with respect to rural areas)
regional referral centers as identified by the Secretary in regulation)
shall not refuse to accept an appropriate transfer of an individual who
requires such specialized capabilities or facilities if the hospital
has the capacity to treat the individual.'' Section 1867(g) of the Act
therefore requires a receiving hospital with specialized capabilities
to accept a request to transfer an individual with an unstable
emergency medical condition as long as the hospital has the capacity to
treat that individual, regardless of whether the individual had been an
inpatient at the admitting hospital. Furthermore, in the September 9,
2003 final rule (68 FR 53263), we amended the regulations at Sec.
489.24(d)(2)(i) to state: ``If a hospital has screened an individual
under paragraph (a) of this section and found the individual to have an
emergency medical condition, and admits that individual in good faith
in order to stabilize the emergency medical condition, the hospital has
satisfied its special responsibilities under this section with respect
to that individual'' (emphasis added). We did not intend for the
regulation to end the EMTALA obligation for any other hospital to which
the individual may appropriately be transferred to stabilize his or her
emergency medical condition. Permitting inpatient admission at the
admitting hospital to end EMTALA obligations for another hospital to
which an unstabilized individual is being appropriately transferred to
receive specialized care would seemingly contradict the intent of
section 1867(g) of the Act to ensure that hospitals with specialized
capabilities provide medical treatment to individuals with emergency
medical conditions to stabilize their conditions.
We also note that, as we discussed in the preamble of the September
9, 2003 stand alone final rule, once a hospital has admitted an
individual as an inpatient, the individual is protected under the
Medicare CoPs and may also have additional protections under State law.
Accordingly, we believe it is consistent with the intent of EMTALA to
limit its protections to individuals who need them most; for example,
individuals who present to a hospital but may not have been formally
admitted as patients and thus are not covered by other protections
applicable to inpatients of the hospital. As noted above, once the
individual is admitted, the CoPs apply to the admitting hospital's care
of that individual. A hospital that fails to provide treatment to such
individuals could face termination of its Medicare provider agreement
for a violation of the CoPs. However, these CoPs do not, of course,
apply to a hospital with specialized capabilities to which the
individual might be transferred unless and until the individual is
formally admitted as a patient at that hospital. Therefore, in order to
ensure an individual the protections intended by the EMTALA statute,
especially section 1867(g) of the Act (obligating a hospital with
specialized capabilities to accept an appropriately transferred
individual if it has the capacity to treat that individual), we believe
it is appropriate to propose to clarify that section 1867(g) of the Act
continues to apply so as to protect even an individual who has been
admitted as an inpatient to the admitting hospital who has not been
stable since becoming an inpatient. We believe that this proposed
clarification is necessary to ensure that EMTALA protections are
continued for individuals who are not otherwise protected by the
hospital CoPs. (We note that this proposed clarification is consistent
with the EMATLA TAG's recommendation that EMTALA does not apply when an
individual is admitted to the hospital for an elective procedure and
subsequently develops an emergency medical condition.)
We recognize that this proposed clarification that EMTALA applies
to a hospital with specialized capabilities when an inpatient (who
presented to the admitting hospital under EMTALA) is in need of
specialized care to stabilize his or her emergency medical condition
may raise concerns among the provider community that such a
clarification in policy could hypothetically result in an increase in
the number of transfers. However, the intention of this proposed
clarification is not to encourage patient dumping to hospitals with
specialized capabilities. Rather, even if the hospital with specialized
capabilities has an EMTALA obligation to accept an individual who was
an inpatient at the admitting hospital, the admitting hospital
transferring the individual should take all steps necessary to ensure
that it is providing needed treatment within its capabilities prior to
transferring the individual. This means that an individual with an
unstabilized emergency medical condition should be transferred only
when the capabilities of the admitting hospital have been exceeded.
Accordingly, we are proposing to revise Sec. 489.24(f) by adding
to the existing text a provision that specifies that paragraph (f) also
applies to an individual who has been admitted under paragraph
(d)(2)(i) of the section and who has not been stabilized.
While we are not including the following in our proposed
clarification, we are seeking public comments on whether the EMTALA
obligation imposed on hospitals with specialized capabilities to accept
appropriate transfers should apply to a hospital with specialized
capabilities in the case of an individual who had a period of stability
during his or her stay at the admitting hospital and is in need of
specialized care available at the hospital with specialized
capabilities. CMS takes seriously its duty to protect patients with
emergency medical conditions as required by EMTALA. Thus, we are
seeking public comments as to whether, with respect to the EMTALA
obligation on the hospital with specialized capabilities, it should or
should not matter if an individual who currently has an unstabilized
emergency medical condition (which is beyond the capability of the
admitting hospital) (1) remained unstable after coming to the hospital
emergency department or (2) subsequently had a period of stability
after coming to the hospital emergency department.
In summary, to implement the recommendation by the EMTALA TAG and
clarify our policy regarding the applicability of EMTALA to hospital
inpatients, we are proposing to amend Sec. 489.24(f) to add a
provision to state that when an individual covered by EMTALA was
admitted as an inpatient and remains unstabilized with an

[[Page 23671]]

emergency medical condition, a receiving hospital with specialized
capabilities has an EMTALA obligation to accept that individual,
assuming that the transfer of the individual is an appropriate transfer
and the participating hospital with specialized capabilities has the
capacity to treat the individual.
4. Proposed Changes to the EMTALA Physician On-Call Requirements
a. Relocation of Regulatory Provisions
During its term, the EMTALA TAG dedicated a significant portion of
its discussion to a hospital's physician on-call obligations under
EMTALA and made several recommendations to the Secretary regarding
physician on-call requirements that are included in its final report
(will be available shortly at the Web site: http://www.cms.hhs/gov/FACA/07_emtalatag.asp). The TAG recommended that CMS move the
regulation discussing the obligation to maintain an on-call list from
the EMTALA regulations at Sec. 489.24(j)(1) to the regulations
implementing provider agreements at Sec. 489.20(r)(2). We agree with
the TAG's recommendation. The requirement to maintain an on-call list
is found at section 1866(a)(1)(I)(iii) of the Act, the section of the
Act that refers to provider agreements. Section 1867 of the Act, which
outlines the EMTALA requirements, makes no mention of the requirement
to maintain an on-call list.
To implement the EMTALA TAG's recommendation, we are proposing to
delete the provision relating to maintaining a list of on-call
physicians from Sec. 489.24(j)(1). We note that a provision for an on-
call physician list is already included in the regulations as a
hospital provider agreement requirement at Sec. 489.20(r)(2). We are
proposing to incorporate the language of Sec. 489.24(j)(1) as
replacement language for the existing Sec. 489.20(r)(2) and amend the
regulatory language to make it more consistent with the statutory
language found at section 1866(a)(1)(I)(iii) of the Act. Proposed
revised Sec. 489.20(r)(2) would read: ``An on-call list of physicians
on its medical staff available to provide treatment necessary after the
initial examination to stabilize individuals with emergency medical
conditions who are receiving services required under Sec. 489.24 in
accordance with the resources available to the hospital; and''. These
proposed changes would make the regulations consistent with the
statutory basis for maintaining an on-call list.
The EMTALA TAG made additional recommendations regarding how a
hospital would satisfy its on-call list obligations, including calling
for an annual plan by the hospital and medical staff for on-call
coverage that would include an assessment of factors such as the
hospital's capabilities and services, community need for emergency
department services as indicated by emergency department visits,
emergent transfers, physician resources, and past performance of
previous on-call plans. The TAG also recommended that a hospital have a
backup plan for viable patient care options when an on-call physician
is not available, including such factors as telemedicine, other staff
physicians, transfer agreements, and regional or community call
arrangements. While community call arrangements are discussed below, we
intend to address the remainder of the TAG recommendations at a later
date.
b. Shared/Community Call
As noted in the previous section, section 1866(a)(1)(I)(iii) of the
Act states, as a requirement for participation in the Medicare program,
that a hospital must keep a list of physicians who are on call for duty
after the initial examination to provide treatment necessary to
stabilize an individual with an emergency medical condition. If a
physician on the list is called by a hospital to provide stabilizing
treatment and either fails or refuses to appear within a reasonable
period of time, the hospital and that physician may be in violation of
EMTALA as provided for under section 1867(d)(1)(C) of the Act. Thus,
hospitals are required to maintain a list of on-call physicians, and
physicians or hospitals, or both, may be held responsible under the
EMTALA statute if a physician who is on call fails or refuses to appear
within a reasonable period of time.
In the May 9, 2002 proposed rule (67 FR 31471), we stated that we
were aware of hospitals' increasing concerns regarding their physician
on-call requirements. Specifically, we noted that we were aware of
reports of physicians, particularly specialty physicians, severing
their relationships with hospitals because of on-call obligations,
especially when those physicians belong to more than one hospital
medical staff. We further noted that physician attrition from these
medical staffs could result in hospitals having no specialty physician
service coverage for their patients. In the September 9, 2003 final
rule (68 FR 53264), we clarified the regulations at Sec. 489.24(j) to
permit on-call physicians to schedule elective surgery during the time
that they are on call and to permit on-call physicians to have
simultaneous on-call duties. We also specified that physicians,
including specialists and subspecialists, are not required to be on
call at all times, and that the hospital must have policies and
procedures to be followed when a particular specialty is not available
or the on-call physician cannot respond because of situations beyond
his or her control. We expected these clarifications would help to
improve access to physician services for all hospital patients by
permitting hospitals flexibility to determine how best to maximize
their available physician resources. Furthermore, we expected that
these clarifications would permit hospitals to continue to attract
physicians to serve on their medical staffs, thereby continuing to
provide services to all patients, including those individuals who are
covered by EMTALA.
As part of its recommendations concerning physician on-call
requirements, the EMTALA TAG recommended that hospitals be permitted to
participate in ``community call.'' Specifically, the language of the
recommendation states: ``The TAG recommends that CMS clarify its
position regarding shared or community call: that such community call
arrangements are acceptable if the hospitals involved have formal
agreements recognized in their policies and procedures, as well as
backup plans. It should also be clarified that a community call
arrangement does not remove a hospital's obligation to perform an MSE
[medical screening examination].'' The TAG also recommended in a
subsequent recommendation that ``A hospital may satisfy its on-call
coverage obligation by participation in an approved community/regional
call coverage program. (CMS to determine appropriate approval
process).''
We believe that community call (as described below) would afford
additional flexibility to hospitals providing on-call services and
improve access to specialty physician services for individuals in an
emergency department. Therefore, we are proposing to amend our
regulations at Sec. 489.24(j) to provide that hospitals may comply
with the on-call list requirement specified at Sec. 489.20(r)(2)
(under our proposed revision), by participating in a formal community
call plan so long as the plan meets the elements outlined below. We are
further proposing to revise the regulations to state that,
notwithstanding participation in a community call plan, hospitals are
still required to perform medical screening examinations on individuals
who present seeking treatment and to

[[Page 23672]]

provide for an appropriate transfer when appropriate.
We propose ``community call,'' to be a formal on-call plan that
permits a specific hospital in a region to be designated as the on-call
facility for a specific time period, or for a specific service, or
both. For example, if there are two hospitals that choose to
participate in community call, Hospital A could be designated as the
on-call facility for the first 15 days of each month and Hospital B
could be designated as the on-call facility for the rest of each month.
Alternatively, Hospital A could be designated as on-call for cases
requiring specialized interventional cardiac care, while Hospital B
could be designated as on-call for neurosurgical cases. We anticipate
that hospitals and their communities would have the flexibility to
develop a plan that reflects their local resources and needs. Such a
community on-call plan will allow various physicians in a certain
specialty in the aggregate to be on continuous call (24 hours a day, 7
days a week), without putting a continuous call obligation on any one
physician. We note that generally if an individual arrives at a
hospital other than the designated on-call facility, is determined to
have an unstabilized emergency medical condition, and requires the
services of an on-call specialist, the individual would be transferred
to the designated on-call facility in accordance with the community
call plan.
As noted above, we are proposing that a community call plan must be
a formal plan among the participating hospitals. While we do not
believe it is necessary for the formal community call plan to be
subject to preapproval by CMS, if an EMTALA complaint investigation is
initiated, the plan will be subject to review and enforcement by CMS.
We are proposing that, at a minimum, hospitals must include the
following elements when devising a formal community call plan:
The community call plan would include a clear delineation
of on-call coverage responsibilities, that is, when each hospital
participating in the plan is responsible for on-call coverage.
The community call plan would define the specific
geographic area to which the plan applies.
The community call plan would be signed by an appropriate
representative of each hospital participating in the plan.
The community call plan would ensure that any local and
regional EMS system protocol formally includes information on community
on-call arrangements.
Hospitals participating in the community call plan would
engage in an analysis of the specialty on-call needs of the community
for which the plan is effective.
The community call plan would include a statement
specifying that even if an individual arrives at the hospital that is
not designated as the on-call hospital, that hospital still has an
EMTALA obligation to provide a medical screening examination and
stabilizing treatment within its capability, and hospitals
participating in community call must abide by the EMTALA regulations
governing appropriate transfers.
There would be an annual reassessment of the community
call plan by the participating hospitals.
Proposed revised Sec. 489.24(j) would read ``Availability of on-
call physicians. In accordance with the on-call list requirements
specified in Sec. 489.20(r)(2), a hospital must have written policies
and procedures in place--(1) To respond to situations in which a
particular specialty is not available or the on-call physician cannot
respond because of circumstances beyond the physician's control; and
(2) To provide that emergency services are available to meet the needs
of individuals with emergency medical conditions if a hospital elects
to--(i) Permit on-call physicians to schedule elective surgery during
the time that they are on call; (ii) Permit on-call physicians to have
simultaneous on-call duties; and (iii) Participate in a formal
community call plan. Notwithstanding participation in a community call
plan, hospitals are still required to perform medical screening
examinations on individuals who present seeking treatment and to
conduct appropriate transfers. The formal community call plan must
include the following elements: [proposed elements noted above in the
bullets are included in regulations text].''
We welcome public comments on the proposed elements of the formal
community call plan noted above. We are also soliciting public comments
on whether individuals believe it is important that, in situations
where there is a governing State or local agency that would have
authority over the development of a formal community call plan, the
plan be approved by that agency. In summary, we are proposing that, as
part of the obligation to have an on-call list, hospitals may choose to
participate in community call, provided that the formal community call
plan includes, at a minimum, the elements noted in bullets above.
Additionally, each hospital participating in the community call plan
must have written policies and procedures in place to respond to
situations in which the on-call physician is unable to respond due to
situations beyond his or her control. We are further proposing that a
hospital would still be responsible for performing medical screening
examinations on individuals who present to the hospital seeking
treatment and conducting appropriate transfers, regardless of which
hospital has on-call responsibilities on a particular day.
5. Proposed Technical Change to Regulations
In the FY 2008 IPPS final rule with comment period (72 FR 47413),
we revised Sec. 489.24(a)(2) (which refers to the nonapplicability of
the EMTALA provisions in an emergency area during an emergency period)
to conform it to the changes made to section 1135 of the Act by the
Pandemic and All-Hazards Preparedness Act. When we made the change to
the regulations, we inadvertently left out language consistent with the
following statutory language found in section 1135: ``pursuant to an
appropriate State emergency preparedness plan; or in the case of a
public health emergency described in subsection (g)(1)(B) that involves
a pandemic infectious disease, pursuant to a State pandemic
preparedness plan or a plan referred to in clause (i), whichever is
applicable in the State.'' We also inadvertently left out the phrase in
section 1135 ``during an emergency period'' when we state the
nonapplicability of the sanctions in an emergency area. We are
proposing to revise the language at Sec. 489.24(a)(2) to include the
aforementioned language to conform the regulation text to the statutory
language. Proposed revised Sec. 489.24(a)(2) would read as follows:
``Nonapplicability of provisions of this section. Sanctions under this
section for an inappropriate transfer during a national emergency or
for the direction or relocation of an individual to receive medical
screening at an alternate location pursuant to an appropriate State
emergency preparedness plan or, in the case of a public health
emergency that involves a pandemic infectious disease, pursuant to a
State pandemic preparedness plan do not apply to a hospital with a
dedicated emergency department located in an emergency area during an
emergency period, as specified in section 1135(g)(1) of the Act. A
waiver of these sanctions is limited to a 72-hour period beginning upon
the implementation of a hospital disaster protocol, except that, if a
public health emergency involves a pandemic infectious disease (such as
pandemic

[[Page 23673]]

influenza), the waiver will continue in effect until the termination of
the applicable declaration of a public health emergency, as provided
for by section 1135(e)(1)(B) of the Act.''

J. Application of Incentives To Reduce Avoidable Readmissions to
Hospitals

1. Introduction
A significant portion of Medicare spending--$15 billion each year--
is related to hospital readmissions. According to a 2005 MedPAC
analysis ,\17\ nearly 18 percent of beneficiaries who are discharged
from the hospital are readmitted within 30 days, resulting in
approximately 2 million readmissions. By MedPAC's method, over 13
percent of 30-day hospital readmissions and an associated $12 billion
in spending (\4/5\ of all Medicare spending for readmissions) were
found to be potentially avoidable. Beyond cost considerations,
readmissions may reflect poor quality of care and affect
beneficiaries'' quality of life. Though not all readmissions are
avoidable, hospitals should share accountability for readmission rates
that could be much lower through the application of evidence-based best
practices. Interventions that have been shown to reduce readmissions
include better quality of care during the hospitalization, more
complete care plans, emphasis on coordination of care at the point of
transitions to home or postacute care, better use of after-hospital
care, and more active involvement of patients and caregivers in
decision making.
---------------------------------------------------------------------------

\17\ Medicare Payment Advisory Commission: Report to Congress:
Promoting Greater Efficiency in Medicare. June 2007, Chapter 5, page
103.
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The application of incentives to reduce hospital readmissions,
including payment and public reporting approaches, could promote the
adoption and development of best practice interventions for averting
avoidable readmissions, resulting in higher quality of care for
Medicare beneficiaries and reduction in unnecessary costs for the
program. Under the current payment system, readmissions are financially
rewarding for hospitals. Application of payment incentives to encourage
reduction of avoidable readmissions could help address unintended
incentives in the current payment system.
In this section, following discussion of readmission issues related
to measurement, accountability, and interventions, we are presenting
three approaches to applying incentives to reduce avoidable
readmissions for public comment: (1) Direct adjustment to hospital DRG
payments for avoidable readmissions, (2) adjustments to hospital DRG
payments through a performance-based payment methodology, and (3)
public reporting of readmission rates. We note that either type of
adjustment to hospital payments for readmissions would likely require
new statutory authority for the Medicare program. We are seeking public
comments on all of the ideas presented in this section.
2. Measurement
Routine, valid, and reliable measurement of hospital-specific rates
of readmissions would be a prerequisite to any method of applying
incentives for reducing hospital readmissions. Measurement data should
be meaningful and actionable for hospitals and should be fair to
encourage trust and engagement in the effort. Risk adjustment of
measurement data is necessary to account for patient[pi]specific
factors that influence the likelihood of readmission, such as age,
disease severity, and comorbidities.
Another important consideration in measurement of readmission rates
is the time period from discharge to readmission (for example, 7, 15,
30, or 90 days). In section IV.B. of the preamble of this proposed
rule, measures of risk-adjusted 30-day readmission rates are proposed
for the RHQDAPU program. The 9th Scope of Work for Medicare Quality
Improvement Organizations (QIO 9th SOW) also includes 30-day
readmission measures for communities.
Measures should be aligned across settings of care. Hospitals are
not the only providers that affect the occurrence of readmissions. For
example, the care delivered by SNFs and HHAs also has an important
impact on whether a beneficiary is readmitted. Data from aligned
readmissions measures, applicable to various settings of care, would
provide better information about care coordination problems within and
between settings. Alignment of readmissions measures would also
facilitate more powerful application of incentives across Medicare's
payment systems.
Another consideration is whether to focus on all readmissions or to
focus on those that are known to be higher cost, more easily
preventable, or most frequently occurring. For example, numerous
hospitals have successfully implemented programs to reduce readmissions
of heart failure patients, so more is known about the prevention of
heart failure readmissions. Further, heart failure readmissions may be
more costly than readmissions for other conditions. Another focus of
efforts to prevent readmissions could be patients with multiple chronic
conditions, who may be at the highest risk to experience readmissions.
3. Accountability
In the assignment of accountability for readmissions, risk
adjustment of measurement data is one consideration of fairness;
however, other factors must also be considered, including avoidability
and shared accountability. Most clinicians would agree that a goal of
zero readmissions may not be appropriate, as an extremely low rate of
readmissions could indicate restricted access to needed medical
services, overuse of hospital resources during the initial
hospitalization (for example, prolonged length of stay), or excessive
intensity of post-acute care services. Adequate risk adjustment could
help to elucidate the avoidability of readmissions by identifying an
expected readmission rate for a given patient or patient population.
Shared accountability is another important consideration. Hospitals
are clearly accountable for the care provided during hospitalization
and can also affect the quality of care provided after the
hospitalization, but hospitals are not the only accountable entity.
Both during and after hospitalization, physicians and other health
professionals share accountability for the quality of care. Other
provider entities, including skilled nursing facilities, rehabilitation
facilities, home health agencies, and end-stage renal disease
facilities, also share accountability for avoidable readmissions.
Medicare beneficiaries themselves and their caregivers and social
support systems play important roles in avoiding readmissions,
particularly when beneficiaries have been discharged to home.
Assignment of accountability also requires consideration of
situations where the patient presents for readmission with a different
diagnosis or presents to a different hospital. If the

[[Page 23674]]

locus of accountability were at the hospital level, a second hospital
should not be held accountable for a readmission resulting from a first
hospital's lack of adherence to evidence-based best practices for
averting readmissions. If the locus of accountability were at the
community level, then shared accountability could encourage hospitals
to work together to reduce readmissions.
4. Interventions
A number of interventions have been identified as best practices
for averting avoidable readmissions.\18,19,20,21,22,23,24,25,26\ Some
of these evidence-based interventions are listed below:
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\18\ Coleman, E.A., C. Parry, S. Chalmers, et al. 2006. The care
transitions intervention: Results of a randomized controlled trial.
Archives of Internal Medicine, 166 (September 25): 1822-1828.
\19\ Coleman, E.A., J.D. Smith, R. Devbani, et al. 2005.
Posthospital medication discrepancies: Prevalence and contributing
factors. Archives of Internal Medicine 165, (September 12): 1842-
1847.
\20\ Coleman, E., and R. Berenson. 2004. Lost in transition:
Challenges and opportunities for improving the quality of
transitional care. Annals of Internal Medicine, 141, no. 7 (October
5): 533-536.
\21\ Institute for Healthcare Improvement. 2004a. Reducing
readmissions for heart failure patients: Hackensack University
Medical Center. Available at http://www.ihi.org.
\22\ Institute for Healthcare Improvement. 2004b. The
MedProvider inpatient care unit-congestive heart failure project.
Available at: http://www.ihi.org.
\23\ Lappe, J.M., J.B. Muhlestein, D.L. Lappe, et al. 2004.
Improvements in 1-year cardiovascular clinical outcomes associated
with a hospital-based discharge medication program. Annals of
Internal Medicine, 141, no.6 (September 21): 446-453.
\24\ Naylor, M.D., D. Brooton, R. Campbell, et al. 1999.
Comprehensive discharge planning and home follow-up of hospitalized
elders. Journal of the American Medical Association, 281, no.7
(February 17): 613-620.
\25\ VanSuch, M., J.M. Naessens, R.J. Stroebel, et al. 2006.
Effect of discharge instructions on readmission of hospitalized
patients with heart failure: Do all of the Joint Commission on
Accreditation of Healthcare Organizations heart failure core
measures reflect better care? Quality and Safety in Healthcare, 15:
414-417.
\26\ Weinberg D.B., J.H. Gittell, R.W. Lusenhop, et al. 2007.
Beyond our walls: Impact of patient and provider coordination across
the continuum on outcomes for surgical patients. Health Services
Research, 42, no. 1, pt. 1 (February): 7-24.
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Better, safer care during the hospitalization.
Improved communication among providers and with the
patient and caregivers.
Care planning that begins with assessment at admission.
Clear discharge instructions, with specific attention to
medication management.
Shared accountability for care coordination, with
attention to transitions and hand-offs.
Discharge to a proper setting of care.
Better, safer care in the post-acute setting of care.
Appropriate use of palliative care and honest planning for
the likely course.
Timely physician follow up visits.
Active involvement of patients and their caregivers.
Interventions such as these have been employed by several
participants in CMS Physician Group Practice Demonstration and have
contributed to improvements in the quality and cost-efficiency of care
provided to Medicare beneficiaries. For example, the University of
Michigan Faculty Group Practice's transitional care call-back program
contacts Medicare patients discharged from the emergency department and
acute care hospital to address gaps in care during the transition
between care settings. The program provides short-term care
coordination with linkages to visiting nurse and community services, as
well as coordination with primary care and specialty clinics. The
Everett Clinic utilizes hospital coaches to guide patients and
caregivers through complicated care processes during hospital stays and
on discharge. The clinic proactively reaches out to recently
hospitalized patients to assure that they have a physician followup
visit within 10 days after discharge to address any unresolved or new
health problems.
CMS is considering strategies for distributing a discharge
checklist that the agency developed to help beneficiaries and their
caregivers prepare for discharge from a hospital or nursing home. The
checklist includes a range of issues to consider and address with
physicians and other health care providers to facilitate a smooth
transition to home or postacute care setting. In addition, the
checklist provides information about supportive home and community-
based services.
The QIO 9th SOW includes a theme entitled Patient Pathways (Care
Transitions). The goal of this theme is to measurably improve the
quality of care for Medicare beneficiaries who transition among care
settings, resulting in reduced readmissions and replicable strategies
to sustain reduced readmission rates. The QIO 8th SOW included
initiatives to reduce avoidable readmissions of home health patients.
5. Financial Incentive: Direct Payment Adjustment
The first of three approaches presented for comment is direct
adjustment to hospital DRG payments for readmissions. This approach
would likely require new statutory authority for the Medicare program.
In section II.F. of the preamble of this
proposed rule, we discuss direct adjustments to MS-DRG payment for
selected preventable HACs. Similarly, a payment adjustment could be
applied for readmissions determined to be avoidable because the
hospital did not follow evidence-based best practices for averting
readmissions. The magnitude of the payment adjustment could be based on
patient-specific risk factors and on the apportionment of shared
accountability among the involved entities.
A variation of this approach could be adjustment of all hospital
payments for readmissions, nationwide or by some regional designation,
based on aggregate information about avoidable readmissions for the
entire relevant Medicare population (national or regional) under
typical circumstances. Under this approach, hospitals would receive
less Medicare payment for readmissions for conditions with lower
expected rates of readmission and less shared accountability.
Potential unintended consequences resulting from a financial
incentive to avert readmissions also need to be considered. For
example, hospitals could begin discharging patients to settings that
provide more intensive postacute care to avoid readmissions, thereby
potentially driving up total costs for episodes of care and total
Medicare spending. As another example of potential unintended
consequences, hospitals could begin to resist medically necessary
readmissions from postacute care providers, creating an access problem.
6. Financial Incentive: Performance-Based Payment Adjustment
The second approach presented for comment is adjustment to hospital
MS-DRG payments using a performance-based payment methodology, such as
the Medicare Hospital VBP Plan referenced in section IV.C. of the
preamble of this proposed rule and available at: http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf. The intent of the VBP Plan
methodology is to promote adherence to evidence-based best practices in
the delivery of care and to provide rewards for those who are
successful in improving their measured performance. Implementation of
the VBP methodology would require new statutory authority for the
Medicare program.
Under the VBP Plan, measures of clinical processes of care, patient
experience (HCAHPS), and outcomes (30-day mortality) would be scored
and translated into an incentive payment. These measures of process,
outcome, and patient-centeredness address areas of quality that are
important to reducing readmissions; however, other measures could be
added to more fully adjust payments for readmissions. Direct measures
of hospital-specific, risk adjusted readmission rates could be included
in the VBP Plan performance

[[Page 23675]]

assessment model. In addition, other measures of care coordination that
indirectly address readmissions could also be included.
The direct adjustment approach and the VBP Plan approaches for
applying financial incentives to the reduction of avoidable
readmissions could be implemented separately or in combination.
7. Nonfinancial Incentive: Public Reporting
A third approach presented for comment is public reporting of
hospital-specific, risk adjusted readmission rates. The
Administration's Value-Driven Health Care initiative, which stems from
the President's Executive Order Promoting Quality and Efficient Health
Care in Federal Government Health Care Programs, calls for Federal
agencies to make health care quality and cost information more
transparent. Health care consumers, including Medicare beneficiaries,
and their providers and caregivers need better information to support
more informed decision making about their care. The public reporting of
readmission rates would likely not require new statutory authority for
the Medicare program.
The Hospital Compare Web site could be used to report readmission
rates along with the other quality and cost of care parameters
displayed on that site. Public reporting has been demonstrated to be a
strong non-financial incentive with a competitive effect, as hospitals
appropriately focus on maintaining and enhancing their reputations as
providers of high quality of care. The VBP Plan envisions public
reporting in concert with the VBP financial incentive, but the public
reporting incentive could be applied regardless of statutory authority
to implement the VBP Plan.
8. Conclusion
The purpose of this section is to solicit and encourage public
comments on considerations and options for applying incentives to
reduce avoidable hospital readmissions. We welcome public comments on
readmission issues related to measurement, accountability, and
interventions, as well as on potential approaches to applying financial
and nonfinancial incentives to reduce avoidable readmissions.

K. Rural Community Hospital Demonstration Program

In accordance with the requirements of section 410A(a) of Pub. L.
108-173, the Secretary has established a 5-year demonstration program
(beginning with selected hospitals' first cost reporting period
beginning on or after October 1, 2004) to test the feasibility and
advisability of establishing ``rural community hospitals'' for Medicare
payment purposes for covered inpatient hospital services furnished to
Medicare beneficiaries. A rural community hospital, as defined in
section 410A(f)(1), is a hospital that--
Is located in a rural area (as defined in section
1886(d)(2)(D) of the Act) or is treated as being located in a rural
area under section 1886(d)(8)(E) of the Act;
Has fewer than 51 beds (excluding beds in a distinct part
psychiatric or rehabilitation unit) as reported in its most recent cost
report;
Provides 24-hour emergency care services; and
Is not designated or eligible for designation as a CAH.
Section 410A(a)(4) of Pub. L. 108-173 states that no more than 15
such hospitals may participate in the demonstration program.
As we indicated in the FY 2005 IPPS final rule (69 FR 49078), in
accordance with sections 410A(a)(2) and (a)(4) of Pub. L. 108-173 and
using 2002 data from the U.S. Census Bureau, we identified 10 States
with the lowest population density from which to select hospitals:
Alaska, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota,
South Dakota, Utah, and Wyoming (Source: U.S. Census Bureau Statistical
Abstract of the United States: 2003). Nine rural community hospitals
located within these States are currently participating in the
demonstration program. (Of the 13 hospitals that participated in the
first 2 years of the demonstration program, 4 hospitals located in
Nebraska have become CAHs and have withdrawn from the program.)
In a notice published in the Federal Register on February 6, 2008
(73 FR 6971 through 6973), we announced a solicitation for up to six
additional hospitals to participate in the demonstration program.
Hospitals that enter the demonstration under this solicitation will be
able to participate for no more than 2 years. The February 6, 2008
notice specifies the eligibility requirements for the demonstration
program.
Under the demonstration program, participating hospitals are paid
the reasonable costs of providing covered inpatient hospital services
(other than services furnished by a psychiatric or rehabilitation unit
of a hospital that is a distinct part), applicable for discharges
occurring in the first cost reporting period beginning on or after the
October 1, 2004 implementation date of the demonstration program.
Payments to the participating hospitals will be the lesser amount of
the reasonable cost or a target amount in subsequent cost reporting
periods. The target amount in the second cost reporting period is
defined as the reasonable costs of providing covered inpatient hospital
services in the first cost reporting period, increased by the inpatient
prospective payment update factor (as defined in section 1886(b)(3)(B)
of the Act) for that particular cost reporting period. The target
amount in subsequent cost reporting periods is defined as the preceding
cost reporting period's target amount, increased by the inpatient
prospective payment update factor (as defined in section 1886(b)(3)(B)
of the Act) for that particular cost reporting period.
Covered inpatient hospital services are inpatient hospital services
(defined in section 1861(b) of the Act), and include extended care
services furnished under an agreement under section 1883 of the Act.
Section 410A of Pub. L. 108-173 requires that, ``in conducting the
demonstration program under this section, the Secretary shall ensure
that the aggregate payments made by the Secretary do not exceed the
amount which the Secretary would have paid if the demonstration program
under this section was not implemented.'' Generally, when CMS
implements a demonstration program on a budget neutral basis, the
demonstration program is budget neutral in its own terms; in other
words, the aggregate payments to the participating providers do not
exceed the amount that would be paid to those same providers in the
absence of the demonstration program. This form of budget neutrality is
viable when, by changing payments or aligning incentives to improve
overall efficiency, or both, a demonstration program may reduce the use
of some services or eliminate the need for others, resulting in reduced
expenditures for the demonstration program's participants. These
reduced expenditures offset increased payments elsewhere under the
demonstration program, thus ensuring that the demonstration program as
a whole is budget neutral or yields savings. However, the small scale
of this demonstration program, in conjunction with the payment
methodology, makes it extremely unlikely that this demonstration
program could be viable under the usual form of budget neutrality.
Specifically, cost-based payments to participating small rural
hospitals are likely to increase Medicare outlays without producing any
offsetting reduction in Medicare expenditures elsewhere. Therefore, a
rural community hospital's

[[Page 23676]]

participation in this demonstration program is unlikely to yield
benefits to the participant if budget neutrality were to be implemented
by reducing other payments for these providers.
In order to achieve budget neutrality for this demonstration
program for FY 2009, we are proposing to adjust the national inpatient
PPS rates by an amount sufficient to account for the added costs of
this demonstration program. We are proposing to apply budget neutrality
across the payment system as a whole rather than merely across the
participants in this demonstration program. As we discussed in the FY
2005, FY 2006, FY 2007 and FY 2008 IPPS final rules (69 FR 49183; 70 FR
47462; 71 FR 48100; and 72 FR 47392), we believe that the language of
the statutory budget neutrality requirements permits the agency to
implement the budget neutrality provision in this manner. For FY 2009,
using data from the cost reports from each of the nine hospitals' first
year of participation in the demonstration program, that is, cost
reports for years beginning in CY 2005, and estimating the cost of six
additional hospitals based on these data, we estimate that the
additional cost would be $32,011,849. (In the final rule, we should
know the exact number of hospitals participating in the demonstration
program and would revise our estimates accordingly.) This estimated
adjusted amount reflects the estimated difference between the
participating hospitals costs and the IPPS payment based on data from
the hospitals' cost reports. We discuss the payment rate adjustment
that is required to ensure the budget neutrality of the demonstration
program for FY 2009 in section II.A.4. of the Addendum to this proposed
rule.

V. Proposed Changes to the IPPS for Capital-Related Costs

A. Background

Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient acute hospital services ``in
accordance with a prospective payment system established by the
Secretary.'' Under the statute, the Secretary has broad authority in
establishing and implementing the IPPS for acute care hospital
inpatient capital-related costs. We initially implemented the IPPS for
capital-related costs in the Federal fiscal year (FY) 1992 IPPS final
rule (56 FR 43358), in which we established a 10-year transition period
to change the payment methodology for Medicare hospital inpatient
capital-related costs from a reasonable cost-based methodology to a
prospective methodology (based fully on the Federal rate).
FY 2001 was the last year of the 10-year transition period
established to phase in the IPPS for hospital inpatient capital-related
costs. For cost reporting periods beginning in FY 2002, capital IPPS
payments are based solely on the Federal rate for most acute care
hospitals (other than hospitals receiving certain exception payments
and certain new hospitals). The basic methodology for determining
capital prospective payments using the Federal rate is set forth in
Sec. 412.312. For the purpose of calculating payments for each
discharge, the standard Federal rate is adjusted as follows:
(Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment
Factor (GAF)) x (Large Urban Add-on, if applicable) x (COLA for
hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment
Factor + Capital IME Adjustment Factor, if applicable).
Hospitals also may receive outlier payments for those cases that
qualify under the threshold established for each fiscal year as
specified in Sec. 412.312(c) of the regulations.
1. Exception Payments
The regulations at Sec. 412.348(f) provide that a hospital may
request an additional payment if the hospital incurs unanticipated
capital expenditures in excess of $5 million due to extraordinary
circumstances beyond the hospital's control. This policy was originally
established for hospitals during the 10-year transition period, but as
we discussed in the FY 2003 IPPS final rule (67 FR 50102), we revised
the regulations at Sec. 412.312 to specify that payments for
extraordinary circumstances are also made for cost reporting periods
after the transition period (that is, cost reporting periods beginning
on or after October 1, 2001). Additional information on the exception
payment for extraordinary circumstances in Sec. 412.348(f) can be
found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).
During the transition period, under Sec. Sec. 412.348(b) through
(e), eligible hospitals could receive regular exception payments. These
exception payments guaranteed a hospital a minimum payment percentage
of its Medicare allowable capital-related costs depending on the class
of the hospital (Sec. 412.348(c)), but were available only during the
10-year transition period. After the end of the transition period,
eligible hospitals can no longer receive this exception payment.
However, even after the transition period, eligible hospitals receive
additional payments under the special exceptions provisions at Sec.
412.348(g), which guarantees all eligible hospitals a minimum payment
of 70 percent of its Medicare allowable capital-related costs provided
that special exceptions payments do not exceed 10 percent of total
capital IPPS payments. Special exceptions payments may be made only for
the 10 years from the cost reporting year in which the hospital
completes its qualifying project, and the hospital must have completed
the project no later than the hospital's cost reporting period
beginning before October 1, 2001. Thus, an eligible hospital may
receive special exceptions payments for up to 10 years beyond the end
of the capital IPPS transition period. Hospitals eligible for special
exceptions payments are required to submit documentation to the
intermediary indicating the completion date of their project. (For more
detailed information regarding the special exceptions policy under
Sec. 412.348(g), we refer readers to the FY 2002 IPPS final rule (66
FR 39911 through 39914) and the FY 2003 IPPS final rule (67 FR 50102).)
2. New Hospitals
Under the IPPS for capital-related costs, Sec. 412.300(b) of the
regulations defines a new hospital as a hospital that has operated
(under current or previous ownership) for less than 2 years. (For more
detailed information, we refer readers to the FY 1992 IPPS final rule
(56 FR 43418).) During the 10-year transition period, a new hospital
was exempt from the capital IPPS for its first 2 years of operation and
was paid 85 percent of its reasonable costs during that period.
Originally, this provision was effective only through the transition
period and, therefore, ended with cost reporting periods beginning in
FY 2002. Because, as discussed in the FY 2003 IPPS final rule (67 FR
50101), we believe that special protection to new hospitals is also
appropriate even after the transition period, we revised the
regulations at Sec. 412.304(c)(2) to provide that, for cost reporting
periods beginning on or after October 1, 2002, a new hospital (defined
under Sec. 412.300(b)) is paid 85 percent of its Medicare allowable
capital-related costs through its first 2 years of operation, unless
the new hospital elects to receive fully prospective payment based on
100 percent of the Federal rate. (We refer readers to the FY 2002 IPPS
final rule (66 FR 39910) for a detailed discussion of the statutory
basis for the system, the development and evolution of the system, the
methodology used to

[[Page 23677]]

determine capital-related payments to hospitals both during and after
the transition period, and the policy for providing exception
payments.)
3. Hospitals Located in Puerto Rico
Section 412.374 provides for the use of a blended payment amount
for prospective payments for capital-related costs to hospitals located
in Puerto Rico. Accordingly, under the capital IPPS, we compute a
separate payment rate specific to Puerto Rico hospitals using the same
methodology used to compute the national Federal rate for capital-
related costs. In general, hospitals located in Puerto Rico are paid a
blend of the applicable capital IPPS Puerto Rico rate and the
applicable capital IPPS Federal rate.
Prior to FY 1998, hospitals in Puerto Rico were paid a blended
capital IPPS rate that consisted of 75 percent of the capital IPPS
Puerto Rico specific rate and 25 percent of the capital IPPS Federal
rate. However, effective October 1, 1997 (FY 1998), in conjunction with
the change to the operating IPPS blend percentage for hospitals located
in Puerto Rico required by section 4406 of Pub. L. 105-33, we revised
the methodology for computing capital IPPS payments to hospitals in
Puerto Rico to be based on a blend of 50 percent of the capital IPPS
Puerto Rico rate and 50 percent of the capital IPPS Federal rate.
Similarly, in conjunction with the change in operating IPPS payments to
hospitals located in Puerto Rico for FY 2005 required by section 504 of
Pub. L. 108-173, we again revised the methodology for computing capital
IPPS payments to hospitals located in Puerto Rico to be based on a
blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent
of the capital IPPS Federal rate effective for discharges occurring on
or after October 1, 2004.

B. Revisions to the Capital IPPS Based on Data on Hospital Medicare
Capital Margins

As noted above, under the Secretary's broad authority under the
statute in establishing and implementing the IPPS for hospital
inpatient capital-related costs, we have established a standard Federal
payment rate for capital-related costs, as well as the mechanism for
updating that rate each year. For FY 1992, we computed the standard
Federal payment rate for capital-related costs under the IPPS by
updating the FY 1989 Medicare inpatient capital cost per case by an
actuarial estimate of the increase in Medicare inpatient capital costs
per case. Each year after FY 1992, we update the capital standard
Federal rate, as provided at Sec. 412.308(c)(1), to account for
capital input price increases and other factors. The regulations at
Sec. 412.308(c)(2) provide that the capital Federal rate is adjusted
annually by a factor equal to the estimated proportion of outlier
payments under the capital Federal rate to total capital payments under
the capital Federal rate. In addition, Sec. 412.308(c)(3) requires
that the capital Federal rate be reduced by an adjustment factor equal
to the estimated proportion of payments for (regular and special)
exceptions under Sec. 412.348. Section 412.308(c)(4)(ii) requires that
the capital standard Federal rate be adjusted so that the effects of
the annual DRG reclassification and the recalibration of DRG weights,
and changes in the geographic adjustment factor are budget neutral.
In the FY 2008 IPPS final rule with comment period (72 FR 47398
through 47401), based on our analysis of data on inpatient hospital
Medicare capital margins that we obtained through our monitoring and
comprehensive review of the adequacy of the standard Federal payment
rate for capital-related costs and the updates provided under the
existing regulations, we made changes in the payment structure under
the capital IPPS beginning with FY 2008. We summarize these changes
below. We refer readers to section V.B. of the preamble of the FY 2008
final rule with comment period (72 FR 47393 through 47401) for a
detailed discussion of the data used as a basis for these changes.
These data showed that hospital inpatient Medicare capital margins were
very high across all hospitals during the period from FY 1996 through
FY 2004.
In the FY 2008 IPPS final rule with comment period, as background,
we noted that, in general, under a PPS, standard payment rates should
reflect the costs that an average, efficient provider would bear to
provide the services required for quality patient care. Payment rate
updates should also account for the changes necessary to continue
providing such services. Updates should reflect, for example, the
increased costs that are necessary to provide for the introduction of
new technology that improves patient care. Updates should also take
into account the productivity gains that, over time, allow providers to
realize the same, or even improved, quality outcomes with reduced
inputs and lower costs. Hospital margins, the difference between the
costs of actually providing services and the payments received under a
particular system, thus provide some evidence concerning whether
payment rates have been established and updated at an appropriate level
over time for efficient providers to provide necessary services. All
other factors being equal, sustained substantial positive margins
demonstrate that payment rates and updates have exceeded what is
required to provide those services. It is to be expected, under a PPS,
that highly efficient providers might regularly realize positive
margins, while less efficient providers might regularly realize
negative margins. However, a PPS that is correctly calibrated should
not necessarily experience sustained periods in which providers
generally realize substantial positive Medicare margins. Under the
capital IPPS in particular, it seems especially appropriate that there
should not be sustained significant positive margins across the system
as a whole. Prior to the implementation of the capital IPPS, Congress
mandated that the Medicare program pay only 85 percent of hospitals'
inpatient Medicare capital costs. During the first 5 years of the
capital IPPS, Congress also mandated a budget neutrality adjustment,
under which the standard Federal capital rate was set each year so that
payments under the system as a whole equaled 90 percent of estimated
hospitals' inpatient Medicare capital costs for the year. Finally,
Congress has twice adjusted the standard Federal capital rate (a 7.4
percent reduction beginning in FY 1994, followed by a 17.78 percent
reduction beginning in FY 1998). On the second occasion in particular,
the specific congressional mandate was ``to apply the budget neutrality
factor used to determine the Federal capital payment rate in effect on
September 30, 1995 * * * to the unadjusted standard Federal capital
payment rate'' for FY 1998 and beyond. (The designated budget
neutrality factor constituted a 17.78 percent reduction.) This
statutory language indicates that Congress considered the payment
levels in effect during FYs1992 through 1995, established under the
budget neutrality provision to pay 90 percent of hospitals' inpatient
Medicare capital costs in the aggregate, appropriate for the capital
IPPS. The statutory history of the capital IPPS thus suggests that the
system in the aggregate should not provide for continuous, large
positive margins.
As we also discussed in the FY 2008 IPPS final rule with comment
period, we believed that there could be a number of reasons for the
relatively high margins that most IPPS hospitals have realized under
the capital IPPS. One possibility is that the updates to the capital
IPPS rates have been higher than the actual increases in Medicare
inpatient capital costs that hospitals

[[Page 23678]]

have experienced in recent years. Another possible reason for the
relatively high margins of most capital IPPS hospitals may be that the
payment adjustments provided under the system are too high, or perhaps
even unnecessary. Specifically, the adjustments for teaching hospitals,
disproportionate share hospitals, and large urban hospitals appear to
be contributing to excessive payment levels for these classes of
hospitals. Since the inception of the capital IPPS in FY 1992, the
system has provided adjustments for teaching hospitals (the IME
adjustment factor, under Sec. 412.322 of the regulations),
disproportionate share hospitals (the DSH adjustment factor, under
Sec. 412.320), and large urban hospitals (the large urban location
adjustment factor, under Sec. 412.316(b)). The classes of hospitals
eligible for these adjustments have been realizing much higher margins
than other hospitals under the system. Specifically, teaching hospitals
(11.6 percent for FYs 1998 through 2004), disproportionate share
hospitals (8.4 percent), and urban hospitals (8.3 percent) have had
significant positive margins. Other classes of hospitals have
experienced much lower margins, especially rural hospitals (0.3 percent
for FYs 1998 through 2004) and nonteaching hospitals (1.3 percent). The
three groups of hospitals that have been realizing especially high
margins under the capital IPPS are, therefore, classes of hospitals
that are eligible to receive one or more specific payment adjustment
under the system. We believed that the evidence indicates that these
adjustments have been contributing to the significantly large positive
margins experienced by the classes of hospitals eligible for these
adjustments.
Therefore, in the FY 2008 IPPS final rule with comment period, we
made two changes to the structure of payments under the capital IPPS,
as discussed under items 1. and 2. below.
1. Elimination of the Large Add-On Payment Adjustment
In the FY 2008 IPPS final rule with comment period, we determined
that the data we had gathered on inpatient hospital Medicare capital
margins provided sufficient evidence to warrant elimination of the
large urban add-on payment adjustment starting in FY 2008 under the
capital IPPS. Therefore, for FYs 2008 and beyond, we discontinued the
3.0 percent additional payment that had been provided to hospitals
located in large urban areas (72 FR 24822). This decision was supported
by comments from MedPAC.
2. Changes to the Capital IME Adjustment
a. Background and Changes Made for FY 2008
In the FY 2008 IPPS proposed rule, we noted that margin analysis
indicated that several classes of hospitals had experienced continuous,
significant positive margins. The analysis indicated that the existing
payment adjustments for teaching hospitals and disproportionate share
hospitals were contributing to excessive payment levels for these
classes of hospitals. Therefore, we stated that it may be appropriate
to reduce these adjustments significantly, or even to eliminate them
altogether, within the capital IPPS. These payment adjustments, unlike
parallel adjustments under the operating IPPS, were not mandated by the
Act. Rather, they were included within the original design of the
capital IPPS under the Secretary's broad authority in section
1886(g)(1) of the Act to include appropriate adjustments and exceptions
within a capital IPPS. In the FY 2008 final rule with comment period,
we also noted a MedPAC recommendation that we seriously reexamine the
appropriateness of the existing capital IME adjustment, that the margin
analysis indicated such adjustment may be too high, and that MedPAC's
previous analysis also suggested the adjustment may be too high. In
light of MedPAC's recommendation, we extended the margin analysis
discussed in the FY 2008 IPPS proposed rule in order to distinguish the
experience of teaching hospitals from the experience of urban and rural
hospitals generally. Specifically, we isolated the margins of urban,
large urban, and rural teaching hospitals, as opposed to urban, large
urban, and rural nonteaching hospitals. In conducting this analysis, we
employed updated cost report information, which allowed us to
incorporate the margins for an additional year, FY 2005, into the
analysis. The data on the experience of urban, large urban, and rural
teaching hospitals as opposed to nonteaching hospitals provided
significant new information. As the analysis demonstrated, teaching
hospitals in each class (urban, large urban, and rural) performed
significantly better than comparable nonteaching hospitals. For the
period covering FYs 1998 through 2005, urban teaching hospitals
realized aggregate positive margins of 11.9 percent, compared to a
positive margin of 0.9 percent for urban nonteaching hospitals.
Similarly, large urban teaching hospitals realized an aggregate
positive margin of 12.8 percent during that period, while large urban
nonteaching hospitals had an aggregate positive margin of only 2.9
percent. Finally, rural teaching hospitals experienced an aggregate
positive margin of 4.5 percent, as compared to a negative 1.3 percent
margin for nonteaching rural hospitals. We noted that the positive
margins for teaching hospitals did not exhibit a decline to the same
degree as the margins for all hospitals. For example, the positive
margins for all IPPS hospitals declined from 8.7 percent in FY 2002 to
5.3 percent in FY 2004 and 3.7 percent in FY 2005. For urban hospitals,
aggregate margins decreased from 10.3 percent in FY 2002 to 6.4 percent
in FY 2004 and 4.8 percent in FY 2005. Rural hospitals experienced a
decrease from 1.5 percent in FY 2001 to a negative margin of -4.2
percent in FY 2005. In comparison, the aggregate margin for teaching
hospitals was 12.1 percent in FY 2001 and 10.6 percent in FY 2005. For
urban teaching hospitals, margins were 12.5 percent in FY 2001, 14.0
percent in FY 2002, 13.6 percent in FY 2003, 11.9 percent in FY 2004,
and 10.9 percent in FY 2005. Rural teaching hospital margins were more
variable, but did not exhibit a pattern of significant decline. In FY
2001, rural teaching hospitals had a positive margin of 3.2 percent; in
FY 2002, 8.2 percent; in FY 2003, 4.7 percent; in FY 2004, 5.7 percent;
and in FY 2005, 4.0 percent. We are reprinting below the table found in
the FY 2008 IPPS final rule with comment period showing our analysis
(72 FR 47400).

Hospital Inpatient Medicare Capital Margins
--------------------------------------------------------------------------------------------------------------------------------------------------------
Aggregate Aggregate
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1996-2005 1998-2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S................................. 17.6 13.4 7.0 6.8 7.3 8.1 8.7 7.6 5.3 3.7 8.5 6.8
URBAN............................... 17.7 13.8 7.8 7.5 8.4 9.2 10.3 9.0 6.4 4.8 9.4 7.9
RURAL............................... 16.8 11.0 2.1 2.4 1.0 1.5 -1.7 -1.4 -2.3 -4.2 2.6 -0.4
No DSH Payments..................... 16.2 11.7 4.2 4.3 5.6 5.5 4.7 4.4 -1.3 -4.7 5.9 3.2
Has DSH Payments.................... 18.5 14.4 8.6 8.1 8.2 9.0 10.0 8.5 7.0 5.9 9.5 8.1

[[Page 23679]]

$1-$249,999......................... 14.5 12.9 -0.4 3.1 1.6 4.1 3.2 1.4 -1.7 -4.8 3.2 1.9
$250,000-$999,999................... 15.5 9.0 2.3 1.6 2.8 2.7 -2.4 -1.5 -4.3 -7.3 1.5 -0.9
$1,000,000-$2,999,999............... 16.8 13.0 8.7 9.0 8.7 7.0 10.1 5.2 3.2 2.0 8.2 6.6
$3,000,000 or more.................. 20.3 16.6 10.4 9.3 9.7 12.1 13.2 12.5 10.6 9.5 12.2 11.0
TEACHING............................ 19.5 15.7 9.8 9.7 11.2 12.1 13.8 13.2 11.7 10.6 12.7 11.6
Urban............................... 19.7 15.9 10.2 10.0 11.4 12.5 14.0 13.6 11.9 10.9 13.0 11.9
Large Urban......................... 20.5 16.8 11.0 10.1 12.5 13.9 15.2 14.7 12.0 11.9 13.9 12.8
Rural............................... 13.9 8.5 1.0 2.9 5.8 3.2 8.2 4.7 5.7 4.0 5.7 4.5
NONTEACHING......................... 15.3 10.5 3.4 2.8 2.2 2.6 1.7 0.0 -3.2 -5.1 2.8 0.3
Urban............................... 14.4 10.1 3.8 3.0 3.0 3.1 3.6 0.9 -2.9 -4.9 3.1 0.9
Large Urban......................... 15.5 11.3 6.2 6.1 5.7 5.2 5.3 1.7 -0.9 -3.2 5.1 2.9
Rural............................... 17.3 11.4 2.3 2.4 0.2 1.2 -3.7 -2.6 -3.9 -6.0 2.0 -1.3
Census Division:
New England (1)................. 27.9 25.9 17.1 15.1 18.2 20.7 21.3 21.1 20.5 20.3 21.0 19.5
Middle Atlantic (2)............. 19.1 15.5 11.1 11.6 14.1 16.5 18.7 18.0 14.7 16.0 15.6 15.2
South Atlantic (3).............. 18.1 13.9 5.9 4.0 6.0 5.0 6.6 6.9 5.8 2.8 7.4 5.4
East North Central (4).......... 18.2 12.7 6.4 7.1 8.8 8.5 6.1 7.1 6.6 3.2 8.4 6.7
East South Central (5).......... 14.9 11.1 3.3 4.1 3.8 3.8 3.8 -0.9 -3.4 -5.8 3.2 0.9
West North Central (6).......... 14.3 7.0 0.1 --0.3 -1.5 2.0 1.9 3.4 1.6 -0.4 2.8 0.9
West South Central (7).......... 13.2 8.3 3.3 2.6 -0.7 0.0 1.2 -2.0 -4.0 -6.5 1.2 -1.0
Mountain (8).................... 17.2 14.7 8.5 7.7 7.2 6.4 2.9 3.3 0.8 -4.7 5.8 3.6
Pacific (9)..................... 20.4 16.1 12.3 11.3 11.9 13.3 14.7 12.1 9.8 8.8 13.0 11.7
Code 99......................... 23.7 24.1 14.5 16.8 19.8 20.7 20.5 25.1 21.6 24.8 21.4 20.8
Bed Size:
< 100 beds...................... 17.7 13.0 4.6 3.5 2.7 2.5 -1.8 -1.2 -6.1 -9.6 2.0 -0.9
100-249 beds.................... 15.1 10.5 3.7 4.5 4.3 6.1 6.0 4.2 1.5 0.8 5.6 3.8
250-499 beds.................... 18.9 14.1 8.9 8.3 10.6 10.7 12.1 11.6 10.3 7.7 11.4 10.1
500-999 beds.................... 19.9 17.1 10.7 10.4 11.3 10.8 12.6 10.1 7.3 7.8 11.6 10.1
>= 1000 beds.................... 8.2 14.0 2.2 -1.3 -6.6 -3.6 6.5 8.1 6.5 2.1 3.5 2.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
Based on Medicare Cost Report hospital data updated as of the 1st quarter of 2007.
Medicare payments are from Worksheet E, Part A, Lines 9 and 10.
Expenses are from Worksheet D, Part I, columns 10 and 12 and Part II, columns 6 and 8.
We apply the outlier trimming methodology developed with MedPAC.
Code 99 applies when census division information was not specified in the Medicare Cost Report hospital data.

As we indicated in the FY 2008 IPPS final rule with comment period
(72 FR 47401), the statutory history of the capital IPPS suggests that
the system in the aggregate should not provide for continuous, large
positive margins. As we also indicated, a possible reason for the
relatively high margins of many capital IPPS hospitals may be that the
payment adjustments provided under the system are too high, or perhaps
even unnecessary. We agreed with MedPAC's recommendation and reexamined
the appropriateness of the teaching adjustment. We concluded that the
record of relatively high and persistent positive margins for teaching
hospitals under the capital IPPS indicated that the teaching adjustment
is unnecessary, and that it was therefore appropriate to exercise our
discretion under the capital IPPS to eliminate this adjustment. At the
same time, we believed that we should mitigate abrupt changes in
payment policy and that we should provide time for hospitals to adjust
to changes in the payments that they can expect under the program.
Therefore, in the FY 2008 IPPS final rule with comment period, we
adopted a policy to phase out the capital teaching adjustment over a 3-
year period beginning in FY 2008. Specifically, we maintained the
adjustment for FY 2008, in order to give teaching hospitals an
opportunity to plan and make adjustments to the change. During the
second year of the transition, FY 2009, the formula for determining the
amount of the teaching adjustment was revised so that adjustment
amounts will be half of the amounts provided under the current formula.
For FY 2010 and after, hospitals will no longer receive an adjustment
for teaching activity under the capital IPPS.
b. Public Comments Received on Phase Out of Capital IPPS Teaching
Adjustment Provisions Included in the FY 2008 Final Rule With Comment
Period and Further Solicitation of Public Comments
As indicated above, in the FY 2008 IPPS final rule with comment
period, we formally adopted as final policy a phase out of the capital
IPPS teaching adjustment over a 3-year period, maintaining the current
adjustment for FY 2008, making a 50-percent reduction in FY 2009, and
eliminating the adjustment for FY 2010 and subsequent years. However,
because we concluded that this change to the structure of payments
under the capital IPPS was significant, we provided the public with an
opportunity for further comment on these provisions through a 90-day
comment period after publication of the FY 2008 IPPS final rule with
comment period (72 FR 47401). In addition, as we indicated in that
final rule with comment period, to provide a more than adequate
opportunity for hospitals, associations, and other interested parties
to raise issues and concerns related to our policy, we are providing
additional opportunity for public comment during this FY 2009 proposed
rulemaking cycle for the IPPS.
We received numerous timely pieces of correspondence that commented
on the policy of phasing out the capital IPPS teaching adjustment as
described in the FY 2008 IPPS final rule with comment period. These
comments are available on our e-rulemaking Web site, at http://www.cms.hhs.gov/eRulemaking/ECCMSR/list.asp. We will also accept public
comments on this policy during the comment period for this proposed
rule. We will respond to

[[Page 23680]]

both sets of public comments when we issue the FY 2009 IPPS final rule,
which is scheduled for publication in August 2008.

VI. Proposed Changes for Hospitals and Hospital Units Excluded From the
IPPS

A. Proposed Payments to Excluded Hospitals and Hospital Units

Historically, hospitals and hospital units excluded from the
prospective payment system received payment for inpatient hospital
services they furnished on the basis of reasonable costs, subject to a
rate-of-increase ceiling. An annual per discharge limit (the target
amount as defined in Sec. 413.40(a)) was set for each hospital or
hospital unit based on the hospital's own cost experience in its base
year. The target amount was multiplied by the Medicare discharges and
applied as an aggregate upper limit (the ceiling as defined in Sec.
413.40(a)) on total inpatient operating costs for a hospital's cost
reporting period. Prior to October 1, 1997, these payment provisions
applied consistently to all categories of excluded providers, which
include rehabilitation hospitals and units (now referred to as IRFs),
psychiatric hospitals and units (now referred to as IPFs), LTCHs,
children's hospitals, and cancer hospitals.
Payment for children's hospitals and cancer hospitals that are
excluded from the IPPS continues to be subject to the rate-of-increase
ceiling based on the hospital's own historical cost experience. (We
note that, in accordance with Sec. 403.752(a) of the regulations,
RNHCIs are also subject to the rate-of-increase limits established
under Sec. 413.40 of the regulations.)
In this FY 2009 IPPS proposed rule, we are proposing that the
percentage increase in the rate-of-increase limits for cancer and
children's hospitals and RNHCIs would be the proposed percentage
increase in the FY 2009 IPPS operating market basket, which is
estimated to be 3.0 percent. Consistent with our historical approach,
we calculated the proposed IPPS operating market basket for FY 2009
using the most recent data available. However, if more recent data are
available for the final rule, we will use them to calculate the IPPS
operating market basket. For cancer and children's hospitals and
RNHCIs, the proposed FY 2009 rate-of-increase percentage that is
applied to FY 2008 target amounts in order to calculate FY 2009 target
amounts is 3.0 percent, based on Global Insight, Inc.'s 2008 first
quarter forecast of the IPPS operating market basket increase, in
accordance with the applicable regulations in 42 CFR 413.40.
IRFs, IPFs, and LTCHs were paid previously under the reasonable
cost methodology. However, the statute was amended to provide for the
implementation of prospective payment systems for IRFs, IPFs, and
LTCHs. In general, the prospective payment systems for IRFs, IPFs, and
LTCHs provided transition periods of varying lengths during which time
a portion of the prospective payment was based on cost-based
reimbursement rules under Part 413 (certain providers do not receive a
transition period or may elect to bypass the transition period as
applicable under 42 CFR Part 412, Subparts N, O, and P). We note that
the various transition periods provided for under the IRF PPS, the IPF
PPS, and the LTCH PPS have ended.
For cost reporting periods beginning on or after October 1, 2002,
all IRFs are paid 100 percent of the adjusted Federal rate under the
IRF PPS. Therefore, for cost reporting periods beginning on or after
October 1, 2002, no portion of an IRF PPS payment is subject to 42 CFR
Part 413. Similarly, for cost reporting periods beginning on or after
October 1, 2006, all LTCHs are paid 100 percent of the adjusted Federal
prospective payment rate under the LTCH PPS. Therefore, for cost
reporting periods beginning on or after October 1, 2006, no portion of
the LTCH PPS payment is subject to 42 CFR Part 413. (We note that, to
the extent a portion of a LTCH's PPS payment was subject to reasonable
cost principles, the Secretary utilized his broad authority under
section 123 of the BBRA, as amended by section 307 of the BIPA, to make
such portion subject to 42 CFR Part 413 and various provisions in
section 1886(b) of the Act.) Likewise, for cost reporting periods
beginning on or after January 1, 2008, all IPFs are paid 100 percent of
the Federal per diem amount under the IPF PPS. Therefore, for cost
reporting periods beginning on or after January 1, 2008, no portion of
an IPF PPS payment is subject to 42 CFR Part 413.

B. IRF PPS

Section 1886(j) of the Act, as added by section 4421(a) of Pub. L.
105-33, provided for a phase-in of a case-mix adjusted PPS for
inpatient hospital services furnished by IRFs for cost reporting
periods beginning on or after October 1, 2000, and before October 1,
2002, with payments based entirely on the adjusted Federal prospective
payment for cost reporting periods beginning on or after October 1,
2002. Section 1886(j) of the Act was amended by section 125 of Pub. L.
106-113 to require the Secretary to use a discharge as the payment unit
for services furnished under the PPS for inpatient rehabilitation
hospitals and inpatient rehabilitation units of hospitals (referred to
as IRFs), and to establish classes of patient discharges by functional-
related groups. Section 305 of Pub. L. 106-554 further amended section
1886(j) of the Act to allow IRFs, subject to the blended methodology,
to elect to be paid the full Federal prospective payment rather than
the transitional period payments specified in the Act.
On August 7, 2001, we issued a final rule in the Federal Register
(66 FR 41316) establishing the PPS for IRFs, effective for cost
reporting periods beginning on or after January 1, 2002. There was a
transition period for cost reporting periods beginning on or after
January 1, 2002, and ending before October 1, 2002. For cost reporting
periods beginning on or after October 1, 2002, payments are based
entirely on the adjusted Federal prospective payment rate determined
under the IRF PPS.

C. LTCH PPS

On August 30, 2002, we issued a final rule in the Federal Register
(67 FR 55954) establishing the PPS for LTCHs, effective for cost
reporting periods beginning on or after October 1, 2002. Except for a
LTCH that made an election under Sec. 412.533(c) or a LTCH that is
defined as new under Sec. 412.23(e)(4), there was a transition period
under Sec. 412.533(a) for LTCHs. For cost reporting periods beginning
on or after October 1, 2006, all LTCHs are paid 100 percent of the
adjusted Federal prospective payment rate.

D. IPF PPS

In accordance with section 124 of Pub. L. 106-113 and section
405(g)(2) of Pub. L. 108-173, we established a PPS for inpatient
hospital services furnished in IPFs. On November 15, 2004, we issued in
the Federal Register a final rule (69 FR 66922) that established the
IPF PPS, effective for IPF cost reporting periods beginning on or after
January 1, 2005. Under the requirements of that final rule, we computed
a Federal per diem base rate to be paid to all IPFs for inpatient
psychiatric services based on the sum of the average routine operating,
ancillary, and capital costs for each patient day of psychiatric care
in an IPF, adjusted for budget neutrality. The Federal per diem base
rate is adjusted to reflect certain patient characteristics, including
age, specified DRGs, selected high-cost comorbidities, days of the
stay, and certain facility characteristics, including a wage index

[[Page 23681]]

adjustment, rural location, indirect teaching costs, the presence of a
full-service emergency department, and COLAs for IPFs located in Alaska
and Hawaii.
We established a 3-year transition period during which IPFs whose
cost reporting periods began on or after January 1, 2005, and before
January 1, 2008, would be paid a PPS payment, a portion of which was
based on reasonable cost principles and a portion of which was the
Federal per diem payment amount. For cost reporting periods beginning
on or after January 1, 2008, all IPFs are paid 100 percent of the
Federal per diem payment amount.

E. Determining Proposed LTCH Cost-to-Charge Ratios (CCRs) Under the
LTCH PPS

In general, we use a LTCH's overall CCR, which is computed based on
either the most recently settled cost report or the most recent
tentatively settled cost report, whichever is from the latest cost
reporting period, in accordance with Sec. 412.525(a)(4)(iv)(B) and
Sec. 412.529(c)(4)(iv)(B) for high cost outliers and short-stay
outliers, respectively. (We note that, in some instances, we use an
alternative CCR, such as the statewide average CCR in accordance with
the regulations at Sec. 412.525(a)(4)(iv)(C) and Sec.
412.529(c)(4)(iv)(C), or a CCR that is specified by CMS or that is
requested by the hospital under the provisions of the regulations at
Sec. 412.525(a)(4)(iv)(A) and Sec. 412.529(c)(4)(iv)(A).) Under the
LTCH PPS, a single prospective payment per discharge is made for both
inpatient operating and capital-related costs. Therefore, we compute a
single ``overall'' or ``total'' LTCH-specific CCR based on the sum of
LTCH operating and capital costs (as described in Chapter 3, section
150.24, of the Medicare Claims Processing Manual (CMS Pub. 100-4)) as
compared to total charges. Specifically, a LTCH's CCR is calculated by
dividing a LTCH's total Medicare costs (that is, the sum of its
operating and capital inpatient routine and ancillary costs) by its
total Medicare charges (that is, the sum of its operating and capital
inpatient routine and ancillary charges).
Generally, a LTCH is assigned the applicable statewide average CCR
if, among other things, a LTCH's CCR is found to be in excess of the
applicable maximum CCR threshold (that is, the LTCH CCR ceiling). This
is because CCRs above this threshold are most likely due to faulty data
reporting or entry, and, therefore, these CCRs should not be used to
identify and make payments for outlier cases. Such data are clearly
errors and should not be relied upon. Thus, under our established
policy, generally, if a LTCH's calculated CCR is above the applicable
ceiling, the applicable LTCH PPS statewide average CCR is assigned to
the LTCH instead of the CCR computed from its most recent (settled or
tentatively settled) cost report data.
In the FY 2008 IPPS final rule with comment period, in accordance
with Sec. 412.525(a)(4)(iv)(C)(2) for high-cost outliers and Sec.
412.529(c)(4)(iv)(C)(2) for short-stay outliers, using our established
methodology for determining the LTCH total CCR ceiling, based on IPPS
total CCR data from the March 2007 update to the Provider-Specific File
(PSF), we established a total CCR ceiling of 1.284 under the LTCH PPS
effective October 1, 2007, through September 30, 2008. (For further
detail on our methodology for annually determining the LTCH total CCR
ceiling, we refer readers to the FY 2007 IPPS final rule (71 FR 48117
through 48121) and the FY 2008 IPPS final rule with comment period (72
FR 47403 through 47404).)
Our general methodology established for determining the statewide
average CCRs used under the LTCH PPS is similar to our established
methodology for determining the LTCH total CCR ceiling (described
above) because it is based on ``total'' IPPS CCR data. Under the LTCH
PPS high-cost outlier policy at Sec. 412.525(a)(4)(iv)(C) and the
short-stay outlier policy at Sec. 412.529(c)(4)(iv)(C), the fiscal
intermediary (or MAC) may use a statewide average CCR, which is
established annually by CMS, if it is unable to determine an accurate
CCR for a LTCH in one of the following circumstances: (1) A new LTCH
that has not yet submitted its first Medicare cost report (for this
purpose, a new LTCH is defined as an entity that has not accepted
assignment of an existing hospital's provider agreement in accordance
with Sec. 489.18); (2) a LTCH whose CCR is in excess of the LTCH CCR
ceiling (as discussed above); and (3) any other LTCH for whom data with
which to calculate a CCR are not available (for example, missing or
faulty data). (Other sources of data that the fiscal intermediary (or
MAC) may consider in determining a LTCH's CCR include data from a
different cost reporting period for the LTCH, data from the cost
reporting period preceding the period in which the hospital began to be
paid as a LTCH (that is, the period of at least 6 months that it was
paid as a short-term acute care hospital), or data from other
comparable LTCHs, such as LTCHs in the same chain or in the same
region.)
In this proposed rule, in accordance with Sec.
412.525(a)(4)(iv)(C)(2) for high-cost outliers and Sec.
412.529(c)(4)(iv)(C)(2) for short-stay outliers, using our established
methodology for determining the LTCH total CCR ceiling (described
above), based on IPPS total CCR data from the December 2007 update to
the PSF), we are proposing a total CCR ceiling of 1.262 under the LTCH
PPS, effective for discharges occurring on or after October 1, 2008,
and before October 1, 2009. If more recent data become available before
publication of the final rule, we will use such data to determine the
final total CCR ceiling under the LTCH PPS for FY 2009.
In this FY 2009 IPPS proposed rule, in accordance with Sec.
412.525(a)(4)(iv)(C) for high-cost outliers and Sec.
412.529(c)(4)(iv)(C) for short-stay outliers, using our established
methodology for determining the LTCH statewide average CCRs (described
above), based on the most recent complete IPPS total CCR data from the
December 2007 update of the PSF, we are proposing LTCH PPS statewide
average total CCRs for urban and rural hospitals that would be
effective for discharges occurring on or after October 1, 2008, and
before October 1, 2009, presented in Table 8C of the Addendum to this
proposed rule. If more recent data become available before publication
of the final rule, we will use such data to determine the final
statewide average total CCRs for urban and rural hospitals under the
LTCH PPS for FY 2009 using our established methodology described above.
We note that, for this proposed rule, as we established when we
revised our methodology for determining the applicable LTCH statewide
average CCRs in the FY 2007 IPPS final rule (71 FR 48119 through
48121), and as is the case under the IPPS, all areas in the District of
Columbia, New Jersey, Puerto Rico, and Rhode Island are classified as
urban, and, therefore, there are no proposed rural statewide average
total CCRs listed for those jurisdictions in Table 8C of the Addendum
to this proposed rule. In addition, as we established when we revised
our methodology for determining the applicable LTCH statewide average
CCRs in that same final rule, and as is the case under the IPPS,
although Massachusetts has areas that are designated as rural, there
were no short-term acute care IPPS hospitals or LTCHs located in those
areas as of December 2007. Therefore, for this proposed rule, there is
no proposed rural statewide average total CCR listed for rural
Massachusetts in Table 8C of the

[[Page 23682]]

Addendum of this proposed rule. As we also established when we revised
our methodology for determining the applicable LTCH statewide average
CCRs in the FY 2007 IPPS final rule (71 FR 48120 through 48121), in
determining the urban and rural statewide average total CCRs for
Maryland LTCHs paid under the LTCH PPS, we use, as a proxy, the
national average total CCR for urban IPPS hospitals and the national
average total CCR for rural IPPS hospitals, respectively. We use this
proxy because we believe that the CCR data on the PSF for Maryland
hospitals may not be accurate (as discussed in greater detail in that
same final rule (71 FR 48120)).

F. Proposed Change to the Regulations Governing Hospitals-Within-
Hospitals

On September 1, 1994, we published hospital-within-hospital (HwH)
regulations for LTCHs to address inappropriate Medicare payments to
entities that were effectively units of other hospitals (59 FR 45330).
There was concern that the HwH model was being used by some acute care
hospitals paid under the IPPS as a way of inappropriately receiving
higher payments for a subset of their cases. Moreover, IPPS-exclusion
of long-term care ``units'' was and remains inconsistent with the
statutory scheme.
Therefore, we established the HwH regulations at 42 CFR 412.23
(currently at Sec. 412.22) for a LTCH HwH that is co-located with
another hospital. A co-located hospital is a hospital that occupies
space in the same building or on the same campus as another hospital.
The regulations at Sec. 412.23(e) required that, to be excluded from
the IPPS, long-term care HwHs must have a separate governing body,
chief medical officer, medical staff, and chief executive officer from
that of the co-located hospital. In addition, the HwH must meet either
of the following two criteria: The HwH must perform certain specified
basic hospital functions on its own and not receive them from the host
hospital or a third entity that controls both hospitals; or the HwH
must receive at least 75 percent of its inpatients from sources other
than the co-located hospital. A third option was added to the
regulations on September 1, 1995 (60 FR 45778) that allowed HwHs to
demonstrate their separateness by showing that the cost of the services
that the hospital obtains under contracts or other agreements with the