[Federal Register Volume 74, Number 165 (Thursday, August 27, 2009)]
[Rules and Regulations]
[Pages 43753-44236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18663]



[[Page 43753]]

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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 412, 413, 415, et al.



Medicare Program; Changes to the Hospital Inpatient Prospective Payment 
Systems for Acute Care Hospitals and Fiscal Year 2010 Rates; and 
Changes to the Long Term Care Hospital Prospective Payment System and 
Rate Years 2010 and 2009 Rates; Final Rule

Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 415, 485, and 489

[CMS-1406-F and IFC; CMS-1493-F; CMS-1337-F]
RIN 0938-AP33; RIN 0938-AP39; RIN 0938-AP76


Medicare Program; Changes to the Hospital Inpatient Prospective 
Payment Systems for Acute Care Hospitals and Fiscal Year 2010 Rates; 
and Changes to the Long-Term Care Hospital Prospective Payment System 
and Rate Years 2010 and 2009 Rates

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

ACTION: Final rules and interim final rule with comment period.

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SUMMARY: We are revising the Medicare hospital inpatient prospective 
payment systems (IPPS) for operating and capital-related costs of acute 
care hospitals to implement changes arising from our continuing 
experience with these systems, and to implement certain provisions made 
by the TMA, Abstinence Education, and QI Program Extension Act of 2007, 
the Medicare Improvements for Patients and Providers Act of 2008, and 
the American Recovery and Reinvestment Act of 2009. In addition, in the 
Addendum to this final rule, we describe the changes to the amounts and 
factors used to determine the rates for Medicare acute care hospital 
inpatient services for operating costs and capital-related costs. These 
changes are applicable to discharges occurring on or after October 1, 
2009. We also are setting forth the update to the rate-of-increase 
limits for certain hospitals excluded from the IPPS that are paid on a 
reasonable cost basis subject to these limits. The updated rate-of-
increase limits are effective for cost reporting periods beginning on 
or after October 1, 2009.
    Second, we are updating the payment policy and the annual payment 
rates for the Medicare prospective payment system (PPS) for inpatient 
hospital services provided by long-term care hospitals (LTCHs) for rate 
year (RY) 2010, including responding to public comments received on a 
June 3, 2009 supplemental proposed rule relating to the proposed RY 
2010 Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-
DRG) relative weights and the proposed RY 2010 high-cost outlier (HCO) 
fixed-loss amount. In the Addendum to this final rule, we also set 
forth the changes to the payment rates, factors, and other payment rate 
policies under the LTCH PPS for RY 2010. These changes are applicable 
to discharges occurring on or after October 1, 2009. In addition, we 
are responding to public comments received on and finalizing a June 3, 
2009 interim final rule with comment period that revised the MS-LTC-DRG 
relative weights for payments under the LTCH PPS for the remainder of 
FY 2009 (that is, from June 3, 2009, through September 30, 2009).
    Third, in this final rule, we are responding to public comments we 
received on, and finalizing, two May 2008 interim final rules with 
comment period that implemented certain provisions of section 114 of 
the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, Pub. L. 
110-173) relating to payments to LTCHs and LTCH satellite facilities, 
the establishment of LTCHs and LTCH satellite facilities, and increases 
in beds in existing LTCHs and LTCH satellite facilities under the LTCH 
PPS.
    Fourth, through an interim final rule with comment period as part 
of this document, we are implementing those provisions of the ARRA that 
amended certain provisions of section 114 of the MMSEA relating to 
payments to LTCHs and LTCH satellite facilities and increases in beds 
in existing LTCHs and LTCH satellite facilities under the LTCH PPS.

DATES: Effective Dates: These final rules are effective on October 1, 
2009, with the following exceptions:
    The provisions of Sec. Sec.  412.534(c) through (e) and (h) and 
412.536(a)(2) are effective for cost reporting periods beginning on or 
after July 1, 2007, or October 1, 2007, as applicable. In accordance 
with sections 1871(e)(1)(A)(i) and (ii) of the Social Security Act, the 
Secretary has determined that retroactive application of the provisions 
of Sec. Sec.  412.534(c) through (e) and (h) and 412.5536(a)(2) is 
necessary to comply with the statute and that failure to apply the 
changes retroactively would be contrary to public interest.
    Comment Period: To be assured consideration, comments on the 
interim final rule with comment period (CMS-1406-IFC) that appears as 
section XI. of the preamble of this document must be received at one of 
the addresses provided below, no later than 5 p.m. E.S.T. on October 
26, 2009.

ADDRESSES: When commenting on issues presented in the interim final 
rule with comment period, please refer to file code CMS-1406-IFC. 
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 at http://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the file code CMS-1406-IFC to 
submit comments on this interim final 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-1406-IFC, 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-1406-IFC, 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.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

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FOR FURTHER INFORMATION, CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, Wage 
Index, New Medical Service and Technology Add-On Payments, Hospital 
Geographic Reclassifications, Capital Prospective Payment, Excluded 
Hospitals, Direct and Indirect Graduate Medical Education Payments, 
Disproportionate Share Hospital (DSH), Critical Access Hospital (CAH), 
EMTALA Hospital Emergency Services, and Hospital-within-Hospital 
Issues.
    Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG 
Relative Weights for FYs 2009 and 2010 Issues.
    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
    James Poyer, (410) 786-2261, Quality Data for Annual Payment Update 
Issues.
    Lisa Grabert, (410) 786-6827, Hospital-Acquired Conditions.

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 at 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 Web 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

3M 3M Health Information System
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASC Ambulatory surgical center
ASCA Administrative Simplification Compliance Act of 2002, Public 
Law 107-105
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation 
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law 
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 
99-272
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
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
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996, 
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HwH Hospital-within-a-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor

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MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 
the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
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
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NQF National Quality Forum
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991 (Pub. 
L. 104-113)
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PIP Periodic interim payment
PLI Professional liability insurance
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
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI [Qualifying Individuals] Programs Extension Act of 2007, Public 
Law 110-90
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set

Table of Contents

I. Background
    A. Summary
    1. Acute Care Hospital Inpatient Prospective Payment System 
(IPPS)
    2. Hospitals and Hospital Units Excluded From the IPPS
    3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    4. Critical Access Hospitals (CAHs)
    5. Payments for Graduate Medical Education (GME)
    B. Provisions of the Medicare Improvements for Patients and 
Providers Act of 2008 (MIPPA)
    C. Provisions of the American Recovery and Reinvestment Act of 
2009 (ARRA)
    D. Issuance of a Notice of Proposed Rulemaking
    1. Proposed Changes to MS-DRG Classifications and Recalibrations 
of Relative Weights
    2. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    3. Proposed Rebasing and Revision of the Hospital Market Baskets 
for Acute Care Hospitals
    4. Other Decisions and Proposed Changes to the IPPS for 
Operating Costs and GME Costs
    5. FY 2010 Policy Governing the IPPS for Capital-Related Costs
    6. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    7. Proposed Changes to the LTCH PPS
    8. Determining Proposed Prospective Payment Operating and 
Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
    9. Determining Proposed Prospective Payments Rates for LTCHs
    10. Impact Analysis
    11. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    12. Discussion of Medicare Payment Advisory Commission 
Recommendations
    E. Finalization of an Interim Final Rule With Comment Period 
That Revised the MS-LTC-DRG Relative Weights for FY 2009 (for June 
3, 2009 Through September 30, 2009)
    F. Finalization of Two LTCH PPS Interim Final Rules With Comment 
Period Issued in May 2008
    G. Interim Final Rule With Comment Period That Implements 
Certain Provisions of the ARRA Relating to Payments to LTCHs and 
LTCH Satellite Facilities
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 
Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    1. General
    2. Yearly Review for Making MS-DRG Changes
    C. Adoption of the MS-DRGs in FY 2008
    D. FY 2010 MS-DRG Documentation and Coding Adjustment, Including 
the Applicability to the Hospital-Specific Rates and the Puerto 
Rico-Specific Standardized Amount
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    2. Prospective Adjustment to the Average Standardized Amounts 
Required by Section 7(b)(1)(A) of Public Law 110-90
    3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Public Law 110-90
    4. Retrospective Evaluation of FY 2008 Claims Data
    5. Adjustments for FY 2010 and Subsequent Years Authorized by 
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) 
of the Act
    6. Additional Adjustment for FY 2010 Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    7. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    8. Documentation and Coding Adjustment to the Hospital-Specific 
Rates for FY 2010 and Subsequent Years
    9. Background on the Application of the Documentation and Coding 
Adjustment to the Puerto Rico-Specific Standardized Amount
    10. Documentation and Coding Adjustment to the Puerto Rico-
Specific Standardized Amount
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    a. Summary of the RTI Study of Charge Compression and CCR 
Refinement
    b. Summary of the Rand Corporation Study of Alternative Relative 
Weight Methodologies

[[Page 43757]]

    2. Summary of FY 2009 Changes and Discussion for FY 2010
    3. Timeline for Revising the Medicare Cost Report
    F. Preventable Hospital-Acquired Conditions (HACs), Including 
Infections
    1. Statutory Authority
    2. HAC Selection Process
    3. Collaborative Process
    4. Selected HAC Categories
    5. Public Input Regarding Selected and Potential Candidate HACs
    6. POA Indicator Reporting
    7. Additional Considerations Addressing the HAC and POA Payment 
Provision
    G. Changes to Specific MS-DRG Classifications
    1. MDC 5 (Diseases and Disorders of the Circulatory System): 
Intraoperative Fluorescence Vascular Angiography (IFVA)
    2. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue): Infected Hip and Knee Replacements
    3. Medicare Code Editor (MCE) Changes
    a. Diagnoses Allowed for Males Only Edit
    b. Manifestation Codes as Principal Diagnosis Edit
    c. Invalid Diagnosis or Procedure Code
    d. Unacceptable Principal Diagnosis
    e. Creation of New Edit Titled ``Wrong Procedure Performed''
    f. Procedures Allowed for Females Only Edit
    4. Surgical Hierarchies
    5. Complication or Comorbidity (CC) Exclusions List
    a. Background
    b. CC Exclusions List for FY 2010
    6. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-
DRGs 987 Through 989 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
    7. Changes to the ICD-9-CM Coding System
    8. Other Issues Not Addressed in the Proposed Rule
    a. Administration of Tissue Plasminogen Activator (tPA) (rtPA)
    b. Coronary Artery Bypass Graft (CABG) With Intraoperative 
Angiography
    c. Insertion of Gastrointestinal Stent
    H. Recalibration of MS-DRG Weights
    I. Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. FY 2010 Status of Technologies Approved for FY 2009 Add-On 
Payments
    4. FY 2010 Applications for New Technology Add-On Payments
    a. The AutoLITT TM System
    b. CLOLAR[supreg] (clofarabine) Injection
    c. LipiScanTM Coronary Imaging System
    d. Spiration[supreg] IBV[supreg] Valve System
    e. TherOx Downstream[supreg] System
    5. Technical Correction
III. Changes to the Hospital Wage Index for Acute Care Hospitals
    A. Background
    B. Requirements of Section 106 of the MIEA-TRHCA
    1. Wage Index Study Required Under the MIEA-TRHCA
    a. Legislative Requirement
    b. Interim and Final Reports on Results of Acumen's Study
    2. FY 2009 Policy Changes in Response to Requirements Under 
Section 106(b) of the MIEA-TRHCA
    a. Reclassification Average Hourly Wage Comparison Criteria
    b. Within-State Budget Neutrality Adjustment for the Rural and 
Imputed Floors
    C. Core-Based Statistical Areas for the Hospital Wage Index
    D. Occupational Mix Adjustment to the FY 2010 Wage Index
    1. Development of Data for the FY 2010 Occupational Mix 
Adjustment Based on the 2007-2008 Occupational Mix Survey
    2. Calculation of the Occupational Mix Adjustment for FY 2010
    E. Worksheet S-3 Wage Data for the FY 2010 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
    G. Method for Computing the FY 2010 Unadjusted Wage Index
    H. Analysis and Implementation of the Occupational Mix 
Adjustment and the FY 2010 Occupational Mix Adjusted Wage Index
    I. Revisions to the Wage Index Based on Hospital Redesignations
    1. General
    2. Effects of Reclassification/Redesignation
    3. FY 2010 MGCRB Reclassifications
    4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of 
the Act
    5. Reclassifications Under Section 1886(d)(8)(B) of the Act
    6. Reclassifications Under Section 508 of Public Law 108-173
    J. FY 2010 Wage Index Adjustment Based on Commuting Patterns of 
Hospital Employees
    K. Process for Requests for Wage Index Data Corrections
IV. Rebasing and Revision of the Hospital Market Baskets for Acute 
Care Hospitals
    A. Background
    B. Rebasing and Revising the IPPS Market Basket
    1. Development of Cost Categories and Weights
    a. Medicare Cost Reports
    b. Other Data Sources
    2. Final Cost Category Computation
    3. Selection of Price Proxies
    a. Wages and Salaries
    b. Employment Benefits
    c. Fuel, Oil, and Gasoline
    d. Electricity
    e. Water and Sewage
    f. Professional Liability Insurance
    g. Pharmaceuticals
    h. Food: Direct Purchase
    i. Food: Contract Services
    j. Chemicals
    k. Blood and Blood Products
    l. Medical Instruments
    m. Photographic Supplies
    n. Rubber and Plastics
    o. Paper and Printing Products
    p. Apparel
    q. Machinery and Equipment
    r. Miscellaneous Products
    s. Professional Fees: Labor-Related
    t. Administrative and Business Support Services
    u. All Other: Labor-Related Services
    v. Professional Fees: Nonlabor-Related
    w. Financial Services
    x. Telephone Services
    y. Postage
    z. All Other: Nonlabor-Related Services
    4. Labor-Related Share
    C. Separate Market Basket for Certain Hospitals Presently 
Excluded From the IPPS
    D. Rebasing and Revising the Capital Input Price Index (CIPI)
V. Other Decisions and Changes to the IPPS for Operating Costs and 
GME Costs
    A. Reporting of Hospital Quality Data for Annual Hospital 
Payment Update
    1. Background
    a. Overview
    b. Hospital Quality Data Reporting Under Section 501(b) of 
Public Law 108-173
    c. Hospital Quality Data Reporting Under Section 5001(a) of 
Public Law 109-171
    2. Retirement of RHQDAPU Program Measures
    3. Quality Measures for the FY 2011 Payment Determination and 
Subsequent Years
    a. Considerations in Expanding and Updating Quality Measures 
Under the RHQDAPU Program
    b. RHQDAPU Program Quality Measures for the FY 2011 Payment 
Determination
    4. Possible New Quality Measures for the FY 2012 Payment 
Determination and Subsequent Years
    5. Form, Manner, and Timing of Quality Data Submission
    a. RHQDAPU Program Procedures for the FY 2011 Payment 
Determination
    b. RHQDAPU Program Disaster Extensions and Waivers
    c. HACHPS Requirements for the FY 2011 Payment Determination
    6. Chart Validation Requirements
    a. Chart Validation Requirements and Methods for the FY 2011 
Payment Determination
    b. Chart Validation Requirements and Methods for the FY 2012 
Payment Determination and Subsequent Years
    c. Possible Supplements to the Chart Validation Process for the 
FY 2013 Payment Determination and Subsequent Years
    7. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2011 Payment Determination and Subsequent Years
    8. Public Display Requirements for the FY 2011 Payment 
Determination and Subsequent Years

[[Page 43758]]

    9. Reconsideration and Appeal Procedures for the FY 2010 Payment 
Determination
    10. RHQDAPU Program Withdrawal Deadlines
    11. Electronic Health Records
    a. Background
    b. EHR Testing of Quality Measures Submission
    c. HITECH Act EHR Provisions
    B. Medicare-Dependent, Small Rural Hospitals (MDHs): Budget 
Neutrality Adjustment Factors for FY 2002-Based Hospital-Specific 
Rate
    1. Background
    2. FY 2002-Based Hospital-Specific Rate
    C. Rural Referral Centers (RRCs)
    1. Case-Mix Index
    2. Discharges
    D. Indirect Medical Education (IME) Adjustment
    1. Background
    2. IME Adjustment Factor for FY 2010
    3. IME-Related Changes in Other Sections of this Final Rule
    E. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs)
    1. Background
    2. Policy Change Relating to the Inclusion of Labor and Delivery 
Patient Days in the Medicare DSH Calculation
    a. Background
    b. Proposed and Final Policy Change
    3. Policy Change Relating to Calculation of Inpatient Days in 
the Medicaid Fraction in the Medicare DSH Calculation
    a. Background
    b. Proposed and Final Policy Change
    4. Policy Change Relating to the Exclusion of Observation Beds 
and Patient Days from the Medicare DSH Calculation
    a. Background
    b. Proposed and Final Policy Change
    5. Public Comments Received Out of the Scope of the Proposed 
Rule
    F. Technical Correction to Regulations on Payments for 
Anesthesia Services Furnished by Hospital or CAH Employed 
Nonphysician Anesthetists or Obtained Under Arrangements
    G. Payments for Direct Graduate Medical Education (GME) Costs
    1. Background
    2. Clarification of Definition of New Medical Residency Training 
Program
    3. Participation of New Teaching Hospitals in Medicare GME 
Affiliated Groups
    4. Technical Corrections to Regulations
    H. Hospital Emergency Services Under EMTALA
    1. Background
    2. Changes Relating to Applicability of Sanctions Under EMTALA
    I. Rural Community Hospital Demonstration Program
    J. Technical Correction to Regulations Relating to Calculation 
of the Federal Rate Under the IPPS
VI. Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Exception Payments
    C. New Hospitals
    D. Hospitals Located in Puerto Rico
    E. Proposed and Final Changes
    1. FY 2010 MS-DRG Documentation and Coding Adjustment
    a. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009
    b. Prospective MS-DRG Documentation and Coding Adjustment to the 
National Capital Federal Rate for FY 2010 and Subsequent Years
    c. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
    2. Revision to the FY 2009 IME Adjustment Factor
    3. Other Changes for FY 2010
VII. Changes for Hospitals Excluded From the IPPS
    A. Excluded Hospitals
    B. Criteria for Satellite Facilities of Hospitals
    C. Critical Access Hospitals (CAHs)
    1. Background
    2. Payment for Clinical Diagnostic Laboratory Tests Furnished by 
CAHs
    3. CAH Optional Method of Payment for Outpatient Services
    4. Continued Participation by CAHs in Counties Redesignated as 
Urban
    D. Provider-Based Status of Facilities and Organizations: Policy 
Changes
    1. Background
    2. Changes to the Scope of the Provider-Based Status Regulations 
for CAHs
    a. CAH-Based Clinical Diagnostic Laboratory Facilities
    b. CAH-Based Ambulance Services
    3. Technical Correction to Regulations
    E. Report of Adjustment (Exceptions) Payments
VIII. Changes to the Long-Term Care Hospital Prospective Payment 
System (LTCH PPS) for RY 2010
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as a LTCH
    a. Classification as a LTCH
    b. Hospitals Excluded From the LTCH PPS
    3. Limitation on Charges to Beneficiaries
    4. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
    B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-
LTC-DRG) Classifications and Relative Weights
    1. Background
    2. Patient Classifications Into MS-LTC-DRGs
    a. Background
    b. Changes to the MS-LTC-DRGs for RY 2010
    3. Development of the RY 2010 MS-LTC-DRG Relative Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Data
    c. Hospital-Specific Relative Value (HSRV) Methodology
    d. Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    e. Low-Volume MS-LTC-DRGs
    f. Steps for Determining the RY 2010 MS-LTC-DRG Relative Weights
    C. Changes to the LTCH Payment Rates and Other Changes to the RY 
2010 LTCH PPS
    1. Overview of Development of the LTCH Payment Rates
    2. Market Basket for LTCHs Reimbursed Under the LTCH PPS
    a. Overview
    b. Market Basket Under the LTCH PPS for RY 2010
    c. Market Basket Update for LTCHs for RY 2010
    d. Labor-Related Share Under the LTCH PPS for RY 2010
    3. Adjustment for Changes in LTCHs' Case-Mix Due to Changes in 
Documentation and Coding Practices That Occurred in a Prior Period
    a. Background
    b. Evaluation of FY 2007 Claims Data
    c. Evaluation of FY 2008 Claims Data
    d. RY 2010 Documentation and Coding Adjustment
    D. Technical Corrections of LTCH PPS Regulations
IX. Revisions to the FY 2009 Medicare Severity Long-Term Care 
Diagnosis-Related Group (MS-LTC-DRG) Relative Weights: Finalization 
of an Interim Final Rule With Comment Period
    A. Overview
    B. Changes to the FY 2009 MS-LTC-DRG Relative Weights
    C. Summary of Public Comments Received on the June 3, 2009 
Interim Final Rule With Comment Period and Our Responses
    D. Finalization of the June 3, 2009 Interim Final Rule With 
Comment Period
    E. Regulatory Impact Analysis for the June 3, 2009 Interim Final 
Rule With Comment Period
X. Finalization of Two Interim Final Rules With Comment Period That 
Implemented Certain Provisions of Section 114 of the Medicare, 
Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110-173) Relating 
to Payments to LTCHs and LTCH Satellite Facilities
    A. Background
    B. May 6, 2008 Interim Final Rule With Comment Period Provisions 
Implementing Section 114(c)(3) of the MMSEA Regarding Certain Short-
Stay Outlier Cases
    1. Background
    2. Public Comments Received on the May 6, 2008 Interim Final 
Rule With Comment Period Provisions Implementing Section 114(c)(3) 
of the MMSEA
    C. May 6, 2008 Interim Final Rule With Comment Period Provisions 
Implementing Sections 114(e)(1) and (e)(2) of the MMSEA Regarding 
the Standard Federal Rate for the 2008 LTCH PPS Rate Year
    1. Background
    2. Public Comments Received on the May 6, 2008 Interim Final 
Rule With Comment Period Provisions Implementing Sections 114(e)(1) 
and (e)(2) of the MMSEA
    D. May 22, 2008 Interim Final Rule With Comment Period Provision 
Implementing Sections 114(c)(1) and (c)(2) of the MMSEA Regarding 
Payment Adjustment to LTCHs and LTCH Satellite Facilities
    1. Background

[[Page 43759]]

    2. Payment Adjustment to LTCHs and LTCH Satellite Facilities 
Specified by Section 114(c) of the MMSEA
    3. Public Comments Received on the May 22, 2008 Interim Final 
Rule With Comment Period Implementing Section 114(c)(1) and (c)(2) 
of the MMSEA Regarding Payment Adjustment to LTCHs and LTCH 
Satellite Facilities
    E. May 22, 2008 Interim Final Rule With Comment Period 
Provisions Implementing Section 114(b) of the MMSEA Regarding 
Moratorium on the Establishment of LTCHs, LTCH Satellite Facilities 
and on the Increase in Number of Beds in Existing LTCHs or LTCH 
Satellite Facilities
    1. Background
    2. Provisions of the May 22, 2008 Interim Final Rule With 
Comment Period Implementing Section 114(d) of the MMSEA That 
Established Moratoria on New LTCHs and LTCH Satellite Facilities and 
on Bed Increases in Existing LTCHs and LTCH Satellite Facilities
    3. Public Comments Received on the on the May 22, 2008 Interim 
Final Rule With Comment Period Provisions Implementing the Exception 
to the Moratorium on the Increase in Number of LTCHs Beds in 
Existing LTCHs and LTCH Satellite Facilities
XI. Interim Final Rule with Comment Period Implementing Section 4302 
of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-
5) Relating to Payments to LTCHs and LTCH Satellite Facilities
    A. Background
    B. Amendments Relating to Payment Adjustment to LTCHs and LTCH 
Satellite Facilities Made by Section 4302 of the ARRA
    C. Amendments to the Moratorium on the Increase in Number of 
Beds in Existing LTCHs or LTCH Satellite Facilities Made by Section 
4302 of the ARRA
    D. Response to Comments
    E. Waiver of Proposed Rulemaking
    F. Collection of Information Requirements
    G. Regulatory Impact Analysis
XII. MedPAC Recommendations
XIII. Other Required Information
    A. Requests for Data From the Public
    B. Collection of Information Requirements
    C. Additional Information Collection Requirements
    1. Present on Admission (POA) Indicator Reporting
    2. Add-On Payments for New Services and Technologies
    3. Reporting of Hospital Quality Data for Annual Hospital 
Payment Update
    4. Occupational Mix Adjustment to the FY 2010 Index (Hospital 
Wage Index Occupational Mix Survey)
    5. Hospital Applications for Geographic Reclassifications by the 
MGCRB

Regulation Text

Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-
of-Increase Percentages Effective With Cost Reporting Periods Beginning 
on or after October 1, 2009

I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2010
    A. Calculation of the Adjusted Standardized Amount
    B. Adjustments for Area Wage Levels and Cost-of-Living
    C. MS-DRG Relative Weights
    D. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2010
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2010
    C. Capital Input Price Index
IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-
of-Increase Percentages
V. Changes to the Payment Rates for the LTCH PPS for RY 2010
    A. LTCH PPS Standard Federal Rate for RY 2010
    B. Adjustment for Area Wage Levels Under the LTCH PPS for RY 
2010
    C. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
    D. Computing the Adjusted LTCH PPS Federal Prospective Payments 
for RY 2010
VI. Tables
    Table 1A.--National Adjusted Operating Standardized Amounts, 
Labor/Nonlabor (68.8 Percent Labor Share/31.2 Percent Nonlabor Share 
If Wage Index Is Greater Than 1)
    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 1E.--LTCH Standard Federal Prospective Payment Rate
    Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2008; Hospital Wage Indexes for 
Federal Fiscal Year 2010; Hospital Average Hourly Wages for Federal 
Fiscal Years 2008 (2004 Wage Data), 2009 (2005 Wage Data), and 2010 
(2006 Wage Data); and 3-Year Average of Hospital Average Hourly 
Wages
    Table 3A.--FY 2010 and 3-Year Average Hourly Wage for Acute Care 
Hospitals in Urban Areas by CBSA
    Table 3B.--FY 2010 and 3-Year Average Hourly Wage for Acute Care 
Hospitals in Rural Areas by CBSA
    Table 4A.--Wage Index and Capital Geographic Adjustment Factor 
(GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State--
FY 2010
    Table 4B.--Wage Index and Capital Geographic Adjustment Factor 
(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--
FY 2010
    Table 4C.--Wage Index and Capital Geographic Adjustment Factor 
(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by 
State--FY 2010
    Table 4D-1.--Rural Floor Budget Neutrality Factors for Acute 
Care Hospitals--FY 2010
    Table 4D-2.--Urban Areas With Acute Care Hospitals Receiving the 
Statewide Rural Floor or Imputed Floor Wage Index--FY 2010
    Table 4E.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2010
    Table 4F.--Puerto Rico Wage Index and Capital Geographic 
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2010
    Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY 
2010
    Table 5.--List of Medicare Severity Diagnosis-Related Groups 
(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic 
Mean Length of Stay--FY 2010
    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 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 2008 MedPAR Update--March 2009 
GROUPER V26.0 MS-DRGs
    Table 7B.--Medicare Prospective Payment System Selected 
Percentile Lengths of Stay: FY 2008 MedPAR Update--March 2009 
GROUPER V27.0 MS-DRGs
    Table 8A.--Statewide Average Operating Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals--July 2009
    Table 8B.--Statewide Average Capital Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals--July 2009

[[Page 43760]]

    Table 8C.--Statewide Average Total Cost-to-Charge Ratios (CCRs) 
for LTCHs--July 2009
    Table 9A.--Hospital Reclassifications and Redesignations--FY 
2010
    Table 9C.--Hospitals Redesignated as Rural Under Section 
1886(d)(8)(E) of the Act--FY 2010
    Table 10.--Geometric Mean Plus the Lesser of .75 of the National 
Adjusted Operating Standardized Payment Amount (Increased to Reflect 
the Difference Between Costs and Charges) or .75 of One Standard 
Deviation of Mean Charges by Medicare Severity Diagnosis-Related 
Groups (MS-DRGs)--July 2009
    Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average 
Length of Stay, and Short-Stay Outlier Threshold for Discharges 
Occurring From October 1, 2009 Through September 30, 2010 under the 
LTCH PPS
    Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges 
Occurring From October 1, 2009 Through September 30, 2010
    Table 12B.--LTCH PPS Wage Index for Rural Ares for Discharges 
Occurring From October 1, 2009 Through September 30, 2010

Appendix A--Regulatory Impact Analysis

I. Overall Impact
II. Objectives of the IPPS
III. Limitations of Our Analysis
IV. Hospitals Included in and Excluded From the IPPS
V. Effects on Hospitals Excluded From the IPPS
VI. Quantitative Effects of the Policy Changes Under the IPPS for 
Operating Costs
    A. Basis and Methodology of Estimates
    B. Analysis of Table I
    C. Effects of the Changes to the MS-DRG Reclassifications and 
Relative Cost-Based Weights (Column 1)
    D. Effects of the Application of Recalibration Budget Neutrality 
(Column 2)
    E. Effects of Wage Index Changes (Column 3)
    F. Application of the Wage Budget Neutrality Factor (Column 4)
    G. Combined Effects of MS-DRG and Wage Index Changes (Column 5)
    H. Effects of MGCRB Reclassifications (Column 6)
    I. Effects of the Rural Floor and Imputed Floor, Including the 
Transition to Apply Budget Neutrality at the State Level (Column 7)
    J. Effects of the Wage Index Adjustment for Out-Migration 
(Column 8)
    K. Effects of All Changes (Column 9)
    L. Effects of Policy on Payment Adjustments for Low-Volume 
Hospitals
    M. Impact Analysis of Table II
VII. Effects of Other Policy Changes
    A. Effects of Policy on HACs, Including Infections
    B. Effects of Policy Changes Relating to New Medical Service and 
Technology Add-On Payments
    C. Effects of Requirements for Hospital Reporting of Quality 
Data for Annual Hospital Payment Update
    D. Effects of Correcting the FY 2002-Based Hospital-Specific 
Rates for MDHs
    E. Effects of Policy Changes Relating to the Payment Adjustment 
to Disproportionate Share Hospitals
    F. Effects of Policy Revisions Related to Payments to Hospitals 
for Direct GME
    G. Effects of Policy Changes Relating to Hospital Emergency 
Services under EMTALA
    H. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    I. Effects of Policy Changes Relating to Payments to Satellite 
Facilities
    J. Effects of Policy Changes Relating to Payments to CAHs
    K. Effects of Policy Changes Relating to Provider-Based Status 
of Facilities and Organizations
VIII. Effects of Changes in the Capital IPPS
    A. General Considerations
    B. Results
IX. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS
    A. Introduction and General Considerations
    B. Impact on Rural Hospitals
    C. Anticipated Effects of LTCH PPS Payment Rate Change and 
Policy Changes
    D. Effect on the Medicare Program
    E. Effect on Medicare Beneficiaries
X. Alternatives Considered
XI. Overall Conclusion
    A. Acute Care Hospitals
    B. LTCHs
XII. Accounting Statements
    A. Acute Care Hospitals
    B. LTCHs
XIII. 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 2010
III. Secretary's Final Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
    Section 1886(d) of the Social Security Act (the Act) sets forth a 
system of payment for the operating costs of acute care hospital 
inpatient stays under Medicare Part A (Hospital Insurance) based on 
prospectively set rates. Section 1886(g) of the Act requires the 
Secretary to pay for the capital-related costs of hospital inpatient 
stays under a prospective payment system (PPS). Under these PPSs, 
Medicare payment for hospital inpatient operating and capital-related 
costs is made at predetermined, specific rates for each hospital 
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
    The base payment rate is comprised of a standardized amount that is 
divided 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 payment, it would be inadequately paid under the regular DRG 
payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments.
    Although payments to most hospitals under the IPPS are made on the 
basis of the standardized amounts, some categories of hospitals are 
paid in whole or in part based on their 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 highest of FY 1982, FY 1987, FY 1996, or FY 
2006) or the IPPS Federal rate based on the

[[Page 43761]]

standardized amount. Through and including FY 2006, a Medicare-
dependent, small rural hospital (MDH) received the higher of the 
Federal rate or the Federal rate plus 50 percent of the amount by which 
the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 
hospital-specific rate. As discussed below, for discharges occurring on 
or after October 1, 2007, but before October 1, 2011, an MDH will 
receive the higher of the Federal rate or the Federal rate plus 75 
percent of the amount by which the Federal rate is exceeded by the 
highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. 
SCHs are the sole source of care in their areas, and MDHs are a major 
source of care for Medicare beneficiaries in their areas. Specifically, 
section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that 
is located more than 35 road miles from another hospital or that, by 
reason of factors such as isolated location, weather conditions, travel 
conditions, or absence of other like hospitals (as determined by the 
Secretary), is the sole source of hospital inpatient services 
reasonably available to Medicare beneficiaries. In addition, certain 
rural hospitals previously designated by the Secretary as essential 
access community hospitals are considered SCHs. Section 
1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is 
located in a rural area, has not more than 100 beds, is not an SCH, and 
has a high percentage of Medicare discharges (not less than 60 percent 
of its inpatient days or discharges in its cost reporting year 
beginning in FY 1987 or in two of its three most recently settled 
Medicare cost reporting years). Both of these categories of hospitals 
are afforded this special payment protection in order to maintain 
access to services for beneficiaries.
    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient hospital services ``in accordance 
with a prospective payment system established by the Secretary.'' The 
basic methodology for determining capital prospective payments is set 
forth in our regulations at 42 CFR 412.308 and 412.312. Under the 
capital IPPS, payments are adjusted by the same DRG for the case as 
they are under the operating IPPS. Capital IPPS payments are also 
adjusted for IME and DSH, similar to the adjustments made under the 
operating IPPS. In addition, hospitals may receive outlier payments for 
those cases that have unusually high costs.
    The existing regulations governing payments to hospitals under the 
IPPS are located in 42 CFR part 412, subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
    Under section 1886(d)(1)(B) of the Act, as amended, certain 
hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: Rehabilitation hospitals and units; 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 (BBA, Pub. L. 105-33), the Medicare, 
Medicaid and SCHIP [State Children's Health Insurance Program] Balanced 
Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs 
for rehabilitation hospitals and units (referred to as inpatient 
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and 
units (referred to as inpatient psychiatric facilities (IPFs)). (We 
note that the annual updates to the LTCH PPS are now included as part 
of the IPPS annual update document (for RY 2010, in this final rule). 
Updates to the IRF PPS and IPF PPS are issued as separate documents.) 
Children's hospitals, cancer hospitals, and RNHCIs continue to be paid 
solely under a reasonable cost-based system subject to a rate-of-
increase ceiling on inpatient operating costs per discharge.
    The existing regulations governing payments to excluded hospitals 
and hospital units are located in 42 CFR parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    The Medicare prospective payment system (PPS) for LTCHs applies to 
hospitals described in section 1886(d)(1)(B)(iv) effective for cost 
reporting periods beginning on or after October 1, 2002. The LTCH PPS 
was established under the authority of sections 123(a) and (c) of 
Public Law 106-113 and section 307(b)(1) of Public Law 106-554. During 
the 5-year (optional) transition period, a LTCH's payment under the PPS 
was based on an increasing proportion of the LTCH Federal rate with a 
corresponding decreasing proportion based on reasonable cost 
principles. Effective for cost reporting periods beginning on or after 
October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. 
The existing regulations governing payment under the LTCH PPS are 
located in 42 CFR part 412, subpart O. Beginning with RY 2010, we are 
issuing the annual updates to the LTCH PPS in the same documents that 
update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
    Under sections 1814(l), 1820, and 1834(g) of the Act, payments are 
made to critical access hospitals (CAHs) (that is, rural hospitals or 
facilities that meet certain statutory requirements) for inpatient and 
outpatient services are generally based on 101 percent of reasonable 
cost. Reasonable cost is determined under the provisions of section 
1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 
413 and 415.
5. Payments for Graduate Medical Education (GME)
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of inpatient hospital 
services. Hospitals with approved graduate medical education (GME) 
programs are paid for the direct costs of GME in accordance with 
section 1886(h) of the Act. The amount of payment for direct GME costs 
for a cost reporting period is based on the hospital's number of 
residents in that period and the hospital's costs per resident in a 
base year. The existing regulations governing payments to the various 
types of hospitals are located in 42 CFR part 413.

B. Provisions of the Medicare Improvements for Patients and Providers 
Act of 2008 (MIPPA)

    Section 148 of the MIPPA (Pub. L. 110-275) changes the payment 
rules regarding outpatient clinical diagnostic laboratory tests 
furnished by a CAH. The statutory change applies to services furnished 
on or after July 1, 2009. In section VII.C.2. of the preamble of the 
proposed rule, we discussed our proposal to codify policies in the 
Medicare regulations to implement this provision. In section VII.C.2. 
of this final rule, we finalize our policies in the Medicare 
regulations to implement this provision.

C. Provisions of the American Recovery and Reinvestment Act of 2009 
(ARRA)

    Section 4301(b) of the American Recovery and Reinvestment Act of 
2009 (AARA), Pub. Law 111-5, enacted on February 17, 2009, requires 
that the phase-out of the capital IPPS teaching adjustment at Sec.  
412.322(c) (that is, the 50-percent reduction for FY 2009) shall be 
applied, as if such paragraph had not been in effect. That is, 
discharges occurring on or after October 1, 2008,

[[Page 43762]]

through September 30, 2009, receive the full capital IPPS teaching 
adjustment as determined under Sec.  412.322(b) of the regulations. We 
note that, in this final rule, in response to public comments on our 
proposed implementation of section 4301(b) of the ARRA, we are deleting 
Sec.  412.322(d) of the existing regulations which currently eliminates 
the teaching adjustment beginning in FY 2010. We discuss the 
implementation of these provisions in sections VI.A. and E.2. of the 
preamble of this final rule.
    Section 4302 of the ARRA included several amendments to provisions 
of section 114 of the MMSEA relating to: (1) The 3-year delay in the 
application of certain provisions of the payment adjustments for short-
stay outliers and revision to the RY 2008 standard Federal rate for 
LTCHs; and (2) the 3-year moratorium on the establishment of new LTCHs 
and LTCH satellite facilities and on increases in beds in existing 
LTCHs and LTCH satellite facilities. We discuss the final 
implementation of these provisions in sections I.E., VIII., and XI. of 
the preamble of this final rule.

D. Issuance of a Notice of Proposed Rulemaking

    On May 22, 2009, we published in the Federal Register (74 FR 24080) 
a proposed rule that set forth proposed changes to the Medicare IPPS 
for operating costs and for capital-related costs of acute care 
hospitals in FY 2010. We also set 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 set forth proposed changes to the payment rates, 
factors, and other payment rate policies under the LTCH PPS for RY 
2010. On June 3, 2009, we published in the Federal Register (74 FR 
26600) a supplemental proposed rule (hereafter referred to as the ``RY 
2010 LTCH PPS supplemental proposed rule'') that presented both 
proposed RY 2010 MS-LTC-DRG relative weights and a proposed RY 2010 
high-cost outlier (HCO) fixed-loss amount based on the revised FY 2009 
MS-LTC-DRG relative weights presented in an interim final rule with 
comment period published also on June 3, 2009 in the Federal Register 
(74 FR 26546).
    Below is a summary of the major changes that we proposed to make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of this final rule, we included--
     Proposed changes to MS-DRG classifications based on our 
yearly review.
     Proposed application of the documentation and coding 
adjustment to hospital-specific rates for FY 2010 resulting from 
implementation of the MS-DRG system.
     A discussion of the Research Triangle International, Inc. 
(RTI) and RAND Corporation reports and recommendations relating to 
charge compression, including a solicitation of public comments on the 
``over'' standardization of hospital charges.
     Proposed recalibrations of the MS-DRG relative weights.
    We also presented a listing and discussion of hospital-acquired 
conditions (HACs), including infections, that are subject to the 
statutorily required quality adjustment in MS-DRG payments for FY 2010.
    We presented our evaluation and analysis of the FY 2010 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).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to the proposed rule, we proposed 
revisions to the wage index for acute care hospitals and the annual 
update of the wage data. Specific issues addressed include the 
following:
     Second year of the 3-year transition from national to 
within-State budget neutrality for the rural floor and imputed floor.
     Final year of the 2-year transition for changes in the 
average hourly wage criterion for geographic reclassifications.
     Changes to the CBSA designations.
     The proposed FY 2010 wage index update using wage data 
from cost reporting periods that began during FY 2007.
     Analysis and implementation of the proposed FY 2010 
occupational mix adjustment to the wage index for acute care hospitals, 
including the use of data from the 2007-2008 occupational mix survey.
     Proposed revisions to the wage index for acute care 
hospitals based on hospital redesignations and reclassifications.
     The proposed adjustment to the wage index for acute care 
hospitals for FY 2010 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 2010 wage index for acute care 
hospitals.
3. Proposed Rebasing and Revision of the Hospital Market Baskets for 
Acute Care Hospitals
    In section IV. of the preamble of the proposed rule, we proposed to 
rebase and revise the acute care hospital operating and capital market 
baskets to be used in developing the FY 2010 update factor for the 
operating and capital prospective payment rates and the FY 2010 update 
factor for the excluded hospital rate-of-increase limits. We also set 
forth the data sources used to determine the proposed revised market 
basket relative weights.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section V. of the preamble of the proposed rule, we discussed a 
number of the provisions of the regulations in 42 CFR parts 412, 413, 
and 489, including the following:
     The reporting of hospital quality data as a condition for 
receiving the full annual payment update increase.
     Discussion of applying the correct budget neutrality 
adjustment for the FY 2002-based hospital-specific rates for 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 
2010.
     Proposed changes to the policies governing payments to 
Medicare disproportionate share hospitals, including proposed policies 
relating to the inclusion of labor and delivery patient days in the 
calculation of the DSH payment adjustment, calculation of inpatient 
days in the Medicaid fraction for the Medicare DSH calculation, and 
exclusion of observation beds and patient days from the Medicare DSH 
calculation and from the bed count for the IME adjustment.
     Proposed changes to the policies governing payment for 
direct GME.
     Proposed changes to policies on hospital emergency 
services under EMTALA relating to the applicability of sanctions under 
EMTALA.
     Discussion of the implementation of the Rural Community 
Hospital Demonstration Program in FY 2010.
     Proposed technical correction to the regulations governing 
the calculation of the Federal rate under the IPPS.

[[Page 43763]]

5. FY 2010 Policy Governing the IPPS for Capital-Related Costs
    In section VI. of the preamble to the proposed rule, we discussed 
the payment policy requirements for capital-related costs and capital 
payments to hospitals for FY 2010. We also proposed to remove a section 
of the regulations relating to the phase-out of the capital IME 
adjustment for FY 2009 to implement the provisions of section 4301(b) 
of the ARRA.
6. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VII. of the preamble of the proposed rule, we 
discussed--
     Proposed changes to payments to excluded hospitals.
     Proposed changes to the regulations governing satellite 
facilities of hospitals.
     Proposed changes relating to payments to CAHs, including 
payment for clinical laboratory tests furnished by CAHs and payment for 
outpatient facility services when a CAH elects the optional payment 
method.
     Proposed changes to the rules governing provider-based 
status of facilities and a proposed technical correction to the 
regulations governing provider-based entities.
7. Proposed Changes to the LTCH PPS
    In section VIII.A. through C. and F. of the preamble of the 
proposed rule, we set forth proposed changes to the payment rates, 
factors, and other payment rate policies under the LTCH PPS for RY 
2010, including the annual update of the MS-LTC-DRG classifications and 
relative weights for use under the LTCH PPS for RY 2010, the proposed 
use of the FY 2002-based RPL market basket for LTCHs, and proposed 
technical corrections to the LTCH PPS regulations.
    In section VIII.D. of the preamble of the proposed rule, we 
discussed our ongoing monitoring protocols under the LTCH PPS. In 
section VIII.E. of the preamble of the proposed rule, we discussed the 
Research Triangle Institute, International (RTI) Phase III Report on 
its evaluation of the feasibility of establishing facility and patient 
criteria for LTCHs, as recommended by MedPAC in its June 2004 Report to 
Congress.
    We note that, because we did not propose any policy changes 
relating to our present activities in monitoring and updates on the RTI 
contract, we are not republishing these section discussions in this 
final rule. We did receive several public comments on specific aspects 
of the summary of RTI's most recent work. These commenters urged CMS 
not to finalize any proposals based on RTI's Phase III report until the 
public has had the opportunity to review the report and comment on its 
findings. We regret that RTI's Phase III report was not posted on the 
CMS Web site, as we had indicated in our proposed rule. The report will 
be available in the near future at http://www.cms.hhs.gov/LongTermCareHopitalPPS/02a_RTIReports.asp#TopOfPage. Although we did 
not propose any policies based on that report, we can assure the 
readers that any policies that we believe are appropriate for 
implementation would be subject to the notice-and-comment rulemaking 
process.
8. Determining Proposed Prospective Payment Operating and Capital Rates 
and Rate-of-Increase Limits for Acute Care Hospitals
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2010 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We also established the proposed threshold 
amounts for outlier cases. In addition, we addressed the proposed 
update factors for determining the rate-of-increase limits for cost 
reporting periods beginning in FY 2010 for hospitals excluded from the 
IPPS.
9. Determining Proposed Prospective Payment Rates for LTCHs
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed RY 2010 
prospective standard Federal rate. We also established the proposed 
adjustments for wage levels, the labor-related share, the cost-of-
living adjustment, and high-cost outliers, including the fixed-loss 
amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.
10. Impact Analysis
    In Appendix A of the proposed rule, we set forth an analysis of the 
impact that the proposed changes would have on affected acute care 
hospitals and LTCHs.
11. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    In Appendix B of the proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of 
the appropriate percentage changes for FY 2010 for the following:
     A single average standardized amount for all areas for 
hospital inpatient services paid under the IPPS for operating costs of 
acute care hospitals (and hospital-specific rates applicable to SCHs 
and MDHs).
     Target rate-of-increase limits to the allowable operating 
costs of hospital inpatient services furnished by certain hospitals 
excluded from the IPPS.
     The standard Federal rate for hospital inpatient services 
furnished by LTCHs.
12. Discussion of Medicare Payment Advisory Commission Recommendations
    Under section 1805(b) of the Act, MedPAC is required to submit a 
report to Congress, no later than March 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 hospital inpatient 
operating costs and capital-related costs under the IPPS, for hospitals 
and distinct part hospital units excluded from the IPPS, and for LTCHs. 
We addressed these recommendations in Appendix B of the proposed rule. 
For further information relating specifically to the MedPAC March 2008 
report or to obtain a copy of the report, contact MedPAC at (202) 220-
3700 or visit MedPAC's Web site at: http://www.medpac.gov.
    We received approximately 525 timely pieces of correspondence from 
the public in response to the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule and the supplemental proposed rule. We summarize these public 
comments and present our responses under the specific subject areas of 
this final rule.

E. Finalization of Interim Final Rule With Comment Period That Revised 
the FY 2009 MS-LTC-DRG Relative Weights

    On June 3, 2009, we issued in the Federal Register an interim final 
rule with comment period that revised the MS-LTC-DRG relative weights 
for payments under the LTCH PPS. We revised the MS-LTC-DRG relative 
weights for FY 2009 due to the misapplication of our established 
methodology in the calculation of the budget neutrality factor. The 
revised relative weights are effective for the remainder of FY 2009 
(that is, from June 3, 2009 through September 30, 2009). We received 11 
timely pieces of correspondence from the public in response to this 
interim final rule with comment period. In section IX. of the preamble 
of this final rule, we summarize these public comments, present our 
responses, and finalize the

[[Page 43764]]

provisions of the interim final rule with comment period.

F. Finalization of Two LTCH PPS Interim Final Rules With Comment Period 
Issued in May 2008

    On May 6, 2008 and May 22, 2008, we issued in the Federal Register 
two interim final rules with comment period relating to the LTCH PPS 
(73 FR 24871 and 73 FR 29699, respectively), which implement section 
114 of Public Law 110-173 (MMSEA). The May 6, 2008 interim final rule 
with comment period implemented provisions of section 114 of Public Law 
110-173 relating to a 3-year delay in the application of certain 
provisions of the payment adjustment for short-stay outliers and 
revisions to the RY 2008 standard Federal rate for LTCHs. The May 22, 
2008 interim final rule with comment period implemented certain 
provisions of section 114 of Public Law 110-173 relating to a 3-year 
moratorium on the establishment of new LTCHs and LTCH satellite 
facilities and on increases in beds in existing LTCHs and LTCH 
satellite facilities. The May 22, 2008 interim final rule with comment 
period also implemented a 3-year delay in the application of certain 
payment policies that apply to payment adjustments for discharges from 
LTCHs and LTCH satellite facilities that were admitted from certain 
referring hospitals in excess of various percentage thresholds.
    We received six timely pieces of correspondence from the public in 
response to the May 6, 2008 interim final rule with comment period. We 
received 30 timely pieces of correspondence from the public in response 
to the May 22, 2008 interim final rule with comment period. In section 
X. of the preamble of this final rule, we summarize these public 
comments, present our responses, and finalize the provisions of both 
interim final rules with comment period, as appropriate.

G. Interim Final Rule With Comment Period That Implements Certain 
Provisions of the ARRA Relating to Payments to LTCHs and LTCH Satellite 
Facilities

    Section 4302 of the American Recovery and Reinvestment Act of 2009 
(ARRA, Pub. L. 111-5) included several amendments to section 114 of 
Public Law 110-173 (MMSEA) relating to payments to LTCHs and LTCH 
satellite facilities that are discussed under section X. of the 
preamble of this final rule. These amendments are effective as if they 
were enacted as part of section 114 of Public Law 110-173 (MMSEA). We 
issued instructions to the fiscal intermediaries and Medicare 
administrative contractors (MACs) to interpret these amendments (Change 
Request 6444). In section XI. of this document, we implement the 
provisions of section 4302 of Public Law 111-5 through an interim final 
rule with comment period. Comments on this interim final rule with 
comment period may be submitted as specified in the DATES and Comment 
Period sections of this document.

II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 
Classifications and Relative Weights

A. Background

    Section 1886(d) of the Act specifies that the Secretary shall 
establish a classification system (referred to as DRGs) for inpatient 
discharges and adjust payments under the IPPS based on appropriate 
weighting factors assigned to each DRG. Therefore, under the IPPS, 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 severity of 
illness into account and applying hospital-specific relative value 
(HSRV) weights to DRGs.\1\ We began this reform process by adopting 
cost-based weights over a 3-year transition period beginning in FY 2007 
and making interim changes to the DRG system for FY 2007 by creating 20 
new CMS DRGs and modifying 32 other DRGs across 13 different clinical 
areas involving nearly 1.7 million cases. As described in more detail 
below, these refinements were intermediate steps towards comprehensive 
reform of both the relative weights and the DRG system as we undertook 
further study. For FY 2008, we adopted 745 new Medicare Severity DRGs 
(MS-DRGs) to replace the CMS DRGs. We refer readers to section II.D. of 
the FY 2008 IPPS final rule with comment period for a full detailed 
discussion of how the MS-DRG system, based on severity levels of 
illness, was established (72 FR 47141).
---------------------------------------------------------------------------

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

    Currently, cases are classified into MS-DRGs for payment under the 
IPPS based on the following information reported by the hospital: the 
principal diagnosis, up to eight additional diagnoses, and up to six 
procedures performed during the stay. 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 developing the MS-DRGs was begun by dividing all 
possible principal diagnoses into mutually exclusive principal 
diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The 
MDCs were formulated by physician panels to ensure that the DRGs would 
be clinically coherent. The diagnoses in each MDC correspond to a 
single organ system or etiology and, in general, are associated with a 
particular medical specialty. Thus, in order to maintain the 
requirement of clinical coherence, no final MS-DRG could contain 
patients in different MDCs. For example, MDC 6 is Diseases and 
Disorders of the Digestive System. This approach is used because 
clinical care is generally organized in 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 2009, cases are assigned to one of 746 MS-DRGs in 25 
MDCs. The table below lists the 25 MDCs.

[[Page 43765]]



                   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 
13 MS-DRGs to which cases are directly assigned on the basis of ICD-9-
CM procedure codes. These MS-DRGs are for heart transplant or implant 
of heart assist systems; liver and/or intestinal transplants; bone 
marrow transplants; lung transplants; simultaneous pancreas/kidney 
transplants; pancreas transplants; and tracheostomies. Cases are 
assigned to these MS-DRGs before they are classified to an MDC. The 
table below lists the 13 current pre-MDCs.

               Pre-Major Diagnostic Categories (Pre-MDCs)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
MS-DRG 001............................  Heart Transplant or Implant of
                                         Heart Assist System with MCC.
MS-DRG 002............................  Heart Transplant or Implant of
                                         Heart Assist System without
                                         MCC.
MS-DRG 003............................  ECMO or Tracheostomy with
                                         Mechanical Ventilation 96+
                                         Hours or Principal Diagnosis
                                         Except for Face, Mouth, and
                                         Neck Diagnosis with Major O.R.
MS-DRG 004............................  Tracheostomy with Mechanical
                                         Ventilation 96+ Hours or
                                         Principal Diagnosis Except for
                                         Face, Mouth, and Neck Diagnosis
                                         with Major O.R.
MS-DRG 005............................  Liver Transplant with MCC or
                                         Intestinal Transplant.
MS-DRG 006............................  Liver Transplant without MCC.
MS-DRG 007............................  Lung Transplant.
MS-DRG 008............................  Simultaneous Pancreas/Kidney
                                         Transplant.
MS-DRG 009............................  Bone Marrow Transplant.
MS-DRG 010............................  Pancreas Transplant.
MS-DRG 011............................  Tracheostomy for Face, Mouth,
                                         and Neck Diagnoses with MCC.
MS-DRG 012............................  Tracheostomy for Face, Mouth,
                                         and Neck Diagnoses with CC.
MS-DRG 013............................  Tracheostomy for Face, Mouth,
                                         and Neck Diagnoses without CC/
                                         MCC.
------------------------------------------------------------------------

    Once the MDCs were defined, each MDC was evaluated to identify 
those additional patient characteristics that would have a consistent 
effect on hospital resource consumption. Because the presence of a 
surgical procedure that required the use of the operating room would 
have a significant effect on the type of hospital resources used by a 
patient, most MDCs were initially 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 hospital resource consumption. 
Each diagnosis was categorized into one of three severity levels. These 
three levels include a major complication or comorbidity (MCC), a 
complication or comorbidity (CC), or a non-CC. Physician panels 
classified each diagnosis code based on a highly iterative process 
involving a combination of statistical results from test data as well 
as clinical judgment. As stated earlier, we refer readers to section 
II.D. of the FY 2008 IPPS final rule with comment period for a full 
detailed discussion of how the MS-DRG system was established based on 
severity levels of illness (72 FR 47141).
    A patient's diagnosis, procedure, discharge status, and demographic 
information is entered into the Medicare claims processing systems and 
subjected to a series of automated screens called

[[Page 43766]]

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 
improvements in the DRG system to recognize severity of illness and 
resource usage by adopting MS-DRGs that were reflected in the FY 2008 
GROUPER, Version 25.0, and were effective for discharges occurring on 
or after October 1, 2007. Our MS-DRG analysis for the FY 2009 final 
rule was based on data from the March 2008 update of the FY 2007 MedPAR 
file, which contained hospital bills received through March 31, 2008, 
for discharges occurring through September 30, 2007. For this final 
rule, for FY 2010, our MS-DRG analysis is based on data from the March 
2009 update of the FY 2008 MedPAR file, which contains hospital bills 
received through September 30, 2008, for discharges occurring through 
September 30, 2008.
2. Yearly Review for Making MS-DRG Changes
    Many of the changes to the MS-DRG classifications we make annually 
are the result of specific issues brought to our attention by 
interested parties. We encourage individuals with comments about MS-DRG 
classifications to submit these comments no later than early December 
of each year so they can be carefully considered for possible inclusion 
in the annual proposed rule and, if included, may be subjected to 
public review and comment. Therefore, similar to the timetable for 
interested parties to submit non-MedPAR data for consideration in the 
MS-DRG recalibration process, comments about MS-DRG classification 
issues should be submitted no later than early December in order to be 
considered and possibly included in the next annual proposed rule 
updating the IPPS.
    The actual process of forming the MS-DRGs was, and will likely 
continue to be, highly iterative, involving a combination of 
statistical results from test data combined with clinical judgment. In 
the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described 
in detail the process we used to develop the MS-DRGs that we adopted 
for FY 2008. In addition, in deciding whether to make further 
modification to the MS-DRGs for particular circumstances brought to our 
attention, we considered whether the resource consumption and clinical 
characteristics of the patients with a given set of conditions are 
significantly different than the remaining patients in the MS-DRG. We 
evaluated patient care costs using average charges and lengths of stay 
as proxies for costs and relied on the judgment of our medical advisors 
to decide whether patients are clinically distinct or similar to other 
patients in the MS-DRG. In evaluating resource costs, we considered 
both the absolute and percentage differences in average charges between 
the cases we selected for review and the remainder of cases in the MS-
DRG. We also considered variation in charges within these groups; that 
is, whether observed average differences were consistent across 
patients or attributable to cases that were extreme in terms of charges 
or length of stay, or both. Further, we considered the number of 
patients who will have a given set of characteristics and generally 
preferred not to create a new MS-DRG unless it would include a 
substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

    In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed 
a number of recommendations made by MedPAC regarding revisions to the 
DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 
through 47939; and 72 FR 47140 through 47189). As we noted in the FY 
2006 IPPS final rule, we had insufficient time to complete a thorough 
evaluation of these recommendations for full implementation in FY 2006. 
However, we did adopt severity-weighted cardiac DRGs in FY 2006 to 
address public comments on this issue and the specific concerns of 
MedPAC regarding cardiac surgery DRGs. We also indicated that we 
planned to further consider all of MedPAC's recommendations and 
thoroughly analyze options and their impacts on the various types of 
hospitals in the FY 2007 IPPS proposed rule.
    For FY 2007, we began this process. In the FY 2007 IPPS proposed 
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 
2008 (if not earlier). Based on public comments received on the FY 2007 
IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 
IPPS final rule (71 FR 47906 through 47912), we discussed several 
concerns raised by commenters regarding the proposal to adopt CS DRGs. 
We acknowledged the many comments suggesting the logic of Medicare's 
DRG system should continue to remain in the public domain as it has 
since the inception of the PPS. We also acknowledged concerns about the 
impact on hospitals and software vendors of moving to a proprietary 
system. Several commenters suggested that CMS refine the existing DRG 
classification system to preserve the many policy decisions that were 
made over the last 20 years and were already incorporated into the DRG 
system, such as complexity of services and new device technologies. 
Consistent with the concerns expressed in the public comments, this 
option had the advantage of using the existing DRGs as a starting point 
(which was already familiar to the public) and retained the benefit of 
many DRG decisions that were made in recent years. We stated our belief 
that the suggested approach of incorporating severity measures into the

[[Page 43767]]

existing DRG system was a viable option that would be evaluated.
    Therefore, we decided to make interim changes to the existing DRGs 
for FY 2007 by creating 20 new DRGs involving 13 different clinical 
areas that would significantly improve the CMS DRG system's recognition 
of severity of illness. We also modified 32 DRGs to better capture 
differences in severity. The new and revised DRGs were selected from 40 
existing CMS DRGs that contained 1,666,476 cases and represented a 
number of body systems. In creating these 20 new DRGs, we deleted 8 
existing DRGs and modified 32 existing DRGs. We indicated that these 
interim steps for FY 2007 were being taken as a prelude to more 
comprehensive changes to better account for severity in the DRG system 
by FY 2008.
    In the FY 2007 IPPS final rule (71 FR 47898), we indicated our 
intent to pursue further DRG reform through two initiatives. First, we 
announced that we were in the process of engaging a contractor to 
assist us with evaluating alternative DRG systems that were raised as 
potential alternatives to the CMS DRGs in the public comments. Second, 
we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes 
as part of making further refinements to the current CMS DRGs to better 
recognize severity of illness based on the work that CMS (then HCFA) 
did in the mid-1990's in connection with adopting severity DRGs. We 
describe below the progress we have made on these two initiatives and 
our actions for FYs 2008, 2009, and 2010 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 2010 in other sections of this preamble and in the Addendum to this 
final rule.
    In the FY 2007 IPPS proposed rule, we discussed MedPAC's 
recommendations to move to a 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 were 
adopted over a 3-year transition period in \1/3\ increments between FY 
2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we 
indicated our intent to further study the HSRV-based methodology as 
well as other issues brought to our attention related to the cost-based 
weighting methodology adopted in the FY 2007 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 final rule for discussion of the issue of charge 
compression and the cost-weighting methodology for FY 2010.
    We believe that revisions to the DRG system to better recognize 
severity of illness and changes to the relative weights based on costs 
rather than charges are improving the accuracy of the payment rates in 
the IPPS. We agree with MedPAC that these refinements should be 
pursued. Although we continue to caution that any prospective payment 
system based on grouping cases will always present some opportunities 
for providers to specialize in cases they believe have higher margins, 
we believe that the changes we have adopted and the continuing reforms 
we are adoptimg in this final rule for FY 2010 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. FY 2010 MS-DRG Documentation and Coding Adjustment, Including the 
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    As we discussed earlier in this preamble, we adopted the MS-DRG 
patient classification system for the IPPS, effective October 1, 2007, 
to better recognize severity of illness in Medicare payment rates for 
acute care hospitals. The adoption of the MS-DRG system resulted in the 
expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008 
(currently, 746 DRGs, which include 1 additional MS-DRG created in FY 
2009). By increasing the number of DRGs and more fully taking into 
account patients' severity of illness in Medicare payment rates for 
acute care hospitals, the use of MS-DRGs encourage hospitals to improve 
their documentation and coding of patient diagnoses. In the FY 2008 
IPPS final rule with comment period (72 FR 47175 through 47186), we 
indicated that 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 additional documentation and coding. In that final rule with 
comment period, we exercised our authority under section 
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget 
neutrality by adjusting the national standardized amount to eliminate 
the estimated effect of changes in coding or classification that do not 
reflect real changes in case-mix. Our actuaries estimated that 
maintaining budget neutrality required an adjustment of -4.8 percent to 
the national standardized amount. We phased in this -4.8 percent 
adjustment over 3 years. Specifically, we established prospective 
documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 
percent for FY 2009, and -1.8 percent for FY 2010.

[[Page 43768]]

    On September 29, 2007, Congress enacted the TMA [Transitional 
Medical Assistance], Abstinence Education, and QI [Qualifying 
Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 
7(a) of Public Law 110-90 reduced the documentation and coding 
adjustment made as a result of the MS-DRG system that we adopted in the 
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 
and -0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not 
adjust the FY 2010 -1.8 percent documentation and coding adjustment 
promulgated in the FY 2008 IPPS final rule with comment period. To 
comply with section 7(a) of Public Law 110-90, we promulgated a final 
rule on November 27, 2007 (72 FR 66886) that modified the IPPS 
documentation and coding adjustment for FY 2008 to -0.6 percent, and 
revised the FY 2008 payment rates, factors, and thresholds accordingly. 
These revisions were effective on October 1, 2007.
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent instead of the -1.8 
percent adjustment established in the FY 2008 IPPS final rule with 
comment period. As discussed in the FY 2009 IPPS final rule (73 FR 
48447) and required by statute, we applied a documentation and coding 
adjustment of -0.9 percent to the FY 2009 IPPS national standardized 
amount. The documentation and coding adjustments established in the FY 
2008 IPPS final rule with comment period, as amended by Public Law 110-
90, are cumulative. As a result, the -0.9 percent documentation and 
coding adjustment for FY 2009 was in addition to the -0.6 percent 
adjustment for FY 2008, yielding a combined effect of -1.5 percent.
2. Prospective Adjustment to the Average Standardized Amounts Required 
by Section 7(b)(1)(A) of Public Law 110-90
    Section 7(b)(1)(A) of Public Law 110-90 requires that if the 
Secretary determines that implementation of the MS-DRG system resulted 
in changes in documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2008 or FY 2009 
that are different than the prospective documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90, the 
Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act 
authorizes adjustments to the average standardized amounts for 
subsequent fiscal years in order to eliminate the effect of such coding 
or classification changes. These adjustments are intended to ensure 
that future annual aggregate IPPS payments are the same as the payments 
that otherwise would have been made had the prospective adjustments for 
documentation and coding applied in FY 2008 and FY 2009 reflected the 
change that occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Public Law 110-90
    If, based on a retroactive evaluation of claims data, the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different from the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of 
Public Law 110-90 requires the Secretary to make an additional 
adjustment to the standardized amounts under section 1886(d) of the 
Act. This adjustment must offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 (including interest) resulting 
from the difference between the estimated actual documentation and 
coding effect and the documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90. This adjustment is in addition to 
making an appropriate adjustment to the standardized amounts under 
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) 
of Public Law 110-90. That is, these adjustments are intended to recoup 
(or repay) spending in excess of (or less than) spending that would 
have occurred had the prospective adjustments for changes in 
documentation and coding applied in FY 2008 and FY 2009 precisely 
matched the changes that occurred in those years. Public Law 110-90 
requires that the Secretary make these recoupment or repayment 
adjustments for discharges occurring during FYs 2010, 2011, and 2012.
4. Retrospective Evaluation of FY 2008 Claims Data
    In order to implement the requirements of section 7 of Public Law 
110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that 
we planned a thorough retrospective evaluation of our claims data. We 
stated that the results of this evaluation would be used by our 
actuaries to determine any necessary payment adjustments to the 
standardized amounts under section 1886(d) of the Act beginning in FY 
2010 to ensure the budget neutrality of the MS-DRGs implementation for 
FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed 
rule (73 FR 23541 through 23542), we described our preliminary plan for 
a retrospective analysis of inpatient hospital claims data and invited 
public input on our proposed methodology.
    In that proposed rule, we indicated that we intended to measure and 
corroborate the extent of the overall national average changes in case-
mix for FY 2008 and FY 2009. We expected that the two largest parts of 
this overall national average change would be attributable to 
underlying changes in actual patient severity and to documentation and 
coding improvements under the MS-DRG system. In order to separate the 
two effects, we planned to isolate the effect of shifts in cases among 
base DRGs from the effect of shifts in the types of cases within base 
DRGs.
    The MS-DRGs divide the base DRGs into three severity levels (with 
MCC, with CC and without CC); the previously used CMS DRGs had only two 
severity levels (with CC and without CC). Under the CMS DRG system, the 
majority of hospital discharges had a secondary diagnosis which was on 
the CC list, which led to the higher severity level. The MS-DRGs 
significantly changed the code lists of what was classified as an MCC 
or a CC. Many codes that were previously classified as a CC are no 
longer included on the MS-DRG CC list because the data and clinical 
review showed these conditions did not lead to a significant increase 
in resource use. The addition of a new level of high severity 
conditions, the MCC list, also provided a new incentive to code more 
precisely in order to increase the severity level. We anticipated that 
hospitals would examine the MS-DRG MCC and CC code lists and then work 
with physicians and coders on documentation and coding practices so 
that coders could appropriately assign codes from the highest possible 
severity level. We note that there have been numerous seminars and 
training sessions on this particular coding issue. The topic of 
improving documentation practices in order to code conditions on the 
MCC list was also discussed extensively by participants at the March 
11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. 
Participants discussed their hospitals' efforts to encourage physicians 
to provide more precise documentation so that coders could 
appropriately assign codes that would lead to a higher

[[Page 43769]]

severity level. Because we expected most of the documentation and 
coding changes under the MS-DRG system would occur in the secondary 
diagnoses, we believed that the shifts among base DRGs were less likely 
to be the result of the MS-DRG system and the shifts within base DRGs 
were more likely to be the result of the MS-DRG system. We also 
anticipated evaluating data to identify the specific MS-DRGs and 
diagnoses that contributed significantly to the documentation and 
coding payment effect and to quantify their impact. This step entailed 
analysis of the secondary diagnoses driving the shifts in severity 
within specific base DRGs.
    In that same proposed rule, we also stated that, 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 changes, we might decide, if feasible, to use 
historical data from our Hospital Payment Monitoring Program (HPMP) to 
corroborate the within-base DRG shift analysis. The HPMP is supported 
by the Medicare Clinical Data Abstraction Center (CDAC).
    In the FY 2009 IPPS proposed rule, we solicited public comments on 
the analysis plans described above, as well as suggestions on other 
possible approaches for performing a retrospective analysis to identify 
the amount of case-mix changes that occurred in FY 2008 and FY 2009 
that did not reflect real increases in patients' severity of illness.
    A few commenters, including MedPAC, expressed support for the 
analytic approach described in the FY 2009 IPPS proposed rule. A number 
of other commenters expressed concerns about certain aspects of the 
approach and/or suggested alternate analyses or study designs. In 
addition, one commenter recommended that any determination or 
retrospective evaluation by the actuaries of the impact of the MS-DRGs 
on case-mix be open to public scrutiny prior to the implementation of 
the payment adjustments beginning in FY 2010.
    We took these comments into consideration as we developed our 
proposed analysis plan (described in greater detail below) and in the 
FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24092 through 24101) 
solicited public comment on our methodology and analysis. For the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective 
evaluation of the FY 2008 data for claims paid through December 2008. 
Based on this evaluation, our actuaries determined that implementation 
of the MS-DRG system resulted in a 2.5 percent change due to 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2008. In the FY 2010 IPPS/RY 2010 
LTCH proposed rule, we also stated that we would update the results 
from the proposed analysis plan with data extracted from FY 2008 
Medicare claims that were paid through March 2008 [sic] for the FY 2010 
IPPS final rule. (We note that the March 2008 date for the updated data 
that appeared in the proposed rule should have been March 2009.)
    In performing the analysis for the proposed rule, we first divided 
the case-mix index (CMI) obtained by grouping the FY 2008 claims data 
through the FY 2008 GROUPER (Version 25.0) by the CMI obtained by 
grouping these same FY 2008 claims through the FY 2007 GROUPER (Version 
24.0). This resulted in a value of 1.028. Because these cases are the 
same FY 2008 cases grouped using Versions 24.0 and 25.0 of the GROUPER, 
we attribute this increase primarily to two factors: (1) The effect of 
changes in documentation and coding under the MS-DRG system; and (2) 
the measurement effect from the calibration of the GROUPER. We 
estimated the measurement effect from the calibration of the GROUPER by 
dividing the CMI obtained by grouping cases in the FY 2007 claims data 
through the FY 2008 GROUPER by the CMI obtained by grouping cases in 
these same claims through the FY 2007 GROUPER. This resulted in a value 
of 1.003. In order to isolate the documentation and coding effect, we 
then divided the combined effect of the changes in documentation and 
coding and measurement (1.028) by the measurement effect (1.003) to 
yield 1.025. Therefore, our estimate of the documentation and coding 
increase was 2.5 percent.
    We then sought to corroborate this 2.5 percent estimate by 
examining the increases in the within-base DRGs as compared to the 
increases in the across base DRGs as described earlier in our analysis 
plan. In other words, we looked for improvements in code selection that 
would lead to a secondary diagnosis increasing the severity level to 
either a CC or an MCC level.
    In the analysis of data for the proposed rule, we found that the 
within-base DRG increases were almost entirely responsible for the 
case-mix change, supporting our conclusion that the 2.5 percent 
estimate was an accurate reflection of the FY 2008 effect of changes in 
documentation and coding under the MS-DRG system. In fact, almost every 
base DRG that was split into different severity levels under the MS-DRG 
system experienced increases in the within-base DRGs.
    We then further analyzed the changes in the within-base DRGs to 
determine which MS-DRGs had the highest contributions to this increase. 
Consistent with the expectations of our medical coding experts 
concerning areas with potential for documentation and coding 
improvements, the top contributors were heart failure, chronic 
obstructive pulmonary disease, and simple pneumonia and pleurisy. In 
fact, the coding of heart failure was discussed extensively at the 
March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee 
meeting. Heart failure is a very common secondary diagnosis among 
Medicare hospital admissions. The heart failure codes are assigned to 
all three severity levels. Some codes are classified as non-CCs, while 
other codes are on the CC and MCC lists. By changing physician 
documentation to more precisely identify the type of heart failure, 
coders are able to appropriately change the severity level of cases 
from the lowest level (non-CC) to a higher severity level (CC or MCC). 
This point was stressed repeatedly at the March 11-12, 2009 ICD-9-CM 
Coordination and Maintenance Committee meeting as coders discussed 
their work with physicians on this coding issue. Many of the 
participants indicated that additional work was still needed with their 
physicians in order to document conditions in the medical record more 
precisely.
    The results of the analysis for the proposed rule provided 
additional support for our conclusion that the proposed 2.5 percent 
estimate accurately reflected the FY 2008 increases in documentation 
and coding under the MS-DRG system.
    While we attempted to use the CDAC data to distinguish real 
increase in case-mix growth from documentation and coding in the 
overall case-mix number, we found aberrant data and significant 
variation across the FY 1999-FY 2007 analysis period. It was not 
possible to distinguish changes in documentation and coding from 
changes in real case-mix in the CDAC data. Therefore, we concluded that 
the CDAC data would not support analysis of real case-mix growth that 
could be used in our retrospective evaluation of the FY 2008 claims 
data.
    Although we could not use the CDAC data, we did examine the overall 
growth in case-mix using the FY 2007 claims data in which we grouped 
cases using the FY 2007 GROUPER and the FY 2008 data in which we 
grouped cases using

[[Page 43770]]

the FY 2008 GROUPER. We found the overall growth in case-mix was 1.9 
percent. The implication of overall FY 2008 case-mix growth of 1.9 
percent relative to our estimate of the FY 2008 documentation and 
coding effect and the GROUPER measurement effect is that real case-mix 
declined between FY 2007 and FY 2008. After additional data analysis, 
our actuaries determined that the 1.9 percent growth in overall case-
mix was consistent with our 2.5 percent estimate of the FY 2008 
documentation and coding effect for reasons that included: (1) Our 
mathematical model for determining the 2.5 percent documentation and 
coding effect was corroborated by the amount of case-mix growth 
attributed to within-DRG improvements in secondary coding of MCCs and 
CCs; (2) our data analysis confirmed the substitution of specified 
diagnosis for unspecified diagnoses for such common conditions as heart 
failure and chronic obstructive pulmonary disease; and (3) there was a 
relative decline in above average cost short-stay surgical cases that 
can be performed on an outpatient basis, such as certain high volume 
pacemaker procedures.
    We also examined the differences in case-mix between the FY 2008 
claims data in which cases were grouped through the FY 2008 GROUPER 
(Version 25.0) and the FY 2009 GROUPER (Version 26.0). This was to help 
inform analysis of the potential for increase in the documentation and 
coding effect in FY 2009. In FY 2008, we were transitioning to the 
fully implemented MS-DRG relative weights and the fully implemented 
cost-based weights. We found that the use of the transition weights 
mitigated the FY 2008 documentation and coding effect on expenditures. 
Using the FY 2009 relative weights, the documentation and coding effect 
would have been an estimated 3.2 percent in FY 2008 instead of our 
estimated 2.5 percent. Even assuming no continued improvement in 
documentation and coding in FY 2009, we estimated that the use of the 
FY 2009 relative weights would result in an additional 0.7 percent 
documentation and coding effect in FY 2009. After taking into account 
the results of our FY 2008 analysis and the expertise of our coding 
staff, our actuaries continue to estimate that the cumulative overall 
effect of documentation and coding improvements under the MS-DRG system 
will be 4.8 percent. However, our actuaries estimate that these 
improvements will be substantially complete by the end of FY 2009. 
Therefore, our estimate of the FY 2009 MS-DRG documentation and coding 
effect for the proposed rule was 2.3 percent.
    As in prior years, the FY 2008 MedPAR files were available to the 
public to allow independent analysis of the FY 2008 documentation and 
coding effect. Interested individuals may still order these files by 
going to the Web site at http://www.cms.hhs.gov/LimitedDataSets/ and 
clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This Web 
page describes the file and provides directions and further detailed 
instructions for how to order.
    Persons placing an order must send the following: a Letter of 
Request, the LDS Data Use Agreement and Research Protocol (refer to the 
Web site for further instructions), the LDS Form, and a check for 
$3,655 to:

Mailing address if using the U.S. Postal Service: Centers for Medicare 
& Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, 
Baltimore, MD 21207-0520.
Mailing address if using express mail: Centers for Medicare & Medicaid 
Services, OFM/Division of Accounting--RDDC, 7500 Security Boulevard, 
C3-07-11, Baltimore, MD 21244-1850.

    Comment: MedPAC commented that its analysis of 2008 claims 
confirmed the CMS finding that documentation and coding improvements 
increased case-mix by 2.5 percent in 2008, which resulted in 
overpayments of 1.9 percent. With regard to CMS' projection that by the 
end of 2009, hospitals' documentation and coding improvements will have 
increased case-mix by a cumulative total of 4.8 percent, MedPAC stated 
that, while all documentation and coding improvement projections are 
subject to uncertainty, 4.8 percent appears to be a reasonable 
estimate, given MedPAC's own examination of recent experience in 
Maryland.
    Response: We agree with MedPAC's comment that changes in 
documentation and coding increased case-mix by 2.5 percent in FY 2008. 
Using more recent FY 2008 claims data updated through March 2009, our 
actuaries' estimate of the effect of changes in documentation and 
coding continues to be 2.5 percent. Our actuaries also continue to 
estimate that by the end of FY 2009, changes in documentation and 
coding will have increased case-mix by 4.8 percent, consistent with 
MedPAC's comment.
    Comment: Most commenters questioned CMS' methodology for the 
retrospective evaluation of FY 2008 claims data and CMS' finding that 
real case-mix growth in FY 2008 was negative. These comments were 
generally similar to the comments from the AHA, which read:
    ``In its analysis of documentation and coding changes, CMS 
concludes that from FY 2007 to FY 2008, there was a decline in real 
case mix; in contrast, our analysis found that there is a historical 
pattern of steady annual increases of 1.2 to 1.3 percent in real case 
mix and we are concerned that CMS' conclusion is incorrect. Further, 
because CMS' conclusion that real case-mix declined is an inference 
based on its analysis of documentation and coding-related increases, we 
are concerned that the 1.9 percent proposed cut also is inaccurate and 
overstated.''
    The commenters also raised concerns that CMS' estimate did not 
fully consider other potential causes of increased case-mix, such as 
patients requiring less complex services receiving care in other 
settings and ``healthier'' patients enrolling in Medicare Advantage 
plans in increasing numbers. Other commenters indicated that factors 
such as the changes in the CC/MCC definitions, limitations on the 
number of codes used by CMS for payment and ratesetting, resequencing 
of secondary diagnoses, the transition to the cost-based weights, less 
use of ``not otherwise specified'' codes, and increases in real case-
mix due to health reform efforts also resulted in an inaccurate 
documentation and coding analysis. One commenter indicated that, of the 
overall case-mix increase, 1.0 percent to 1.5 percent is ``real'' case-
mix increase, while 1.0 percent to 1.5 percent is due to documentation 
and coding or other increases.
    Response: The assertion that there is a historical pattern of 
steady annual increases of 1.2 to 1.3 percent in real case-mix is 
predicated on the assumption that there was little documentation and 
coding effect in those historical years. In considering these comments 
concerning historical real case-mix, we calculated overall increases in 
case-mix for the period from FY 2000 to FY 2007 using the cases from 
each year and the GROUPER and relative weights applicable for each 
year. The results are shown in the following chart:

[[Page 43771]]



            Overall Case-Mix Increases for FY 2000 to FY 2007
------------------------------------------------------------------------
                                                           Overall case-
                                                            mix change
                          Year                              from prior
                                                             year (in
                                                             percent)
------------------------------------------------------------------------
FY 2000.................................................            -0.7
FY 2001.................................................            -0.4
FY 2002.................................................             1.0
FY 2003.................................................             1.4
FY 2004.................................................             1.0
FY 2005.................................................             0.9
FY 2006.................................................             1.2
FY 2007.................................................            -0.2
------------------------------------------------------------------------

    Overall case-mix growth is predominately comprised of three 
factors: real case-mix growth; a documentation and coding effect; and a 
measurement effect. Under the reasonable assumption that there has been 
a relatively small measurement effect in those years, the assertion 
that there is a historical pattern of steady annual increases of 1.2 to 
1.3 percent in real case-mix implies that the documentation and coding 
effect in many of those years was negative. For example, as described 
earlier, we estimated a recent measurement effect of +0.3 percent. The 
overall case-mix growth of -0.2 percent in FY 2007 net of a measurement 
effect of +0.3 percent results in growth of +0.1 percent. A real case-
mix growth of +1.2 percent in FY 2007, therefore, implies a negative 
documentation and coding effect of approximately -1.1 percent. It is 
not obvious why documentation and coding would have had such a large 
negative effect in FY 2007, or in any other year where the overall 
case-mix change is significantly less than the commenter's claimed 
average annual trend, calling into question the assertion that real 
case-mix growth is a steady 1.2 to 1.3 percent per year.
    Our current estimate of the overall case-mix growth for FY 2008 
based on more recent data than the data used in the proposed rule is 
2.0 percent, still less than our actuaries' estimate of a 2.5 percent 
documentation and coding increase. With respect to the concerns raised 
by commenters about our finding of negative real case-mix growth in FY 
2008, a finding of negative real case-mix growth is consistent with the 
fact that, in some years, overall case-mix growth has been negative, as 
shown in the chart presented above in this response. Some commenters 
were particularly focused on our statement in the proposed rule 
regarding a relative decline in above average cost short-stay surgical 
cases. We did not state that the decline in real case-mix was entirely 
attributable to the relative decline in above average cost short-stay 
outliers. We stated that--
    ``After additional data analysis, our actuaries determined that the 
1.9 percent growth in overall case-mix was consistent with our 2.5 
percent estimate of the FY 2008 documentation and coding effect for 
reasons that included: (1) Our mathematical model for determining the 
2.5 percent documentation and coding effect was corroborated by the 
amount of case-mix growth attributed to within-DRG improvements in 
secondary coding of MCCs and CCs; (2) our data analysis confirmed the 
substitution of specified diagnosis for unspecified diagnoses for such 
common conditions as heart failure and chronic obstructive pulmonary 
disease; and (3) there was a relative decline in above average cost 
short-stay surgical cases that can be performed on an outpatient basis, 
such as certain high-volume pacemaker procedures.''
    The decline in above average cost short-stay surgical cases was one 
factor in our actuaries' determination that the 1.9 percent growth in 
overall case-mix was consistent with our 2.5 percent documentation and 
coding estimate. It was not the only factor. Our current estimate of 
the overall case-mix growth between FY 2007 and FY 2008 based on more 
recent data than the data used in the proposed rule is 2.0 percent. We 
observed numerous small changes for a number of base DRGs that drive 
the difference between this overall case mix growth estimate of 2.0 
percent and our documentation and coding estimate of 2.5 percent, 
including the relative decline in above average cost surgical stay 
cases that can be performed on an outpatient basis that we cited in the 
proposed rule. These other base DRGs include MS-DRGs 193, 194, and 195 
(Simple Pneumonia and Pleurisy with MCC, with CC, and without CC or 
MCC, respectively); MS-DRGs 246 and 247 (Percutaneous Cardiovascular 
Procedure with Drug-Eluting Stent with MCC or Four or More (4+) 
Vessels/Stents and without MCC, respectively); MS-DRGs 233 and 234 
(Coronary Bypass with Cardiac Catheterization with MCC and without MCC, 
respectively); MS-DRGs 235 and 236 (Coronary Bypass without Cardiac 
Catheterization with MCC and without MCC, respectively); MS-DRGs 252, 
253, and 254 (Other Vascular Procedures with MCC, with CC, and without 
CC or MCC, respectively); MS-DRGs 291, 292, and 293 (Heart Failure and 
Shock with MCC, with CC, and without CC or MCC, respectively); MS-DRG 
313 (Chest Pain); and MS-DRGs 391 and 392 (Esophagitis, Gastroenteritis 
and Miscellaneous Digestive Disorders with MCC and without MCC, 
respectively). It is reasonable that the cumulative impact of small 
changes across a number of base DRGs could result in a difference of 
0.5 percentage points between the overall growth in case-mix and our 
documentation and coding estimate.
    With respect to the commenters who raised concerns that our 
estimate did not fully consider other potential causes of increased 
real case-mix, such as patients requiring less-complex services 
receiving care in other settings, ``healthier'' patients enrolling in 
MA plans in increasing numbers, and health reform efforts, we note that 
our methodology for estimating documentation and coding does not, by 
definition, include real case-mix, regardless of the actual real case-
mix level. As MedPAC stated in its comment:
    ``Our analysis of hospital claims for fiscal year 2008 confirms 
CMS's findings. To see how much the aggregate CMI and payments 
increased in 2008 due solely to hospitals' DCI, we used fiscal year 
2008 claims--from the December 2008 update of the 2008 MedPAR file--to 
calculate the national aggregate CMI based on the 2008 MS-DRGs and 
weights. Using the same claims, we also calculated the aggregate CMI 
based on the 2007 DRGs and weights. The difference between the two CMIs 
is 2.8 percent. By definition, this change in reported case mix is not 
real because the cases are the same.''
    The question is how much of the 2.8 percent increase is due to a 
documentation and coding effect and how much is due to a measurement 
effect. Both MedPAC and our actuaries, based on prior year data, 
estimate the measurement effect to be 0.3 percent, yielding our 2.5 
percent FY 2008 documentation and coding effect.
    With respect to the commenter who indicated that real case-mix 
growth was 1.0 percent to 1.5 percent, the primary reason cited was the 
interaction of the resequencing of secondary diagnoses, changes in MS-
DRG definitions, and limitations on the number of codes used by CMS for 
payment and ratesetting. There is a yearly review for making MS-DRG 
changes. As we note in section II.B.2. of this preamble, the actual 
process of forming MS-DRGs is highly iterative and involves statistical 
results from test data and clinical judgment. In addition, while 
hospitals may submit up to 25 diagnosis codes and 25 procedure codes on 
the claim, our payment system uses only the first 9 diagnosis code 
positions and the first 6 procedure code positions for payment 
purposes. The commenter observed that the

[[Page 43772]]

combination of this system limitation with the yearly review of MS-DRGs 
has a sequencing effect. The commenter did not believe that the 
resequencing of secondary diagnoses was a documentation and coding 
effect. We disagree. Resequencing is merely a change in the hospital's 
ordering of the codes that will be used for payment purposes. It causes 
a payment change unrelated to any change in the underlying condition of 
a patient. As we have stated on numerous occasions, we do not believe 
that these types of documentation and coding changes are the result of 
inappropriate behavior on the part of hospitals. However, to the extent 
resequencing occurs, it is appropriately included in our documentation 
and coding increase.
    Comment: Multiple commenters were disappointed that CMS was unable 
to obtain relevant findings based on CDAC data to quantify real case-
mix change.
    Response: As we stated in the proposed rule, when we attempted to 
use the CDAC data to distinguish increase in real case-mix growth from 
increases due to documentation and coding in the overall case-mix 
number, we found aberrant data and significant inconsistency across the 
FY 1999-FY 2007 analysis period. It was not possible to distinguish 
changes in documentation and coding from changes in real case-mix in 
the CDAC data. Therefore, we concluded that the CDAC data would not 
support analysis of real case-mix growth that could be used in our 
retrospective evaluation of the FY 2008 claims data. While we 
acknowledge the disappointment of the commenters, we note that we did 
not receive any alternative analysis directly measuring real case-mix 
growth that did not rely on assumptions with respect to the other 
factors that influence overall case-mix growth.
    Comment: Some commenters suggested that rural providers are 
typically presented with less complex cases and have fewer 
opportunities to benefit from improved coding opportunities.
    Response: As MedPAC stated in its comment, ``In addition, we 
estimated the 2008 DCI effect using the same methods for various 
subgroups of hospitals. Although the DCI estimates varied somewhat 
among the groups, the variation was generally small. Thus, the DCI 
response appears to be widely consistent among all types of 
hospitals.'' Our own analyses confirm MedPAC's finding that the 
documentation and coding response appears to be generally consistent 
among different types of hospitals, including urban and rural 
hospitals. Using the same methodology described earlier, the difference 
in the DCI response between urban and rural hospitals was not 
significant, similar to our findings discussed elsewhere that the 
differences for MDHs and SCHs were not significant.
    We also note that we discussed the issue of a uniform adjustment 
for DCI response in the FY 2008 IPPS final rule (72 FR 47184), 
published prior to the TMA, Abstinence Education, and QI Programs 
Extension Act of 2007. In that discussion, we noted that ``While 
improvements in documentation and coding that increase case mix may be 
variable, section 1886(d)(3)(A)(vi) of the Act only allows us to apply 
the adjustments that are a result of changes in the coding or 
classification of discharges that do not reflect real changes in case 
mix to the standardized amounts.''
    Section 7 of the TMA, Abstinence Education, and QI Programs 
Extension Act of 2007 specifically references section 
1886(d)(3)(A)(vi), stating that the Secretary shall ``make an 
appropriate adjustment under paragraph (3)(A)(vi) of such section 
1886(d).'' Section 1886(d)(3)(A)(iv)(II) of the Act directed CMS to 
eliminate separate standardized amounts for large urban areas and other 
areas beginning in FY 2004, creating the current uniform standardized 
amount that is applicable to all hospitals. Therefore, even if the data 
did indicate a different DCI response for urban and rural hospitals, 
the law continues to only allow us to apply the prospective adjustments 
that are a result of changes in the coding or classification of 
discharges that do not reflect real changes in case-mix to the 
standardized amount.
5. Adjustments for FY 2010 and Subsequent Years Authorized by Section 
7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act
    Based on our most current evaluation of FY 2008 Medicare claims 
data, the estimated 2.5 percent change in FY 2008 case-mix due to 
changes in documentation and coding that did not reflect real changes 
in case-mix for discharges occurring during FY 2008 exceeds the -0.6 
percent prospective documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90 by 1.9 percentage points. Under 
section 7(b)(1)(A) of Public Law 119-90, the Secretary is required to 
make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the 
Act to the average standardized amounts for subsequent fiscal years in 
order to eliminate the full effect of the documentation and coding 
changes on future payments. In addition, we note that the Secretary has 
the authority to make this prospective adjustment in FY 2010 under 
section 1886(d)(3)(A)(vi) of the Act. As we have consistently stated 
since the initial implementation of the MS-DRG system, we do not 
believe it is appropriate for expenditures to increase due to MS-DRG-
related changes in documentation and coding that do not reflect real 
changes in case-mix.
    We also estimate that the additional change in case-mix due to 
changes in documentation and coding that do not reflect real changes in 
case-mix for discharges occurring during FY 2009 will be 2.3 percent, 
which would exceed by 1.4 percentage points the -0.9 percent 
prospective documentation and coding adjustment for FY 2009 applied 
under section 7(a) of Public Law 100-90. We have the statutory 
authority to adjust the FY 2010 rates for this estimated 1.4 percentage 
point increase. However, given that Public Law 100-90 requires a 
retrospective claims evaluation for the additional adjustments 
described in section II.D.6. of this preamble, we stated in the 
proposed rule that we believed our evaluation of the extent of the 
overall national average changes in case-mix for FY 2009 should also be 
based on a retrospective evaluation of all FY 2009 claims data. Because 
we do not receive all FY 2009 claims data prior to publication of this 
final rule, we indicated we would address any difference between the 
additional increase in FY 2009 case-mix due to changes in documentation 
and coding that did not reflect real changes in case-mix for discharges 
occurring during FY 2009 and the -0.9 percent prospective documentation 
and coding adjustment applied under section 7(a) of Public Law 110-90 
in the FY 2011 rulemaking cycle.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), 
we solicited public comment on the proposed -1.9 percent prospective 
adjustment to the standardized amounts under section 1886(d) of the Act 
to address the effects of documentation and coding changes unrelated to 
changes in real case-mix in FY 2008. In addition, we solicited public 
comments on addressing in the FY 2011 rulemaking cycle any differences 
between the increase in FY 2009 case-mix due to changes in 
documentation and coding changes that do not reflect real changes in 
case-mix for discharges occurring during FY 2009 and the -0.9 percent 
prospective documentation and coding adjustment applied under section 
7(a) of Public Law 110-90. We present below a summation of the

[[Page 43773]]

public comments we received on these issues and our responses.
    Comment: MedPAC summarized its comments on when CMS should reduce 
payment rates to prevent further overpayments and to recover 
overpayments occurring in 2008 and 2009 as follows: ``We support CMS's 
proposal to reduce IPPS payments in 2010 by 1.9 percent to prevent 
further overpayments. While we and the CMS actuaries believe that a 1.9 
percent reduction will not fully prevent overpayments from continuing 
in 2010, this is a reasonable first step toward reducing 
overpayments.''
    Response: While we agree with MedPAC's comment that our proposed -
1.9 percent adjustment would be a reasonable first step with respect to 
the documentation and coding increases associated with the 
implementation of the MS-DRGs, nevertheless, as discussed below, we 
believe that it would be more prudent to delay implementation of the 
documentation and coding adjustment to allow for a more complete 
analysis of FY 2009 claims data. If the estimated documentation and 
coding effect determined based on a full analysis of FY 2009 claims 
data is more or less than our current estimates, it would change, 
possibly lessen, the anticipated cumulative adjustments that we 
currently estimate we would have to make for FY 2008 and FY 2009 
combined adjustment.
    Comment: Most commenters opposed the proposed -1.9 percent 
prospective FY 2010 adjustment for FY 2008 documentation and coding 
increases, but supported the proposal not to apply a FY 2010 
prospective adjustment for estimated FY 2009 documentation and coding 
increases. The commenters expressed concern over the financial impact 
of the proposed -1.9 percent adjustment and the methodology for 
calculating the adjustment. The comments on the financial impact were 
generally similar to those contained in the comment from the AHA, which 
stated that ``The proposed rule includes a 1.9 percent cut to both 
operating and capital payments in FY 2010 and beyond--$23 billion over 
10 years--to correct the base rate for payments made in FY 2008 that 
CMS claims are the effect of documentation and coding changes that do 
not reflect real changes in case mix. In combination with other policy 
changes, this cut results in hospitals being paid $1 billion less in FY 
2010 than in FY 2009 * * * We recognize that CMS could have taken 
action to reduce payments more than proposed in this rule. We 
appreciate that CMS did not propose cuts for documentation and coding 
changes in FY 2009 or cuts to recoup the estimated documentation and 
coding overpayments in FY 2008. However, given the severity of the 1.9 
percent proposed cut, and in light of the fact that our analysis shows 
real increases in patient severity, we ask that the agency 
significantly mitigate its proposed documentation and coding cut.''
    Other commenters recommended that CMS seek to extend the timeframe 
beyond 2 years to phase in the estimated -6.6 percent adjustment to the 
standardized amount.
    Response: Our actuaries have determined, and MedPAC has confirmed, 
that the implementation of the MS-DRG system resulted in changes in 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2008. The impact of these changes 
exceeds the -0.6 percent prospective documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90. As 
described earlier, analysis of more recent claims data confirms that 
the difference is -1.9 percent. We addressed the comments on our 
methodology in the section II.D.4. of this preamble.
    We fully understand that our proposed adjustment of -1.9 percent 
would reduce the increase in payments that affected hospitals would 
have received in FY 2009 in the absence of the adjustment. Although we 
are required to make a prospective adjustment to eliminate the full 
effect of coding or classification changes that did not reflect real 
changes in case-mix for discharges occurring during FY 2008, we believe 
we have some discretion regarding when to implement this adjustment. 
Section 7(b)(1)(A) of Public Law 110-90 requires that if the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different than the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, the Secretary shall 
make an ``appropriate'' adjustment under section 1886(d)(3)(A)(vi) of 
the Act.
    After consideration of the public comments we received on these 
issues, we have determined that it would be appropriate to postpone 
adopting documentation and coding adjustments as authorized under 
section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the 
Act until a full analysis of case-mix changes can be completed. While 
we have the statutory authority to make this 1.9 percent prospective 
adjustment entirely in FY 2010, we believe it would be prudent to wait 
until we have complete data on the magnitude of the documentation and 
coding effect in FY 2009. If the documentation and coding effect were 
less in FY 2009 than our current estimates, it could lessen the 
anticipated adjustment that we currently estimate we would have to make 
for FY 2008 and FY 2009 combined. In future rulemaking, we will 
consider applying a prospective adjustment based upon a complete 
analysis of FY 2008 and FY 2009 claims data over an extended time 
period, such as 5 years, beginning in FY 2011. During this phase-in 
period, we intend to address any difference between the increase in FY 
2009 case-mix due to changes in documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2009 and the -0.9 percent prospective documentation and coding 
adjustment applied under section 7(a) of Public Law 110-90 in the FY 
2011 rulemaking cycle.
    We appreciate the commenters' support of our decision not to apply 
a FY 2010 prospective adjustment for estimated FY 2009 documentation 
and coding increases until we have performed a retrospective evaluation 
of the FY 2009 claims data.
6. Additional Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) 
of Public Law 110-90
    As indicated above, the estimated 2.5 percent change (estimated 
from analysis of more recent data than the data used for the proposed 
rule) due to documentation and coding that did not reflect real changes 
in case-mix for discharges occurring during FY 2008 exceeds the -0.6 
percent prospective documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90 by 1.9 percentage points. Our 
actuaries currently estimate that this 1.9 percentage point increase 
resulted in an increase in aggregate payments of approximately $2.2 
billion. As described earlier, section 7(b)(1)(B) of Public Law 110-90 
requires an additional adjustment for discharges occurring in FYs 2010, 
2011, and/or 2012 to offset the estimated amount of this increase in 
aggregate payments (including interest).
    Although section 7(b)(1)(B) of Public Law 110-90 requires us to 
make this adjustment in FYs 2010, 2011, and/or 2012, we have discretion 
as to when during this 3 year period we will apply the adjustment. For 
example, we could make adjustments to the standardized amounts under 
section 1886(d) of the

[[Page 43774]]

Act in FY 2010, 2011, and 2012. Alternatively, we could delay 
offsetting the increase in FY 2008 aggregate payments by applying the 
adjustment required under section 7(b)(1)(B) of Public Law 110-90 only 
to FYs 2011 and 2012.
    We did not propose to make an adjustment to the FY 2010 average 
standardized amounts to offset, in whole or in part, the estimated 
increase in aggregate payments for discharges occurring in FY 2008, but 
stated in the proposed rule that we intended to address this issue in 
future rulemaking for FYs 2011 and 2012. That is, we stated we would 
address recouping the additional expenditures that occurred in FY 2008 
as a result of the 1.9 percentage point difference between the actual 
changes in documentation and coding that do not reflect real changes in 
case-mix, or 2.5 percent, and the -0.6 percent adjustment applied under 
Public Law 110-90 in FY 2011 and/or FY 2012, as required by law. We 
indicated that, while we have the statutory authority to make this -1.9 
percent recoupment adjustment entirely in FY 2010, we are delaying the 
adjustment until FY 2011 and FY 2012 because we do not have any data 
yet on the magnitude of the documentation and coding effect in FY 2009. 
If the documentation and coding effect were less in FY 2009 than our 
current estimates, it could lessen the anticipated recoupment 
adjustment that we currently estimate we would have to make for FY 2008 
and FY 2009 combined. As we have the authority to recoup the aggregate 
effect of this 1.9 percentage point difference in FY 2008 IPPS payments 
in FY 2011 or FY 2012 (with interest), delaying this adjustment would 
have no effect on Federal budget outlays. In the proposed rule, we 
indicated that we intended to wait until we have a complete year of 
data on the FY 2009 documentation and coding effect before applying a 
recoupment adjustment for IPPS spending that occurred in FY 2008 or we 
estimate will occur in FY 2009.
    As discussed above, section 7(b)(1)(B) of Public Law 110-90 
requires the Secretary to make an additional adjustment to the 
standardized amounts under section 1886(d) of the Act to offset the 
estimated increase or decrease in aggregate payments for FY 2009 
(including interest) resulting from the difference between the 
estimated actual documentation and coding effect and the documentation 
and coding adjustments applied under section 7(a) of Public Law 110-90. 
This determination must be based on a retrospective evaluation of 
claims data. Because we will not receive all FY 2009 claims data prior 
to publication of this final rule, as we indicate in the proposed rule, 
we intend to address any increase or decrease in FY 2009 payments in 
future rulemaking for FY 2011 and 2012 after we perform a retrospective 
evaluation of the FY 2009 claims data. Our actuaries currently estimate 
that this adjustment will be approximately -3.3 percent. This reflects 
the difference between the estimated 4.8 percent cumulative actual 
documentation and coding changes for FY 2009 (2.5 percent for FY 2008 
and an additional 2.3 percent for FY 2009) and the cumulative -1.5 
percent documentation and coding adjustments applied under section 7(a) 
of Public Law 110-90 (-0.6 percent in FY 2008 and -0.9 percent in FY 
2009). We note that the actual adjustments are multiplicative and not 
additive. This more recent estimated 4.8 percent cumulative actual 
documentation and coding changes for FY 2009 includes the impact of the 
changes in documentation and coding first occurring in FY 2008 because 
we believe hospitals will continue these changes in documentation and 
coding in subsequent fiscal years. Consequently, these documentation 
and coding changes will continue to impact payments under the IPPS 
absent a prospective adjustment to account for the effect of these 
changes.
    We note that, unlike the -1.9 adjustment to the standardized 
amounts under section 7(b)(1)(A) of Public Law 110-90 described 
earlier, any adjustment to the standardized amounts under section 
7(b)(1)(B) of Public Law 110-90 would not be cumulative, but would be 
removed for subsequent fiscal years once we have offset the increase in 
aggregate payments for discharges for FY 2008 expenditures and FY 2009 
expenditures, if any.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), 
we solicited public comment on our proposal not to offset the 1.9 
percent increase in aggregate payments (including interest) for 
discharges occurring in FY 2008 resulting from the adoption of the MS-
DRGs, but to instead address this issue in future rulemaking for FYs 
2011 and 2012.
    Comment: MedPAC stated in its comments on the adjustment to the 
standardized amounts under section 7(b)(1)(B) of Public Law 110-90: 
``In addition, it would be desirable for CMS to minimize year-to-year 
changes in payment adjustments it must make to recover overpayments 
that were made in 2008 and 2009. To achieve this goal, CMS should 
consider spreading the recovery of 2008 overpayments over 3 years, 
beginning in 2010.''
    Response: We appreciate MedPAC's comment that it would be desirable 
to minimize year-to-year changes in payment adjustments due to the 
recoupment adjustments. However, as we stated in the proposed rule, we 
continue to believe it would be more appropriate to examine the FY 2009 
claims data fully before making a determination as to the appropriate 
timing of the FY 2008 recoupment adjustment. Postponing this adjustment 
until a retrospective evaluation of the claims data from both FY 2008 
and FY 2009 are available would allow us to make annual adjustments 
more appropriately in FY 2011 and FY 2012.
    Comment: As noted above, some commenters recommended that CMS seek 
to extend the timeframe beyond 2 years to phase in the estimated -6.6 
percent adjustment to the standardized amount. The commenters asked CMS 
to seek necessary legislative action to accommodate such a policy.
    Response: As discussed in the proposed rule, we are required under 
section 7(b)(1)(B) of Public Law 110-90 to recapture the difference of 
actual documentation and coding effect in FY 2008 and FY 2009 that is 
greater than the prior adjustments. This retrospective recoupment 
process must be completed by the end of FY 2012. The large majority of 
the remaining adjustment to the standardized amount reflects 
retrospective adjustment. At this time, we have no plans to seek 
legislative action to change the time period for this adjustment.
    Comment: Most commenters expressed concern with the significant 
negative financial impacts that would be incurred by providers if CMS 
adopted that proposed -1.9 percent documentation and coding adjustment 
in FY 2010. The commenters cited providers' already small or negative 
margins for Medicare payments, and requested that CMS not further 
reduce payments during the current period of economic instability and 
reduced State funding. Other commenters indicated that it would be 
appropriate to delay any adjustment to the standardized amounts under 
section 7(b)(1)(B) of Public Law 110-90 until after CMS has the 
opportunity to fully examine the FY 2009 claims data.
    Response: We recognize that any adjustment to account for the 
documentation and coding effect observed in the FY 2008 and FY 2009 
claims data may result in significant future payment reduction for 
providers. However, as discussed in the proposed rule, we are required 
under section

[[Page 43775]]

7(b)(1)(B) of Public Law 110-90 to recapture the difference of actual 
documentation and coding effect in FY 2008 and FY 2009 that is greater 
than the prior adjustments. We agree with the commenters who requested 
that CMS delay any adjustment and, for the reasons stated above, expect 
to address this issue through the FY 2011 rulemaking.
7. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on 
whichever of the following rates yields the greatest aggregate payment: 
The Federal rate; the updated hospital-specific rate based on FY 1982 
costs per discharge; the updated hospital-specific rate based on FY 
1987 costs per discharge; the updated hospital-specific rate based on 
FY 1996 costs per discharge; or the updated hospital-specific rate 
based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of 
the Act, MDHs are paid based on the Federal national rate or, if 
higher, the Federal national rate plus 75 percent of the difference 
between the Federal national rate and the updated hospital-specific 
rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs 
per discharge. In the FY 2008 IPPS final rule with comment period (72 
FR 47152 through 47188), we established a policy of applying the 
documentation and coding adjustment to the hospital-specific rates. In 
that final rule with comment period, we indicated that because SCHs and 
MDHs use the same DRG system as all other hospitals, we believe they 
should be equally subject to the budget neutrality adjustment that we 
are applying for adoption of the MS-DRGs to all other hospitals. In 
establishing this policy, we relied on section 1886(d)(3)(A)(vi) of the 
Act, which provides us with the authority to adjust ``the standardized 
amount'' to eliminate the effect of changes in coding or classification 
that do not reflect real change in case-mix.
    However, in the final rule that appeared in the Federal Register on 
November 27, 2007 (72 FR 66886), we rescinded the application of the 
documentation and coding adjustment to the hospital-specific rates 
retroactive to October 1, 2007. In that final rule, we indicated that, 
while we still believe it would be appropriate to apply the 
documentation and coding adjustment to the hospital-specific rates, 
upon further review, we decided that the application of the 
documentation and coding adjustment to the 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'' 
under section 1886(d) of the Act and does not mention adjusting the 
hospital-specific rates.
    In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that 
we continued to have concerns about this issue. Because hospitals paid 
based on the hospital-specific rate use the same MS-DRG system as other 
hospitals, we believe they have the potential to realize increased 
payments from documentation and coding changes that do not reflect real 
increases in 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 rates should not have the potential 
to realize increased payments due to documentation and coding changes 
that do not reflect real increases in patients' severity of illness. 
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 provision authorizes us 
to provide ``for such other exceptions and adjustments to [IPPS] 
payment amounts * * * as the Secretary deems appropriate.'' In the FY 
2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, 
for the FY 2010 rulemaking, we planned to examine our FY 2008 claims 
data for hospitals paid based on the hospital-specific rate. We further 
indicated that if we found evidence of significant increases in case-
mix for patients treated in these hospitals that do not reflect real 
changes in case-mix, we would consider proposing application of the 
documentation and coding adjustments to the FY 2010 hospital-specific 
rates under our authority in section 1886(d)(5)(I)(i) of the Act.
    In response to public comments received on the FY 2009 IPPS 
proposed rule, we stated in the FY 2009 IPPS final rule that we would 
consider whether such a proposal is warranted for FY 2010. To gather 
information to evaluate these considerations, we indicated that we 
planned to perform analyses on FY 2008 claims data to examine whether 
there has been a significant increase in case-mix for hospitals paid 
based on the hospital-specific rate. If we found that application of 
the documentation and coding adjustment to the hospital-specific rates 
for FY 2010 is warranted, we indicated that we would include a proposal 
to do so in the FY 2010 IPPS proposed rule.
8. Documentation and Coding Adjustment to the Hospital-Specific Rates 
for FY 2010 and Subsequent Fiscal Years
    In the FY 2010 IPPS/RY 2010 LTCH proposed rule (74 FR 24098 through 
24100), we discussed our performance of a retrospective evaluation of 
the FY 2008 claims data for SCHs and MDHs using the same methodology 
described earlier for other IPPS hospitals. We found that, 
independently for both SCHs and MDHs, the change due to documentation 
and coding that did not reflect real changes in case-mix for discharges 
occurring during FY 2008 slightly exceeded the proposed 2.5 percent 
result discussed earlier, but did not significantly differ from that 
result.
    Again, for the proposed rule, we found that the within-base DRG 
increases were almost entirely responsible for the case-mix change. In 
the proposed rule, we presented two Figures to display our results.
    Therefore, consistent with our statements in prior IPPS rules, we 
proposed to use our authority under section 1886(d)(5)(I)(i) of the Act 
to prospectively adjust the hospital-specific rates by the proposed -
2.5 percent in FY 2010 to account for our estimated documentation and 
coding effect in FY 2008 that does not reflect real changes in case-
mix. We proposed to leave this adjustment in place for subsequent 
fiscal years in order to ensure that changes in documentation and 
coding resulting from the adoption of the MS-DRGs do not lead to an 
increase in aggregate payments for SCHs and MDHs not reflective of an 
increase in real case-mix. The proposed -2.5 percent adjustment to the 
hospital-specific rates exceeded the -1.9 percent adjustment to the 
national standardized amount under section 7(b)(1)(A) of Public Law 
110-90 because, unlike the national standardized rates, the FY 2008 
hospital-specific rates were not previously reduced in order to account 
for anticipated changes in documentation and coding that do not reflect 
real changes in case-mix resulting from the adoption of the MS-DRGs.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100), 
we

[[Page 43776]]

solicited public comment on the proposed -2.5 percent prospective 
adjustment to the hospital-specific rates under section 
1886(d)(5)(I)(i) of the Act and our proposal to address in the FY 2011 
rulemaking cycle any changes in FY 2009 case-mix due to changes in 
documentation and coding that do not reflect real changes in case-mix 
for discharges occurring during FY 2009. We also indicated that we 
intended to update our analysis with FY 2008 data on claims paid 
through March 2008 [sic] for the FY 2010 IPPS final rule. (We note that 
the March 2008 update claims paid data date in the proposed rule should 
have been March 2009.)
    Consistent with our approach for IPPS hospitals discussed earlier, 
we are also delaying adoption of a documentation and coding adjustment 
to the hospital-specific rate until FY 2011. Similar to our approach 
for IPPS hospitals, we will consider, through future rulemaking, 
phasing in the documentation and coding adjustment over an appropriate 
period. As we indicated earlier, we also will address, through future 
rulemaking, any changes in documentation and coding that do not reflect 
real changes in case-mix for discharges occurring during FY 2009. We 
noted that, unlike the national standardized rates, the FY 2009 
hospital-specific rates were not previously reduced in order to account 
for anticipated changes in documentation and coding that do not reflect 
real changes in case-mix resulting from the adoption of the MS-DRGs. 
However, as we note earlier with regard to IPPS hospitals, if the 
estimated documentation and coding effect determined based on a full 
analysis of FY 2009 claims data is more or less than our current 
estimates, it would change, possibly lessen, the anticipated cumulative 
adjustments that we currently estimate we would have to make for the FY 
2008 and FY 2009 combined adjustment. Therefore, we believe that it 
would be more prudent to delay implementation of the documentation and 
coding adjustment to allow for a more complete analysis of FY 2009 
claims data for hospitals receiving hospital-specific rates.
    Comment: One commenter request that CMS rescind the documentation 
and coding adjustment for SCHs and MDHs. The commenter contended that, 
due to the special recognition and protection afforded to these 
provider types by the Medicare program, CMS should more closely 
reexamine any negative payment adjustment that may threaten the 
viability of these providers. Commenters also questioned the statutory 
authority to apply this adjustment to SCHs and MDHs. The commenters 
argued that because Congress included specific statutory authority to 
adjust the standardized amount in section 1886(d)(3)(A)(vi) of the Act, 
CMS is precluded from using the broader ``adjustments'' language in 
section 1886(d)(5)(I)(i) of the Act to apply those same adjustments to 
the hospital-specific rate.
    Response: We disagree with the commenter that the Secretary's broad 
authority to make exceptions and adjustment to payment amounts under 
section 1886(d)(3)(A)(vi) of the Act cannot be applied in this 
instance. We have discussed the basis for applying such an adjustment 
in prior rules (in the FY 2009 proposed rule (73 FR 23540), the FY 2009 
final rule (73 FR 48448), and the FY 2010 proposed rule (74 FR 24098)) 
and do not agree that the language in section 1886(d)(3)(A)(vi) of the 
Act limits our authority under section 1886(d)(5)(I)(i) of the Act to 
make such an adjustment. We recognize that SCHs and MDHs are entitled 
through legislation to receive the hospital-specific rate in order to 
compensate for their unique service requirements in the provider 
community. Similar to our approach with IPPS hospitals, through future 
rulemaking, we will consider a phase-in of the documentation and coding 
adjustment over an appropriate period, beginning in FY 2011, and will 
continue to separately analyze SCH and MDH claims data to assure that 
any future adjustment is appropriate for these provider types.
9. Background on the 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 Secretary 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 
changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to 
the national standardized amounts computed under section 1886(d)(3) of 
the Act, but does not apply to the Puerto Rico-specific standardized 
amount computed under section 1886(d)(9)(C) of the Act. In calculating 
the FY 2008 payment rates, we made an inadvertent error and applied the 
FY 2008 -0.6 percent documentation and coding adjustment to the Puerto 
Rico-specific standardized amount, relying on our authority under 
section 1886(d)(3)(A)(vi) of the Act. However, section 
1886(d)(3)(A)(vi) of the Act authorizes application of a documentation 
and coding adjustment to the national standardized amount and does not 
apply to the Puerto Rico specific standardized amount. In the FY 2009 
IPPS final rule (73 FR 48449), we corrected this inadvertent error by 
removing the -0.6 percent documentation and coding adjustment from the 
FY 2008 Puerto Rico-specific rates.
    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, 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 changes 
that do not reflect real increases in patients' severity of illness. 
Consistent with the approach described for SCHs and MDHs, in the FY 
2009 IPPS final rule (73 FR 48449), we indicated that we planned to 
examine our FY 2008 claims data for hospitals in Puerto Rico. We 
indicated in the FY 2009 IPPS proposed rule (73 FR 23541) that if we 
found evidence of significant increases in 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.
10. Documentation and Coding Adjustment to the Puerto Rico-Specific 
Standardized Amount
    For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a 
retrospective evaluation of the FY 2008 claims data for Puerto Rico 
hospitals using the same methodology described earlier for IPPS 
hospitals paid under the national standardized amounts under section 
1886(d) of the Act. We found that, for Puerto Rico hospitals, the 
increase in payments for discharges occurring during FY 2008 due to 
documentation and coding that did not reflect real changes in case-mix 
for

[[Page 43777]]

discharges occurring during FY 2008 was approximately 1.1 percent. When 
we calculated the within-base DRG changes and the across-base DRG 
changes for Puerto Rico hospitals, we found that responsibility for the 
case-mix change between FY 2007 and FY 2008 is much more evenly shared. 
Across-base DRG shifts accounted for 44 percent of the changes, and 
within-base DRG shifts accounted for 56 percent. Thus, the change in 
the percentage of discharges with an MCC was not as large as that for 
other IPPS hospitals. In Figure 4 in the proposed rule, we showed that, 
for Puerto Rico hospitals, there was a 3 percentage point increase in 
the discharges with an MCC from 22 percent to 25 percent and a 
corresponding decrease of 3 percentage points from 58 percent to 55 
percent in discharges without a CC or an MCC.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24101), 
we solicited public comment on the proposed -1.1 percent prospective 
adjustment to the hospital-specific rates under section 
1886(d)(5)(I)(i) of the Act and our intent to address in the FY 2011 
rulemaking cycle any changes in FY 2009 case-mix due to changes in 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2009. We also stated that we 
intended to update our analysis with FY 2008 data on claims paid 
through March 2009 for the FY 2010 IPPS final rule.
    Given these documentation and coding increases, consistent with our 
statements in prior IPPS rules, we will use our authority under section 
1886(d)(5)(I)(i) of the Act to adjust the Puerto Rico-specific rate. 
However, in parallel to our decision to postpone adjustments to the 
Federal standardized amount, we are adopting a similar policy for the 
Puerto Rico-specific rate and will consider the phase-in of this 
adjustment over an appropriate time period through future rulemaking. 
The adjustment would be applied to the Puerto Rico-specific rate that 
accounts for 25 percent of payments to Puerto Rico hospitals, with the 
remaining 75 percent based on the national standardized amount. 
Consequently, the overall reduction to the payment rates for Puerto 
Rico hospitals to account for documentation and coding changes will be 
slightly less than the reduction for IPPS hospitals paid based on 100 
percent of the national standardized amount. We note that, as with the 
hospital-specific rates, the Puerto Rico-specific standardized amount 
had not previously been reduced based on estimated changes in 
documentation and coding associated with the adoption of the MS-DRGs. 
However, as we note earlier for IPPS hospitals and hospitals receiving 
hospital-specific rates, if the estimated documentation and coding 
effect determined based on a full analysis of FY 2009 claims data is 
more or less than our current estimates, it would change, possibly 
lessen, the anticipated cumulative adjustments that we currently 
estimate we would have to make for the FY 2008 and FY 2009 combined 
adjustment. Therefore, we believe that it would be more prudent to 
delay implementation of the documentation and coding adjustment to 
allow for a more complete analysis of FY 2009 claims data for Puerto 
Rico hospitals.
    Consistent with our approach for IPPS hospitals discussed above, we 
will address in the FY 2011 rulemaking cycle any change in FY 2009 
case-mix due to documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2009. We note 
that, unlike the national standardized rates, the FY 2009 hospital-
specific rates were not previously reduced in order to account for 
anticipated changes in documentation and coding that do not reflect 
real changes in case-mix resulting from the adoption of the MS-DRGs.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
    In the FY 2009 IPPS final rule (73 FR 48450), we continued to 
implement significant revisions to Medicare's inpatient hospital rates 
by completing our 3-year transition from charge-based relative weights 
to cost-based relative weights. Beginning in FY 2007, we implemented 
relative weights based on cost report data instead of based on charge 
information. We had initially proposed to develop cost-based relative 
weights using the hospital-specific relative value cost center (HSRVcc) 
methodology as recommended by MedPAC. However, after considering 
concerns expressed in the public comments we received on the proposal, 
we modified MedPAC's methodology to exclude the hospital-specific 
relative weight feature. Instead, we developed national CCRs based on 
distinct hospital departments and engaged a contractor to evaluate the 
HSRVcc methodology for future consideration. To mitigate payment 
instability due to the adoption of cost-based relative weights, we 
decided to transition cost-based weights over 3 years by blending them 
with charge-based weights beginning in FY 2007. (We refer readers to 
the FY 2007 IPPS final rule for details on the HSRVcc methodology and 
the 3-year transition blend from charge-based relative weights to cost-
based relative weights (71 FR 47882 through 47898).)
    In FY 2008, we adopted 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.
    In FY 2009, the third and final year of the transition from charge-
based weights to cost-based weights, we calculated the MS-DRG relative 
weights based on 100 percent of hospital costs. We refer readers to the 
FY 2007 IPPS final rule (71 FR 47882) for a more detailed discussion of 
our final policy for calculating the cost-based DRG relative weights 
and to the FY 2008 IPPS final rule with comment period (72 FR 47199) 
for information on how we blended relative weights based on the CMS 
DRGs and MS-DRGs.
a. Summary of the RTI Study of Charge Compression and CCR Refinement
    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 January 2007 with its 
findings on charge compression (which was posted on the CMS Web site 
at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf). In that 
report, RTI found that a number of factors contribute to charge 
compression and affect the accuracy of the relative weights. RTI's 
findings demonstrated that charge compression exists in

[[Page 43778]]

several CCRs, most notably in the Medical Supplies and Equipment CCR.
    In its interim draft report, RTI offered a number of 
recommendations to mitigate the effects of charge compression, 
including estimating regression-based CCRs to disaggregate the Medical 
Supplies Charged to Patients, Drugs Charged to Patients, and Radiology 
cost centers, and adding new cost centers to the Medicare cost report, 
such as adding a ``Devices, Implants and Prosthetics'' line under 
``Medical Supplies Charged to Patients'' and a ``CT Scanning and MRI'' 
subscripted line under ``Radiology-Diagnostics''. (For more details on 
RTI's findings and recommendations, we refer readers to the FY 2009 
IPPS final rule (73 FR 48452).) Despite receiving public 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 did not adopt RTI's recommendation to 
create additional regression-based CCRs for several reasons. 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 the OPPS rely on cost-based weights, we preferred to introduce any 
methodological adjustments to both payment systems at the same time. 
RTI's analysis of charge compression has since been expanded to 
incorporate outpatient services. RTI evaluated the cost estimation 
process for the OPPS cost-based relative weights, including a 
reassessment of the regression-based CCR models using both outpatient 
and inpatient charge data. This interim report was made available in 
April 2008 during the public comment period on the FY 2009 IPPS 
proposed rule and can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200804.pdf. The IPPS-specific chapters, which were 
separately displayed in the April 2008 interim report, as well as the 
more recent OPPS chapters, were included in the July 3, 2008 RTI final 
report entitled, ``Refining Cost-to-Charge Ratios for Calculating APC 
[Ambulatory Payment Classification] and DRG Relative Payment Weights,'' 
that became available at the time of the development of the FY 2009 
IPPS final rule. The RTI final report can be found on RTI's Web site 
at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf.
    RTI's final report distinguished between two types of research 
findings and recommendations: those pertaining to the accounting or 
cost report data and those related to statistical regression analysis. 
Importantly, RTI found that, under the IPPS and the OPPS, accounting 
improvements to the cost reporting data reduce some of the sources of 
aggregation bias without having to use regression-based adjustments. In 
general, with respect to the regression-based adjustments, RTI 
confirmed the findings of its March 2007 report that regression models 
are a valid approach for diagnosing potential aggregation bias within 
selected services for the IPPS and found that regression models are 
equally valid for setting payments under the OPPS. RTI also suggested 
that regression-based CCRs could provide a short-term correction until 
accounting data could be sufficiently refined to support more accurate 
CCR estimates under both the IPPS and the OPPS.
    RTI also noted that cost-based weights are only one component of a 
final prospective payment rate. There are other rate adjustments (wage 
index, IME, and DSH) to payments derived from the revised cost-based 
weights and the cumulative effect of these components may not improve 
the ability of final payment to reflect resource cost. With regard to 
APCs and MS-DRGs that contain substantial device costs, RTI cautioned 
that the other rate adjustments largely offset the effects of charge 
compression among hospitals that receive these adjustments. RTI 
endorsed short-term regression-based adjustments, but also concluded 
that more refined and accurate accounting data are the preferred long-
term solution to mitigate charge compression and related bias in 
hospital cost-based weights.
    As a result of this research, RTI made 11 recommendations. For a 
more detailed summary of RTI's findings, recommendations, and public 
comments we received on the report, we refer readers to the FY 2009 
IPPS final rule (73 FR 48452 through 48453).
b. Summary of the RAND Corporation Study of Alternative Relative Weight 
Methodologies
    One of the reasons 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. In the FY 2008 final rule with comment 
period (72 FR 47197), we stated that we engaged the RAND Corporation as 
the contractor to evaluate the HSRV methodology in conjunction with 
regression-based CCRs, and that we would consider its analysis as we 
prepared for the FY 2009 IPPS rulemaking process. In the FY 2009 IPPS 
final rule (73 FR 48453 through 48457), we provided a summary of the 
RAND report and the public comments we received in response to the FY 
2009 IPPS proposed rule. The report may be found on RAND's Web site at: 
http://www.rand.org/pubs/working_papers/WR560/.
    RAND evaluated six different methods that could be used to 
establish relative weights, CMS' current relative weight methodology of 
15 national CCRs and 5 alternatives, including a method in which the 15 
national CCRs are disaggregated using the regression-based methodology, 
and a method using hospital-specific CCRs for the 15 cost center 
groupings. In addition, RAND analyzed our standardization methodologies 
that account for systematic cost differences across hospitals. The 
purpose of standardization is to eliminate systematic facility-specific 
differences in cost so that these cost differences do not influence the 
relative weights. The three standardization methodologies analyzed by 
RAND include: The ``hospital payment factor'' methodology currently 
used by CMS, under which a hospital's wage index factor, and IME and/or 
DSH factor, are divided out of its estimated DRG cost; the HSRV 
methodology, which standardizes the cost for a given discharge by the 
hospital's own costliness rather than by the effect of the systematic 
cost differences across groups of hospitals; and the HSRVcc 
methodology, which removes hospital-level cost variation by calculating 
hospital-specific charge-based relative values for each DRG at the cost 
center level and standardizing them for differences in case-mix. Under 
the HSRVcc methodology, a national average charge-based relative weight 
is calculated for each cost center.
    Overall, RAND found that none of the alternative methods of 
calculating the relative weights represented a marked improvement in 
payment accuracy over the current method, and there was little 
difference across methods in their ability to predict cost at either 
the discharge-level or the hospital-level. In their regression 
analysis, RAND found that after controlling for hospital payment 
factors, the relative weights are compressed (that is, understated). 
However, RAND also found that the hospital payment factors are 
overstated and increase more rapidly than cost.

[[Page 43779]]

Therefore, while the relative weights are compressed, these payment 
factors offset the compression such that total payments to hospitals 
increase more rapidly than hospitals' costs.
    RAND found that relative weights using the 19 national 
disaggregated regression-based CCRs result in significant 
redistributions in payments among hospital groupings. However, RAND did 
not believe the regression-based charge compression adjustments 
significantly improve payment accuracy. With regard to standardization 
methodologies, while RAND found that there is no clear advantage to the 
HSRV method or the HSRVcc method of standardizing cost compared to the 
current hospital payment factor standardization method, its analysis 
did reveal significant limitations of CMS' current hospital payment 
factor standardization method. The current standardization method has a 
larger impact on the relative weights and payment accuracy than any of 
the other alternatives that RAND analyzed because the method ``over-
standardizes'' by removing more variability for hospitals receiving a 
payment factor than can be empirically supported as being cost-related 
(particularly for IME and DSH). RAND found that instead of increasing 
proportionately with cost, the payment factors CMS currently uses (some 
of which are statutory), increase more rapidly than cost, thereby 
reducing payment accuracy. RAND concluded that further analysis is 
needed to isolate the cost-related component of the IPPS payment 
adjustments (some of which has already been done by MedPAC), use them 
to standardize cost, and revise the analysis of payment accuracy to 
reflect only the cost-related component.
2. Summary of FY 2009 Changes and Discussion for FY 2010
    In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in 
response to the RTI's recommendations concerning cost report 
refinements, and because of RAND's finding that regression-based 
adjustments to the CCRs do not significantly improve payment accuracy, 
we discussed our decision to pursue changes to the cost report to split 
the cost center for Medical Supplies Charged to Patients into one line 
for ``Medical Supplies Charged to Patients'' and another line for 
``Implantable Devices Charged to Patients.'' We acknowledged, as RTI 
had found, that charge compression occurs in several cost centers that 
exist on the Medicare cost report. However, as we stated in the final 
rule, we focused on the CCR for Medical Supplies and Equipment because 
RTI found that the largest impact on the MS-DRG relative weights could 
result from correcting charge compression for devices and implants. In 
determining what should be reported in these respective cost centers, 
we adopted the commenters' recommendation that hospitals should use 
revenue codes established by AHA's National Uniform Billing Committee 
to determine what should be reported in the ``Medical Supplies Charged 
to Patients'' and the ``Implantable Devices Charged to Patients'' cost 
centers.
    When we developed the FY 2009 IPPS final rule, we considered all of 
the public comments we received both for and against adopting 
regression-based CCRs. Also noteworthy is RAND's belief that 
regression-based CCRs may not significantly improve payment accuracy, 
and that it is equally, if not more, important to consider revisions to 
the current IPPS hospital payment factor standardization method in 
order to improve payment accuracy. We continue to believe that, 
ultimately, improved and more precise cost reporting is the best way to 
minimize charge compression and improve the accuracy of the cost 
weights. Accordingly, we did not propose to adopt regression-based CCRs 
for the calculation of the FY 2010 IPPS relative weights.
    However, in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 
24103), we expressed our concern about RAND's finding that there are 
significant limitations of CMS' current hospital payment factor 
standardization method. As summarized above, RAND found that the 
current standardization method ``over-standardizes'' by removing more 
variability for hospitals receiving a payment factor than can be 
empirically supported as being cost-related (particularly for IME and 
DSH). RAND found that instead of increasing proportionately with cost, 
the payment factors CMS currently uses (some of which are statutory), 
increase more rapidly than cost, thereby reducing payment accuracy. 
Further analysis is needed to isolate the cost-related component of the 
IPPS payment adjustments, use them to standardize cost, and revise the 
analysis of payment accuracy to reflect only the cost-related 
component. However, RAND cautioned that ``re-estimating'' these payment 
factors ``raises important policy issues that warrant additional 
analyses'' (page 49 of RAND's report, which is available on the Web 
site at: http://www.rand.org/pubs/working_papers/WR560/), particularly 
to ``determine the analytically justified levels using the MS-DRGs'' 
(page 86 of the RAND report). In addition, we noted that RTI, in its 
July 2008 final report, also observed that the adjustment factors under 
the IPPS (the wage index, IME, and DSH adjustments) complicate the 
determination of cost and these factors ``within the rate calculation 
may offset the effects of understated weights due to charge 
compression'' (page 109 of RTI's final report, which is available at 
the Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf). While it 
may be more accurate to standardize using the empirically justified 
levels of the IME and DSH adjustments, consideration needs to be given 
to the extent to which these payment factors offset the compression of 
the relative weights.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24103 and 
24104), we stated that we understood that MedPAC performed an analysis 
to identify empirically justifiable formulas for determining 
appropriate IME and DSH adjustments. For example, in its March 2007 
report (and reiterated in its March 2009 report), MedPAC asserts that 
the current level of the IME adjustment factor, 5.5 percent for every 
10 percent increase in resident-to-bed ratio, overstates IME payments 
by more than twice the empirically justified level, resulting in 
approximately $3 billion in overpayments. The empirical level of the 
IME adjustment is estimated to be 2.2 percent for every 10 percent 
increase in the resident-to-bed ratio. We stated that we cannot propose 
to change the IME and DSH factors used for actual payment under the 
IPPS because these factors are mandated by law. However, under section 
1886(d)(4) of the Act, we have the authority to determine the 
appropriate weighting factor for each MS-DRG (including which factors 
or method we will employ in making annual adjustments to the MS-DRGs so 
as to reflect changes in the relative use of hospital resources). In 
addition, section 1886(d)(7)(B) of the Act precludes judicial review of 
our methodology for determining the appropriate weighting factors. 
Therefore, we do have some flexibility in what factors may be used for 
standardization purposes. For purposes of standardization only, we 
stated that one option may be for CMS to use the empirically justified 
IME adjustment of 2.2 percent, such that only the cost-related 
component of teaching hospitals is removed from the claim charges prior 
to calculating the relative weights. Similarly, for the DSH adjustment, 
in its March 2007 report, MedPAC found that costs per case increase 
about 0.4 percent

[[Page 43780]]

for each 10 percent increase in the low-income patient percentage. This 
is significantly less than the percentage increase expressed by the 
current factors used in the DSH payment formulas. (According to MedPAC, 
in FY 2004, about $5.5 billion in DSH payments were made above the 
empirically justified level.) In looking only at urban hospitals with 
greater than 100 beds, which manifest the strongest positive 
correlation between cost and low income patient share, MedPAC found 
that costs increase about 1.4 percent for every 10 percent increment of 
the low-income patient percentage. MedPAC did not find a positive cost 
relationship between low-income patient percentage and costs per case 
for urban hospitals with less than 100 beds and/or for rural hospitals. 
Therefore, for purposes of standardizing for the DSH adjustment, we 
stated that an option we may consider is to incorporate an adjustment 
factor of 1.4 percent for urban hospitals with greater than 100 beds, 
and to remove the DSH payment adjustment altogether for other hospitals 
that otherwise currently qualify for DSH payment. We also noted that 
while we cannot predict the effect of using the empirical factors for 
IME and DSH in the standardized methodology on the relative weights 
without further analysis, dividing out (that is, excluding) reduced IME 
and DSH payment factors from a hospital's total payment would result in 
a greater share of teaching and DSH hospitals' costs used in 
calculating the relative weights. With respect to the wage index, 
because there are multiple wage index factors, one for each geographic 
area, determining the true cost associated with geographic location and 
standardizing for those costs is much more challenging. While we did 
not propose changes for FY 2010, in light of the previous discussion of 
the current IME and DSH adjustments in the standardization process, we 
solicited public comments as to how the standardization process can be 
improved to more precisely remove cost differences across hospitals, 
thereby improving the accuracy of the relative weights in subsequent 
fiscal years.
Charge Compression
    Comment: Commenters continue to oppose the regression-based CCR 
approach to calculate the relative weights. The commenters cited the 
results of the RAND report on alternative relative weight methodologies 
in which RAND found that ``none of the alternative weight methodologies 
represent a marked improvement over the current system.'' In addition, 
the commenters noted the RTI study, which concluded that more refined 
and accurate accounting data would be the preferred long-term solution 
to mitigate charge compression.
    Some commenters also continue to support our policy finalized in 
the FY 2009 IPPS final rule to address charge compression (that is, the 
creation of separate cost centers for Implantable Devices Charged to 
Patients and Medical Supplies Charged to Patients).
    Response: We appreciate the comments with respect to regression-
based CCRs and the use of refined cost report data. However, we note 
that we have not proposed any changes to the existing cost-based 
relative weight methodology for FY 2010.
    Comment: Some commenters sought clarification on which revenue 
codes should be used to report various implantable devices. Some 
commenters disagreed with the definition of a high-cost device that 
only applied to implantables because the commenters believed that there 
are other high-cost devices that are not implantable, but should be 
included in the device cost center.
    Response: We did not propose any policy changes with respect to the 
use of revenue codes or alternative ways for identifying high-cost 
devices. Therefore, we are not responding to these comments at this 
time. We refer readers to the discussion in the FY 2009 IPPS final rule 
concerning our current policy on these matters (73 FR 48462 and 48462).
    Comment: Commenters responded to our solicitation for options on 
possibly revising the current standardization methodology. MedPAC 
supported the option of standardizing hospitals' service charges using 
the empirical estimates of DSH and IME rather than their actual payment 
amounts. MedPAC also expressed support for the use of the HSRV 
methodology for calculating relative weights because it would obviate 
the need to standardize hospitals' charges and it would allow for costs 
to be comparable across hospitals. Other commenters continue to oppose 
the HSRV methods of standardization. These commenters believe that the 
HSRV methodology is inappropriate for a cost-based methodology and only 
applicable in charge-based systems that account for mark-up practices. 
Some of these commenters expressed general concern about revising the 
current standardization methodology because CMS has implemented 
numerous changes to the relative weights and DRGs in recent years, 
including moving to cost-based relative weights and to MS-DRGs, making 
it difficult for hospitals to predict their payments. Commenters 
suggested that, because hospitals have been dealing with other Medicare 
payment changes, such as quality reporting, and in light of health 
reform legislation, CMS wait before modifying the relative weight 
methodology to allow payments under the cost-based relative weights to 
stabilize and to allow hospitals to better predict their payments.
    Response: In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we 
expressed our concerns regarding RAND's finding that there are 
significant limitations of CMS' current hospital payment factor 
standardization method. As summarized above, RAND found that the 
current standardization method ``over-standardizes'' by removing more 
variability for hospitals receiving a payment factor than can be 
empirically supported as being cost-related (particularly for IME and 
DSH). We further stated that given MedPAC's analysis that identifies 
empirically justifiable formulas for determining appropriate IME and 
DSH adjustments, perhaps one option for improving the accuracy of the 
standardization process is to use the empirically justified IME and DSH 
factors. We did not propose any changes for FY 2010, although we 
solicited public comments as to how the standardization process can be 
changed to improve the accuracy of the relative weights in subsequent 
fiscal years. Therefore, the commenters need not be concerned that we 
are introducing yet another significant change to the calculation of 
the relative weights or the MS-DRGs for FY 2010. We appreciate the 
public comments received, and we will consider the commenters' concerns 
as we continue to study the issue.
    Comment: One commenter expressed concern regarding the effects of 
standardizing the relative weights by only removing the empirical costs 
of DSH and IME, rather than removing the entire effects of DSH and IME. 
The commenter was concerned that, by removing the empirical costs of 
DSH and IME in setting the relative weights, the non-DSH and 
nonteaching hospitals would be adversely affected by lower relative 
weights and a lower standardized amount. The commenter requested that 
thorough analysis be done and shared with the industry before CMS 
proposed any changes to the standardization method.
    Response: As we stated in the proposed rule, we cannot predict the 
effect of using the empirical factors for IME and DSH in the 
standardized methodology on the relative weights without further 
analysis. We

[[Page 43781]]

acknowledge that dividing out (that is, excluding) reduced IME and DSH 
payment factors from a hospital's total payment would result in a 
greater share of teaching and DSH hospitals' payments being 
characterized as costs that would then be used in calculating the 
relative weights. We also are unsure as to whether a change in the 
relative weights would affect the standardized amount. In any case, 
should we propose changes to the current standardization process, we 
will make our analysis and impacts available to the public for comment, 
in accordance with our general practice.
3. Timeline for Revising the Medicare Cost Report
    As mentioned in the FY 2009 IPPS final rule (73 FR 48467), we are 
currently in the process of comprehensively reviewing the Medicare 
hospital cost report, and the finalized policy from the FY 2009 IPPS 
final rule to split 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,'' as part of 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 provisions of the Paperwork Reduction Act (PRA), we stated that we 
have been planning to propose the actual changes to the cost reporting 
form, the attending cost reporting software, and the cost reporting 
instructions in Chapter 40 of the Medicare Provider Reimbursement 
Manual (PRM), Part II. Under the effort to update the cost report and 
eliminate outdated requirements in conjunction with the provisions of 
the PRA, we stated that changes to the cost reporting form and cost 
reporting instructions would be made available to the public for 
comment. Thus, the public would have an opportunity to suggest 
comprehensive reforms (which they had advocated in the FY 2009 IPPS 
final rule in response to our proposals), and would similarly be able 
to make suggestions for ensuring that these reforms are made in a 
manner that is not disruptive to hospitals' billing and accounting 
systems, and are first and foremost within the guidelines of GAAP, 
which are consistent with the Medicare principles of reimbursement, and 
sound accounting practices.
    In the FY 2009 IPPS final rule (73 FR 48468), we stated that we 
expect the revised cost reporting forms that reflect one cost center 
for ``Medical Supplies Charged to Patients'' and one cost center for 
``Implantable Devices Charged to Patients'' would not be available 
until cost reporting periods beginning after the Spring of 2009. At the 
time the proposed rule was issued, we anticipated that the transmittal 
to create this new cost center would be issued in June 2009. Because 
there is approximately a 3-year lag between the availability of cost 
report data for IPPS and OPPS ratesetting purposes in a given fiscal 
year or calendar year, we stated that we may be able to derive two 
distinct CCRs, one for medical supplies and one for devices, for use in 
calculating the FY 2013 IPPS relative weights and the CY 2013 OPPS 
relative weights. Until the revised cost reporting forms are published, 
we stated that hospitals must include costs and charges of separately 
chargeable medical supplies and implantable medical devices in the cost 
center for ``Medical Supplies Charged to Patients'' (section 2202.8 of 
the PRM-I), and effective for cost reporting periods specified in the 
revised cost reporting forms, hospitals must include costs and charges 
of separately chargeable medical supplies in the cost center for 
``Medical Supplies Charged to Patients'' and of separately chargeable 
implantable medical devices in the new ``Implantable Devices Charged to 
Patients'' cost center.
    Comment: A number of commenters addressed the new cost reporting 
forms in which implantable device costs that had been reported on 
Medical Supplies Charged to Patients under the current cost reporting 
forms will now be reported on a new line for ``Implantable Devices 
Charged to Patients''. The commenters recommended that CMS specifically 
mandate in the cost reporting instructions that hospitals report their 
medical supplies and implantable devices separately to ensure that 
hospitals will report their costs in both cost centers.
    Response: In the revised Form CMS-2552-96 and the new Form CMS-
2552-10 cost reporting instructions, we will clearly indicate that low 
cost medical supplies should be reported on the line for Medical 
Supplies Charged to Patients, and that high cost medical devices should 
be reported on the Implantable Devices Charged to Patients line. The 
cost reporting instructions will provide further guidance on 
differentiating between high cost items and low cost items.
    Comment: Several commenters urged CMS to work with the hospital 
industry as CMS revises the Medicare hospital cost report. The 
commenters expressed disappointment that CMS has not worked with the 
hospital industry at the outset of revising the Medicare hospital cost 
report. The commenters urged CMS not to make piecemeal changes to the 
Medicare hospital cost report; rather, CMS should make changes that 
align with hospitals' protocols and payment methodologies to improve 
the accuracy of the cost-based MS-DRG relative weights. The commenters 
requested that the public have the opportunity to comment on cost 
reporting forms and instructions before they are implemented. In 
addition, the commenters urged that CMS work with the National Uniform 
Billing Committee (NUBC) to develop standards for the use of revenue 
codes and to mandate standardized cost centers.
    Response: In the FY 2009 IPPS proposed and final rules (73 FR 23546 
and 73 FR 48461), we stated that we began a comprehensive review of the 
Medicare hospital cost report, and splitting 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 that initiative to update and 
revise the cost report. We also stated that under the effort to update 
the cost report and eliminate outdated requirements in conjunction with 
the PRA, changes to the cost report form and cost report instructions 
would be made available to the public for comment. Thus, the public 
would have an opportunity to suggest the more comprehensive reforms 
that they are advocating, and would similarly be able to make 
suggestions for ensuring that these reforms are made in a manner that 
is not disruptive to hospitals' billing and accounting systems, and are 
within the guidelines of GAAP, which are consistent with the Medicare 
principles of reimbursement, and sound accounting practices. In fact, 
the new draft hospital cost report Form CMS-2552-10 went on public 
display through the Federal Register on July 2, 2009, for a 60-day 
review and comment period, which ends August 31, 2009. Those wishing to 
review and comment on the document can do so at http://www.cms.hhs.gov/PaperworkReductionActof1995. We are willing to work with and consider 
comments from finance and cost report experts from the hospital 
community as we work to improve and modify the hospital cost report and 
standardize the use of revenue codes. The cost center for Implantable 
Devices Charged to Patients will be available for use for cost 
reporting periods beginning on or after May 1, 2009. The revised 
hospital cost report Form CMS-2552-10 will be

[[Page 43782]]

available for cost reporting periods beginning on or after February 1, 
2010.
    Comment: Some comments that expressed concerns with the delay of 
the cost reporting changes which would, in turn, delay the ability to 
use supply and device CCRs in the ratesetting process. The commenters 
stated that, in the FY 2009 IPPS final rule, CMS had anticipated using 
the revised CCR for the FY 2012 rule. However, due to delays in the 
issuance of instructions on cost reporting, CMS now believes that new 
CCRs for Medical Supplies Charged to Patients and Implantable Devices 
Charged to Patients may be used in the FY 2013 IPPS proposed and final 
rules. The commenters urged CMS to issue instructions to hospitals on a 
timely basis so that the new cost centers may be implemented as quickly 
as possible for FY 2013 ratesetting purposes. The commenters also 
suggested that, if CMS anticipates further delays in implementing the 
new cost centers, CMS implement regression-based CCRs as a short-term 
solution to address charge compression until data from the new cost 
centers become available. The commenters were also concerned that the 
new cost center may not be implemented consistently across hospitals 
and urged CMS to use analytical methods to test and supplement hospital 
cost center data in rate setting. For example, the commenters suggested 
that CMS use regression-based CCRs to measure the accuracy of the 
device cost center for the FY 2013 relative weights.
    Response: We are sympathetic to the commenters' concerns and regret 
the delay in the issuance of the revised cost reporting forms. However, 
we are making progress on this front. As we stated in response to a 
previous comment, the new draft hospital cost report Form CMS-2552-10 
went on display at the Federal Register on July 2, 2009, for a 60-day 
review and comment period, which ends August 31, 2009. Those wishing to 
review and comment on the document can do so at http://www.cms.hhs.gov/PaperworkReductionActof1995. After the revised cost report is available 
for use by all hospitals, and we begin to use the data to create CCRs 
for use in the calculation of the relative weights, we will analyze and 
monitor how hospitals are reporting their data and what effect the data 
are having on the separate CCRs for medical supplies and implantable 
devices. Comparison of the CCRs derived from the revised cost report to 
regression-based CCRs might be one method of gauging the accuracy and 
effectiveness of the separate cost centers for Medical Supplies Charged 
to Patients and Implantable Devices Charged to Patients.
    Comment: Several commenters asked for clarification on the new 
``Implantable Devices Charged to Patients'' cost center that was 
finalized in the FY 2009 IPPS final rule and will be part of the new 
Medicare Hospital Cost Report form. The commenters asked that CMS 
clarify the statement in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule that ``hospitals must include costs and charges of separately 
chargeable medical supplies and implantable medical devices in the cost 
center for `Medical Supplies Charged to Patients' '' as referenced in 
PRM-I Section 2202.8. The commenters were confused by the reference to 
PRM-I Section 2202.8 because that section defines ancillary services, 
with no mention of medical supplies. In addition, one commenter noted 
the hospitals are currently testing their systems to report costs and 
charges for implantable devices and asked whether it would be 
acceptable for hospitals to establish a cost center for ``Implantable 
Devices Charged to Patients'' at line 55.01 of the current cost report 
until the revised cost report is available. The commenter understood 
that the subscripted cost center would be rolled up into Line 55 for 
the purposes of calculating the relative weights until the new cost 
report is available.
    Response: We included the reference to Section 2202.8 of the PRM-I, 
which defines ancillary services, to remind hospitals that any items 
reported in the Medical Supplies Charged to Patients cost center are 
items (high cost or low cost) that are separately chargeable ancillary 
services. In accordance with Section 2202.8 of the PRM-I, ancillary 
services are those services for which a separate charge is customarily 
made in addition to the routine service charge. With respect to 
subscripting Line 55 to establish a cost center for Implantable Devices 
Charged to Patients, we have provided Line 55.30 to report Implantable 
Devices Charged to Patients on Form CMS-2552-96 and Line 69 on the 
proposed new Form CMS-2552-10.
    Comment: Some commenters suggested that CMS engage in outreach and 
educational activities to hospitals on the changes to the cost report 
and reporting of charges with respect to the medical device and medical 
supply cost centers so that hospitals can appropriately report data. 
The commenters recommended that the outreach activities go beyond the 
``distribution of bulletins that are used to inform providers about 
changes to the Medicare program.''
    Response: Although it is a bit early to plan specific outreach 
activities at this point, given that the proposed rule for the revised 
cost reporting forms has only been released on July 2, 2009, we agree 
that such educational activities are important, and we have been 
considering some options for educating the provider community involving 
the fiscal intermediaries and MACs and the cost report vendors. We look 
forward to working with the provider community in these initiatives.
    Accordingly, we are not implementing any changes to the relative 
weight calculation for FY 2010. We will continue to focus on possible 
ways to improve the weights through cost reporting and look forward to 
reviewing the comments received on the draft revised cost reporting 
forms. In addition, we will continue to think about possible ways to 
refine the standardization process as a means to improve the accuracy 
of the relative weights. As stated above, any further changes we decide 
to make to any portion of the relative weights calculation will be 
promulgated first through notice and comment rulemaking, which will 
allow the public sufficient opportunity to review relevant analyses and 
impacts of such potential changes.

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

1. Statutory Authority
    Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. By October 1, 2007, 
the Secretary was required to select, in consultation with the Centers 
for Disease Control (CDC), at least two conditions that: (a) are high 
cost, high volume, or both; (b) are assigned to a higher paying MS-DRG 
when present as a secondary diagnosis (that is, conditions under the 
MS-DRG system that are CCs or MCCs); and (c) could reasonably have been 
prevented through the application of evidence-based guidelines. The 
list of conditions can be revised, again in consultation with CDC, from 
time to time as long as the list contains at least two conditions.
    Medicare continues to assign a discharge to a higher paying MS-DRG 
if a selected HAC is present on admission (POA). However, since October 
1, 2008, Medicare no longer assigns an inpatient hospital discharge to 
a higher paying MS-DRG if a selected condition is not POA. Thus, if a 
selected HAC that was not present on admission manifests during the 
hospital stay, the case is paid as though the secondary diagnosis was 
not present. However, if any

[[Page 43783]]

nonselected CC/MCC appears on the claim, the claim will be paid at the 
higher MS-DRG rate; to cause a lower MS-DRG payment, all CCs/MCCs on 
the claim must be selected conditions for the HAC payment provision.
    Since October 1, 2007, hospitals have been required to submit 
information on Medicare claims specifying whether diagnoses were POA. 
The POA indicator reporting requirement and the HAC payment provision 
apply to IPPS hospitals only. Non-IPPS hospitals, including CAHs, 
LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, hospitals in 
Maryland operating under waivers, rural health clinics, federally 
qualified health centers, RNHCIs, and Department of Veterans Affairs/
Department of Defense hospitals, are exempt from POA reporting and the 
HAC payment provision. Throughout this section, the term ``hospital'' 
refers to an IPPS hospital.
2. HAC Selection Process
    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 through 24726), we 
sought 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 selected 8 categories to which the HAC payment provisions 
would apply.
    In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed 
several additional candidate HACs as well as refinements to the 
previously selected HACs. In the FY 2009 IPPS final rule (73 FR 48471), 
we expanded and refined several of the previously selected HACs, and we 
selected 2 additional categories of HACs. A complete list of the 10 
current categories of HACs is included in section II.F.4. of this 
preamble.
3. Collaborative Process
    CMS experts have worked closely with public health and infectious 
disease professionals from across the Department of Health and Human 
Services, including CDC, AHRQ, and the Office of Public Health and 
Science, to identify the candidate preventable HACs, review comments, 
and select HACs. CMS and CDC have also collaborated on the process for 
hospitals to submit a POA indicator for each diagnosis listed on IPPS 
hospital Medicare claims and on the payment implications of the various 
POA reporting options.
    On December 17, 2007, CMS and CDC hosted a jointly-sponsored HAC 
and POA Listening Session to receive input from interested 
organizations and individuals. On December 18, 2008, CMS, CDC, and AHRQ 
hosted a second 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 
December 18, 2008 Listening Session are available on the CMS Web site 
at: http://www.cms.hhs.gov/HospitalAcqCond/07_EducationalResources.asp#TopOfPage.
4. Selected HAC Categories
    The following table lists the current HACs.

 
------------------------------------------------------------------------
                  HAC                         CC/MCC (ICD-9-CM code)
------------------------------------------------------------------------
Foreign Object Retained After Surgery..  998.4 (CC), 998.7 (CC).
Air Embolism...........................  999.1 (MCC).
Blood Incompatibility..................  999.6 (CC).
Pressure Ulcer Stages III & IV.........  707.23 (MCC), 707.24 (MCC).
Falls and Trauma:                        Codes within these ranges on
                                          the CC/MCC list:
    --Fracture.........................  800-829.
    --Dislocation......................  830-839.
    --Intracranial Injury..............  850-854.
    --Crushing Injury..................  925-929.
    --Burn.............................  940-949.
    --Electric Shock...................  991-994.
Catheter-Associated Urinary Tract        996.64 (CC).
 Infection (UTI).
                                         Also excludes the following
                                          from acting as a CC/MCC: 112.2
                                          (CC), 590.10 (CC), 590.11
                                          (MCC), 590.2 (MCC), 590.3
                                          (CC), 590.80 (CC), 590.81
                                          (CC), 595.0 (CC), 597.0 (CC),
                                          599.0 (CC).
Vascular Catheter-Associated Infection.  999.31 (CC).
Manifestations of Poor Glycemic Control  250.10-250.13 (MCC), 250.20-
                                          250.23 (MCC), 251.0 (CC),
                                          249.10-249.11 (MCC), 249.20-
                                          249.21 (MCC).
------------------------------------------------------------------------
                        Surgical Site Infections
------------------------------------------------------------------------
 
Surgical Site Infection, Mediastinitis,  519.2 (MCC).
 Following Coronary Artery Bypass Graft  And one of the following
 (CABG).                                  procedure codes: 36.10-36.19.
Surgical Site Infection Following        996.67 (CC), 998.59 (CC).
 Certain Orthopedic Procedures.          And one of the following
                                          procedure codes: 81.01-81.08,
                                          81.23-81.24, 81.31-81.38,
                                          81.83, 81.85.
Surgical Site Infection Following        Principal Diagnosis--278.01,
 Bariatric Surgery for Obesity.           998.59 (CC)
                                         And one of the following
                                          procedure codes: 44.38, 44.39,
                                          or 44.95.
Deep Vein Thrombosis and Pulmonary       415.11 (MCC), 415.19 (MCC),
 Embolism Following Certain Orthopedic    453.40-453.42 (CC).
 Procedures.                             And one of the following
                                          procedure codes: 00.85-00.87,
                                          81.51-81.52, or 81.54.
------------------------------------------------------------------------

    We refer readers to section II.F.6. of the FY 2008 IPPS final rule 
with comment period (72 FR 47202 through 47218) and to section II.F.7. 
of the FY 2009 IPPS final rule (73 FR 48474 through 48486) for detailed 
analyses

[[Page 43784]]

supporting the selection of each of these HACs.
    The list of selected HAC categories is dependent upon CMS' list of 
diagnoses designated as CC/MCCs. As changes and/or new diagnosis codes 
are proposed and finalized to the list of CC/MCCs, these changes need 
to be reflected in the list of selected HAC categories. In the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106), we proposed the 
addition of ICD-9-CM codes 813.46 (Torus fracture of ulna) and 813.47 
(Torus fracture of radius and ulna) to more precisely define the 
previously selected HAC category of falls and trauma. We refer readers 
to Table 6A in the Addendum to this final rule for the adoption of ICD-
9-CM codes 813.46 and 813.47 as CCs.
    Comment: Commenters supported the addition of ICD-9-CM codes 813.46 
and 813.47 to more precisely define the falls and trauma HAC category.
    Response: We appreciate the commenters' support of a more precise 
definition of the falls and trauma category. We are finalizing the 
addition of ICD-9-CM codes 813.46 and 813.47 to more precisely define 
the falls and trauma HAC category.
5. Public Input Regarding Selected and Potential Candidate HACs
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24104 
through 24106), we did not propose to add or remove categories of HACs. 
However, we indicated that we continue to encourage public dialogue 
about refinements to the HAC list. During and after the December 18, 
2008 Listening Session, we received many oral and written stakeholder 
comments about both previously selected and potential candidate HACs. 
In response to the Listening Session, commenters strongly supported 
using information gathered from early experience with the HAC payment 
provision to inform maintenance of the HAC list and consideration of 
future potential candidate HACs. Further, commenters emphasized the 
need for a robust program evaluation prior to modifying the HAC list. 
Strong support was also expressed for a program evaluation in response 
to the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106).
    Comment: Commenters overwhelmingly expressed strong support for a 
robust program evaluation before modifying the HAC list. Many 
commenters stated that CMS' approach to employ a studied program 
analysis during FY 2010 allows hospitals additional time to develop 
processes for improving performance on previously selected HACs.
    Response: We appreciate the support we have received for our 
decision to undertake a program evaluation. The Medicare HAC policy 
aims to ensure patients are receiving high quality care, and the 
program evaluation will enable us to understand the impact of the 
program.
    Comment: Several commenters made specific suggestions for the 
program evaluation. A number of commenters suggested that the program 
evaluation should consider assessing the policy's impact on patient 
treatment and potential unintended consequences. Some commenters 
indicated that CMS should validate POA indicator data and explore how 
information learned from POA coding could be used to better understand 
and prevent certain HACs. Commenters encouraged CMS to examine the 
extent to which the program is increasing adherence to evidence-based 
guidelines. Commenters also encouraged CMS to ensure transparency in 
the development of its program evaluation and to allow for public 
comment at various stages of the evaluation. Some commenters requested 
that the final program evaluation results be shared publicly.
    Response: We appreciate the specific suggestions provided regarding 
the program evaluation. These recommendations will be taken into 
consideration as the program evaluation is developed. We agree with 
commenters that monitoring unintended consequences and assessing 
adherence to evidence-based guidelines should be a priority for the 
program evaluation. We also agree that validation of POA coding, as 
well as examining each POA indicator, are areas of critical importance 
for the program evaluation. We appreciate the public's interest in the 
program evaluation and plan to include updates and findings from the 
evaluation on CMS' Hospital-Acquired Conditions and Present on 
Admission Indicator Web site available at: http://www.cms.hhs.gov/HospitalAcqCond/.
6. POA Indicator Reporting
    Collection of POA indicator data is necessary to identify which 
conditions were acquired during hospitalization for the HAC payment 
provision as well as for broader public health uses of Medicare data. 
Through Change Request No. 5679 (released on June 20, 2007), CMS issued 
instructions requiring IPPS hospitals to submit POA indicator data for 
all diagnosis codes on Medicare claims. CMS also issued Change Request 
No. 6086 (released on June 13, 2008) regarding instructions for 
processing non-IPPS 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 on the CDC 
Web site at: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/icdguide07.pdf (the POA reporting guidelines begin on page 92). 
Additional information regarding POA indicator reporting and 
application of the POA reporting options is available on the CMS Web 
site at: http://www.cms.hhs.gov/HospitalAcqCond. CMS has historically 
not provided coding advice. Rather, CMS collaborates with the American 
Hospital Association (AHA) through the Coding Clinic for ICD-9-CM. CMS 
has been collaborating with the AHA to promote the Coding Clinic for 
ICD-9-CM as the source for coding advice about the POA indicator.
    There are five POA indicator reporting options, as defined by the 
ICD-9-CM Official Guidelines for Coding and Reporting:

------------------------------------------------------------------------
         Indicator                            Descriptor
------------------------------------------------------------------------
Y..........................  Indicates that the condition was present on
                              admission.
W..........................  Affirms that the hospital has determined
                              based on data and clinical judgment that
                              it is not possible to document when the
                              onset of the condition occurred.
N..........................  Indicates that the condition was not
                              present on admission.
U..........................  Indicates that the documentation is
                              insufficient to determine if the condition
                              was present at the time of admission.
1..........................  Signifies exemption from POA reporting. CMS
                              established this code as a workaround to
                              blank reporting on the electronic 4010A1.
                              A list of exempt ICD-9-CM diagnosis codes
                              is available in the ICD-9-CM Official
                              Guidelines for Coding and Reporting.
------------------------------------------------------------------------

    In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we 
adopted as final our proposal to: (1) Pay the CC/MCC MS-DRGs for those 
HACs coded with ``Y'' and ``W'' indicators; and (2) not pay the CC/MCC 
MS-DRGs for those

[[Page 43785]]

HACs coded with ``N'' and ``U'' indicators. Though we did not make any 
proposals regarding the HAC POA payment determinations in the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule, commenters addressed this aspect 
of the HAC payment provision.
    Comment: Commenters suggested that CMS should consider paying for 
HACs coded with the ``U'' indicator.
    Response: We adopted a policy of not paying for the ``U'' option 
because we believe that this approach encourages documentation and will 
ensure more accurate public health data. We refer readers to the FY 
2009 IPPS final rule (73 FR 48486 through 48487) for further discussion 
of our coding policy. In addition, as part of CMS' program evaluation 
of the HAC payment provision, we intend to analyze the ``U'' POA 
reporting options (section II.F.4. of this preamble).
    In addition to providing specific suggestions on what CMS should 
consider for the program evaluation, commenters also offered 
suggestions on how to address POA data beyond the program evaluation.
    Comment: A few commenters recommended that AHRQ continue to develop 
strategies to improve the accuracy of documenting POA.
    Response: Through the collaborative partnership that CMS has 
developed with AHRQ around the program evaluation, we will continue to 
work with AHRQ to identify strategies to improve the accuracy of 
documenting POA reporting.
    Comment: Some comments suggested that CMS consider publicly 
releasing aggregate POA data to decrease the incidence of preventable 
HACs. The commenters indicated that one effective approach for 
decreasing the incidence of preventable HACs would be to provide each 
hospital with aggregate POA rates based on peer comparisons.
    Response: We agree with the suggestion that the public release of 
aggregate POA data should be considered as one prong in a multi-pronged 
strategy to decrease the incidence of preventable HACs. We refer 
readers to the FY 2009 IPPS final rule (73 FR 48488) for a detailed 
discussion regarding public reporting of POA indicator data.
7. Additional Considerations Addressing the HAC and POA Payment 
Provision
    In addition to receiving comments on the program evaluation 
(II.F.5) and uses of POA indicator data (II.F.6), we also received 
comments addressing many other topics related to HAC and POA. This 
section summarizes those topics and provides responses.
    Comment: Commenters suggested that CMS consider the evaluation of 
new technologies that detect, prevent, and treat HACs as a research 
priority.
    Response: We agree with commenters that evaluating all methods to 
reduce preventable HACs, including new technologies, is a top priority 
for CMS. We refer readers to section II.I. of this preamble for 
additional information on CMS' new technology add-on payment policy.
    Comment: Some commenters addressed expansion of the principles 
behind the HAC payment provision to other settings of care and other 
entitlement benefits, beyond fee-for-service Medicare. One commenter 
specifically expressed concern that the Medicare HAC policy may have 
unintended consequences for the pediatric population, as similar 
policies are being adopted by State Medicaid agencies. The commenter 
suggested that these Medicaid policies may discourage physicians from 
treating complicated pediatric patients for whom the risk of certain 
HACs cannot be eliminated using evidence-based guidelines.
    Response: The Medicare HAC policy applies only to hospitals that 
are subject to the IPPS. While CMS does not develop or implement 
individual State Medicaid policies, we do endorse alignment of 
incentives across all systems of care and between the Medicare and 
Medicaid programs.
    Comment: Commenters recommended that CMS clarify how hospitals may 
appeal a HAC payment determination for a particular patient who is not 
eligible for higher payment through assignment to the higher CC/MCC 
level of the MS-DRG.
    Response: We thank the commenters for seeking clarification 
regarding appeals and the HAC payment provision. We refer readers to 
the FY 2008 IPPS final rule with comment period (72 FR 47216) for 
further information on existing procedures for review of HAC payment 
adjustments.
    Comment: Several commenters believed that some of CMS' selected 
HACs may not be fully preventable and recommended that CMS' payment 
methodology include risk adjustment.
    Response: We agree with the commenters that a risk adjustment 
methodology may lead to greater precision of HAC payment determinations 
and refer readers to the FY 2009 IPPS final rule (73 FR 48487 through 
48488) for a detailed discussion of HACs and risk adjustment at both 
the individual and population levels.
    Comment: A few commenters urged CMS to focus on more global 
hospital-wide assessments of harm, such as rate-based measurement of 
HACs, rather than targeting individual HAC events.
    Response: We agree with the commenters that capturing rates of HACs 
may more accurately assess the level of harm within a given institution 
and refer readers to the FY 2009 IPPS final rule (73 FR 48488) for a 
detailed discussion of the advantages and disadvantages of rate-based 
measurement of HACs.
    Comment: Commenters expressed support for expansion of the HAC list 
to include categories such as ventilator-associated pneumonia, failure 
to rescue, surgical site infection following implantation of devices, 
Clostridium difficile-associated disease, and malnutrition.
    Response: We thank the commenters for their continued engagement 
and monitoring of candidate HACs. We will continue to monitor these 
conditions as an aspect of the program evaluation and may consider 
discussion of these candidate HACs in future rulemaking.
    Comment: A few commenters encouraged CMS to adopt a pay-for-
performance initiative that is complementary to the current HAC program 
and incorporates specific initiatives outlined in the HHS Action Plan 
to Prevent Healthcare-Associated Infections. One commenter suggested 
that mandatory reporting of case rates should be incorporated into pay-
for-performance initiatives.
    Response: We agree with the commenters that pay-for-performance and 
value-based purchasing (VBP) programs may be one of several payment 
tools for reducing preventable HACs and refer readers to the FY 2009 
IPPS final rule (73 FR 48487 through 48488) for a detailed discussion 
of how VBP initiatives such as the Hospital VBP Plan Report to Congress 
can address preventable HACs.

G. Changes to Specific MS-DRG Classifications

1. MDC 5 (Diseases and Disorders of the Circulatory System): 
Intraoperative Fluorescence Vascular Angiography (IFVA)
    As we discussed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
(74 FR 24106 through 24107) we received a request to reassign cases 
reporting the use of intraoperative fluorescence vascular angiography 
(IFVA) with coronary artery bypass graft (CABG) procedures from MS-DRGs 
235 and 236 (Coronary Bypass without Cardiac Catheterization with and 
without MCC,

[[Page 43786]]

respectively) into MS-DRG 233 (Coronary Bypass with Cardiac 
Catheterization with MCC) and MS-DRG 234 (Coronary Bypass with Cardiac 
Catheterization without MCC). Effective October 1, 2007, procedure code 
88.59 (Intra-operative fluorescence vascular angiography (IFVA)) 
describes this technology.
    IFVA technology consists of a mobile device imaging system with 
software. The technology is used to test cardiac graft patency and 
technical adequacy at the time of coronary artery bypass grafting 
(CABG). While this system does not involve fluoroscopy or cardiac 
catheterization, it has been suggested by the manufacturer and clinical 
studies that it yields results that are similar to those achieved with 
selective coronary arteriography and cardiac catheterization. 
Intraoperative coronary angiography provides information about the 
quality of the anastomosis, blood flow through the graft, distal 
perfusion and durability. For additional detailed information regarding 
IFVA technology, we refer readers to the September 28-29, 2006 ICD-9-CM 
Coordination and Maintenance Committee meeting handout at the following 
Web site: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage.
    We examined data on cases identified by procedure code 88.59 in MS-
DRGs 233, 234, 235, and 236 in the FY 2008 MedPAR file. As shown in the 
table below, for both MS-DRGs 235 and 236, the cases utilizing IFVA 
technology identified by procedure code 88.59 have a shorter length of 
stay and lower average costs compared to all cases in MS-DRGs 235 and 
236. There were a total of 10,312 cases in MS-DRG 235 with an average 
length of stay of 11.12 days with average costs of $33,846. There were 
88 cases in MS-DRG 235 identified by procedure code 88.59 with an 
average length of stay of 9.82 days with average costs of $29,258. In 
MS-DRG 236, there were a total of 24,799 cases with an average length 
of stay of 6.52 days and average costs of $22,329. There were 159 cases 
in MS-DRG 236 identified by procedure code 88.59 with an average length 
of stay of 6.30 days and average costs of $20,404. The data clearly 
demonstrate that the IFVA cases identified by procedure code 88.59 are 
assigned appropriately to MS-DRGs 235 and 236. We also examined data on 
cases identified by procedure code 88.59 in MS-DRGs 233 and 234. 
Similarly, in MS-DRGs 233 and 234, cases identified by procedure code 
88.59 reflect shorter lengths of stay and lower average costs compared 
to all of the other cases in those MS-DRGs. There were a total of 
17,453 cases in MS-DRG 233 with an average length of stay of 13.65 days 
with average costs of $41,199. There were 60 cases in MS-DRG 233 
identified by procedure code 88.59 with an average length of stay of 
12.82 days and average costs of $38,842. In MS-DRG 234, there were a 
total of 27,003 cases with an average length of stay of 8.70 days and 
average costs of $28,327. There were 69 cases in MS-DRG 234 identified 
by procedure code 88.59 with an average length of stay of 8.75 days and 
average costs of $25,308. As a result of our analysis, the data 
demonstrate that the IFVA cases identified by procedure code 88.59 are 
appropriately assigned to MS-DRGs 233 and 234.

 
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average cost*
----------------------------------------------------------------------------------------------------------------
235--All cases..................................................          10,312           11.12         $33,846
235--Cases with code 88.59......................................              88            9.82          29,258
235--Cases without code 88.59...................................          10,224           11.14          33,886
236--All cases..................................................          24,799            6.52          22,329
236--Cases with code 88.59......................................             159            6.30          20,404
236--Cases without code 88.59...................................          24,640            6.52          22,341
----------------------------------------------------------------------------------------------------------------


 
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average cost*
----------------------------------------------------------------------------------------------------------------
233--All cases..................................................          17,453           13.65          41,199
233--Cases with code 88.59......................................              60           12.82          38,842
233--Cases without code 88.59...................................          17,393           13.65          41,207
234--All cases..................................................          27,003            8.70          28,327
234--Cases with code 88.59......................................              69            8.75          25,308
234--Cases without code 88.59...................................          26,934            8.70          28,334
----------------------------------------------------------------------------------------------------------------
* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based weighting methodology. The cost-based
  weights were adopted over a 3-year transition period in \1/3\ increments between FY 2007 and FY 2009. The
  average cost represents the average standardized charges on the claims reduced to cost using the cost center-
  specific CCRs for a specific DRG. The standardization process includes adjustments for IME, DSH, and wage
  index as applied to individual hospitals. This estimation of cost is the same method used in the computation
  of the relative weights. We are using cost-based data instead of our historical charge-based data to evaluate
  proposed MS-DRG classification changes.

    We believe that if the cases identified by procedure code 88.59 
were proposed to be reassigned from MS-DRGs 235 and 236 to MS-DRGs 233 
and 234, they would be significantly overpaid. In addition, because the 
cases in MS-DRGs 235 and 236 did not actually have a cardiac 
catheterization performed, a proposal to reassign cases identified by 
procedure code 88.59 would result in lowering the relative weights of 
MS-DRGs 233 and 234 where a cardiac catheterization is truly performed.
    In summary, the data do not support moving IFVA cases identified by 
procedure code 88.59 from MS-DRGs 235 and 236 into MS-DRGs 233 and 234.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we invited the 
public to submit comments on our proposal not to make any MS-DRG 
modifications for cases reporting procedure code 88.59 for FY 2010. 
Below, we provide a summation of the public comments we received and 
our responses.

[[Page 43787]]

    Comment: A number of commenters believed that the use of IFVA in 
conjunction with CABG procedures leads to positive outcomes. Many of 
the commenters stated that they had performed IFVA and that, by using 
IFVA along with the CABG procedure, they were able to reduce their 
patients' lengths of stay and reduce complications, which in turn 
reduced hospitals costs. The commenters stated that the CMS published 
data indicated that patients who undergo a CABG procedure along with 
IFVA ``showed consistently shortened length of stay and the resulting 
cost savings.'' The commenters stated that, despite cost savings from 
the routine treatment of CABG patients with IFVA, their facilities were 
not prepared to purchase this technology unless there were additional 
Medicare payments.
    The commenters did not dispute the fact that the CMS data showed 
IFVA cases used considerably less resources than cases undergoing a 
cardiac catheterization. However, the commenters expressed concern that 
CMS did not suggest a mechanism to encourage hospitals to invest in the 
IFVA equipment by providing additional payment for the utilization of 
IFVA.
    Some commenters urged CMS to explore alternative methods of payment 
to facilities for utilizing the IFVA technology.
    Another commenter representing a specialty society indicated that 
several of its members, who are cardiothoracic surgeons, had differing 
opinions on the value of IFVA as an adjunctive procedure to CABG 
surgery. This commenter stated that, due to a lack of information 
regarding the efficacy of IFVA within its cardiac surgery database, the 
commenter was unable to appropriately assess the effectiveness of the 
technology.
    Response: We appreciate and acknowledge the commenters' concerns. 
We would like to point out that the costs associated with the IFVA 
technology, when utilized with coronary artery bypass (CABG) 
procedures, are already accounted for within the MS-DRGs for the CABG 
procedure. In other words, cases reporting procedure code 88.59, when 
performed with a CABG procedure, are currently grouped to one of the 
MS-DRGs describing a CABG procedure. Our claims data indicate that IFVA 
cases have average costs very similar to other cases within the MS-DRGs 
to which they are currently assigned. Our data do not support 
classifying code 88.59 as a cardiac catheterization so that all cases 
where IFVA is performed would be assigned to the CABG DRGs with cardiac 
catheterization (MS-DRGs 233 and 234). The cardiac catheterization 
cases have consistently higher costs than cases that only utilize IFVA 
with CABG.
    In response to concerns that CMS did not provide an alternative for 
facilities to account for costs associated with IFVA use in conjunction 
with CABG surgery, in our evaluation of data for possible proposals for 
modifications to the MS-DRGs, we did not find data to support a MS-DRG 
change for IFVA. The request we received was to reassign cases 
reporting the use of IFVA with CABG procedures from MS-DRGs 235 and 236 
into MS-DRG 233 and MS-DRG 234. To make this change, we would have to 
add the IFVA procedure to the list of cardiac catheterization 
procedures listed under MS-DRGs 233 and 234. As the commenters noted in 
its own submitted comments, the data presented in the FY 2010 proposed 
rule (74 FR 24107), for cases where IFVA (code 88.59) was reported with 
a CABG procedure, demonstrated that these cases resulted in shorter 
lengths of stay and lower average costs compared to all cases within 
the specified CABG MS-DRGs. As such, it would be inappropriate to 
reassign cases reporting the use of IFVA to higher weighted MS-DRGs 
merely as an incentive for hospitals to invest in the IFVA technology.
    With regards to the commenter's suggestion that CMS give 
consideration to the utilization of the cardiac surgery database to 
analyze IFVA, we refer the commenter and readers to section V.A.1-5 of 
the FY 2010 proposed rule (74 FR 24165 through 24176) for a discussion 
of CMS' Hospital Value-Based Purchasing (VBP) Plan, a policy that 
strives to align payment incentives with the quality of care as well as 
the resources used to deliver care to encourage high-value health care.
    In conclusion, many commenters expressed support for the limited 
MS-DRG changes proposed for FY 2010, given the major changes that took 
place with the recent implementation of the MS-DRG system. Our analysis 
of claims data indicates that IFVA cases have average costs very 
similar to other cases within the MS-DRGs to which they are currently 
assigned, and the data do not support the request to classify IFVA as a 
cardiac catheterization at this time. Therefore, as final policy for FY 
2010, we are finalizing our proposal to not make any changes to MS-DRGs 
233, 234, 235, or 236 for cases reporting the use of intraoperative 
fluorescence vascular angiography (IFVA), procedure code 88.59.
2. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue): Infected Hip and Knee Replacements
    As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 
FR 24107 through 24109), we received a request that we examine the 
issue of patients who have undergone hip or knee replacement procedures 
that have subsequently become infected and who are then admitted for 
inpatient services for removal of the prosthesis. The requestor stated 
that these patients are presented with devastating complications and 
require extensive resources to treat. The infection often results in 
the need for multiple re-operations, prolonged use of intravenous and 
oral antibiotics, extended rehabilitation, and frequent followups. 
Furthermore, the requestor stated that, even with extensive treatment, 
the outcomes can still be poor for some of these patients. The 
requestor stated that patients who are admitted for inpatient services 
with an infected hip or knee prosthesis must first undergo a procedure 
to remove the prosthesis and to insert an antibiotic spacer to treat 
the infection and maintain a space for the new prosthesis. The new 
prosthesis cannot be inserted until after the infection has been 
treated. Patients who are admitted for inpatient services with a hip or 
knee infection and then undergo a removal of the prosthesis are 
captured by the following procedure codes:

     80.05 (Arthrotomy for removal of prosthesis, hip)
     80.06 (Arthrotomy for removal of prosthesis, knee)
    In addition, code 84.56 (Insertion or replacement of (cement) 
spacer)) would be used for any insertion of a spacer that would be 
reported if an antibiotic spacer were inserted.
    The issue of hip and knee infections and revisions was discussed in 
the FY 2009 IPPS final rule (73 FR 48498 through 48507) in response to 
a more complicated request that we received involving the creation and 
modification of several joint DRGs. Because data did not support the 
requestor's suggested changes, we did not make any modifications to the 
joint DRGs at that time.
    The current requestor asked that we move cases involving the 
removal of hip and knee prostheses (procedure codes 80.05 and 80.06) 
from their current assignment in MS-DRGs 480, 481, and 482 (Hip and 
Femur Procedures Except Major Joint with MCC, with CC, without CC/MCC, 
respectively) and in MS-DRGs 495, 496, and 497 (Local Excision of

[[Page 43788]]

Internal Fixation Device Except Hip and Femur with MCC, with CC, and 
with CC/MCC, respectively) and assign them to MS-DRGs 463, 464, and 465 
(Wound Debridement and Skin Graft Except Hand, for Musculo-Connective 
Tissue Disease with MCC, with CC, without CC/MCC, respectively). MS-
DRGs 463, 464, and 465 include cases that are treated with a 
debridement for infection. The requestor stated that these cases are 
clinically similar to those captured by procedure codes 80.05 and 80.06 
where the prosthesis is removed and a new prosthesis is not inserted 
because of an infection.
    The requestor specifically asked that we remove the hip arthrotomy 
code 80.05 from MS-DRGs 480, 481, and 482, and assign it to MS-DRGs 
463, 464, and 465. The requestor also recommended that we remove the 
knee arthrotomy code 80.06 from MS-DRGs 495, 496, and 497 and assign it 
to MS-DRGs 463, 464, and 465.
    If we were to accept the requestor's suggestion, joint replacement 
cases in which the patients were admitted for inpatient services to 
remove the prosthesis because of an infection would be assigned to the 
higher paying debridement MS-DRGs (MS-DRGs 463, 464, and 465). As 
mentioned earlier, these MS-DRGs contain other cases involving 
treatment for infections.
    For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we examined 
hip replacement cases identified by procedure code 80.05 in MS-DRGs 
480, 481, and 482, and knee replacement cases identified by procedure 
code 80.06 in MS-DRGs 495, 496, and 497 using the FY 2008 MedPAR file. 
Our data from the FY 2008 MedPAR file support the requestor's 
suggestion that these cases have similar costs to those in MS-DRGs 463, 
464, and 465, and that they are significantly more expensive to treat 
than those in their current MS-DRG assignments. The following table 
summarizes those findings:

 
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average cost*
----------------------------------------------------------------------------------------------------------------
463--All Cases..................................................           4,834           16.59         $26,696
464--All Cases..................................................           4,934            9.52          15,065
465--All Cases..................................................           1,696            5.45           9,041
480--All Cases..................................................          31,181            8.89          17,168
480--Cases with code 80.05......................................             643           13.35          26,053
480--Cases without code 80.05...................................          30,538            8.80          16,981
481--All Cases..................................................          72,406            5.68          11,259
481--Cases with code 80.05......................................             871            8.34          17,202
481--Cases without code 80.05...................................          71,535            5.65          11,187
482--All Cases..................................................          37,443            4.65           9,320
482--Cases with code 80.05......................................             282            6.82          13,718
482--Cases without code 80.05...................................          37,161            4.63           9,287
495--All Cases..................................................           2,140           10.40          18,729
495--Cases with code 80.06......................................             513           11.53          23,508
495--Cases without code 80.06...................................           1,627           10.04          17,432
496--All Cases..................................................           5,518            5.73          10,827
496--Cases with code 80.06......................................           1,346            6.67          14,454
496--Cases without code 80.06...................................           4,172            5.42           9,657
497--All Cases..................................................           5,856            2.84           7,148
497--Cases with code 80.06......................................             688            5.08          12,234
497--Cases without code 80.06...................................           5,168            2.54           6,470
----------------------------------------------------------------------------------------------------------------
* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based weighting methodology. The cost-based
  weights were adopted over a 3-year transition period in \1/3\ increments between FY 2007 and FY 2009. The
  average cost represents the average standardized charges on the claims reduced to cost using the cost center-
  specific CCRs for a specific DRG. The standardization process includes adjustments for IME, DSH, and wage
  index as applied to individual hospitals. This estimation of cost is the same method used in the computation
  of the relative weights. We are using cost-based data instead of our historical charge-based data to evaluate
  proposed MS-DRG classification changes.

    The data show that hip replacement cases with procedure code 80.05 
in MS-DRGs 480, 481, and 482 have average costs of $26,053, $17,202, 
and $13,718, respectively, compared to overall average costs of $17,168 
in MS-DRG 480; $11,259 in MS-DRG 481; and $9,320 in MS-DRG 482. The 
data also show that knee replacement cases with procedure code 80.06 in 
MS-DRGs 495, 496, and 497 have average costs of $23,508, $14,454, and 
$12,234, respectively, compared to average costs of all cases of 
$18,729 in MS-DRG 495, $10,827 in MS-DRG 496, and $7,148 in MS-DRG 497. 
All cases in MS-DRGs 463, 464, and 465 had average costs of $26,696, 
$15,065, and $9,041, respectively.
    The results of this analysis of data support the reassignment of 
procedure codes 80.05 and 80.06 to MS-DRGs 463, 464, and 465. 
Therefore, in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 
24107 through 24109), we proposed to move procedure codes 80.05 and 
80.06 from their current assignments in MS-DRGs 480, 481, and 482 and 
495, 496, and 497, and assign them to MS-DRGs 463, 464, and 465. We 
also proposed to revise the code title of procedure code 80.05 to read 
``Arthrotomy for removal of prosthesis without replacement, hip'' and 
the title of procedure code 80.06 to read ``Arthrotomy for removal of 
prosthesis without replacement, knee'', effective October 1, 2009, as 
in shown in Table 6F of the Addendum to the FY 2010 IPPS/RY 2010 LTCH 
PPS proposed rule.
    Comment: A number of commenters supported our recommendation to 
move codes 80.05 and 80.06 from their current assignments in MS-DRGs 
480, 481, and 482 and 495, 496, and 497 and assign them to MS-DRGs 463, 
464, and 465. The commenters also supported the proposed changes to the 
code titles for both codes 80.05 and 80.06, effective October 1, 2009.
    One commenter supported this MS-DRG change for the treatment of 
infection following hip and knee arthroplasty patients because, 
according to the commenter, considerable resources are required to care 
for these patients whose deep infections are one of the most 
devastating complications

[[Page 43789]]

associated with hip and knee arthroplasty. The commenter further stated 
that the current hospital payment rate provides a disincentive for 
hospitals to admit patients with infected total joint replacements and 
creates an economic burden on tertiary care referral centers treating 
these patients. Several other commenters also agreed that these cases 
are significantly more expensive to treat than other cases in the 
current MS-DRG assignments. One commenter stated that this reassignment 
will more accurately reflect the costs associated with treating the 
removal of hip and knee prostheses.
    Some of the commenters who supported the proposed changes stated 
that, given the recent major changes to the MS-DRGs, it was appropriate 
for CMS to propose a limited number of MS-DRG classification changes 
for FY 2010. The commenters had no objections to the proposal to move 
codes 80.05 and 80.06 to MS-DRGs 463, 464, and 465.
    Response: We appreciate the support of the commenters and agree 
that it is appropriate to move codes 80.05 and 80.06 to MS-DRGs 463, 
464, and 465.
    Comment: Several commenters who supported this proposed MS-DRG 
assignment change also recommended that CMS consider revising the 
titles for MS-DRGs 463, 464, and 465 to reflect the proposed 
reassignment change. The commenters suggested the following MS-DRG 
titles for MS-DRGs 463, 464, and 465: ``Wound Debridement, Skin Graft, 
and/or Removal of Infected Prosthesis Except hand for Musculoskeletal-
Connective Tissue Disease with MCC, with CC, or without CC/MCC,'' 
respectively.
    Response: The MS-DRG titles are general in nature and usually do 
not describe all the diagnoses and procedure codes included in each MS-
DRG. We do not use the full MS-DRG titles within the IPPS. Rather, we 
use abbreviated titles, as is shown in Table 5 of the Addendum to this 
FY 2010 IPPS/RY 2010 LTCH PPS final rule. Our abbreviated titles are 
constrained by the fact that they must be 68 characters long. The 
current abbreviated title for MS-DRG 465 is already 68 characters long. 
The MS-DRG 465 abbreviated title is as follows: Wnd debrid & skn graft 
exc hand, for musculo-conn tiss dis w/o CC/MM. As a result, we are 
unable to accommodate the commenter's suggestion by making a clear MS-
DRG abbreviated title that includes all of the recommended language 
within our 68 character limitation. We also note that not all 
prosthesis removals are being moved to MS-DRGs 463, 364, and 465. We 
are only moving knee and hip prosthesis removals to these MS-DRGs. 
Therefore, we believe that the suggested new title may be misleading 
because it implies all types of prosthesis removals are in these MS-
DRGs. Therefore, we are maintaining the current titles for MS-DRGs 463, 
464, and 465.
    After consideration of the public comments we received, we are 
finalizing our proposal to move procedure codes 80.05 and 80.06 to MS-
DRGs 463, 464, and 465. We are also finalizing our proposal to revise 
the titles of procedure codes 80.05 and 80.06. The revised title for 
procedure code 80.05 is ``Arthrotomy for removal of prosthesis without 
replacement, hip''. The revised title for procedure code 80.06 is 
``Arthrotomy for removal of prosthesis without replacement, knee''. 
These modifications and revisions are effective October 1, 2009, as 
reflected in Table 6F of the Addendum to this final rule.
3. Medicare Code Editor (MCE) Changes
    As explained under section II.B.1. of the preamble of this final 
rule, the Medicare Code Editor (MCE) is a software program that detects 
and reports errors in the coding of Medicare claims data. Patient 
diagnoses, procedure(s), and demographic information are entered into 
the Medicare claims processing systems and are subjected to a series of 
automated screens. The MCE screens are designed to identify cases that 
require further review before classification into a DRG. In the FY 2020 
IPPS/LTCH PPS proposed rule (74 FR 24109 through 24110), for FY 2010, 
we proposed to make the following changes to the MCE edits:
a. 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.'' In the FY 2009 IPPS final rule, we 
indicated that we were adding the following four codes to this MCE 
edit:

 603.0 (Encysted hydrocele)
 603.1 (Infected hydrocele)
 603.8 (Other specified types of hydrocele)
 603.9 (Hydrocele, unspecified).

    We 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 indicated that we were adding these codes for FY 2009. 
However, through an oversight, we failed to implement the indicated FY 
2009 changes to the MCE by adding codes 603.0, 603.1, 603.8, and 603.9 
to the MCE edit of diagnosis allowed for males only. In the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule, we acknowledged this omission and 
again proposed to make the changes.
    We did not receive any public comments on the proposed changes to 
the edit for Diagnosis Allowed for Males Only. Therefore, we are 
finalizing our proposal to add diagnosis codes 603.0, 603.1, 603.8, and 
603.9 to this MCE edit for FY 2010.
b. Manifestation Codes as Principal Diagnosis Edit
    Manifestation codes describe the manifestation of an underlying 
disease, not the disease itself. Therefore, manifestation codes should 
not be used as a principal diagnosis. The National Center for Health 
Statistics (NCHS) has removed the advice ``code first associated 
disorder'' from three codes, thereby making them acceptable principal 
diagnosis codes. These codes are:
     365.41 (Glaucoma associated with chamber angle anomalies)
     365.42 (Glaucoma associated with anomalies of iris)
     365.43 (Glaucoma associated with other anterior segment 
anomalies)

    In order to make conforming changes to the MCE, in the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24109), we proposed to 
remove codes 365.41, 365.42, and 365.43 from the Manifestation Code as 
Principal Diagnosis Edit.
    We did not receive any public comments on the proposed changes to 
the edit for Manifestation Codes as Principal Diagnosis. Therefore, we 
are finalizing our proposal to remove manifestation codes 365.41, 
365.42, and 365.43 from the principal diagnosis edit. These codes will 
be acceptable as principal diagnosis, effective October 1, 2010.
c. Invalid Diagnosis or Procedure Code
    The MCE checks each diagnosis, including the admitting diagnosis, 
and each procedure against a table of valid ICD-9-CM codes. If an 
entered code does not agree with any code on the list, it is assumed to 
be invalid or that the 4th or 5th digit of the code is invalid or 
missing.
    An error was discovered in this edit. ICD-9-CM code 00.01 
(Therapeutic ultrasound of vessels of head and neck) was inadvertently 
left out of the MCE tables. The inclusion of this code in the MCE 
tables would have generated an error message at the Medicare contractor 
level, but we had instructed the

[[Page 43790]]

Medicare contractors to override this edit for discharges on or after 
October 1, 2008. To make a conforming change to the MCE, in the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24109), we proposed to add 
code 00.01 to the table of valid codes.
    We did not receive any public comments on our proposed changes to 
the edit for Invalid Diagnosis or Procedure Codes. Therefore, we are 
finalizing our proposal to add code 00.01 to the table of valid codes 
for FY 2010.
d. Unacceptable Principal Diagnosis
    There are selected codes that describe a circumstance that 
influences an individual's health status but not a current illness or 
injury and codes that are not specific manifestations but may describe 
illnesses due to an underlying cause. These codes are considered 
unacceptable as a principal diagnosis.
    For FY 2008, a series of diagnostic codes were created at 
subcategory 209, Neuroendocrine Tumors. An instructional note under 
this subcategory stated that coders were to ``Code first any associated 
multiple endocrine neoplasia syndrome (258.01-258.03)''. Medicare 
contractors had interpreted this note to mean that none of the codes in 
subcategory 209 were acceptable principal diagnoses and had entered 
these codes on the MCE edit for unacceptable principal diagnoses. We 
later deemed this interpretation to be incorrect. We had not intended 
that the series of codes at subcategory 209 were only acceptable as 
secondary diagnoses.
    To avoid future misinterpretation, in the FY 2010 IPPS/RY 2919 LTCH 
PPS proposed rule (74 FR 24109 through 24110), we proposed to remove 
the following codes from the MCE edit for unacceptable principal 
diagnoses.

 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)
 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)
 209.40 (Benign carcinoid tumor of the small intestine, 
unspecified portion)
 209.41 (Benign carcinoid tumor of the duodenum)
 209.42 (Benign carcinoid tumor of the jejunum)
 209.43 (Benign carcinoid tumor of the ileum)
 209.50 (Benign carcinoid tumor of the large intestine, 
unspecified portion)
 209.51 (Benign carcinoid tumor of the appendix)
 209.52 (Benign carcinoid tumor of the cecum)
 209.53 (Benign carcinoid tumor of the ascending colon)
 209.54 (Benign carcinoid tumor of the transverse colon)
 209.55 (Benign carcinoid tumor of the descending colon)
 209.56 (Benign carcinoid tumor of the sigmoid colon)
 209.57 (Benign carcinoid tumor of the rectum)
 209.60 (Benign carcinoid tumor of unknown primary site)
 209.61 (Benign carcinoid tumor of the bronchus and lung)
 209.62 (Benign carcinoid tumor of the thymus)
 209.63 (Benign carcinoid tumor of the stomach)
 209.64 (Benign carcinoid tumor of the kidney)
 209.65 (Benign carcinoid tumor of foregut, not otherwise 
specified)
 209.66 (Benign carcinoid tumor of midgut, not otherwise 
specified)
 209.67 (Benign carcinoid tumor of hindgut, not otherwise 
specified)
 209.69 (Benign carcinoid tumor of other sites)

    In the meantime, CMS has issued instructions in the form of an 
internal working document called a joint signature memorandum to the 
Medicare contractors to override this edit and process claims 
containing codes from the subcategory 209 series as acceptable 
principal diagnoses.
    We acted quickly to negate the effects of this edit, as it was an 
erroneous edit to the MCE resulting in unintended consequences. We did 
not receive any public comments on the proposed change to the edit for 
Unacceptable Principal Diagnosis. Therefore, we are finalizing our 
proposal to remove the codes listed above (that is, codes 209.00 
through 209.69) from the MCE edit for Unacceptable Principal Diagnosis.
e. Creation of New Edit Titled ``Wrong Procedure Performed''
    On January 15, 2009, CMS issued three National Coverage Decision 
memoranda on the coverage of erroneous surgeries on Medicare patients: 
Wrong Surgical or Other Invasive Procedure Performed on a Patient (CAG-
00401N); Surgical or Other Invasive Procedure Performed on the Wrong 
Body Part (CAG-00402N); and Surgical or Other Invasive Procedure 
Performed on the Wrong Patient (CAG-00403N). We refer readers to the 
following CMS Web sites to view the memoranda in their entirety: For 
the decision memorandum on surgery on the wrong body part: https://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=222. For the decision 
memorandum on surgery on the wrong patient: https://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=221. For the decision memorandum on the 
wrong surgery performed on a patient: https:[sol][sol]www.cms.hhs.gov/
mcd/viewdecisionmemo.asp?id=223.
    To conform to these new coverage decisions, in the FY 2010 IPPS/RY 
2010 LTCH PPS proposed rule (74 FR 24110), we proposed to create a new 
edit to identify cases in which wrong surgeries occurred. The NCHS has 
revised the title of one E-code and created two new E-codes to identify 
cases in which incorrect surgeries have occurred. The revised E-code 
title is:
     E876.5 (Performance of wrong operation (procedure) on 
correct patient).
    The two new E-codes are as follows:
     E876.6 (Performance of operation (procedure) on patient 
not scheduled for surgery).
     E876.7 (Performance of correct operation (procedure) on 
wrong side/body part).
    For the benefit of the reader, we are providing the following brief 
background information on external causes of injury and poisoning codes 
(E-

[[Page 43791]]

codes). E-codes are intended to provide data for injury research and 
evaluation of injury prevention strategies. E-codes capture how the 
injury or poisoning happened (cause), the intent (unintentional or 
accidental; or intentional, such as suicide or assault), and the place 
where the event occurred. The use of E-codes is supplemental to the 
ICD-9-CM diagnosis codes. The National Center for Health Statistics 
(NCHS)/CDC has created and maintains the ICD-9-CM Official Guidelines 
for Coding and Reporting, including instructions concerning E-codes, 
and has made these guidelines available on the Web site at: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/icdguide08.pdf. The guidelines 
are a national HIPAA standard. The guidelines are being updated 
effective October 1, 2009, to recognize the fact that CMS requires the 
reporting of E-codes as part of its wrong procedure performed national 
coverage decision. The fourth quarter issue of Coding Clinic for ICD-9-
CM will also include information on the new wrong surgery codes as well 
as the updated Coding Guidelines.
    A complete list of all of the E-codes that will be implemented on 
October 1, 2009, can be found on the CMS Web site home page at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/07_summarytables.asp#TopOfPage in the download titled ``New, Deleted, and 
Invalid Diagnosis and Procedure Codes.''
    Currently, an E-code used as a principal diagnosis will receive the 
MCE Edit ``E-code as principal diagnosis''. This edit will remain in 
effect. However, we proposed a change to the MCE so that E-codes E876.5 
through E876.7, whether they are in the principal or secondary 
diagnosis position, will trigger the ``Wrong Procedure Performed'' 
edit. Any claim with this edit will be rejected.
    Comment: Several commenters requested that CMS clarify its policy 
on reporting of E-codes, stating that CMS has never required the 
reporting of these codes prior to the proposed rule. The commenters 
also stated that an edit for codes E876.5 through E876.7 should not be 
applied to claims in which one of these E-codes was listed as the 
principal diagnosis as there is already an MCE edit that addresses E-
codes in this position. One commenter agreed that eliminating the ``E-
code as Principal Diagnosis'' edit that is currently in place will 
address many issues for reporting E-codes as principal diagnosis.
    Response: The commenters are correct that the reporting of E-codes 
has not previously been required for reporting to CMS. However, as 
noted above, the E-codes are used for many purposes and are often 
required by institutions in order to describe a complete patient 
encounter with health services. We believe that any of the three 
aforementioned wrong surgery situations presents such an egregious 
scenario that hospitals will capture this information through the use 
of the applicable E-codes.
    The commenters are correct that E-codes in the principal diagnosis 
position on the claim will trigger an edit in which claims will be 
returned to the provider. However, we did not propose to delete this 
edit; this edit will remain in place along with the Wrong Procedure 
Performed edit. Claims with E-codes other than codes E876.5 through 
E876.7 reported in the principal diagnosis position will be subject to 
the longstanding Principal Diagnosis edit. Claims with codes E876.5 
through E876.7 reported in either the principal or secondary diagnosis 
position will be subject to the Wrong Procedures Performed edit. These 
claims will be rejected.
    Comment: Commenters suggested that the Wrong Procedure Performed 
edit should be triggered if the E-code is reported in either the E-code 
position on the claim or in the secondary diagnosis position.
    Response: We agree that the edit should be triggered no matter in 
what position it is reported. However, we encourage reporting of the E-
codes in the secondary diagnosis position.
    Comment: One commenter suggested that if codes E876.5 through 
E876.7 were to be reported in the principal diagnosis position, the 
``E-code as Principal Diagnosis'' edit should be invoked and the claim 
returned to the provider so that the claim could then be resubmitted 
listing the codes in the correct sequence. The commenter further 
suggested that the Wrong Procedure Performed edit should only be 
triggered when the E-codes are reported in the correct position on the 
claim.
    Response: We do not believe this suggestion is in the best interest 
of the hospital industry. Performance of the wrong surgery is not a 
reasonable and necessary treatment for the Medicare beneficiary, and 
these claims will be rejected. To cause the Medicare contractor (the 
fiscal intermediary or the A/B MAC) to return the claim to the 
provider, have the provider correct the sequencing of the codes on the 
claim and return it to the contractor, only to ultimately have the 
claim be rejected, add steps to a process that results in the same 
outcome.
    Comment: One commenter suggested that updated coding guidance 
should address the definition of operation/procedure, and [define] what 
constitutes a wrong procedure for consistent assignment [of the codes] 
to coincide with industry definitions.
    Response: We take this opportunity to point out that the definition 
of an operation or procedure is a longstanding description, dating from 
the Uniform Hospital Discharge Data Set promulgated by the Secretary of 
the U.S. Department of Health, Education, and Welfare in 1974. In 
addition, with regard to the suggestion that there need to be 
guidelines regarding the performance of a wrong surgery in any of the 
three cases described by these codes, we believe that any of these 
three scenarios are so flagrant that the average individual could 
determine that a wrong surgery had taken place. Therefore, we do not 
believe we should wait for a determination by the industry of what 
constitutes the definition of a wrong surgery.
    Comment: One commenter urged CMS to work closely with the other 
Cooperating Parties for ICD-9-CM to provide guidance for coding, 
reporting, and sequencing of codes E876.5 through E876.7. Several 
commenters suggested that CMS begin processing all of the reported 
diagnosis and procedure codes.
    Response: We acknowledge the current CMS system limitations that 
allow us to process only the first nine diagnosis codes and six 
procedure codes reported on the hospital bills and that do not allow us 
to process codes from the external cause of injury field when making an 
MS-DRG assignment. We have discussed these internal CMS system 
limitations in previous rules. In anticipation of the implementation of 
ICD-10 on October 1, 2013, CMS is undertaking extensive efforts to 
update its systems. These system updates include plans to begin 
processing up to 25 diagnosis codes and 25 procedure codes as well as 
the ability to process codes reported in the external cause of injury 
field. With these system updates, we believe the concerns expressed by 
commenters concerning CMS' limited processing of reported codes will be 
resolved. In the meantime, hospitals should continue their current and 
longstanding practice of reporting the ICD-9-CM diagnosis and procedure 
codes which affect the MS-DRG assignment among the first nine diagnosis 
and first six procedure coding fields.
    As stated below, CMS will implement a wrong surgery (Wrong 
Procedure Performed) coverage edit in the MCE on October 1, 2009, that 
will lead to any

[[Page 43792]]

claim with a wrong surgery E-code triggering this edit to be rejected.
    Should hospitals perform any of the three wrong surgeries and 
submit claims on which the E-code is omitted or is listed in a field 
that we do not currently process for the MS-DRG assignment (the code is 
not reported among the first nine diagnosis codes or the code is 
reported in the External Cause of Injury field), the case may be 
subject to retrospective review by the Recovery Audit Contractor (RAC) 
and then subsequently denied. Patterns of apparent coding abuse may be 
referred to the Office of Inspector General for HHS for additional 
investigation.
    We also have referred this new Wrong Procedure Performed national 
coverage decision to the Cooperating Parties for ICD-9-CM who update 
and maintain the Official ICD-9-CM Coding Guidelines. These guidelines 
are a national HIPAA standard. The guidelines are being updated 
effective October 1, 2009, to recognize the fact that CMS requires the 
reporting of E-codes as part of its wrong procedure performed national 
coverage decision. The fourth quarter issue of Coding Clinic for ICD-9-
CM will also include information on the new wrong surgery codes as well 
as the updated Coding Guidelines. We believe the clarity provided by 
the national coverage decisions, the MCE edits, the updated Official 
ICD-9-CM Coding Guidelines, and the Fourth Quarter Coding Clinic 
article on the new wrong surgery codes should make clear how the codes 
are to be used and reported.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the MCE so the E-codes E876.5 through 
E876.7, whether they are in the principal or secondary diagnosis 
position, will trigger the ``Wrong Procedure Performed'' edit. 
Therefore, any claim with this edit will be rejected, effective October 
1, 2009.
f. Procedures Allowed for Females Only Edit
    It has come to our attention that code 75.37 (Amnioinfusion) and 
code 75.38 (Fetal pulse oximetry) were inadvertently omitted from the 
MCE edit ``Procedures Allowed for Females Only.'' In order to correct 
this omission, in the FY 2010 IPPS/RY 2010 LTCH proposed rule (74 FR 
24110 through 24111), we proposed to add codes 75.37 and 75.38 to the 
edit for procedures allowed for females only.
    We did not receive any public comments on our proposal. Therefore, 
for FY 2010, we are adding codes 75-37 and 75.38 to the Procedures 
Allowed for Females Only edit.
4. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different MS-DRG within the MDC to which the principal diagnosis 
is assigned. Therefore, it is necessary to have a decision rule within 
the GROUPER by which these cases are assigned to a single MS-DRG. The 
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function. 
Application of this hierarchy ensures that cases involving multiple 
surgical procedures are assigned to the MS-DRG associated with the most 
resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of MS-DRG reclassification and recalibrations, we 
reviewed the surgical hierarchy of each MDC, as we have for previous 
reclassifications and recalibrations, to determine if the ordering of 
classes coincides with the intensity of resource utilization.
    A surgical class can be composed of one or more MS-DRGs. For 
example, in MDC 11, the surgical class ``kidney transplant'' consists 
of a single MS-DRG (MS-DRG 652) and the class ``major bladder 
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655). 
Consequently, in many cases, the surgical hierarchy has an impact on 
more than one MS-DRG. The methodology for determining the most 
resource-intensive surgical class involves weighting the average 
resources for each MS-DRG by frequency to determine the weighted 
average resources for each surgical class. For example, assume surgical 
class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs 
3, 4, and 5. Assume also that the average costs of MS-DRG 1 is higher 
than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are 
higher than the average costs of MS-DRG 2. To determine whether 
surgical class A should be higher or lower than surgical class B in the 
surgical hierarchy, we would weight the average costs of each MS-DRG in 
the class by frequency (that is, by the number of cases in the MS-DRG) 
to determine average resource consumption for the surgical class. The 
surgical classes would then be ordered from the class with the highest 
average resource utilization to that with the lowest, with the 
exception of ``other O.R. procedures'' as discussed below.
    This methodology may occasionally result in assignment of a case 
involving multiple procedures to the 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 cost is 
ordered above a surgical class with a higher average cost. For example, 
the ``other O.R. procedures'' surgical class is uniformly ordered last 
in the surgical hierarchy of each MDC in which it occurs, regardless of 
the fact that the average costs for the MS-DRG or MS-DRGs in that 
surgical class may be higher than those for other surgical classes in 
the MDC. The ``other O.R. procedures'' class is a group of procedures 
that are only infrequently related to the diagnoses in the MDC, but are 
still occasionally performed on patients in the MDC with these 
diagnoses. Therefore, assignment to these surgical classes should only 
occur if no other surgical class more closely related to the diagnoses 
in the MDC is appropriate.
    A second example occurs when the difference between the average 
costs for two surgical classes is very small. We have found that small 
differences generally do not warrant reordering of the hierarchy 
because, as a result of reassigning cases on the basis of the hierarchy 
change, the average costs are likely to shift such that the higher-
ordered surgical class has a lower average costs than the class ordered 
below it.
    For FY 2010, we did not propose any revisions to the surgical 
hierarchy.
    We did not receive any public comments on our proposal not to make 
any revisions to the surgical hierarchy and, therefore, are finalizing 
our proposed decision in this final rule.
5. Complications or Comorbidity (CC) Exclusions List
a. Background
    As indicated earlier in the preamble of this final 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

[[Page 43793]]

complication or comorbidity. A substantial complication or comorbidity 
was defined as a condition that, because of its presence with a 
specific principal diagnosis, would cause an increase in the length of 
stay by at least 1 day in at least 75 percent of the patients. We refer 
readers to section II.D.2. and 3. of the preamble of the FY 2008 IPPS 
final rule with comment period for a discussion of the refinement of 
CCs in relation to the MS-DRGs we adopted for FY 2008 (72 FR 47121 
through 47152).
b. CC Exclusions List for FY 2010
    In the September 1, 1987 final notice (52 FR 33143) concerning 
changes to the DRG classification system, we modified the GROUPER logic 
so that certain diagnoses included on the standard list of CCs would 
not be considered valid CCs in combination with a particular principal 
diagnosis. We created the CC Exclusions List for the following reasons: 
(1) To preclude coding of CCs for closely related conditions; (2) to 
preclude duplicative or inconsistent coding from being treated as CCs; 
and (3) to ensure that cases are appropriately classified between the 
complicated and uncomplicated DRGs in a pair. As we indicated above, we 
developed a list of diagnoses, using physician panels, to include those 
diagnoses that, when present as a secondary condition, would be 
considered a substantial complication or comorbidity. In previous 
years, we have made changes to the list of CCs, either by adding new 
CCs or deleting CCs already on the list.
    In the May 19, 1987 proposed notice (52 FR 18877) and the September 
1, 1987 final notice (52 FR 33154), we explained that the excluded 
secondary diagnoses were established using the following five 
principles:
     Chronic and acute manifestations of the same condition 
should not be considered CCs for one another.
     Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for the same condition should not be considered 
CCs for one another.
     Codes for the same condition that cannot coexist, such as 
partial/total, unilateral/bilateral, obstructed/unobstructed, and 
benign/malignant, should not be considered CCs for one another.
     Codes for the same condition in anatomically proximal 
sites should not be considered CCs for one another.
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds of codes. We have continued to review the remaining 
CCs to identify additional exclusions and to remove diagnoses from the 
master list that have been shown not to meet the definition of a CC.\2\
---------------------------------------------------------------------------

    \2\ See the FY 1989 final rule (53 FR 38485, September 30, 
1988), for the revision made for the discharges occurring in FY 
1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for 
the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September 
4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR 
43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final 
rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the 
FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994 
revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994), 
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782, 
September 1, 1995), for the FY 1996 revisions; the FY 1997 final 
rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the 
FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998 
revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for 
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August 
1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR 
39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final 
rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the 
FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004 
revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004), 
for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640, 
August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule 
(71 FR 47870) for the FY 2007 revisions; the FY 2008 final rule (72 
FR 47130) for the FY 2008 revisions, and the FY 2009 final rule (73 
FR 48510). 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.
---------------------------------------------------------------------------

    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24111 
through 24112), we proposed to make limited revisions to the CC 
Exclusions List for FY 2010 to take into account the changes made in 
the ICD-9-CM diagnosis coding system effective October 1, 2009. (We 
refer readers to section II.G.7. of the preamble of this final rule for 
a discussion of ICD-9-CM changes.) We proposed to make these changes in 
accordance with the principles established when we created the CC 
Exclusions List in 1987. In addition, we indicated on the CC Exclusions 
List some changes as a result of updates to the ICD-9-CM codes to 
reflect the exclusion of codes from being MCCs under the MS-DRG system 
that we adopted in FY 2008.
    Comment: One comment asked CMS if it would be reasonable to 
consider modifying future GROUPER logic so that patients with multiple 
secondary diagnoses classified as CCs would be assigned to the MCC 
level. In other words, the commenter stated, multiple CCs would be 
considered the same as having an MCC.
    Response: We believe this comment is outside the scope of the 
proposed rule because we did not propose significant revisions to the 
MS-DRGs. Moreover, as discussed earlier, we made significant 
refinements to the inpatient payment system when we implemented the MS-
DRG system in FY 2008. 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). As we noted earlier, we received a number of comments 
recognizing the recent major changes to the MS-DRGs. The commenters 
stated that, given these recent major changes, it is appropriate for 
CMS to make only a limited number of MS-DRG classification changes for 
FY 2010. We believe that reclassifying a case with two or more CCs as 
an MCC would have a major impact on the MS-DRG system because 51 
percent of the cases in the MedPAR file have more than one CC 
(5,980,824 of 11,801,371 cases in FY 2008). Therefore, we have decided 
not to modify the GROUPER logic to classify a case with multiple CCs as 
an MCC for FY 2010.
    Comment: Several commenters recommended that CMS consider making 
further adjustments to the MS-DRG assignments based on obesity. The 
commenters stated that higher Body Mass Index (BMI) ratings add to the 
complexity of care for patients, such as those patients undergoing 
orthopedic procedures. The commenters recommended the following changes 
to the list of MCCs and CCs.
    One commenter recommended that CMS add the following codes to the 
CC list. Another commenter recommended that CMS add these same codes to 
the MCC list.

 731.3 (Major osseous defects)
 V85.35 (Body mass index 35.0-35.9, adult)
 V85.36 (Body mass index 36.0-36.9, adult)
 V85.37 (Body mass index 37.0-37.9, adult)

    Both commenters recommended that CMS add the following codes to the 
MCC list:

 V85.38 (Body mass index 38.0-38.9, adult)
 V85.39 (Body mass index 39.0-39.9, adult)
 V85.40 (Body mass index 40 and over, adult)

    Response: We believe this comment is outside the scope of the 
specific proposal in the proposed rule because we did not propose 
significant revisions to the MS-DRGs. In the FY 2010 IPPS/RY 2010 LTCH 
PPS proposed rule (74 FR 24091), we stated that we were encouraging 
individuals with comments about MS-DRG classifications to submit these 
comments no later than early December of each year so they can be 
carefully considered for possible

[[Page 43794]]

inclusion in the annual proposed rule and, if included, may be 
subjected to public review and comment. Therefore, we are not adding 
these codes to the MCC list or the CC list for FY 2010. We may consider 
their appropriateness for inclusion in next year's annual IPPS proposed 
rule.
    After consideration of the public comments received, we are 
adopting the proposed limited revisions to the CC Exclusion List as 
final for FY 2010 without change.
    Tables 6G and 6H, Additions to and Deletions from the CC Exclusion 
List, respectively, which are effective for discharges occurring on or 
after October 1, 2009, are not being published in this final rule 
because of the length of the two tables. Instead, we are making them 
available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses 
for which there is a CC exclusion is shown in Tables 6G and 6H 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, 2009, the indented diagnoses will not be recognized by 
the GROUPER as valid CCs for the asterisked principal diagnosis.
    To assist readers in identifying the changes to the MCC and CC 
lists that occurred as a result of updates to the ICD-9-CM codes, as 
described in Tables 6A, 6C, and 6E of the Addendum to this final rule, 
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
------------------------------------------------------------------------
277.88.......................  Tumor lysis syndrome.
670.22.......................  Puerperal sepsis, delivered, with mention
                                of postpartum complication.
670.24.......................  Puerperal sepsis, postpartum condition or
                                complication.
670.32.......................  Puerperal septic thrombophlebitis,
                                delivered, with mention of postpartum
                                complication.
670.34.......................  Puerperal septic thrombophlebitis,
                                postpartum condition or complication.
670.80.......................  Other major puerperal infection,
                                unspecified as to episode of care or not
                                applicable.
670.82.......................  Other major puerperal infection,
                                delivered, with mention of postpartum
                                complication.
670.84.......................  Other major puerperal infection,
                                postpartum condition or complication.
756.72.......................  Omphalocele.
756.73.......................  Gastroschisis.
768.73.......................  Severe hypoxic-ischemic encephalopathy.
779.32.......................  Bilious vomiting in newborn.
------------------------------------------------------------------------


        Summary of Deletions From the MS-DRG MCC List--Table 6I.2
------------------------------------------------------------------------
             Code                             Description
------------------------------------------------------------------------
768.7........................  Hypoxic-ischemic encephalopathy (HIE).
------------------------------------------------------------------------


         Summary of Additions to the MS-DRG CC List--Table 6J.1
------------------------------------------------------------------------
             Code                             Description
------------------------------------------------------------------------
209.71.......................  Secondary neuroendocrine tumor of distant
                                lymph nodes.
209.72.......................  Secondary neuroendocrine tumor of liver.
209.73.......................  Secondary neuroendocrine tumor of bone.
209.74.......................  Secondary neuroendocrine tumor of
                                peritoneum.
209.79.......................  Secondary neuroendocrine tumor of other
                                sites.
416.2........................  Chronic pulmonary embolism.
453.50.......................  Chronic venous embolism and thrombosis of
                                unspecified deep vessels of lower
                                extremity.
453.51.......................  Chronic venous embolism and thrombosis of
                                deep vessels of proximal lower
                                extremity.
453.52.......................  Chronic venous embolism and thrombosis of
                                deep vessels of distal lower extremity.
453.6........................  Venous embolism and thrombosis of
                                superficial vessels of lower extremity.
453.71.......................  Chronic venous embolism and thrombosis of
                                superficial veins of upper extremity.
453.72.......................  Chronic venous embolism and thrombosis of
                                deep veins of upper extremity.
453.73.......................  Chronic venous embolism and thrombosis of
                                upper extremity, unspecified.
453.74.......................  Chronic venous embolism and thrombosis of
                                axillary veins.
453.75.......................  Chronic venous embolism and thrombosis of
                                subclavian veins.
453.76.......................  Chronic venous embolism and thrombosis of
                                internal jugular veins.
453.77.......................  Chronic venous embolism and thrombosis of
                                other thoracic veins.
453.79.......................  Chronic venous embolism and thrombosis of
                                other specified veins.
453.81.......................  Acute venous embolism and thrombosis of
                                superficial veins of upper extremity.
453.82.......................  Acute venous embolism and thrombosis of
                                deep veins of upper extremity.
453.83.......................  Acute venous embolism and thrombosis of
                                upper extremity, unspecified.
453.84.......................  Acute venous embolism and thrombosis of
                                axillary veins.
453.85.......................  Acute venous embolism and thrombosis of
                                subclavian veins.
453.86.......................  Acute venous embolism and thrombosis of
                                internal jugular veins.
453.87.......................  Acute venous embolism and thrombosis of
                                other thoracic veins.
453.89.......................  Acute venous embolism and thrombosis of
                                other specified veins.
569.71.......................  Pouchitis.
569.79.......................  Other complications of intestinal pouch.
670.10.......................  Puerperal endometritis, unspecified as to
                                episode of care or not applicable.

[[Page 43795]]

 
670.12.......................  Puerperal endometritis, delivered, with
                                mention of postpartum complication.
670.14.......................  Puerperal endometritis, postpartum
                                condition or complication.
670.20.......................  Puerperal sepsis, unspecified as to
                                episode of care or not applicable.
670.30.......................  Puerperal septic thrombophlebitis,
                                unspecified as to episode of care or not
                                applicable.
768.70.......................  Hypoxic-ischemic encephalopathy,
                                unspecified.
768.71.......................  Mild hypoxic-ischemic encephalopathy.
768.72.......................  Moderate hypoxic-ischemic encephalopathy.
813.46.......................  Torus fracture of ulna (alone).
813.47.......................  Torus fracture of radius and ulna.
------------------------------------------------------------------------


        Summary of Deletions From the MS-DRG CC List--Table 6J.2
------------------------------------------------------------------------
             Code                             Description
------------------------------------------------------------------------
453.8........................  Other venous embolism and thrombosis of
                                other specified veins.
------------------------------------------------------------------------

    These summary lists are the same as those lists included in the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24111 through 24112).
    Comment: One commenter supported the CC designations for new codes 
813.46 (Torus fracture of ulna (alone)) and 813.47 (Torus fracture of 
radius and ulna).
    Response: We appreciate the commenter's support.
    Alternatively, the complete documentation of the GROUPER logic, 
including the current CC Exclusions List, is available from 3M/Health 
Information Systems (HIS), which, under contract with CMS, is 
responsible for updating and maintaining the GROUPER program. The 
current MS-DRG Definitions Manual, Version 26.0, is available for 
$250.00, which includes shipping and handling. 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. Version 27.0 of this manual, which 
will include the final FY 2010 MS-DRG changes, will be available in CD 
only for $225.00. These manuals may be obtained by writing 3M/HIS at 
the following address: 100 Barnes Road, Wallingford, CT 06492; or by 
calling (203) 949-0303, or by obtaining an order form at the Web site: 
http://www.3MHIS.com. Please specify the revision or revisions 
requested.
6. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 
986; and 987 Through 989
    Each year, we review cases assigned to former CMS DRG 468 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and 
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal 
Diagnosis) to determine whether it would be appropriate to change the 
procedures assigned among these CMS DRGs. Under the MS-DRGs that we 
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and without CC/MCC). 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.\3\
---------------------------------------------------------------------------

    \3\ The original list of the ICD-9-CM procedure codes for the 
procedures we consider nonextensive procedures, if performed with an 
unrelated principal diagnosis, was published in Table 6C in section 
IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part 
of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56 
FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final 
rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY 
1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173), 
and the FY 1998 final rule (62 FR 45981), we moved several other 
procedures from DRG 468 to DRG 477, and some procedures from DRG 477 
to DRG 468. No procedures were moved in FY 1999, as noted in the 
final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65 
FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule 
(67 FR 49999) we did not move any procedures from DRG 477. However, 
we did move procedure codes from DRG 468 and placed them in more 
clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365), 
we moved several procedures from DRG 468 to DRGs 476 and 477 because 
the procedures are nonextensive. In the FY 2005 final rule (69 FR 
48950), we moved one procedure from DRG 468 to 477. In addition, we 
added several existing procedures to DRGs 476 and 477. In the FY 
2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned 
it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and 
assigned it to DRGs 479, 553, and 554. In FYs 2008 and 2009, no 
procedures were moved, as noted in the FY 2008 final rule with 
comment period (72 FR 46241), and in the FY 2009 final rule (73 FR 
48513).

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

[[Page 43796]]

    For FY 2010, we did not propose to change the procedures assigned 
among these MS-DRGs. We did not receive any public comments on our 
proposal not to change the procedures assigned among the cited MS-DRGs 
and, therefore, are adopting it as final for FY 2010 in this final 
rule.
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 MS-DRGs 
into one of the surgical MS-DRGs for the MDC into which the principal 
diagnosis falls. The data are arrayed in two ways for comparison 
purposes. We look at a frequency count of each major operative 
procedure code. We also compare procedures across MDCs by volume of 
procedure codes within each MDC.
    We identify those procedures occurring in conjunction with certain 
principal diagnoses with sufficient frequency to justify adding them to 
one of the surgical DRGs for the MDC in which the diagnosis falls. For 
FY 2010, we did not propose to remove any procedures from MS-DRGs 981 
through 983 or MS-DRGs 987 through 989. We did not receive any public 
comments on our proposal and, therefore, are adopting it as final for 
FY 2010 in this final rule.
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 MS-DRGs to another of the three MS-DRGs based on average charges 
and the length of stay. We look at the data for trends such as shifts 
in treatment practice or reporting practice that would make the 
resulting MS-DRG assignment illogical. If we find these shifts, we 
would propose to move cases to keep the MS-DRGs clinically similar or 
to provide payment for the cases in a similar manner. Generally, we 
move only those procedures for which we have an adequate number of 
discharges to analyze the data.
    For FY 2010, we did not propose to move any procedure codes among 
these MS-DRGs. We did not receive any public comments on our proposal 
and, therefore, are adopting it as final for FY 2010 in this final 
rule.
c. Adding Diagnosis or Procedure Codes to MDCs
    Based on our review this year, we did not propose to add any 
diagnosis codes to MDCs for FY 2010. We did not receive any public 
comments on this subject.
7. Changes to the ICD-9-CM Coding System
    As described in section II.B.1. of the preamble of this final rule, 
the ICD-9-CM is a coding system used for the reporting of diagnoses and 
procedures performed on a patient. In September 1985, the ICD-9-CM 
Coordination and Maintenance Committee was formed. This is a Federal 
interdepartmental committee, co-chaired by the National Center for 
Health Statistics (NCHS), the Centers for Disease Control and 
Prevention, and CMS, charged with maintaining and updating the ICD-9-CM 
system. The Committee is jointly responsible for approving coding 
changes, and developing errata, addenda, and other modifications to the 
ICD-9-CM to reflect newly developed procedures and technologies and 
newly identified diseases. The Committee is also responsible for 
promoting the use of Federal and non-Federal educational programs and 
other communication techniques with a view toward standardizing coding 
applications and upgrading the quality of the classification system.
    The Official Version of the ICD-9-CM contains the list of valid 
diagnosis and procedure codes. (The Official Version of the ICD-9-CM is 
available from the Government Printing Office on CD-ROM for $19.00 by 
calling (202) 512-1800.) Complete information on ordering the CD-ROM is 
also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/05_CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no 
longer available in printed manual form from the Federal Government; it 
is only available on CD-ROM. Users who need a paper version are 
referred to one of the many products available from publishing houses.
    The NCHS has lead responsibility for the ICD-9-CM diagnosis codes 
included in the Tabular List and Alphabetic Index for Diseases, while 
CMS has lead responsibility for the ICD-9-CM procedure codes included 
in the Tabular List and Alphabetic Index for Procedures.
    The Committee encourages participation in the above process by 
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 2010 at a public meeting held on September 24-25, 
2008 and finalized the coding changes after consideration of comments 
received at the meetings and in writing by December 5, 2008. Those 
coding changes are announced in Tables 6A through 6F in the Addendum to 
this final rule. The Committee held its 2009 meeting on March 11-12, 
2009. New codes for which there was a consensus of public support and 
for which complete tabular and indexing changes are made by May 2009 
will be included in the October 1, 2009 update to ICD-9-CM. Code 
revisions that were discussed at the March 11-12, 2009 Committee 
meeting but that could not be finalized in time to include them in the 
Addendum to the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule are 
included in Tables 6A through 6F of this final rule and are marked with 
an asterisk (*).
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 24-25, 2008 meeting and March 11-12, 2009 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 24-25, 2008 meeting and 
March 11-12, 2009 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

[[Page 43797]]

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, 2009. The new ICD-9-CM codes are listed, along 
with their MS-DRG classifications, in Tables 6A and 6B (New Diagnosis 
Codes and New Procedure Codes, respectively) in the Addendum to this 
final 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 the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24114), 
we solicited comments on the proposed classification of these new 
codes. We did not receive any public comments on the proposed MS-DRG 
assignments for the new diagnosis and procedure codes. Therefore, in 
this final rule, we are adopting as final without modification the MS-
DRG classifications for the new codes for FY 2010 that were included in 
the proposed rule and the new codes that were discussed at the spring 
but were not finalized in time to be included in the proposed rule.
    For codes that have been replaced by new or expanded codes, the 
corresponding new or expanded diagnosis codes are included in Table 6A 
in the Addendum to this final rule. New procedure codes are shown in 
Table 6B in the Addendum to this final rule. Diagnosis codes that have 
been replaced by expanded codes or other codes or have been deleted are 
in Table 6C (Invalid Diagnosis Codes) in the Addendum to this final 
rule. These invalid diagnosis codes will not be recognized by the 
GROUPER beginning with discharges occurring on or after October 1, 
2009. Table 6D in the Addendum to this final rule contains invalid 
procedure codes. These invalid procedure codes will not be recognized 
by the GROUPER beginning with discharges occurring on or after October 
1, 2009. Revisions to diagnosis code titles are in Table 6E (Revised 
Diagnosis Code Titles) in the Addendum to this final rule, which also 
includes the MS-DRG assignments for these revised codes. Table 6F in 
the Addendum to this final rule includes revised procedure code titles 
for FY 2010.
    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 11-12, 2009 Committee meeting 
that receive consensus and that were finalized by May 2009 are included 
in Tables 6A through 6F in the Addendum to this final rule.
    Section 503(a) of Public Law 108-173 included a requirement for 
updating ICD-9-CM codes twice a year instead of a single update on 
October 1 of each year. This requirement was included as part of the 
amendments to the Act relating to recognition of new technology under 
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by 
adding a clause (vii) which states that the ``Secretary shall provide 
for the addition of new diagnosis and procedure codes on April 1 of 
each year, but the addition of such codes shall not require the 
Secretary to adjust the payment (or diagnosis-related group 
classification) * * * until the fiscal year that begins after such 
date.'' This requirement improves the recognition of new technologies 
under the IPPS system by providing information on these new 
technologies at an earlier date. Data will be available 6 months 
earlier than would be possible with updates occurring only once a year 
on October 1.
    While section 1886(d)(5)(K)(vii) of the Act states that the 
addition of new diagnosis and procedure codes on April 1 of each year 
shall not require the Secretary to adjust the payment, or DRG 
classification, under section 1886(d) of the Act until the fiscal year 
that begins after such date, we have to update the DRG software and 
other systems in order to recognize and accept the new codes. We also 
publicize the code changes and the need for a mid-year systems update 
by providers to identify the new codes. Hospitals also have to obtain 
the new code books and encoder updates, and make other system changes 
in order to identify and report the new codes.
    The ICD-9-CM Coordination and Maintenance Committee holds its 
meetings in the spring and fall in order to update the codes and the 
applicable payment and reporting systems by October 1 of each year. 
Items are placed on the agenda for the ICD-9-CM Coordination and 
Maintenance Committee meeting if the request is received at least 2 
months prior to the meeting. This requirement allows time for staff to 
review and research the coding issues and prepare material for 
discussion at the meeting. It also allows time for the topic to be 
publicized in meeting announcements in the Federal Register as well as 
on the CMS Web site. The public decides whether or not to attend the 
meeting based on the topics listed on the agenda. Final decisions on 
code title revisions are currently made by March 1 so that these titles 
can be included in the IPPS proposed rule. A complete addendum 
describing details of all changes to ICD-9-CM, both tabular and index, 
is published on the CMS and NCHS Web sites in May of each year. 
Publishers of coding books and software use this information to modify 
their products that are used by health care providers. This 5-month 
time period has proved to be necessary for hospitals and other 
providers to update their systems.
    A discussion of this timeline and the need for changes are included 
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance 
Committee minutes. The public agreed that there was a need to hold the 
fall meetings earlier, in September or October, in order to meet the 
new implementation dates. The public provided comment that additional 
time would be needed to update hospital systems and obtain new code 
books and coding software. There was considerable concern expressed 
about the impact this new April update would have on providers.
    In the FY 2005 IPPS final rule, we implemented section 
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 
108-173, by developing a mechanism for approving, in time for the April 
update, diagnosis and procedure code revisions needed to describe new 
technologies and medical services for purposes of the new technology 
add-on payment process. We also established the following process for 
making these determinations. Topics considered during the Fall ICD-9-CM 
Coordination and Maintenance Committee meeting are considered for

[[Page 43798]]

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 1, 2009 implementation of an ICD-9-CM 
code at the September 24-25, 2008 Committee meeting. Therefore, there 
were no new ICD-9-CM codes implemented on April 1, 2009.
    Current addendum and code title information is published on the CMS 
Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along 
with the Official ICD-9-CM Coding Guidelines, can be found on the Web 
site at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised, 
and deleted ICD-9-CM codes is also provided to the AHA for publication 
in the Coding Clinic for ICD-9-CM. AHA also distributes information to 
publishers and software vendors.
    CMS also sends copies of all ICD-9-CM coding changes to its 
Medicare contractors for use in updating their systems and providing 
education to providers.
    These same means of disseminating information on new, revised, and 
deleted ICD-9-CM codes will be used to notify providers, publishers, 
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. The code titles are adopted as 
part of the ICD-9-CM Coordination and Maintenance Committee process. 
Thus, although we publish the code titles in the IPPS proposed and 
final rules, they are not subject to comment in the proposed or final 
rules. We will continue to publish the October code updates in this 
manner 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.
    Comment: A number of commenters addressed concerns regarding the 
implementation of ICD-10 and the processing more than nine diagnosis 
and six procedure codes in anticipation of the implementation of ICD-
10. Several commenters recommended that CMS begin processing all 
reported diagnosis and procedure codes on claims, even before the 
planned implementation of ICD-10-CM and ICD-10-PCS on October 1, 2013. 
Other commenters recommended that CMS be transparent during all steps 
of ICD-10 implementation and make provisions for stakeholder comments 
and input during the transition. One commenter recommended that the 
final ICD-10 version of MS-DRGs be adopted using notice and comment 
rulemaking.
    Response: We did not address the planned implementation of ICD-10 
in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and, therefore, 
consider these comments beyond the scope of the proposed rule. 
Therefore, we will not address them in this final rule. We refer 
readers to the separate CMS final rule published in the Federal 
Register that announced the implementation of modifications to medical 
data code set standards to adopt ICD-10-CM and ICD-10-PCS (74 FR 3328 
through 3362). CMS is currently undergoing extensive efforts to update 
its Medicare payment systems as part of the move to ICD-10. Part of 
these system efforts will involve the expansion of our ability to 
process more diagnosis and procedure codes. Information on ICD-10 can 
be found on the CMS Web site at: http://www.cms.hhs.gov/ICD10. The 
final ICD-10 version of MS-DRGs will be adopted under the formal 
rulemaking process as part of our annual IPPS updates.
8. Other Issues Not Addressed in the Proposed Rule
    We received a number of public comments on issues that were not the 
subject of proposals in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule.
    a. Administration of Tissue Plasminogen Activator (tPA) (rtPA)
    We received a public comment requesting that CMS conduct an 
analysis of diagnosis code V45.88 (Status post administration of tPA 
(rtPA) in a different facility within the last 24 hours prior to 
admission to current facility) under MDC 1 (Diseases and Disorders of 
the Nervous System). This code was created for use beginning October 1, 
2008, and the commenter believes that the use of this code during FY 
2009 and FY 2010 could potentially result in a new MS-DRG or set of MS-
DRGs in FY 2011. The commenter believed that an expedited analysis 
would help show if the code is being used.
    This comment is outside the scope of the proposed rule, as we did 
not propose any MS-DRG changes based on data analysis of cases 
including diagnosis code V45.88. Therefore, we will not undertake an 
evaluation of code V45.88 at this time for FY 2010. As we stated in FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24091), we encourage 
individuals with comments about MS-DRG classifications to submit these 
comments no later than early December of each year so they can be 
carefully considered for possible inclusion in the annual proposed rule 
and, if included, may be subjected to public review and comment.
b. Coronary Artery Bypass Graft (CABG) With Intraoperative Angiography
    We received a number of comments that recommended creating new MS-
DRGs to separately identify the use of intraoperative angiography, by 
any method, in CABG surgery under MDC 5 (Diseases and Disorders of the 
Circulatory System). Intraoperative angiography is used to assess 
bypass graft patency. The commenters acknowledged that imaging in the 
operating room is a fairly new concept. However, the commenters stated 
that there is a movement to encourage greater use of this technology in 
conjunction with CABG procedures to identify and correct any technical 
issues with the graft(s) at the time of surgery. According to the 
commenters, intraoperative angiography would reduce graft failure 
complications and hospital readmissions while improving patient care 
outcomes.
    The commenters expressed concern that the costs related to 
intraoperative angiography are not fully realized in the current 
structure of the MS-DRGs. One commenter suggested creating four new MS-
DRGs to identify the use of intraoperative angiography when performed 
with CABG surgery. The commenter stated that in the current MS-DRG 
scheme, there is not a mechanism to determine when intraoperative 
angiography is performed. Angiography is commonly performed as a 
separate procedure in a catheterization laboratory and the ICD-9-CM 
procedure codes do not distinguish between preoperative,

[[Page 43799]]

intraoperative, and postoperative angiography. Procedure code 88.59 
(Intraoperative fluorescence vascular angiography (IFVA)), is one 
intraoperative angiography technique that allows visualization of the 
coronary vasculature. The commenter proposed four new MS-DRGs in 
addition to the existing MS-DRGs for CABG in an attempt to 
differentiate the utilization of resources between intraoperative 
angiography and IFVA when utilized with CABG.
    Another commenter suggested that CMS should consider completely 
separating CABG procedures from cardiac catheterization. This commenter 
indicated that the concept is ``worthy of serious consideration because 
of its relationship to much larger issues in management of coronary 
artery disease.'' Other commenters recommended that CMS assign IFVA 
cases to the ``Other Cardiovascular MS-DRGs,'' MS-DRGs 228, 229, and 
230.
    We believe the requests to create new MS-DRGs in FY 2010 for CABG 
cases with intraoperative angiography and IFVA are outside the scope of 
the issues addressed in the proposed rule. The recommendation to move 
IFVA cases to Other Cardiovascular MS-DRGs 228, 229, and 230 is also 
out of scope issues addressed in the proposed rule. Therefore, we are 
not providing responses to these public comments in this final rule. We 
will consider the requests for new MS-DRGs regarding this topic during 
the FY 2011 rulemaking process.
c. Insertion of Gastrointestinal Stent
    We received a public comment requesting that CMS analyze the need 
to create new MS-DRGs in FY 2011 to better capture patients who undergo 
the insertion of a gastrointestinal stent under MDC 6 (Diseases and 
Disorders of the Digestive System). The stents are inserted in the 
esophagus, duodenum, biliary tract, or the colon in order to 
reestablish or maintain patency of these vessels to allow swallowing, 
drainage, or passage of waste. The commenter requested that the new MS-
DRGs be subdivided into three severity levels (with MCC, with CC, and 
without CC/MCC). The commenter stated it had data that showed cases 
with gastrointestinal stent insertions have higher costs than other 
cases within the same MS-DRGs. The commenter also stated that there are 
a small number of these cases, and acknowledged that there may be some 
concern about the need to establish new DRGs for such a small number of 
cases.
    This comment relating to a request to create new MS-DRGs in FY 2011 
for cases with gastrointestinal stents is outside the scope of the FY 
2010 proposed rule. We will consider this request alone with other 
timely received requests for updates to the FY 2011 MS-DRGs during the 
FY 2011 rulemaking process. As we stated above, we encourage 
individuals with comments about MS-DRG classifications to submit these 
comments no later than early December of each year so they can be 
carefully considered for possible inclusion in the annual proposed rule 
and, if included, may be subjected to public review and comment.

H. Recalibration of MS-DRG Weights

    In section II.E. of the preamble of this final rule, we state that 
we fully implemented the cost-based DRG relative weights for FY 2009, 
which was 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.
    As we proposed, in developing the FY 2010 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 2008 MedPAR data used in this final rule include 
discharges occurring on October 1, 2007, through September 30, 2008, 
based on bills received by CMS through March 31, 2009, 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 2008 MedPAR file used in calculating the 
relative weights includes data for approximately 11,283,982 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 2007 Medicare cost report data files from HCRIS 
(that is, cost reports beginning on or after October 1, 2006, and 
before October 1, 2007), which represents the most recent full set of 
cost report data available. We used the March 31, 2009 update of the 
HCRIS cost report files for FY 2007 in setting the relative cost-based 
weights.
    The methodology we used to calculate the DRG cost-based relative 
weights from the FY 2008 MedPAR claims data and FY 2007 Medicare cost 
report data is as follows:
     To the extent possible, all the claims were regrouped 
using the FY 2010 MS-DRG classifications discussed in sections II.B. 
and G. of the preamble of this final rule.
     The transplant cases that were used to establish the 
relative weights for heart and heart-lung, liver and/or intestinal, and 
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) 
were limited to those Medicare-approved transplant centers that have 
cases in the FY 2008 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those 
facilities that have received approval from CMS as transplant centers.)
     Organ acquisition costs for kidney, heart, heart-lung, 
liver, lung, pancreas, and intestinal (or multivisceral organs) 
transplants continue to be paid on a reasonable cost basis. Because 
these acquisition costs are paid separately from the prospective 
payment rate, it is necessary to subtract the acquisition charges from 
the total charges on each transplant bill that showed acquisition 
charges before computing the average cost for each MS-DRG and before 
eliminating statistical outliers.
     Claims with total charges or total lengths of stay less 
than or equal to zero were deleted. Claims that had an amount in the 
total charge field that differed by more than $10.00 from the sum of 
the routine day charges, 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 95.9 percent of the providers in the MedPAR file 
had charges for 10 of the 15 cost centers. Claims for providers that 
did not have charges greater than zero for at least 10 of the 15 cost 
centers were deleted.
     Statistical outliers were eliminated by removing all cases 
that were beyond 3.0 standard deviations from the mean of the log 
distribution of both the total charges per case and the total charges 
per day for each MS-DRG.
     Effective October 1, 2008, because hospital inpatient 
claims include a POA indicator field for each diagnosis

[[Page 43800]]

present on the claim, the POA indicator field was reset to ``Y'' for 
``Yes'' just for relative weight-setting purposes for all claims that 
otherwise have an ``N'' (No) or a ``U'' (documentation insufficient to 
determine if the condition was present at the time of inpatient 
admission) in the POA field.
    Under current payment policy, the presence of specific HAC codes, 
as indicated by the POA field values, can generate a lower payment for 
the claim. Specifically, if the particular condition is present on 
admission (that is, a ``Y'' indicator is associated with the diagnosis 
on the claim), then it is not a ``HAC,'' and the hospital is paid with 
the higher severity (and, therefore, the higher weighted MS-DRG). If 
the particular condition is not present on admission (that is, an ``N'' 
indicator is associated with the diagnosis on the claim) and there are 
no other complicating conditions, the DRG GROUPER assigns the claim to 
a lower severity (and, therefore, the lower weighted MS-DRG) as a 
penalty for allowing a Medicare inpatient to contract a ``HAC.'' While 
this meets policy goals of encouraging quality care and generates 
program savings, it presents an issue for the relative weight-setting 
process. Because cases identified as HACs are likely to be more complex 
than similar cases that are not identified as HACs, the charges 
associated with HACs are likely to be higher as well. Thus, if the 
higher charges of these HAC claims are grouped into lower severity MS-
DRGs prior to the relative weight-setting process, the relative weights 
of these particular MS-DRGs would become artificially inflated, 
potentially skewing the relative weights. In addition, we want to 
protect the integrity of the budget neutrality process by ensuring 
that, in estimating payments, no increase to the standardized amount 
occurs as a result of lower overall payments in a previous year that 
stem from using weights and case-mix that are based on lower severity 
MS-DRG assignments. If this would occur, the anticipated cost savings 
from the HAC policy would be lost.
    To avoid these problems, in the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule (74 FR 24116), we proposed to reset the POA indicator 
field to ``Y'' just for relative weight-setting purposes for all claims 
that otherwise have an ``N'' or a ``U'' in the POA field. This 
``forces'' the more costly HAC claims into the higher severity MS-DRGs 
as appropriate, and the relative weights calculated for each MS-DRG 
more closely reflect the true costs of those cases.
    We did not receive any public comments on our proposal to reset the 
POA indicator field to ``Y'' for relative weight-setting purposes for 
all claims that otherwise have an ``N'' or a ``U'' in the POA field. We 
are finalizing this proposal for FY 2010 accordingly.
    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, and DSH payments under the capital 
IPPS as well. Charges were then summed by MS-DRG for each of the 15 
cost groups so that each MS-DRG had 15 standardized charge totals. 
These charges were then adjusted to cost by applying the national 
average CCRs developed from the FY 2007 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 43801]]

[GRAPHIC] [TIFF OMITTED] TR27AU09.000


[[Page 43802]]


[GRAPHIC] [TIFF OMITTED] TR27AU09.001


[[Page 43803]]


[GRAPHIC] [TIFF OMITTED] TR27AU09.002


[[Page 43804]]


[GRAPHIC] [TIFF OMITTED] TR27AU09.003


[[Page 43805]]


[GRAPHIC] [TIFF OMITTED] TR27AU09.004


[[Page 43806]]


[GRAPHIC] [TIFF OMITTED] TR27AU09.005


[[Page 43807]]


[GRAPHIC] [TIFF OMITTED] TR27AU09.006

BILLING CODE 4120-01-C

    We developed the national average CCRs as follows:
    Taking the FY 2007 cost report data, we removed CAHs, Indian Health 
Service hospitals, all-inclusive rate hospitals, and cost reports that 
represented time periods of less than 1 year (365 days). We included 
hospitals located in Maryland as we are including their charges in our 
claims database. We then created CCRs for each provider for each cost 
center (see prior table for line items used in the calculations) and 
removed any CCRs that were greater than 10 or less than 0.01. We 
normalized the departmental CCRs by dividing the CCR for each 
department by the total CCR for the hospital for the purpose of 
trimming the data. We then took the logs of the normalized cost center 
CCRs and removed any cost center CCRs where the log of the cost center 
CCR was greater or less than the mean log plus/minus 3 times the 
standard deviation for the log of that cost center CCR. Once the cost 
report data were trimmed, we calculated a Medicare-specific CCR. The 
Medicare-specific CCR was determined by taking the Medicare charges for 
each line item from Worksheet D-4 and deriving the Medicare-specific 
costs by applying the hospital-specific departmental CCRs to the 
Medicare-specific charges for each line item from Worksheet D-4. Once 
each hospital's Medicare-specific costs were established, we summed the 
total Medicare-specific costs and divided by the sum of the total 
Medicare-specific charges to produce national average, charge-weighted 
CCRs.
    After we multiplied the total charges for each MS-DRG in each of 
the 15 cost centers by the corresponding national average CCR, we 
summed the 15 ``costs'' across each MS-DRG to produce a total 
standardized cost for the MS-DRG. The average standardized cost for 
each MS-DRG was then computed as the total standardized cost for the 
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The 
average cost for each MS-DRG was then divided by the national average 
standardized cost per case to determine the relative weight.
    The new cost-based relative weights were then normalized by an 
adjustment factor of 1.54381 so that the average case weight after 
recalibration was equal to the average case weight before 
recalibration. The normalization adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
    The 15 national average CCRs for FY 2010 are as follows:

------------------------------------------------------------------------
                             Group                                 CCR
------------------------------------------------------------------------
Routine Days...................................................    0.553
Intensive Days.................................................    0.480
Drugs..........................................................    0.200
Supplies & Equipment...........................................    0.348
Therapy Services...............................................    0.415
Laboratory.....................................................    0.163
Operating Room.................................................    0.282
Cardiology.....................................................    0.181
Radiology......................................................    0.161
Emergency Room.................................................    0.278
Blood and Blood Products.......................................    0.424
Other Services.................................................    0.426
Labor & Delivery...............................................    0.462
Inhalation Therapy.............................................    0.201
Anesthesia.....................................................    0.136
------------------------------------------------------------------------

    As we explained in section II.E. of the preamble of this final 
rule, we have completed 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, the 
relative weights were 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. In the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule (74 FR 24123), we proposed to use that same case 
threshold in recalibrating the MS-DRG weights for FY 2010. Using the FY 
2008 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. Newborns are unique and 
require separate MS-DRGs that are not mirrored in the adult population. 
Therefore, it remains necessary to retain separate MS-DRGs for 
newborns. All of the low-volume MS-DRGs listed below are for newborns. 
In FY 2010, because we do not have sufficient MedPAR data to set 
accurate and stable cost weights for these low-volume MS-DRGs, we 
proposed to compute weights for the

[[Page 43808]]

low-volume MS-DRGs by adjusting their FY 2009 weights by the percentage 
change in the average weight of the cases in other MS-DRGs. The 
crosswalk table is shown below:

------------------------------------------------------------------------
 Low[dash]volume MS-DRG        MS-DRG title         Crosswalk to MS-DRG
------------------------------------------------------------------------
768.....................  Vaginal Delivery with   FY 2009 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 2009 FR weight
                           Transferred to          (adjusted by percent
                           Another Acute Care      change in average
                           Facility.               weight of the cases
                                                   in other MS-DRGs).
790.....................  Extreme Immaturity or   FY 2009 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 2009 FR weight
                           Problems.               (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
792.....................  Prematurity without     FY 2009 FR weight
                           Major Problems.         (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
793.....................  Full-Term Neonate with  FY 2009 FR weight
                           Major Problems.         (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
794.....................  Neonate with Other      FY 2009 FR weight
                           Significant Problems.   (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
795.....................  Normal Newborn........  FY 2009 FR weight
                                                   (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
------------------------------------------------------------------------

    Comment: Some commenters questioned whether Medicare Advantage 
claims were used to calculate the MS-DRG relative weights for FY 2010 
in the proposed rule. The commenters noted that CMS' policy has been to 
exclude Medicare Advantage claims from the relative weights 
calculation, but believed that CMS may have inadvertently included 
those claims in the calculation in the proposed rule. The commenters 
believed that if the Medicare Advantage claims were included, the 
amount paid under the IPPS will be overstated. The commenters 
recommended that CMS ensure that Medicare Advantage claims are excluded 
from the relative weights calculation. However, the commenters 
requested that CMS continue to include the Medicare Advantage claims in 
the MedPAR dataset for analysis purposes.
    Response: Historically, we have excluded data from Medicare 
Advantage claims from the calculation of the relative weights. As has 
been stated in the preamble of previous IPPS rules and, most recently, 
in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24115), 
``Discharges for Medicare beneficiaries enrolled in a Medicare 
Advantage managed care plan are excluded from this analysis.'' 
Consistent with this language, in the FY 2010 proposed rule, we 
intended to exclude Medicare Advantage claims from the calculation of 
the relative weights for FY 2010 as well. However, the December 2008 
update of the FY 2008 MedPAR data that was used as the source for 
calculating the relative weights contained a significant number of 
Medicare Advantage claims. This inclusion is a result of hospitals 
being required to submit informational only claims for all Medicare 
Advantage patients they treated for discharges occurring on or after 
October 1, 2006, under Change Request 5647, Transmittal 1311. As a 
result, we inadvertently included claims from discharges of patients 
enrolled in Medicare Advantage plans in the calculation of the proposed 
FY 2010 relative weights. We have corrected this oversight in the 
calculation of the final FY 2010 relative weights and, therefore, no 
Medicare Advantage claims data are included in the calculations in this 
final rule. Specifically, we added an edit to the relative weight 
calculation to remove any claims that have a GHO--Paid indicator value 
of ``1,'' which effectively removes Medicare Advantage claims from the 
relative weights calculations. We are continuing to include Medicare 
Advantage claims in the Expanded Modified MedPAR file that is available 
to researchers for purchase under a data use agreement with CMS.
    We did not receive any public comments on this section. Therefore, 
we are adopting the national average CCRs as proposed, with the MS-DRG 
weights recalibrated based on these CCRs.

I. Add-On Payments for New Services and Technologies

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies that a medical service or technology will be considered 
new if it meets criteria established by the Secretary after notice and 
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act 
specifies that 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.'' We note that beginning with FY 2008, CMS 
transitioned from CMS-DRGs to MS-DRGs.
    The regulations implementing these provisions specify three 
criteria for a new medical service or technology to receive an 
additional payment: (1) The medical service or technology must be new; 
(2) the medical service or technology must be costly such that the DRG 
rate otherwise applicable to discharges involving the medical service 
or technology is determined to be inadequate; and (3) the service or 
technology must demonstrate a substantial clinical improvement over 
existing services or technologies. These three criteria are explained 
below in the ensuing paragraphs in further detail.
    Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a 
specific medical service or technology will be considered ``new'' for 
purposes of new medical service or technology add-on payments until 
such time as Medicare data are available to fully reflect the cost of 
the technology in the MS-DRG weights through recalibration. Typically, 
there is a lag of 2 to 3 years from the point a new medical service or 
technology is first introduced on the market (generally on the date 
that the technology receives FDA approval/clearance) and when data 
reflecting the use of the medical service or technology

[[Page 43809]]

are used to calculate the MS-DRG weights. For example, data from 
discharges occurring during FY 2008 are used to calculate the FY 2010 
MS-DRG weights in this final rule. Section 412.87(b)(2) of the 
regulations therefore provides that ``a medical service or technology 
may be considered new within 2 or 3 years after the point at which data 
begin to become available reflecting the ICD-9-CM code assigned to the 
new medical service or technology (depending on when a new code is 
assigned and data on the new medical service or technology become 
available for DRG recalibration). After CMS has recalibrated the 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 final 
rule, we generally 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 cases of a national noncoverage 
determination or a documented delay in bringing the product onto the 
market after that approval (for instance, component production or drug 
production has been postponed following FDA approval due to shelf life 
concerns or manufacturing issues). After the MS-DRGs have been 
recalibrated to reflect the costs of an otherwise new medical service 
or technology, the medical service or technology is no longer eligible 
for special add-on payment for new medical services or technologies (as 
specified under Sec.  412.87(b)(2)). For example, an approved new 
technology that received FDA approval in October 2008 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, 2011 (the start 
of FY 2012). Because the FY 2012 MS-DRG weights would be calculated 
using FY 2010 MedPAR data, the costs of such a new technology would be 
fully reflected in the FY 2012 MS-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 2012 and thereafter.
    Under the second criterion, Sec.  412.87(b)(3) further provides 
that, to be eligible for the add-on payment for new medical services or 
technologies, the MS-DRG prospective payment rate otherwise applicable 
to the discharge involving the new medical services or technologies 
must be assessed for adequacy. Under the cost criterion, to assess the 
adequacy of payment for a new technology paid under the applicable MS-
DRG prospective payment rate, we evaluate whether the charges for cases 
involving the new technology exceed certain threshold amounts. In the 
FY 2004 IPPS final rule (68 FR 45385), we established the threshold at 
the geometric mean standardized charge for all cases in the MS-DRG plus 
75 percent of 1 standard deviation above the geometric mean 
standardized charge (based on the logarithmic values of the charges and 
converted back to charges) for all cases in the MS-DRG to which the new 
medical service or technology is assigned (or the case-weighted average 
of all relevant MS-DRGs, if the new medical service or technology 
occurs in more than one MS-DRG).
    However, section 503(b)(1) of Public Law 108-173 amended section 
1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, 
CMS will 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 that was 
included in the notice published in the Federal Register on October 3, 
2008, contains the final thresholds that are being used to evaluate 
applications for new technology add-on payments for FY 2010 (73 FR 
57888).
    We note that section 124 of Public Law 110-275 extended, through FY 
2009, wage index reclassifications under section 508 of Public Law 108-
173 (the MMA) and special exceptions contained in the final rule 
promulgated in the Federal Register on August 11, 2004 (69 FR 49105 and 
49107) and extended under section 117 of Public Law 110-173 (the 
MMSEA). The wage data affect the standardized amounts (as well as the 
outlier offset and budget neutrality factors that are applied to the 
standardized amounts), which we use to compute the cost criterion 
thresholds. Therefore, the thresholds reflected in Table 10 in the 
Addendum to the FY 2009 IPPS final rule were tentative. As noted 
earlier, on October 3, 2008, we published a Federal Register notice (73 
FR 57888) that contained a new Table 10 with revised thresholds that 
reflect the wage index rates for FY 2009 as a result of implementation 
of section 124 of Public Law 110-275. The revised thresholds also were 
published on the CMS Web site. The revised thresholds published in 
Table 10 in the October 3, 2008 Federal Register notice were used to 
determine if an applicant for new technology add-on payments discussed 
in this FY 2010 final rule met the cost criterion threshold for new 
technology add-on payments for FY 2010.
    In the September 7, 2001 final rule that established the new 
technology add-on payment regulations (66 FR 46917), we discussed the 
issue of whether the HIPAA Privacy Rule at 45 CFR parts 160 and 164 
applies to claims information that providers submit with applications 
for new technology add-on payments. Specifically, we explained that 
health plans, including Medicare, and providers that conduct certain 
transactions electronically, including 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 for 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

[[Page 43810]]

Identifiable Health Information published in the Federal Register on 
August 14, 2002, for a full discussion of changes in consent 
requirements.)
    Under the third criterion, Sec.  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 cost to 
charge ratios (``CCRs'') as described in Sec.  412.84(h)) exceed the 
full DRG payment (including payments for IME and DSH, but excluding 
outlier payments), Medicare will make an add-on payment equal to the 
lesser of: (1) 50 percent of the estimated costs of the new technology 
(if the estimated costs for the case including the new technology 
exceed Medicare's payment); or (2) 50 percent of the difference between 
the full DRG payment and the hospital's estimated cost for the case. 
Unless the discharge qualifies for an outlier payment, Medicare payment 
is limited to the full MS-DRG payment plus 50 percent of the estimated 
costs of the new technology.
    Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments 
to annual MS-DRG classifications and relative weights 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, while at the same time estimating the payment 
effect of changes to the MS-DRG classifications and recalibration. The 
impact of additional payments under this provision was then included in 
the budget neutrality factor, which was applied to the standardized 
amounts and the hospital-specific amounts. However, section 503(d)(2) 
of Public Law 108-173 provides that there shall be no reduction or 
adjustment in aggregate payments under the IPPS due to add-on payments 
for new medical services and technologies. Therefore, following section 
503(d)(2) of Public Law 108-173, add-on payments for new medical 
services or technologies for FY 2005 and later years have not been 
subjected to budget neutrality.
    In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we 
modified our regulations at Sec.  412.87 to codify our current practice 
of how CMS evaluates the eligibility criteria for new medical service 
or technology add-on payment applications. We also amended Sec.  
412.87(c) to specify that all applicants for new technology add-on 
payments must have FDA approval for their new medical service or 
technology by July 1 of each year prior to the beginning of the fiscal 
year that the application is being considered.
    Applicants for add-on payments for new medical services or 
technologies for FY 2011 must submit a formal request, including a full 
description of the clinical applications of the medical service or 
technology and the results of any clinical evaluations demonstrating 
that the new medical service or technology represents a substantial 
clinical improvement, along with a significant sample of data to 
demonstrate that the medical service or technology meets the high-cost 
threshold. Complete application information, along with final deadlines 
for submitting a full application, will be posted as it becomes 
available on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp. To allow interested parties to identify the new 
medical services or technologies under review before the publication of 
the proposed rule for FY 2011, the Web site also will 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 Public Law 108-173. The Council is 
co-chaired by the Director of the Office of Clinical Standards and 
Quality (OCSQ) and the Director of the Center for Medicare Management 
(CMM), who is also designated as the CTI's Executive Coordinator.
    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. At the same time, the CTI also works to 
streamline, accelerate, and improve coordination of these processes to 
ensure that they remain up to date as new issues arise. To achieve its 
goals, the CTI works to streamline and create a more transparent coding 
and payment process, improve the quality of medical decisions, and 
speed patient access to effective new treatments. It is also dedicated 
to supporting better decisions by patients and doctors in using 
Medicare-covered services through the promotion of better evidence 
development, which is critical for improving the quality of care for 
Medicare beneficiaries.
    CMS plans to continue its Open Door forums with stakeholders who 
are interested in CTI's initiatives. In addition, to improve the 
understanding of CMS' processes for coverage, coding, and payment and 
how to access them, the CTI has developed an ``innovator's guide'' to 
these processes. The intent is to consolidate this information, much of 
which is already available in a variety of CMS documents and in various 
places on the CMS Web site, in a user-friendly format. This guide was 
published in August 2008 and is available on the CMS Web site at: 
http://www.cms.hhs.gov/CouncilonTechInnov/Downloads/InnovatorsGuide8_25_08.pdf.
    As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we 
invite any product developers or manufacturers of new medical 
technologies to contact the agency early in the process of product 
development if they have questions or concerns about the evidence that 
would be needed later in the development process for the agency's 
coverage decisions for Medicare.
    The CTI aims to provide useful information on its activities and 
initiatives to stakeholders, including Medicare beneficiaries, 
advocates, medical product manufacturers, providers, and health policy 
experts. Stakeholders with further questions about Medicare's coverage, 
coding, and payment processes, or who want further

[[Page 43811]]

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/).
    Comment: One commenter recommended that CMS deem a device to be a 
substantial clinical improvement ``* * * if it has been granted a 
humanitarian device exemption or priority review based on the fact that 
it represents breakthrough technologies, that 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.''
    Response: As stated in the FY 2008 IPPS final rule (72 FR 47302), 
the FDA provides a number of different types of approvals to devices, 
drugs and other medical products. At this time, we do not believe that 
any particular type of FDA approval alone would automatically 
demonstrate a substantial clinical improvement for the Medicare 
population. However, as noted in previous final rules, we do take FDA 
approval into consideration in our evaluation of new technology 
applications. We note that a Humanitarian Device Exemption (HDE) 
approval only requires that ``the probable benefit outweighs the risk 
of injury or illness'' as opposed to the safety and effectiveness 
standard that exists for pre-market approval (PMA). Among other 
requirements, the labeling of a humanitarian use device must state that 
the effectiveness of the device for the specific indication has not 
been demonstrated. While an HDE approval certainly does not preclude us 
from considering a technology for an add-on payment, neither does it 
suggest that the product automatically meets the requirement to be 
judged a substantial clinical improvement. Under the substantial 
clinical improvement criterion, we will continue to evaluate a 
technology with an HDE approval by measuring it against the specific 
criteria we listed for determining substantial clinical improvement at 
66 FR 46914.
    Comment: A number of commenters addressed topics relating to the 
marginal cost factor for the new technology add-on payment, the 
potential implementation of ICD-10-CM, the use of external data in 
determining the cost threshold, paying new technology add-on payments 
for two to three years, mapping new technologies to the appropriate MS-
DRG and the use of the date that a ICD-9-CM code is assigned to a 
technology or the FDA approval date (whichever is later) as the start 
of the newness period.
    Response: We did not request public comments nor propose to make 
any changes to any of the issues summarized above. Because these 
comments are outside of the scope of the provisions included in the 
proposed rule, we are not providing a complete summary of the comments 
or responding to them in this final rule.
2. Public Input Before Publication of a Notice of Proposed Rulemaking 
on Add-On Payments
    Section 1886(d)(5)(K)(viii) of the Act, as amended by section 
503(b)(2) of Public Law 108-173, provides for a mechanism for public 
input before publication of a notice of proposed rulemaking regarding 
whether a medical service or technology represents a substantial 
clinical improvement or advancement. The process for evaluating new 
medical service and technology applications requires the Secretary to--
     Provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology represents an 
advance in medical technology that substantially improves the diagnosis 
or treatment of Medicare beneficiaries;
     Make public and periodically update a list of the services 
and technologies for which applications for add-on payments are 
pending;
     Accept comments, recommendations, and data from the public 
regarding whether a service or technology represents a substantial 
clinical improvement; and
     Provide, before publication of a proposed rule, for a 
meeting at which organizations representing hospitals, physicians, 
manufacturers, and any other interested party may present comments, 
recommendations, and data regarding whether a new medical service or 
technology represents a substantial clinical improvement to the 
clinical staff of CMS.
    In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2010 prior 
to publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we 
published a notice in the Federal Register on November 28, 2008 (73 FR 
72490), and held a town hall meeting at the CMS Headquarters Office in 
Baltimore, MD, on February 17, 2009. 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 2010 new medical service and technology 
add-on payment applications before the publication of the FY 2010 IPPS 
proposed rule.
    Approximately 90 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. Each of the five FY 2010 applicants presented 
information on its technology, including a discussion of data 
reflecting the substantial clinical improvement aspect of the 
technology. We considered each applicant's presentation made at the 
town hall meeting, as well as written comments submitted on each 
applicant's application, in our evaluation of the new technology add-on 
applications for FY 2010 in the FY 2010 proposed rule and in this final 
rule.
    In response to the published notice and the new technology town 
hall meeting, we received two written comments regarding applications 
for FY 2010 new technology add-on payments. We summarized these 
comments or, if applicable, indicated that there were no comments 
received, at the end of each discussion of the individual applications 
in the FY 2010 IPPS/RY LTCH PPS proposed rule. We did not receive any 
general comments about the application of the substantial clinical 
improvement criterion.
    A further discussion of our evaluation of the applications and the 
documentation for new technology add-on payments submitted for FY 2010 
approval is provided under the specified areas under this section.
3. FY 2010 Status of Technologies Approved for FY 2009 Add-On Payments
    We approved one application for new technology add-on payments for 
FY 2009: 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). The 
TAH-t is a technology that is used as a bridge to heart transplant 
device for heart transplant-eligible patients with end-stage 
biventricular failure. The TAH-t pumps up to 9.5 liters of blood per 
minute. This high level of perfusion helps improve hemodynamic function 
in patients, thus making them better heart transplant candidates.
    The TAH-t was approved by the FDA on October 15, 2004, for use as a 
bridge to transplant device in cardiac transplant-eligible candidates 
at risk of imminent death from biventricular failure. The TAH-t is 
intended to be

[[Page 43812]]

used in hospital inpatients. One of the FDA's post-approval 
requirements is that the manufacturer agrees to provide a post-approval 
study demonstrating success of the device at one center can be 
reproduced at other centers. The study was to include at least 50 
patients who would be followed up to 1 year, including (but not limited 
to) the following endpoints: survival to transplant; adverse events; 
and device malfunction.
    In the past, Medicare did not cover artificial heart devices, 
including the TAH-t. However, on May 1, 2008, CMS issued a final 
national coverage determination (NCD) expanding Medicare coverage of 
artificial hearts when they are implanted as part of a study that is 
approved by the FDA and is determined by CMS to meet CMS' Coverage with 
Evidence Development (CED) clinical research criteria. (The final NCD 
is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=211.)
    We indicated in the FY 2009 IPPS final rule (73 FR 48555) that, 
because Medicare's previous coverage policy with respect to this device 
had precluded payment from Medicare, we did not expect the costs 
associated with this technology to be currently reflected in the data 
used to determine the relative weights of MS-DRGs. As we have indicated 
in the past, and as we discussed in the FY 2009 IPPS final rule, 
although we generally believe that the newness period would begin on 
the date that FDA approval was granted, in cases where the applicant 
can demonstrate a documented delay in market availability subsequent to 
FDA approval, we would consider delaying the start of the newness 
period. This technology's situation represented such a case. We also 
noted that section 1886(d)(5)(K)(ii)(II) of the Act requires that we 
provide for the collection of cost data for a new medical service or 
technology for a period of at least 2 years and no more than 3 years 
``beginning on the date on which an inpatient hospital code is issued 
with respect to the service or technology.'' Furthermore, the statute 
specifies that the term ``inpatient hospital code'' means any code that 
is used with respect to inpatient hospital services for which payment 
may be made under the IPPS and includes ICD-9-CM codes and any 
subsequent revisions. Although the TAH-t has been described by the ICD-
9-CM code(s) since the time of its FDA approval, because the TAH-t had 
not been covered under the Medicare program (and, therefore, no 
Medicare payment had been made for this technology), this code could 
not be ``used with respect to inpatient hospital services for which 
payment'' is made under the IPPS, and thus we assumed that none of the 
costs associated with this technology would be reflected in the 
Medicare claims data used to recalibrate the MS-DRG relative weights 
for FY 2009. For this reason, as discussed in the FY 2009 IPPS final 
rule, despite the FDA approval date of the technology, we determined 
that TAH-t would still be eligible to be considered ``new'' for 
purposes of the new technology add-on payment because the TAH-t met the 
newness criterion on the date that Medicare coverage began, consistent 
with issuance of the final NCD, effective on May 1, 2008.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the TAH-t 
and consideration of the public comments we received on the FY 2009 
IPPS proposed rule, we approved the TAH-t for new technology add-on 
payments for FY 2009 (73 FR 48557). We indicated that we believed the 
TAH-t offered a new treatment option that previously did not exist for 
patients with end-stage biventricular failure. However, we indicated 
that we recognized that Medicare coverage of the TAH-t is limited to 
approved clinical trial settings. The new technology add-on payment 
status does not negate the restrictions under the NCD nor does it 
obviate the need for continued monitoring of clinical evidence for the 
TAH-t. We remain interested in seeing whether the clinical evidence 
demonstrates that the TAH-t continues to be effective. If evidence is 
found that the TAH-t may no longer offer a substantial clinical 
improvement, we reserve the right to discontinue new technology add-on 
payments, even within the 2 to 3 year period that the device may still 
be considered to be new.
    The new technology add-on payment for the TAH-t for FY 2009 is 
triggered by the presence of ICD-9-CM procedure code 37.52 
(Implantation of total heart replacement system), condition code 30, 
and the diagnosis code reflecting clinical trial--V70.7 (Examination of 
participant in clinical trial). For FY 2009, we finalized a maximum 
add-on payment of $53,000 (that is, 50 percent of the estimated 
operating costs of the device of $106,000) for cases that involve this 
technology. As noted above, the TAH-t is still eligible to be 
considered ``new'' for purposes of the new technology add-on payment 
because the TAH-t met the newness criterion on the date that Medicare 
coverage began, consistent with issuance of the final NCD, effective on 
May 1, 2008.
    We did not receive any public comments on our proposal to continue 
new technology add-on payments for the TAH-t for FY 2010. Therefore, as 
we proposed, for FY 2010, we are continuing the new technology add-on 
payments for cases involving the TAH-t in FY 2010 with a maximum add-on 
payment of $53,000.
4. FY 2010 Applications for New Technology Add-On Payments
    We received six applications to be considered for new technology 
add-on payment for FY 2010. However, one applicant, Emphasys Medical, 
withdrew its application for the Zephyr[supreg] Endobronchial Valve 
(Zephyr[supreg] EBV) prior to the publication of the FY 2010 IPPS/RY 
2010 LTCH PPS proposed rule. Since the Zephyr[supreg] EBV application 
was withdrawn prior to the town hall meeting and publication of the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule, we did not discuss the 
application in the proposed rule and also will not discuss it in this 
final rule.
    During the public comment period, three additional applicants 
withdrew their applications from further consideration for FY 2010 new 
technology add-on payments. A discussion and final determination of the 
remaining two applications is presented below.
a. The AutoLITT\TM\ System
    Monteris Medical submitted an application for new technology add-on 
payments for FY 2010 for the AutoLITT\TM\. However, the applicant 
withdrew its application for new technology add-on payments during the 
public comment period.
    Comment: One commenter supported the AutoLITT\TM\ application. The 
commenter stated that AutoLITT\TM\ represented an advance because it 
provides the ability to ``steer and rotate the beam to the size and 
shape of the tumor'' and that such ability is a significant advance 
from the current non-directional systems. The commenter noted that it 
had ``no longitudinal or systemic studies to verify precisely the 
degree of improvement in patient care,'' but that use of the 
AutoLITT\TM\ had led to a quicker recovery time and fewer complications 
in its experience with the device. Specifically, the commenter stated 
that it was able to discharge patients within 24 to 48 hours which is 
faster than with traditional therapies.
    Response: We appreciate the commenter's response to the proposed

[[Page 43813]]

rule. We note again that the applicant withdrew its application from 
consideration for new technology add-on payments for FY 2010. 
Accordingly, we are not providing a response to the comment.
    b. CLOLAR[supreg] (Clofarabine) Injection
    Genzyme Oncology submitted an application for new technology add-on 
payments for FY 2010 for CLOLAR[supreg] (clofarabine) injection. 
However, the applicant withdrew its application for new technology add-
on payments during the public comment period. In the FY 2010 IPPS/RY 
2010 LTCH PPS proposed rule in section II.I.4.b. of the preamble, we 
included a detailed discussion relating to our policy for determining 
whether a new technology is substantially similar to an existing 
technology in our analysis of whether CLOLAR would meet the newness 
criterion. Because the CLOLAR application has been withdrawn, we will 
not make a determination regarding substantially similarity to 
determine newness for that application. Instead, we have provided our 
discussion of substantial similarity below and have summarized and 
responded to comments received on that topic.
Substantial Similarity Discussion
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we stated that 
the newness criterion is intended to apply to technologies that have 
been available to Medicare beneficiaries for no more than 2 to 3 years. 
Therefore, a technology that applies for a supplemental FDA approval 
must demonstrate that the new approval is not substantially similar to 
the prior approval.
    As discussed above, the new technology add-on payment is available 
to new medical services or technologies that satisfy the three criteria 
set forth in our regulations at Sec.  412.87(b) (that is, newness, 
high-costs, and substantial clinical improvement). Typically, we begin 
our analysis with an evaluation of whether an applicant's technology 
meets what we refer to as the ``newness criterion'' under Sec.  
412.87(b)(2) (that is, whether Medicare data are available to fully 
reflect the cost of the technology in the MS-DRG weights through 
recalibration). Generally, we believe that the costs of a technology 
begin to be reflected in the hospital charge data used to recalibrate 
the MS-DRG relative weights when the technology becomes available on 
the market, usually on or soon after the date on which it receives FDA 
approval.
    Congress provided for the new technology add-on payment in order to 
ensure that Medicare beneficiaries have access to new technologies. As 
discussed previously, there often is a lag time of 2 to 3 years before 
the costs of new technologies are reflected in the recalibration of the 
relevant MS-DRGs. Because a new technology often has higher costs than 
existing technologies, during this lag time the current MS-DRG payment 
may not adequately reflect the costs of the new technology. The new 
technology add-on payment addresses this concern by ensuring that 
hospitals receive an add-on payment under the IPPS for costly new 
technologies that represent a substantial clinical improvement over 
existing technologies until such time when the cost of the technology 
is reflected within the MS-DRG relative weights. When an existing 
technology receives FDA approval for a new indication, similar concerns 
may arise. If, prior to the FDA approval for the new indication, the 
technology has not been used to treat Medicare patients for purposes 
consistent with the new indication, the relevant MS-DRGs may not 
reflect the cost of the technology. Consequently, Medicare 
beneficiaries may not have adequate access to the technology when used 
for purposes consistent with the new indication. Allowing the new 
technology add-on payment for the technology when used for the new 
indication would address this concern. For these reasons, we believe 
that treating an existing technology as ``new'' when approved by the 
FDA for a new indication may be warranted under certain circumstances.
    In the September 7, 2001 final rule (66 FR 46915), we stated that a 
new use of an existing technology may be eligible for the new 
technology add-on payment under certain conditions. In the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule, we stated that we believe it is 
appropriate to consider an existing technology for the new technology 
add-on payments when its new use is not substantially similar to 
existing uses of the technology. In the FY 2006 IPPS final rule (70 FR 
47351), we explained our policy regarding substantial similarity in 
detail and its relevance for assessing if the hospital charge data used 
in the development of the relative weights for the relevant DRGs 
reflect the costs of the technology. In that final rule, we stated 
that, for determining substantial similarity, we consider (1) whether a 
product uses the same or a similar mechanism of action to achieve a 
therapeutic outcome, and (2) whether a product is assigned to the same 
or a different DRG. We indicated that both of the above criteria should 
be met in order for a technology to be considered ``substantially 
similar'' to an existing technology. However, in that same final rule, 
we also noted that, due to the complexity of issues regarding the 
substantial similarity component of the newness criterion, it may be 
necessary to exercise flexibility when considering whether technologies 
are substantially similar to one another. Specifically, we stated that 
we may consider additional factors depending on the circumstances 
specific to each application.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we stated that 
we believe that in determining whether a new use of an existing 
technology is substantially similar to existing uses of the technology, 
it may be relevant to consider not only the two criteria discussed in 
the FY 2006 IPPS final rule, but also certain additional factors. 
Specifically, we stated that it may also be appropriate to analyze 
whether, as compared to existing uses of the technology, the new use 
involves the treatment of the same or similar type of disease and the 
same or similar patient population. Accordingly, we proposed to add a 
third factor of consideration to our analysis of whether a new 
technology is substantially similar to one or more existing 
technologies. Specifically, we proposed to consider whether the new use 
of the technology involves the treatment of the same or similar type of 
disease and the same or similar patient population (74 FR 24130) in 
addition to considering the already established factors described in 
the FY 2006 IPPS final rule. We explained that if all three components 
are present and the new use is deemed substantially similar to one or 
more of the existing uses of the technology (that is beyond the newness 
period), we would conclude that the technology is not new and, 
therefore, is not eligible for the new technology add-on payment. In 
the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we noted that we 
considered, but rejected, the inclusion of the third factor in the FY 
2006 IPPS final rule on the grounds that we believed that it was more 
relevant to analyze whether the costs of the technology were already 
reflected in the relative weights of the MS-DRGs. However, in the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule, we stated that upon further 
consideration, we believe that both the type of disease and patient 
population for which a technology is used are also relevant in 
determining whether one indication of a technology is ``substantially 
similar'' to another.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we noted that 
the discussion of substantial similarity in the FY 2006 IPPS final rule 
related to

[[Page 43814]]

comparing two separate technologies made by different manufacturers. 
Nevertheless, we stated that the criteria discussed in the FY 2006 IPPS 
final rule also are relevant when comparing the similarity between a 
new use and existing uses of the same technology (or a very similar 
technology manufactured by the same manufacturer). In other words, we 
stated that it is necessary to establish that the new indication for 
which the technology has received FDA approval is not substantially 
similar to that of the prior indication. We explained that such a 
distinction is necessary to determine the appropriate start date of the 
newness period in evaluating whether the technology would qualify for 
add-on payments (that is, the date of the ``new'' FDA approval or that 
of the prior approval), or whether the technology could qualify for 
separate new technology add-on payments under each indication.
    Comment: Several commenters supported our proposal to add a third 
factor of consideration to our analysis of whether a technology is 
substantially similar to another technology or to a previous version of 
the same technology with a new FDA indication. The commenters commended 
CMS for proposing to add the third factor and encouraged CMS to apply 
all three factors to future decisions regarding proposed new 
technologies. One commenter encouraged CMS to consider codifying all 
three substantial similarity factors in the regulations. Another 
commenter asked that CMS clarify whether the proposed criterion applied 
both to products that receive a second or follow-on indication as well 
as to separate and distinct products that have the same or similar 
mechanism of action, but are intended to treat a separate disease or 
patient population. The commenter also noted that, in FY 2006, it 
recommended that CMS include an additional factor when determining 
whether products were substantially similar, specifically, whether the 
products conferred the same level of substantial clinical improvement. 
The commenter asserted that the addition of this would ``ensure that 
products found to represent a true advancement in clinical care--even 
if they utilize a similar mechanism of action, could be eligible for 
new technology add-on payments.''
    Response: We thank the commenters for their support of our 
proposal.
    In response to the comment asking for clarification about whether 
the proposed additional factor under substantial similarity would apply 
solely to a technology approved for a new indication or to two separate 
and distinct products, we refer the commenter to our discussion above 
in which we stated, ``the discussion of substantial similarity in the 
FY 2006 IPPS final rule related to comparing two separate technologies 
made by different manufacturers. Nevertheless, we believe the criteria 
discussed in the FY 2006 IPPS final rule also are relevant when 
comparing the similarity between a new use and existing uses of the 
same technology (or a very similar technology manufactured by the same 
manufacturer). In other words, we believe that it is necessary to 
establish that the new indication for which the technology has received 
FDA approval is not substantially similar to that of the prior 
indication.'' Therefore, all three factors of substantial similarity 
will apply in both scenarios.
    In response to the comment that suggested we analyze whether two 
products (or one product with two different indications) confer the 
same level of substantial clinical improvement, we note that 
substantial similarity is considered under the newness criterion (that 
is, to determine if a technology may still be considered ``new'' for 
purposes of the new technology add-on payment). As we stated in FY 2006 
final IPPS rule, we base our decisions about new technology add-on 
payments on a logical sequence of determinations moving from the 
newness criterion to the cost criterion and finally to the substantial 
clinical improvement criterion. Specifically, we do not make 
determinations about substantial clinical improvement unless a product 
has already been determined to be new and to meet the cost criterion. 
Therefore, we are reluctant to import substantial clinical improvement 
considerations into the logical prior decision about whether 
technologies are new. Furthermore, while we make separate 
determinations about whether similar products meet the substantial 
clinical improvement criterion, we do not believe that it would be 
appropriate to make determinations about whether one product or another 
is clinically superior.
    In response to the comment that suggested that we codify the 
factors we use to evaluate substantial similarity, we note that we did 
not propose to amend the new technology add-on regulations in the 
proposed rule. However, we will consider making such a proposal in a 
future rulemaking period.
    We are finalizing our proposal to add a third factor of 
consideration to our analysis of whether a new technology is 
substantially similar to one or more existing technologies. 
Specifically, in making a determination of whether a new technology is 
substantially similar to an existing technology, we will consider 
whether the new use of the technology involves the treatment of the 
same or similar type of disease and the same or similar patient 
population (74 FR 24130), in addition to considering the already 
established factors described in the FY 2006 IPPS final rule (that is, 
(1) whether a product uses the same or a similar mechanism of action to 
achieve a therapeutic outcome; and (2) whether a product is assigned to 
the same or a different DRG).
c. LipiScan\TM\ Coronary Imaging System
    InfraReDx, Inc. submitted an application for new technology add-on 
payments for FY 2010 for the LipiScan\TM\ Coronary Imaging System 
(LipiScan\TM\). The LipiScan\TM\ device is a diagnostic tool that uses 
Intravascular Near Infrared Spectroscopy (INIRS) during a cardiac 
catheterization to scan the artery wall in order to determine coronary 
plaque composition. The purpose of the device is to identify lipid-rich 
areas in the artery because such areas have been shown to be more prone 
to rupture. The procedure does not require flushing or occlusion of the 
artery. INIRS identifies the chemical content of plaque by focusing 
near infrared light at the vessel wall and measuring reflected light at 
different wavelengths (that is, spectroscopy). The LipiScan\TM\ system 
collects approximately 1,000 measurements per 12.5 mm of pullback, with 
each measurement interrogating an area of 1 to 2 mm\2\ of lumen surface 
perpendicular to the longitudinal axis of the catheter. When the 
catheter is in position, the physician activates the pullback and 
rotation device and the scan is initiated providing 360 degree images 
of the length of the artery. The rapid acquisition speed for the image 
freezes the motion of the heart and permits scanning of the artery in 
less than 2 minutes. When the catheter pullback is completed, the 
console displays the scan results, which are referred to as a 
``chemogram'' image. The chemogram image requires reading by a trained 
user, but, according to the applicant, was designed to be simple to 
interpret.
    With regard to the newness criterion, the LipiScanTM 
received a 510K FDA clearance for a new indication on April 25, 2008, 
and was available on the market immediately thereafter. On June 23, 
2006, InfraReDx, Inc. was granted a 510K FDA clearance for the 
``InfraReDx Near Infrared (NIR) Imaging System.'' Both devices are 
under the common

[[Page 43815]]

name of ``Near Infrared Imaging System'' according to the 510K summary 
document from the FDA. However, the InfraReDx NIR Imaging System device 
that was approved by the FDA in 2006 was approved ``for the near 
infrared imaging of the coronary arteries,'' whereas the 
LipiScanTM device cleared by the FDA in 2008 is for a 
modified indication. The modified indication specified that 
LipiScanTM is ``intended for the near-infrared examination 
of coronary arteries * * *, the detection of lipid-core-containing 
plaques of interest * * * [and] for the assessment of coronary artery 
lipid core burden.''
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24132), 
we expressed our concerns regarding whether LipiScanTM is 
substantially similar to its predicate device that was approved by FDA 
in 2006. Specifically, it appears that the two devices, which are 
manufactured by the same company, do not differ in either design or 
functionality, according to the approval order documents from the FDA. 
In the 2008 approval order, the FDA stated, ``The LipiScan Coronary 
Imaging System utilizes the same basic catheter design as the 
predicate, the InfraReDx NIR Imaging System (June 23, 2006). These 
devices have a similar intended use, use the same operating principal, 
incorporate the same basic catheter design, have the same shelf life, 
and are packaged using the same materials and processes. The 
modifications from the InfraReDx NIR Imaging System to the LipiScan 
Coronary Imaging System are the improved catheter design, improved user 
interface (including PBR and console), and the additional testing 
required to support an expanded indication for use.'' Therefore, it 
appears that the only difference between the two approvals may be a 
modification of the intended use.
    As mentioned earlier in our discussion of substantial similarity in 
section II.I.4.b. of this final rule, our policy regarding substantial 
similarity discussed in the FY 2006 final rule (70 FR 47351 through 
47532) outlined two criteria as it relates to two separate technologies 
that are made by different manufacturers that were used to guide our 
determination of whether two technologies were substantially similar to 
one another. Although the LipiScanTM is a diagnostic device 
and not a therapeutic device we believe that the substantial similarity 
component of the newness criterion still applies.
    Both the prior and the new FDA indications for 
LipiScanTM use the same or a similar mechanism of action to 
achieve a desired therapeutic outcome, and both treat patients that 
would generally be assigned to the same MS-DRG. Similarly, both 
indications of LipiScanTM are intended to treat the same 
disease in the same patient population. Consequently, in the 2010 IPPS/
RY 2010 LTCH PPPS proposed rule, we stated that we have concerns as to 
whether or not the two intended uses are substantially similar, 
especially considering that the technologies appear essentially 
identical. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we 
welcomed public comment on whether or not the latest 510K FDA clearance 
should be considered ``substantially similar'' to its predicate 
technology approved by the FDA in 2006 (74 FR 24133).
    Comment: One commenter, the manufacturer, gave comments regarding 
whether LipiScanTM was substantially similar to its 
predicate device and whether it met the newness criterion for new 
technology add-on payments. The manufacturer included the following 
table to illustrate the differences between the version of the device 
that was approved in 2006 and the version that was approved in 2008:

------------------------------------------------------------------------
                         2006 NIRS device        Marketed 2008 LipiScan
------------------------------------------------------------------------
Console...........  No display of results of   Results displayed
                     scan.                      immediately.
Catheter..........  Saline-filled with         Air-filled with no
                     microbubble problem        microbubble problem.
                     obscuring many scans.
Algorithm.........  No algorithmic processing  Algorithm validated in
                     of NIR signals--no means   over 1,000 autopsy
                     of certifying that lipid   measurements proving
                     core plaque is present.    that NIRS can detect
                                                lipid core plaque, and
                                                providing diagnosis of
                                                lipid core plaque to the
                                                MD during the case.
------------------------------------------------------------------------

    In addition, the commenter asserted that the version of the device 
that was approved by the FDA in 2006 was ``never marketed, donated or 
sold to hospitals because it had numerous shortcomings that were not 
overcome until [the date of its second FDA clearance, April 25, 
2008].'' Finally, the commenter noted that Medicare claims do not 
contain any charge for LipiScanTM prior to that date.
    Response: Because the manufacturer has provided statements that 
LipiScanTM was not marketed until after its second FDA 
clearance, we believe that it is no longer necessary to determine 
whether the version of the device that was cleared by the FDA in 2008 
is substantially similar to that which was cleared in 2006. As noted by 
the applicant, CMS uses the date of FDA approval or the date that a 
technology is marketed (if the manufacturer can document there was a 
delay in bringing the technology to market after FDA approval) and thus 
available to Medicare beneficiaries as the start of the newness period. 
In this case, the manufacturer has provided such documentation. 
Therefore, we believe that based on the evidence that supports that 
LipiScanTM was not marketed or otherwise available to 
Medicare beneficiaries until April 25, 2008, LipiScanTM 
meets the newness criterion.
    We note that the LipiScanTM technology is identified by 
ICD-9-CM procedure code 38.23 (Intravascular spectroscopy), which 
became effective October 1, 2008, and cases involving the use of this 
device generally map to MS-DRG 246 (Percutaneous Cardiovascular 
Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); 
MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting 
Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/
Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-
Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous 
Cardiovascular Procedures without Coronary Artery Stent with MCC); and 
MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary 
Artery Stent without MCC).
    In an effort to demonstrate that the technology meets the cost 
criterion, the applicant used the FY 2009 After Outliers Removed (AOR) 
file (posted on the CMS Web site) for cases potentially eligible for 
LipiScanTM. The applicant believes that every case within 
DRGs 246, 247, 248, 249, 250, and 251 are eligible for 
LipiScanTM. In addition, the applicant believes that 
LipiScanTM will be evenly distributed across patients in 
each of the six MS-DRGs (16.6 percent within each MS-DRG). Using data 
from the AOR file, the applicant found the average standardized charge 
per case for MS-DRGs 246, 247, 248, 249, 250, and

[[Page 43816]]

251 was $65,364, $42,162, $58,754, $37,048, $61,016, and $35,878 
respectively, equating to an average standardized charge per case of 
$50,037. The applicant indicated that the average standardized charge 
per case does not include charges related to LipiScanTM; 
therefore, it is necessary to add the charges related to the device to 
the average standardized charge per case in evaluating the cost 
threshold criterion. Although the applicant submitted data related to 
the estimated cost of LipiScanTM per case, the applicant 
noted that the cost of the device was proprietary information. Based on 
a sampling of two hospitals that have used the device, the applicant 
used a markup of 120 percent of the costs and estimates $5,280 in 
charges related to LipiScanTM. Because the applicant lacked 
a significant sample of cases to determine the charges associated with 
the device, we expressed our concerns in the proposed rule as to 
whether or not the estimate of $5,280 in charges related to the device 
was a valid estimate (74 FR 24133).
    Adding the estimated charges related to the drug to the average 
standardized charge per case (based on the case distribution from the 
applicant's 2009 AOR analysis) results in a case-weighted average 
standardized charge per case of $55,317 ($50,037 plus $5,280). Using 
the FY 2010 thresholds published in Table 10 (73 FR 58008), the case-
weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 was 
$53,847 (all calculations above were performed using unrounded 
numbers). Because the case-weighted average standardized charge per 
case for the applicable MS-DRGs exceed the case-weighted threshold 
amount, the applicant maintains that LipiScanTM would meet 
the cost criterion. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, 
we invited public comment on whether or not LipiScanTM meets 
the cost criterion.
    Comment: One commenter, the applicant, submitted comments regarding 
whether LipiScanTM meets the cost criterion. The commenter 
noted that LipiScanTM is now used in 11 hospitals, 10 of 
which are non-Department of Veterans Affairs (VA) hospitals. This 
represented an increase from the two hospitals it noted in its 
application when the applicant submitted it in November 2008. Based on 
a sampling of all 10 non-VA hospitals that are actively using the 
device, the applicant determined that the average charge for the device 
was $7,497. Using the same methodology from the proposed rule and the 
AOR file from the FY 2010 proposed rule (posted on the CMS Web site) 
instead of the FY 2009 final rule AOR file, the applicant determined a 
case-weighted average standardized charge of $47,059 for MS-DRGs 246-
251. Based on charge data from these 10 hospitals, the applicant 
determined a mean charge of $7,497 for the LipiScanTM 
device. The applicant added the average charge of the device to the 
charge per case and determined an average case-weighted charge per case 
of $54,556 ($47,059 plus $7,497). Based on the Table 10 thresholds 
published in the proposed rule (74 FR 24570), the case-weighted 
threshold for MS-DRGs 246-251 was $52,881. Because the case-weighted 
average standardized charge per case for the applicable MS-DRGs exceed 
the case-weighted threshold amount, the applicant maintains that based 
on this analysis the LipiScanTM would meet the cost 
criterion.
    In addition, the applicant stated that it analyzed Hospital Cost 
Report Information System (``HCRIS'') data from 2007. Specifically, the 
applicant searched for the 100 cardiac catheterization labs that had 
the highest volume of cases in the United States. Based on the HCRIS 
data from these 100 labs, the applicant determined the mean cost-to-
charge ratio was 0.204 with a mark-up of 490 percent yielding a charge 
of $11,760 for LipiScanTM. Assuming that the 
LipiScanTM device was marked-up 490 percent, the case-
weighted average standardized charge per case for cases involving the 
use of LipiScanTM would be $58,819 ($47,059 plus $11,760) 
across MS-DRGs 246-251. Similar to the above computation, based on the 
Table 10 thresholds published in the proposed rule (74 FR 24570), the 
case-weighted threshold for MS-DRGs 246-251 was $52,881. Because the 
case-weighted average standardized charge per case for the applicable 
MS-DRGs exceed the case-weighted threshold amount, the applicant 
maintains that based on this analysis the LipiScanTM would 
also meet the cost criterion.
    Response: We thank the commenter for the updated analyses. As noted 
above in its comment, the applicant determined the case-weighted 
threshold using Table 10 thresholds from the proposed rule. The 
thresholds in Table 10 published in the proposed rule are for 
applicants for new technology add-on payments for FY 2011. The correct 
case-weighted threshold to be used to evaluate FY 2010 proposals is the 
same threshold ($53,847) that the applicant used in its analysis from 
the proposed rule, which is based on Table 10 thresholds for FY 2010 
applicants (as noted in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule). Nevertheless, under the applicant's updated analysis using the 
Table 10 threshold for FY 2010 applicants, the case-weighted average 
standardized charge per case in either of the two analyses above (in 
the applicant's comment) would exceed the case-weighted Table 10 
threshold of $53,847.
    We reviewed all three analyses that the applicant submitted (one in 
the proposed rule and two in its comment) and, based on all three 
analyses, we agree that the applicant meets the cost criterion.
    With regard to substantial clinical improvement, the applicant 
maintains that the device meets this criterion for the following 
reasons. The applicant noted that the September 1, 2001 final rule 
states that one facet of the criterion for substantial clinical 
improvement is ``the device offers the ability to diagnose a medical 
condition in a patient population where the medical condition is 
currently undetectable or offers the ability to diagnose a medical 
condition earlier in a patient population than allowed by currently 
available methods. There must also be evidence that use of the device 
to make a diagnosis affects the management of the patient'' (66 FR 
46914). The applicant believes that LipiScanTM meets all 
facets of this criterion. The applicant asserted that the device is 
able to detect a condition that is not currently detectable. The 
applicant explained that LipiScanTM is the first device of 
its kind to be able to detect lipid-core-containing plaques and to 
assess coronary artery lipid core burden. The applicant further noted 
that FDA, in its approval documentation, has indicated that ``This is 
the first device that can help assess the chemical makeup of coronary 
artery plaques and help doctors identify those of particular concern.''
    In addition, the applicant stated that the LipiScanTM 
chemogram permits a clinician to detect lipid-core-containing plaques 
in the coronary arteries compared to other currently available devices 
that do not have this ability. The applicant explained that the 
angiogram, the conventional test for coronary atherosclerosis, shows 
only minimal coronary narrowing. However, the applicant indicated that 
the LipiScanTM chemogram has the ability to reveal when an 
artery contains extensive lipid-core-containing plaque at an earlier 
stage.
    The applicant also noted that the device has the ability to allow 
providers to make a diagnosis that better affects the management of the 
patient. Specifically, the applicant explained that the chemogram 
results are available to the interventional cardiologist during

[[Page 43817]]

the PCI procedure, and have been found to be useful in decision-making. 
In their application, the applicant stated that physicians have 
reported changes in therapy based on LipiScanTM findings in 
20 to 50 percent of patients. The applicant further stated in their 
application that the most common use of LipiScanTM results 
has been for selection of the length of artery to be stented. In some 
cases a longer stent has been used when there is a lipid-core-
containing plaque adjacent to the area that is being stented because a 
flow-limiting stenosis is present. Therefore, the applicant contends 
that the use of LipiScanTM by clinicians to select the 
length of artery to be stented and as an aid in selection of intensity 
of lipid-altering therapy, demonstrates that LipiScanTM 
affects the management of patients.
    The applicant also submitted commentary from Interventional 
Cardiologists (a group of clinicians who currently utilize the 
LipiScanTM device) explaining the clinical benefits of the 
device. The applicant further noted that the device may have other 
potential uses that would be of clinical benefit, and studies are 
currently being conducted to investigate these other potential uses. 
The applicant explained that LipiScanTM offers promise as a 
means to enhance progress against the two leading problems in coronary 
disease management: (1) The unacceptably high rate of second events 
that occur even after catheterization, revascularization, and the 
institution of optimal medical therapy; and (2) the failure to diagnose 
coronary disease early, which results in sudden death or myocardial 
infarction being the first sign of the disease in most patients. The 
applicant further stated that the identification of coronary lipid-
core-containing plaques, which can most readily be done in those 
already undergoing catheterization, is likely to be of benefit in the 
prevention of second events. In the longer term, the applicant stated 
that the identification of lipid-core-containing plaques by 
LipiScanTM may contribute to the important goal of primary 
prevention of coronary events, which, in the absence of adequate 
diagnostic methods, continue to cause extensive morbidity, mortality 
and health care expenditures in Medicare beneficiaries and the general 
population.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we noted that 
while we recognize that the identification of lipid-rich plaques in the 
coronary vasculature holds promise in the management of coronary artery 
disease, we were concerned that statements in the FDA approval 
documents, as well as statements made by investigators in the 
literature, suggest that the clinical implications of identifying these 
lipid-rich plaques are not yet certain and that further studies need to 
be done to understand the clinical implications of this information (74 
FR 24134). We also noted that we were concerned that there are no 
outcome data regarding the use of the LipiScanTM technology.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we welcomed 
public comment regarding whether or not the LipiScanTM 
technology represents a substantial clinical improvement in the 
Medicare population.
    Comment: Two commenters submitted comments regarding whether 
LipiScanTM represented a substantial clinical improvement. 
One commenter supported approving LipiScanTM for new 
technology add-on payments and noted that the statute indicated that 
either a ``diagnostic device or a therapy should be eligible for the 
add-on payment.'' (emphasis provided) The commenter stated that the 
device had been studied in detail by the FDA and that the FDA concluded 
that the device identified lipid core plaques with ``accuracy suitable 
for clinical use.'' Additionally, the commenter stated that the device 
``has already started changing the therapeutic decisionmaking process 
and has the potential to provide additional benefits in the struggle 
against the leading cause of death in the United States.''
    The applicant stated that it believed that LipiScanTM is 
a ``substantial clinical improvement'' over existing technologies 
because it enables the physician to choose the length of artery to be 
stented as well as the intensity of lipid lowering medical therapy that 
should be used. The applicant asserted that the detection of lipid core 
plaque could ultimately be helpful to physicians in managing patient 
care and improving clinical outcomes because such plaques are prone to 
sudden rupture. Additionally, the applicant asserted that there were 
three ways in which it met CMS' regulatory standard for a substantial 
clinical improvement including:
    1. It detects ``a condition that is not currently detectable'' 
because it is the only device approved to identify the lipid core 
content in coronary arteries.
    2. It ``enables the patient to be diagnosed earlier'' because other 
available diagnostic tests (including exercise testing and coronary 
angiography) do not identify lipid core plaque; whereas without this 
technology, the first sign that a lipid-rich plaque is present may be 
an acute myocardial infarction.
    3. It affects the management of the patient by:
     Affecting the selection of the length of the artery to be 
stented;
     Affecting the selection of the appropriate target levels 
for lipid altering pharmacologic therapy;
     The chance that it may eventually be linked to the 
prevention of peri-stenting myocardial infarction.
    As an attachment to its comment, the applicant submitted a legal 
analysis that stated that neither the statute nor the regulations 
require that a diagnostic device be linked to improved clinical 
outcomes; rather, an improvement in diagnosis alone is the only 
requirement. The legal memorandum also noted that the statute 
``references technology that improves either diagnosis or treatment'' 
and that a new technology ``need not improve both, nor does the statute 
specify that the diagnostic must be linked to a treatment that improves 
outcomes.'' Additionally, the legal analysis stated that 
LipiScanTM has submitted evidence in accord with both the 
statute and the regulations that it ``provides an improvement in 
diagnosis of coronary artery disease by identifying the presence of the 
lipid core plaque'' and asserts that this point is further evidenced by 
the FDA which stated that the device ``is the first device that can 
help assess the chemical make-up of coronary artery plaques and help 
physicians identify those plaques with lipid cores, which may be of 
particular concern.'' The legal analysis also stated that CMS should 
not require new diagnostics to be judged by the same criteria that have 
been applied to judge new therapeutics because ``such an approach would 
not be in accord with the plain language of the regulation and that 
statue, both of which envision distinct clinical benefits associated 
with either a diagnostic or a therapy.''
    Finally, the applicant summarized an article that considered the 
``effect of diagnostic imaging on decisionmaking.'' Specifically, the 
applicant summarized the hierarchy of six levels of diagnostic efficacy 
presented in the article:
    ``Level 1: Technical efficacy, the physics are appropriate for the 
target of the diagnostic;
    Level 2: Diagnostic accuracy, the sensitivity and specificity for 
the diagnostic target are appropriate;
    Level 3: Diagnostic thing efficacy, the physician accepts the 
diagnostic as capable of identifying the target;
    Level 4: Therapeutic efficacy, the physician selects or does not 
select a given therapy on the basis of the diagnostic outcome;

[[Page 43818]]

    Level 5: Therapeutic outcome efficacy, the therapy selected on the 
basis of the results of the diagnostic outcome provides an improvement 
in the health outcome of the patient;
    Level 6: Cost-effectiveness, the benefits to society have a 
favorable relationship to the costs of the diagnostic.''
    The applicant claimed that, applying the analysis from the article, 
the FDA approval established that Levels 1 and 2 were met which it 
believed to be consistent with the requirement under 42 CFR 
412.87(b)(1). Further, the applicant asserted that the testimony 
provided by physicians who are using LipiScan demonstrates that 
physicians are accepting the results to identify lipid core plaque 
(Level 3) and are utilizing the device to guide therapy (Level 4).
    Response: We disagree with the commenters who stated that the 
statute and regulations require that a diagnostic technology need only 
``improve'' diagnosis and that the FDA approval of a diagnostic 
technology in and of itself meets the regulatory criteria under Sec.  
412.87(b)(1). The commenter correctly notes that section 
1886(d)(5)(K)(viii) of the Act requires us to provide for public input 
on whether a new technology ``substantially improves the diagnosis or 
treatment'' of Medicare beneficiaries. Section 1886(d)(5)(K)(vi) of the 
Act also authorizes the Secretary to establish through notice-and-
comment rulemaking the criteria that a new medical service or 
technology must meet in order to be eligible for the new technology 
add-on patient. Under this authority, we established three criteria 
through notice and comment rulemaking--the newness criterion, the cost 
criterion, and the substantial clinical improvement criterion (66 FR 
46924). Specifically, Sec.  412.87(b)(1) of the regulations provides 
that a new medical service or technology must ``represent an advance 
that substantially improves, relating to technologies previously 
available, the diagnosis or treatment of Medicare beneficiaries.''
    As we explained in that rule, we will consider a diagnostic 
technology to meet the substantial clinical improvement criterion if 
the technology not only ``offers the ability to diagnose a medical 
condition in a patient population where that medical condition is 
currently undetectable or offers the ability to diagnose a medical 
condition earlier in a patient population than allowed by currently 
available methods,'' but also if ``use of the device to make a 
diagnosis affects the management of the patient'' (66 FR 46914). Under 
the commenter's analysis, a diagnostic technology effectively would 
only need to receive FDA approval and be the only technology approved 
for a particular diagnostic capability in order to be deemed a 
``substantial improvement'' for purposes of new technology add-on 
payments, regardless of its ability to positively affect patient 
management. This approach would deem a device leading to the 
identification of new information (in this case, whether plaques 
contain a lipid core) as a substantial improvement in diagnosis even if 
such detection has not been ``demonstrated to represent a substantial 
improvement in caring for Medicare beneficiaries'' and is not linked to 
evidence-based, significant, and positive changes in the management of 
patients or, ultimately, to changes in clinical outcomes. We do not 
believe this rationale is consistent with our prior statements 
regarding the substantial clinical improvement criterion of the new 
technology add-on payment provision. Nor do we believe it would be 
appropriate to provide additional payments for new diagnostic tools 
that fail to significantly change the management of patients, thereby 
improving clinical outcomes.
    As to whether LipiScan\TM\ represents a substantial improvement in 
diagnosis, we considered first, whether LipiScan\TM\ ``offers the 
ability to diagnose a medical condition in a patient population where 
that medical condition is currently undetectable or offers the ability 
to diagnose a medical condition earlier in a patient population than 
allowed by currently available methods,'' and second whether ``use of 
the device to make a diagnosis affects the management of the patient'' 
(66 FR 46914). In the case of LipiScan\TM\, the applicant has stated 
that it believes that LipiScan\TM\ offers the ability to diagnose a 
condition that is previously undetectable because it allows the 
detection of lipid-rich plaques in patients with coronary artery 
disease (CAD). We agree with the applicant that existing technologies 
may not be able to adequately identify lipid-rich plaques. However, we 
disagree that use of LipiScan\TM\ affects the management of the patient 
at this time.
    To qualify for the new technology add-on payment, a diagnostic 
capability must also be linked to ``evidence that use of the device to 
make a diagnosis affects the management of the patient.'' We believe 
that this evidence is necessary to determine whether the new technology 
affords a ``clear improvement over the use of previously available 
technologies.'' We do not consider any particular type of evidence to 
be dispositive; instead, we will consider all information presented for 
each application to determine whether there is evidence to support a 
conclusion that ``use of the device to make a diagnosis affects the 
management of the patient'' (in the case of a diagnostic technology). 
Consequently, we do not consider merely anecdotal claims that a device 
affects the management of the patient as sufficient evidence to 
demonstrate that a new diagnostic device affects the management of the 
patient, particularly where the device could be used for a relatively 
large patient population. Rather, we will consider whether the peer-
reviewed medical literature supports or clinical studies indicate that 
the diagnostic device should generally be used by providers in guiding 
the management of their patients. In addition, we will consider 
evidence demonstrating clinically accepted use of the device in a 
manner that actually affects the management of patients.
    In the case of LipiScan\TM\, we note that other methods exist for 
diagnosing CAD, including intravascular ultrasound (IVUS) and optical 
coherence tomography (OCT). In addition, the evidence available to CMS 
at the time of making a final rule determination consisted of anecdotal 
claims made by the applicant and one other commenter, that the 
identification of such plaques affects the management of the patient. A 
review of the literature yielded no additional evidence to support the 
applicant's claim. Furthermore, we believe that the prognostic 
implications of detecting lipid-rich plaque are not yet sufficiently 
well enough understood and documented in the peer-reviewed evidence to 
conclude that such identification will lead to significant and 
evidence-based changes in the management of CAD. In addition, we note 
that there are relatively few cases in which LipiScan\TM\ has been used 
relative to the patient population in which it could potentially be 
used. Specifically, the applicant claims that the device could 
potentially be used in every patient who undergoes coronary 
angiography. To date, the device is only in use in 11 hospitals total, 
and there have been no data published to indicate that management of 
patients has changed, even in the hospitals where the device has been 
used. Given the size of the patient population that the manufacturer 
claims stands to benefit from use of LipiScan\TM\, the fact that so few 
hospitals are using the technology raises significant concerns 
regarding whether use of LipiScan\TM\ actually

[[Page 43819]]

affects the management of patients in a meaningful manner.
    Therefore, while we recognize that LipiScan\TM\ provides the 
ability to detect lipid-rich plaque which is currently undetectable by 
any other means, we are nonetheless still concerned that there is 
significant uncertainty within the clinical community regarding the 
prognostic implications of obtaining this information. We note that we 
did not receive any public comment during the public comment period 
from physicians who may be using the device. We believe the evidence 
supplied by the applicant that the device is affecting the management 
of the patient is not able to be validated broadly and is still 
anecdotal. Further, the discussions of the technology in the scientific 
studies submitted by the applicant acknowledge the possible potential 
of the technology to affect treatment in the future, but all stated 
that additional studies are necessary to determine its actual clinical 
utility. Specifically, in an editorial published in 2008, the author 
wrote, ``In conclusion, further studies are warranted to determine if 
detection of [lipid core plaque of interest] by [near infrared 
spectroscopy] imaging will contribute to enhanced prediction of 
outcomes in patients with known CAD.'' (Young, 2008) Also, in a letter 
to the editor in the Journal of the College of Cardiology, another 
author wrote about his experience with three patients over a period of 
three weeks to share his ``initial observations.'' The author wrote 
that ``* * * preliminary results suggest that intravascular 
investigation of chemical composition of a coronary plaque has become a 
clinical reality [but] it remains to be seen whether chemograms would 
perform better than the ultrasound of whether they will be able to 
predict adverse events and faciltate development of clinically 
effective strategies for management of vulnerable plaques before it is 
too late.'' (Maini, 2008) (emphasis added).
    We believe that these conclusions, and others, as stated in the 
literature further support our previously stated view that the 
prognostic implications of detecting lipid-rich plaque are not well 
enough understood and therefore the detection of such plaque cannot be 
reasonably assumed to lead to evidence-based, significant, and positive 
medical management of patients with CAD that is generally accepted by 
clinicians, much less lead to improved clinical outcomes. We agree with 
the commenter and applicant that the identification of lipid-rich 
plaques may hold promise and ultimately lead to changes in the 
management of CAD and that LipiScan\TM\ ``has the potential to provide 
additional benefits in the struggle against the leading cause of death 
in the United States.'' However, we do not believe the evidence and 
information available at this time allows us to determine that it meets 
the substantial clinical improvement criterion.
    For these reasons, we are not approving LipiScan\TM\ for new 
technology add-on payments for FY 2010.
d. Spiration[supreg] IBV[supreg] Valve System
    Spiration, Inc. submitted an application for new technology add-on 
payments for FY 2010 for the Spiration[supreg] IBV[supreg] Valve System 
(Spiration[supreg] IBV[supreg]). The Spiration[supreg] IBV[supreg] is a 
device that is used to place, via bronchoscopy, small, one-way valves 
into selected small airways in the lung in order to limit airflow into 
selected portions of lung tissue that have prolonged air leaks 
following surgery while still allowing mucus, fluids, and air to exit, 
thereby reducing the amount of air that enters the pleural space. The 
device is intended to control prolonged air leaks following three 
specific surgical procedures: lobectomy; segmentectomy; or lung volume 
reduction surgery. According to the applicant, an air leak that is 
present on postoperative day 7 is considered ``prolonged'' unless 
present only during forced exhalation or cough. In order to help 
prevent valve migration, there are five anchors with tips that secure 
the valve to the airway. The implanted valves are intended to be 
removed no later than 6 weeks after implantation.
    With regard to the newness criterion, the Spiration[supreg] 
IBV[supreg] received a Humanitarian Device Exemption (HDE) approval 
from the FDA on October 24, 2008. We are unaware of any previously FDA-
approved predicate devices, or otherwise similar devices, that could be 
considered substantially similar to the Spiration[supreg] IBV[supreg]. 
However, the applicant asserted that the FDA has precluded the device 
from being used in the treatment of any patients until Institutional 
Review Board (IRB) approvals regarding its study sites. Therefore, it 
would appear that the Spiration[supreg] IBV[supreg] would meet the 
newness criterion once it has obtained at least one IRB approval 
because the device would then be available on the market to treat 
Medicare beneficiaries. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule, we welcomed public comments about the date on which the newness 
period should begin for this technology should it meet the other 
criteria to be approved for new technology add-on payments (74 FR 
24135).
    We also noted that the Spiration[supreg] IBV[supreg] is currently 
described by ICD-9-CM procedure code 33.71 (Endoscopic insertion or 
replacement of bronchial valve(s)). At the September 2008 ICD-9-CM 
Coordination and Maintenance Committee meeting, we discussed a proposal 
to revise the existing code and create a new code for endoscopic 
bronchial valve insertion in single and multiple lobes. In the proposed 
rule, we included the revised title of procedure code 33.71 to 
``Endoscopic insertion or replacement of bronchial valve(s), single 
lobes'' and also the new procedure code 33.73 (Endoscopic insertion or 
replacement of bronchial valve(s), multiple lobes) in order to 
distinguish between single and multiple lobes (Table 6F and 6B in the 
Addendum to the proposed rule (74 FR 24501 and 24494, respectively)).
    Comment: The applicant commented that nine hospitals have confirmed 
receipt of the Spiration[supreg] IBV[supreg] and the first IRB approval 
for the Spiration[supreg] IBV[supreg] was March 12, 2009. The applicant 
believes that this would confirm that the technology meets the newness 
criteria.
    Another commenter commented that the IRB at the commenter's 
hospital has made pending approval of the Spiration[supreg] IBV[supreg] 
and expects to be able to use the Spiration[supreg] IBV[supreg] within 
the next month.
    Response: We thank the commenters for providing this information on 
when the newness period should begin for the Spiration[supreg] 
IBV[supreg]. Based on the information above from the applicant, the 
Spiration[supreg] IBV[supreg] meets the newness criterion and the 
newness period for the Spiration[supreg] IBV[supreg] begins on March 
12, 2009.
    In an effort to demonstrate that the technology meets the cost 
criterion, the applicant searched the FY 2007 MedPAR file for cases 
potentially eligible for use of the Spiration[supreg] IBV[supreg]. 
Specifically, the applicant searched for cases with one of the 
following procedure codes: 32.4 (Lobectomy of lung); 32.3 (Segmental 
resection of lung); or 32.22 (Long volume reduction surgery). The 
applicant found 4,225 cases (or 21.6 percent of all cases) in MS-DRG 
163 (Major Chest Procedure with MCC), 8,960 cases (or 45.8 percent of 
all cases) in MS-DRG 164 (Major Chest Procedure with CC), and 6,358 
cases (or 32.5 percent of all cases) in MS-DRG 165 (Major Chest 
Procedure without CC/MCC). The average standardized charge per case was 
$88,326 for MS-DRG 163, $48,494 for MS-DRG 164, and $38,463 for MS-DRG

[[Page 43820]]

165, equating to a case-weighted average standardized charge per case 
of $53,842.
    The average standardized charge per case does not include charges 
related to the Spiration[supreg] IBV[supreg]; therefore, it is 
necessary to add the charges related to the device to the average 
standardized charge per case in evaluating the cost threshold 
criterion. Although the applicant submitted data related to the 
estimated cost of the Spiration[supreg] IBV[supreg] per case, the 
applicant noted that the cost of the device was proprietary 
information. The applicant estimates $21,450 in charges related to the 
Spiration[supreg] IBV[supreg] (based on a 100-percent charge markup of 
the cost of the device). The applicant based this amount on seven 
actual cases that received the device. Because the applicant lacked a 
significant sample of cases to determine the charges associated with 
the device, we expressed our concerns in the proposed rule as to 
whether or not the $21,450 in charges related to the device is a valid 
estimate. In addition, based on the seven cases, the applicant 
determined an estimate of the number of valves used per case (the 
applicant noted that the number of valves used per case is 
proprietary). We also expressed concerns that the applicant lacked a 
significant sample of cases to determine a valid estimate of the number 
of valves per case. Adding the estimated charges related to the device 
to the average standardized charge per case (based on the case 
distribution from the applicant's FY 2007 MedPAR claims data analysis) 
resulted in a case-weighted average standardized charge per case of 
$75,292 ($53,842 plus $21,450). Using the FY 2010 thresholds published 
in Table 10 (73 FR 58008), the case-weighted threshold for MS-DRGs 163, 
164, and 165 was $54,715 (all calculations above were performed using 
unrounded numbers). 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 Spiration[supreg] 
IBV[supreg] would meet the cost criterion.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we invited 
public comment on whether or not the Spiration[supreg] IBV[supreg] 
meets the cost criterion.
    Comment: In response to our concerns in the proposed rule, the 
applicant commented and cited a recent study in Chest,\4\ prepublished 
on line on April 6, 2009 (Travaline 2009). The study reports on use of 
bronchial valves (not necessarily made by the applicant) for air leaks 
from a number of etiologies. From December 2002 through January 2007, 
40 patients were treated with bronchial valves in 17 centers. The mean 
number of valves per case was 2.9 for all patients in the study. The 
mean number of valves was 2.28 for the subset of seven post surgical 
air leak cases in the study.
---------------------------------------------------------------------------

    \4\ Travaline JM et al. Treatment of persistent pulmonary air 
leaks using endobronchial valves. Chest; Prepublished online; April 
6, 2009.
---------------------------------------------------------------------------

    We note that the applicant informed us that the information in the 
proposed rule was incorrect and the number of actual cases where the 
Spiration[supreg] IBV[supreg] was used was not seven. The applicant 
informed CMS that the correct number of actual cases that used the 
Spiration[supreg] IBV[supreg] was eight cases. In the proposed rule, 
the applicant determined an average of 3.9 valves per case (or $21,450 
in charges related to the device) for the Spiration[supreg] IBV[supreg] 
based on these eight actual cases. However, the applicant explained 
that if we were to remove one case that they considered to be outlier 
because it used 10 valves, the average number of valves per case would 
be 3.0, which is similar to the average amount of valves per case from 
the Travaline study. The commenter also noted that the lower number of 
valves used in the Travaline study for post surgical leaks compared to 
the Spiration[supreg] IBV[supreg] data can be attributed to the design 
of the Spiration[supreg] IBV[supreg] compared to the valve used in the 
study that limits the sub segmental treatment. The commenter believes 
that this newly published data supports the conclusion that it is 
typical to insert multiple valves per case in prolonged air leak cases.
    The applicant also commented that since the proposed rule, two 
additional cases were performed using the Spiration[supreg] IBV[supreg] 
(making a total of 10 cases). The applicant included these two 
additional cases in its revised estimate of the average amount of 
valves per case. In addition to removing the outlier case above, the 
applicant also removed an additional case they considered to be an 
outlier that used four valves and determined an average of 2.5 valves 
per case (or $13,750 in charges related to the Spiration[supreg] 
IBV[supreg]).
    The applicant also noted that the case-weighted threshold was 
$54,715 which is slightly higher than the case-weighted average 
standardized charge per case of $53,842 (which does not include charges 
related to the device). The commenter explained that even if we added a 
charge of $5,550 for only one Spiration[supreg] IBV[supreg] to the 
case-weighted average standardized charge per case (for a total case-
weighted average standardized charge per case of $59,392), the 
Spiration[supreg] IBV[supreg] would still meet the cost criterion since 
the case-weighted average standardized charge per case ($59,392) 
exceeds the case-weighted threshold ($53,842).
    The commenter also stated the following to strengthen confidence in 
its MedPAR analysis. The commenter explained that its MedPAR analysis 
profiled cases identified by the relevant surgical codes since specific 
ICD-9-CM procedure and diagnosis are not available to identify cases of 
prolonged air leaks within the FY 2007 MedPAR. The applicant cited peer 
reviewed clinical literature that was submitted as part of its new 
technology add-on payment application to demonstrate that patients with 
prolonged air leaks had a greater length of stay and complication rates 
compared to patients who did not have a prolonged air leak. 
Specifically, the applicant noted that one study \5\ with 91 post 
operative patients after pulmonary resection demonstrated that patients 
with air leaks after 3 days had a greater length of stay (mean of 9.4 
days vs. 5.4 days with a p value of p<0.0001). The commenter also noted 
that a study of 552 post operative patients after LVRS in the National 
Emphysema Treatment Trial \6\ demonstrated that patients with air leaks 
had more complications (57 percent versus 30 percent with a p value of 
p=0.0004) and longer length of stay (11.8 days vs. 7.6 days with a p 
value of p=0.0005). The commenter also cited a retrospective study \7\ 
of 100 patients from a single center that showed the median length of 
stay for patients with prolonged air leak after radical upper lobectomy 
procedure was 11 days versus the median of 7 days for patients without 
prolonged air leak. Based on these clinical data, the applicant 
concluded that prolonged air leak cases are costlier than cases without 
prolonged air leak. As a result, the commenter believes that its MedPAR 
analysis was conservative in evaluating charges for surgical procedures 
as a whole, without being able to uniquely identify costlier prolonged 
air leak cases.
---------------------------------------------------------------------------

    \5\ Bardell T, Petiskas D Can Respir J 2003 March, Vol. 10, No 
2.
    \6\ Decamp MM, Ann Thorac Surg. 2006 July; Vol. 82, No. 1.
    \7\ Abolhoda A et al. Chest 1998; 113:1507-10.
---------------------------------------------------------------------------

    Response: We thank the applicant for submitting additional data to 
determine the amount of charges related to the Spiration[supreg] 
IBV[supreg]. In order to determine that the applicant met the cost 
criteria, in addition to the applicant's analysis, we searched the 
March update of the FY 2008 MedPAR for the same procedure codes that 
the applicant searched in their MedPAR analysis. We found 5,501 cases 
in MS-DRG 163 (or 23.9 percent

[[Page 43821]]

of all cases), 11,151 cases in MS-DRG 164 (or 48.4 percent of all 
cases), and 6,380 cases in MS-DRG 165 (or 27.7 percent of all cases). 
The average standardized charge per case was $85,958 for MS-DRG 163, 
$48,731 for MS-DRG 164, and $37,586 for MS-DRG 165, equating to a case-
weighted average standardized charge per case of $54,535. Adding the 
revised estimate of charges of $13,750 (2.5 valves x $5,550) related to 
the device to the average standardized charge per case (based on the 
case distribution from out FY 2008 MedPAR claims data analysis) 
resulted in a case-weighted average standardized charge per case of 
$68,285. Using the FY 2010 thresholds published in Table 10 (73 FR 
58008), the case-weighted threshold for MS-DRGs 163, 164 and 165 was 
$55,952 (all calculations above were performed using unrounded 
numbers). Based on this analysis, the case-weighted average 
standardized charge per case for the applicable MS-DRGs exceeds the 
case-weighted threshold amount. Additionally, similar to what the 
applicant stated above, if we only included the amount of charges for 
one valve, the case-weighted average standardized charge per case of 
$60,035 ($54,535 plus $5,550) would still exceed the case-weighted 
threshold of $55,952. Therefore, we believe that the applicant meets 
the cost criterion.
    Additionally, the applicant submitted supplemental data from 
multiple sources in an effort to determine the average amount of valves 
that would be used per case. We note that the average number of valves 
from actual cases involving the Spiration[supreg] IBV[supreg] (2.5 
valves per case) is higher than the average amount of valves (2.28 
valves per case) from the seven post surgical air leak cases from the 
Traveline study (not the Spiration[supreg] IBV[supreg]). However, we 
prefer to rely on actual case data when available and the actual case 
data is a more conservative estimate of the average amount of valves 
per case compared to those cases in the studies that did not use the 
Spiration[supreg] IBV[supreg].
    With respect to how the device would meet the substantial clinical 
improvement criterion, the applicant submitted information that was 
based on the Summary of Safety and Probable Benefit (SSPB) from the 
FDA's HDE approval order for the device. The clinical results indicate 
the Spiration[supreg] IBV[supreg] can be deployed in the intended 
airway reasonably safely with a minimally invasive bronchoscopy 
procedure. There have been a limited number of device complications and 
no occurrences of device erosion or migration. The Spiration[supreg] 
IBV[supreg] can be removed using a bronchoscope. Laboratory results 
indicate that the Spiration[supreg] IBV[supreg] significantly reduces 
airflow to the lung tissue beyond the treated airway, and a significant 
reduction in distal airflow is anticipated to augment the resolution of 
air leaks of the lung. Therefore, the applicant asserts, it is 
reasonable to conclude that the probable benefit to health associated 
with using the device for the target population outweighs the risk of 
illness or injuries, taking into account the probable risks and 
benefits of currently available devices or alternative forms of 
treatment when used as indicated in accordance with the directions for 
use.
    We recognize that prolonged air leaks after these types of lung 
surgery can be a significant problem, and that Spiration[supreg] 
IBV[supreg] therapy may represent a new alternative in treating 
properly selected patients. However, we emphasized our concerns in the 
proposed rule that the outcome data presented are from a sample set of 
only seven patients, and the FDA HDE did not require demonstration of 
either safety or effectiveness. Therefore, in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule, we welcomed public comment as to whether or not 
the Spiration[supreg] IBV[supreg] represents a substantial clinical 
improvement for Medicare beneficiaries.
    We did not receive any written public comments regarding this 
application for new technology add-on payments concerning the new 
technology town hall meeting.
    Comment: A number of commenters agreed with the applicant that the 
Spiration[supreg] IBV[supreg] meets the substantial clinical 
improvement criteria. The commenters also recommended the approval of 
the Spiration[supreg] IBV[supreg] for new technology add-on payments in 
FY 2010. One commenter, an association of thoracic surgeons, expressed 
support for approving the Spiration[supreg] IBV[supreg] for new 
technology add-on payments. The commenter explained that the 
Spiration[supreg] IBV[supreg] offers a less invasive treatment of the 
prolonged air leak, whereas the alternative treatment would be a major 
re-operation which costs more money and poses a greater risk to the 
patient.
    The remaining commenters were physicians who had experience using 
bronchial valves or had actual experience using the Spiration[supreg] 
IBV[supreg]. These commenters noted that excluding the 
Spiration[supreg] IBV[supreg], current treatments for prolonged air 
leaks include chest tube drainage, occlusion of airways with fibrin 
``glue'', and/or re-operation. One of the commenters explained that 
endobronchial valves offer a unique method for treating prolonged air 
leaks by temporarily preventing air from flowing into the segment of 
the lung with the air leak. The commenter noted that the efficacy of 
the valve can be predicted effectively by occluding the lobe or segment 
involved with a balloon catheter to determine if the air leak can be 
stopped. If a balloon is effective in stopping the leak, then a valve 
can also be effective in stopping the leak. The commenter explained 
that the advantage of this treatment is that after the leak has 
completely healed, the valves can be removed with a minimally invasive 
fiber-optic bronchoscopy. The commenter concluded that the 
Spiration[supreg] IBV[supreg] represents a substantial improvement 
since it offers a valuable, new, unique treatment option for prolonged 
post thoracotomy air leak and is the only bronchial valve with FDA 
approval (HDE).
    Another commenter stated that using a bronchial valve to treat an 
air leak, resulted in the air leak ceasing at the end of the procedure. 
The commenter noted that for safety reasons, chest tubes are left in 
for 48 hours and patients in its care have been discharged 72 hours 
after the procedure. The bronchial valve was typically removed within 
4-6 weeks after the procedure. The commenter further stated that it was 
not aware of any randomized clinical trials that prove that bronchial 
valves make air leaks stop. However, the commenter maintained that 
based on their experience, air leaks that lasted 14 days or longer 
which suddenly ceased upon use of a bronchial valve would be strong 
circumstantial evidence that the therapy works and can shorten 
hospitalization in appropriately selected patients. The commenter also 
believes that using a bronchial valve for air leaks still present after 
five days following surgery would likely result in an overall cost 
savings since the duration of hospitalization is usually dependent on 
air leak cessation. The commenter concluded that the Spiration[supreg] 
IBV[supreg] represents a substantial clinical improvement and CMS 
should approve Spiration[supreg] IBV[supreg] for new technology add-on 
payments in FY 2010.
    One of the commenters noted that in its experience using 
endobronchial valves, patients with prolonged air leaks who were in the 
hospital for many weeks with chest tubes in place were discharged and 
had the chest tubes removed within days upon use of an endobronchial 
valve. The commenter cited an example of a patient currently treated by 
the commenter who has undergone numerous procedures with anesthesia in 
the operating room and requires another two procedures. The commenter 
believed that this patient

[[Page 43822]]

would have been able to be managed in a bronchoscopy suite under 
moderate sedation with use of an endobronchial valve. As the only 
bronchial valve with FDA approval (HDE), the commenter believed the 
Spiration[supreg] IBV[supreg] represents a substantial clinical 
improvement and recommended that CMS make new technology add-on 
payments for the Spiration[supreg] IBV[supreg] in FY 2010.
    Another commenter noted that conservative management of air leaks 
results in prolonged hospitalization and limited mobilization of 
patients with a much higher risk of additional complications such as 
pneumonia, empyema, deep venous thrombosis and pulmonary embolism, and 
progressive deconditioning. These complications take a toll on patients 
with prolonged air leaks and result in a significantly worse overall 
outcomes, prolonged hospital stay, and substantial increase in costs.
    The commenter also noted its extensive experience using the 
Spiration[supreg] IBV[supreg] valve in clinical trials as a potential 
therapy for palliation of severe emphysema. Specifically, the commenter 
stated that the valves are easy to place in desired segments and 
effectively block distal airflow with a high safety profile in 
published studies. The commenter further stated that the valves are 
stable with no incidence of valve migration in over 600 valves placed 
in emphysema patients with follow-up that included endoscopic and 
radiologic surveillance. The commenter also noted their extensive 
experience in valve removal, which is part of the intended therapy for 
patients that have valve treatment for air leaks (since once the air 
leaks are resolved the valves will no longer be necessary). The 
commenter disclosed that it did not have any personal experience in 
using the Spiration[supreg] IBV[supreg] for patients with air leaks, 
but are familiar with the existing literature on similar treatments as 
well as the case series using the Spiration[supreg] IBV[supreg] for 
this indication. With this background, the commenter believed that the 
Spiration[supreg] IBV[supreg] has a high likelihood of helping to 
resolve prolonged postsurgical air leaks and therefore minimizes the 
duration of chest tube drainage and hospitalization for patients (with 
an attendant decrease in the risk of complications that accompany 
prolonged hospitalization). The commenter also believed that the high 
safety profile and effectiveness of the Spiration[supreg] IBV[supreg] 
for occluding segmental airways suggests a very high likelihood of 
clinical benefit in this group of patients with the indication of 
prolonged air leak. The commenter concluded that it believed that the 
Spiration[supreg] IBV[supreg] represents a substantial improvement to 
currently available treatment options for patients who have post-
surgical prolonged air leaks. The commenter recommended that CMS 
approve the Spiration[supreg] IBV[supreg] for new technology add 
payments so that hospitals are appropriately reimbursed for this new 
important technology.
    Response: We appreciate the commenters submitting their comments in 
support of the Spiration[supreg] IBV[supreg]. Many of the commenters 
described their positive experiences using the Spiration[supreg] 
IBV[supreg] or other bronchial valves that resolved cases of air leaks, 
which improved the clinical outcome of the patient. Furthermore, the 
commenters suggested that most, if not all, of the cases treated using 
the Spiration[supreg] IBV[supreg] and other bronchial valves would have 
had to have undergone further invasive treatments had the 
Spiration[supreg] IBV[supreg] or other bronchial valves not have been 
available to resolve the air leak. Additionally, the Spiration[supreg] 
IBV[supreg] and other bronchial valve provided a quick resolution to 
these cases of prolonged air leaks. We considered the commenters' 
positive experiences using the Spiration[supreg] IBV[supreg] in our 
determination (below) on whether the Spiration[supreg] IBV[supreg] 
represents a substantial clinical improvement.
    Comment: The applicant commented that providers have few treatment 
options for effectively controlling prolonged air leaks. The applicant 
noted that aside from the Spiration[supreg] IBV[supreg], no other 
bronchoscopic treatments have been clinically accepted or approved by 
the FDA. Therefore, management of prolonged air leaks due to persistent 
bronchopleural fistula involves chest drainage and occasionally 
pleurodesis, with more difficult cases requiring pleurectomy and 
surgical repair. The applicant further noted that current treatment 
options for air leaks are associated with risks and complications such 
as prolonged use of chest tubes which increases the risk of pneumonia, 
deep venous thrombosis, pulmonary embolus, atelectasis, subcutaneous 
emphysema and empyema; restricted ambulation due to chest tube which 
increases the risks associated with inactivity; prolonged requirements 
for pain medication and extended post operative length of stay which 
increases the potential for hospital acquired infections.
    In response to our concerns in the proposed rule, the applicant 
acknowledged that there are limited outcomes data associated with the 
use of the Spiration[supreg] IBV[supreg] for prolonged air leaks. 
However, the applicant cited that additional data has been published 
since the proposed rule regarding the use of a bronchial valve for 
prolonged air leaks. Specifically, the applicant cited the following 
clinical benefit data from the Traveline 2009 study for patients who 
received a bronchial valve for air leaks from multiple causes: 
following valve placement, the air leaks resolved or decreased in 37 of 
40 patients (92.5 percent); 19 patients (47.5 percent) had complete 
resolution of the air leak acutely, 18 patients (45 percent) had 
reduction, two patients (5 percent) had no change in air leak status, 
and one patient (2.5 percent) the immediate change in air leak was not 
reported.
    Additionally, the applicant reported that all 10 procedures 
performed with the Spiration[supreg] IBV[supreg] resulted in air leak 
decrease and/or resolution. The applicant concluded that these results 
demonstrated the following: Valve placement may reduce or avoid 
complications associated with current treatments of prolonged air 
leaks; patients who received bronchial valves experienced air leak 
resolution or decrease unlike a situation absent bronchial valves where 
a patient may need to remain in the hospital; patients with a bronchial 
valve are able to be discharged with the valve thus avoiding risks, 
complications and costs associated with prolonged lengths of 
hospitalizations. The applicant believed that these conclusions from 
the newly published data together with Spiration[supreg] data 
demonstrate that the Spiration[supreg] IBV[supreg] meets the 
substantial clinical improvement criteria.
    Response: We thank the applicant for providing additional clinical 
data to demonstrate that the Spiration[supreg] IBV[supreg] meets the 
substantial clinical improvement criteria. With respect to substantial 
clinical improvement, we considered all the case specific clinical 
information presented by the applicant and the public to determine 
whether there is evidence to support a conclusion that use of the 
Spiration[supreg] IBV[supreg] represents a substantial clinical 
improvement. Specifically, we considered the peer-reviewed medical 
literature, clinical studies, and the clinically accepted use of the 
device. We remain concerned that no prospective comparative data exists 
to help understand the benefit of the technology versus other 
modalities. We also do not know what the outcome would have been for 
the cases presented as examples in the Traveline study (that is, if or 
when those air leaks might have resolved on their own). Additionally, 
many of the cases in that study were not for the indicated use (post-
operative prolonged air leak management). However, we agree that the 
Spiration[supreg]

[[Page 43823]]

IBV[supreg] can improve clinical outcomes by providing an alternative 
treatment that is effective and often a less invasive method of 
treating prolonged air leaks in a small patient population that is 
properly and carefully selected (as required by the FDA). Additionally, 
we received positive comments from a major thoracic society and from 
physicians who indicated that the Spiration[supreg] IBV[supreg] and 
other bronchial valves produced positive clinical outcomes by resolving 
air leaks. Also, the comments we received from the physicians 
demonstrated a change to the clinical therapy for cases of air leaks by 
using a bronchial valve such as the Spiration[supreg] IBV[supreg] 
instead of other alternative treatments such as an invasive surgery to 
resolve the air leak. Furthermore, the Spiration[supreg] IBV[supreg] is 
the only device currently approved for the purpose of treating 
prolonged air leaks following lobectomy, segmentectomy, and LVRS 
patients in the United States. Without the availability of this device, 
patients with prolonged air leaks (following lobectomy, segmentectomy, 
and LVRS) might otherwise remain inpatients in the hospital (and have a 
longer length of stay than they might otherwise have without the 
Spiration[supreg] IBV[supreg]) or might even require additional 
invasive surgeries to resolve the air leak. We also note that use of 
the Spiration[supreg] IBV[supreg] may lead to more rapid beneficial 
resolution of prolonged air leaks and reduce recovery time following 
the three lung surgeries mentioned above. Therefore, after reviewing 
the totality of the evidence, we have determined that the 
Spiration[supreg] IBV[supreg] represents a substantial clinical 
improvement over existing therapies for prolonged air leaks for 
carefully selected patients.
    Accordingly, after consideration of the clinical evidence received, 
we are approving the Spiration[supreg] IBV[supreg] for new technology 
add-on payments in FY 2010. However, we remain interested in seeing 
whether the clinical evidence continues to find it to be effective. 
This approval is on the basis of using the Spiration[supreg] 
IBV[supreg] consistent with the FDA approval (HDE), and we emphasize 
the need for appropriate patient selection accordingly. Therefore, we 
intend to limit the add-on payment to cases involving prolonged air 
leaks following lobectomy, segmentectomy and LVRS in MS-DRGs 163, 164, 
and 165. Cases involving the Spiration[supreg] IBV[supreg] that are 
eligible for the new technology add-on payment will be identified by 
assignment to MS-DRGs 163, 164, and 165 with procedure code 33.71 or 
33.73 in combination with one of the following procedure codes: 32.22, 
32.30, 32.39, 32.41, or 32.49.
    The average cost of the Spiration[supreg] IBV[supreg] is reported 
as $2,750. Based on the applicant's revised data, the average amount of 
valves per case is 2.5. Therefore, the total maximum cost for the 
Spiration[supreg] IBV[supreg] is expected to be $6,875 per case ($2,750 
x 2.5). Under section 412.88(a)(2), new technology add-on payments are 
limited to the lesser of 50 percent of the average cost of the device 
or 50 percent of the costs in excess of the MS-DRG payment for the 
case. As a result, the maximum add-on payment for a case involving the 
Spiration[supreg] IBV[supreg] is $3,437.50.
e. TherOx Downstream[supreg] System
    TherOx, Inc. submitted an application for new technology add-on 
payments for FY 2010 for the TherOx Downstream[supreg] System. However, 
the applicant withdrew its application for new technology add-on 
payments during the public comment period.
    We did not receive any public comments on this application.
5. Technical Correction to the Regulations
    In the FY 2009 IPPS final rule, when we revised the regulations at 
Sec.  412.87 to incorporate changes relating to the announcement of 
determinations and deadline for consideration of new medical service or 
technology applications, we made a change to paragraph (b)(1) (73 FR 
48755). In paragraph (b)(1), we inadvertently used the incorrect word 
``relating'' in the provision that read ``A new medical service or 
technology represents an advance that substantially improves, relating 
to technologies previously available, the diagnosis or treatment of 
Medicare beneficiaries'' (emphasis added). The correct word should have 
been ``relative.'' We proposed to make a technical correction to Sec.  
412.87(b)(1), replacing the word ``relating'' with the word 
``relative'' (74 FR 24137). We did not receive any public comments on 
this proposal. Accordingly, we are finalizing this proposed correction.

III. Changes to the Hospital Wage Index for Acute Care Hospitals

A. Background

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary must adjust the standardized amounts ``for area differences 
in hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' In 
accordance with the broad discretion conferred under the Act, we 
currently define hospital labor market areas based on the definitions 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the FY 2010 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 of the Act 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 adjustment for FY 2010 is 
discussed in section II.B. of the Addendum to this final 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 budget neutrality adjustment for 
FY 2010 is discussed in section II.A.4.b. of the Addendum to this final 
rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are applying 
beginning October 1, 2009 (the FY 2010 wage index) appears under 
section III.D. of this preamble.

[[Page 43824]]

B. Requirements of Section 106 of the MIEA-TRHCA

1. Wage Index Study Required Under the MIEA-TRHCA
a. Legislative Requirement
    Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required 
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 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 to 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 (BLS) 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 the FY 2009 IPPS final rule (73 FR 48563 through 48567), we 
discussed the MedPAC's study and recommendations, the CMS contract with 
Acumen, L.L.C. for assistance with impact analysis and study of wage 
index reform, and public comments we received on the MedPAC 
recommendations and the CMS/Acumen study and analysis.
b. Interim and Final Reports on Results of Acumen's Study
(1) Interim Report on Impact Analysis of Using MedPAC's Recommended 
Wage Index
    In the FY 2009 IPPS final rule (73 FR 48566 through 48567), we 
discussed the analysis conducted by Acumen comparing use of the MedPAC 
recommended wage indices to the current CMS wage index. We refer 
readers to section III.B.1.e. of that final rule for a full discussion 
of the impact analysis as well as to Acumen's interim report available 
on the Web site: http://www.acumenllc.com/reports/cms.
(2) Acumen's Final Report on Analysis of the Wage Index Data and 
Methodology
    Acumen's final report addressing the issues in section 106(b)(2) of 
the MIEA-TRHCA is divided into two parts. The first part analyzes the 
strengths and weaknesses of the data sources used to construct the 
MedPAC and CMS indexes. The first part of Acumen's study is complete 
and was published on Acumen's Web site after the publication of the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule. The second part of Acumen's 
study, which is expected to be released on Acumen's Web site after the 
publication of this FY 2010 IPPS/RY 2010 LTCH PPS final rule, will 
focus on the methodology of wage index construction and covers issues 
related to the definition of wage areas and methods of adjusting for 
differences among neighboring wage areas, as well as reasons for 
differential impacts of shifting to a new index.
    The following is a description of the analyses for both parts of 
Acumen's final report.
Part I: Wage Data Analysis
     Differences between the BLS data and the CMS wage data--
Acumen assessed the strengths and weaknesses of the data used to 
construct the CMS wage index and the MedPAC compensation index by 
examining the differences between the BLS and the CMS wage data. Acumen 
also evaluated the importance of accounting for self-employed workers, 
part-time workers, and industry wage differences.
     Employee benefit (wage-related) cost--Acumen considered 
whether benefit costs need to be included in the hospital wage index 
and discussed the differences between Worksheet A benefits data 
(proposed by MedPAC to use with BLS wage data) and Worksheet S-3 
benefit data. Acumen also analyzed the possibility of using BLS' 
Employer Costs for Employee Compensation (ECEC) series as an 
alternative to Worksheet A or Worksheet S-3 benefits data that would 
pose less of a data collection burden for providers.
     Impact of the fixed national occupational weights--Acumen 
assessed MedPAC's and CMS' methods for adjusting for occupational mix 
differences. While the proposed MedPAC compensation index uses fixed 
weights for occupations representative of the hospital industry 
nationally, the CMS wage index incorporates an occupational mix 
adjustment (OMA) from a separate data collection.
     Year-to-year volatility in the CMS and BLS wage data--
Acumen calculated the extent of volatility in the CMS and BLS wage 
indexes using several measures of volatility. Acumen also explored 
potential causes of volatility, such as the number of hospitals and the 
annual change in the number of hospitals in a wage area. Finally, 
Acumen evaluated the impact on annual volatility of using a 2-year 
rolling average of CMS wage index values.
    In the first part of its final report, Acumen suggests that 
MedPAC's recommended methods for revising the wage index represent an 
improvement over the existing methods, and that the BLS data should be 
used so that the MedPAC approach can be implemented.
    Comment: Several commenters reiterated their concerns regarding the 
use of the BLS data for computing the Medicare wage index that they had 
expressed in public comments on the FY 2009 IPPS final rule (73 FR 
48564). The commenters stated that they still have significant concerns 
about the shortcomings of the BLS data, and they urged CMS to move 
cautiously in considering MedPAC's and Acumen's findings. Other 
commenters expressed support for MedPAC's and Acumen's findings and 
recommendations, although some commenters cautioned that a few 
refinements may still be needed before adopting these recommendations. 
MedPAC commented that they look forward to the completion of the Acumen 
study and to working with CMS on improving the hospital wage index.
    Response: As Acumen's study is incomplete at the time of 
preparation of this final rule, we are making no assessments or 
conclusions in this rule with regards to Acumen's findings in Part I of 
its final report. As we mention below, we will consider both of 
Acumen's final reports and public comments in assessing MedPAC's

[[Page 43825]]

recommendations and making future proposals for changes in the wage 
index.
Part II: Wage Index Construction
     Alternative wage area definitions--Acumen will 
explore the conceptual basis for defining wage areas and investigate 
alternative wage area definitions that have been considered in prior 
literature to reduce differences between areas.
     Differences between and within contiguous wage 
areas--Acumen will estimate different methods for smoothing wage index 
values between geographically proximate areas and examine the 
justification for and sensitivity to assumptions used by MedPAC in its 
smoothing method.
     Reasons for differential impacts of shifting to a new 
index--Acumen will analyze the impact on hospitals if CMS were to adopt 
MedPAC's proposed compensation index, with a focus on hospitals that 
would no longer qualify for exceptions such as geographic 
reclassification and the rural floor. Acumen will also determine if 
there are identifiable reasons for the different impacts.
    As mentioned above, Acumen is expected to complete and publish its 
analysis for the second part of its final report after the publication 
date of this final rule.
    We indicated in the FY 2009 IPPS final rule that, in developing any 
proposal(s) for additional wage index reform that may be included in 
the FY 2010 IPPS proposed rule, we would consider all of the public 
comments on the MedPAC recommendations that we had received in that 
proposed rulemaking cycle, along with the interim and final reports to 
be submitted to us by Acumen. As Acumen's study was not complete at the 
time of issuance of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we 
did not propose any additional changes to the hospital wage index for 
acute care hospitals for the FY 2010 IPPS.
2. FY 2009 Policy Changes in Response to Requirements Under Section 
106(b) of the MIEA-TRHCA
    To implement the requirements of section 106(b) of the MIEA-TRHCA 
and respond to MedPAC's recommendations in its June 2007 report to 
Congress, in the FY 2009 IPPS final rule (73 FR 48567 through 48574), 
we made the following policy changes relating to the hospital wage 
index. (We refer readers to the FY 2009 IPPS final rule for a full 
discussion of the basis for the proposals, the public comments 
received, and the FY 2009 final policy.)
a. Reclassification Average Hourly Wage Comparison Criteria
    In the FY 2009 IPPS final rule, we adopted the policy to adjust the 
reclassification average hourly wage standard, comparing a 
reclassifying hospital's (or county hospital group's) average hourly 
wage relative to the average hourly wage of the area to which it seeks 
reclassification. We provided for a phase-in of the adjustment over 2 
years. For applications for reclassification for the first transitional 
year, FY 2010, the average hourly wage standards were set at 86 percent 
for urban hospitals and group reclassifications and 84 percent for 
rural hospitals. For applications for reclassification for FY 2011 (for 
which the application deadline is September 1, 2009) and for subsequent 
fiscal years, the average hourly wage standards will be 88 percent for 
urban and group reclassifications and 86 percent for rural hospitals 
(Sec. Sec.  412.230, 412.232, and 412.234 of the regulations). As 
stated above, these policies were adopted in the FY 2009 IPPS final 
rule.
    In response to our summary of the FY 2009 policy changes in the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24139), we received 
several public comments, which are summarized below.
    Comment: Several commenters opposed raising the average hourly wage 
thresholds to 88 percent for urban and group reclassifications and 86 
percent for rural hospitals for applications for FY 2011 and subsequent 
years.
    Response: As we discussed in the FY 2009 IPPS proposed and final 
rules, section 106(b) of the MIEA-TRHCA required the Secretary to make 
one or more proposals to revise the wage index adjustment for FY 2009. 
In the FY 2009 IPPS proposed rule (73 FR 48567 through 48574), we 
indicated that while we had limited authority to make changes to the 
nine specific areas of the wage index that the law required us to 
study, we did carefully review the criteria established in regulations 
for allowing a hospital to geographically reclassify. Specifically, in 
the FY 2009 IPPS final rule, we updated the geographic reclassification 
criteria based on a review of the statistical metrics that were used to 
establish the original standards in 1993. The original individual 
standards were set using a methodology that calculated a percentile 
range of one standard deviation from the mean in which a typical 
hospital's average hourly wage would be expected to fall relative to 
its combined labor market average hourly wage. In short, we found that 
the average hospital average hourly wage as a percentage of its area's 
wage had increased from approximately 96 percent in FY 1993 to 98 
percent in the most recent 3 fiscal years. Further, the standard 
deviation had been reduced from approximately 12 percent to 10 percent 
over the same time period. The original criteria were set equal to the 
average less the standard deviation (96 percent less 12 percentage 
points). The revised reclassification criteria based on these same 
statistical metrics led us to change the standard to 88 percent (98 
percent less 10 percentage points). By refining our standards, we found 
that the number of hospitals that are able to reclassify despite not 
demonstrating average hourly wage levels that truly justify a higher 
wage index will be reduced.
    We considered public comments received in response to the FY 2009 
IPPS proposed rule before making this change final in the FY 2009 IPPS 
final rule (73 FR 48567 through 48574). The change in policy did not 
affect any 3-year geographic reclassifications that went into effect 
beginning in FY 2009. Further, in response to public comments on the FY 
2009 IPPS proposed rule, we decided to adopt the revised 
reclassification criteria over a 2-year transitional period. Hospitals 
will be subject to the 88 percent criteria for urban and group 
reclassifications (86 percent for rural areas) for 3-year geographic 
reclassifications beginning for FY 2011 applications due to the MGCRB 
no later than 5 p.m. (EST) on September 1, 2009.
    Finally, in the FY 2009 IPPS final rule and in section III.B.1.b. 
of the preamble of this final rule, we discuss our contract with Acumen 
to assist us in studying the wage index and the MedPAC recommendations, 
and also to assist us in developing other proposals for reforming the 
wage index. At this time, the study is still in progress and Acumen 
intends to issue its final report this year. We will consider possible 
additional changes to the wage index through the formal rulemaking 
process after our review of Acumen's final report and recommendations.
b. Within-State Budget Neutrality Adjustment for the Rural and Imputed 
Floors
    In the FY 2009 IPPS final rule, we adopted State level budget 
neutrality (rather than the national budget neutrality adjustment) for 
the rural and imputed floors, to be effective beginning with the FY 
2009 wage index. The transition from the national budget neutrality 
adjustment to the State level budget neutrality adjustment is being

[[Page 43826]]

phased in over a 3-year period. In FY 2009, hospitals received a 
blended wage index that was 20 percent of a wage index with the State 
level rural and imputed floor budget neutrality adjustment and 80 
percent of a wage index with the national budget neutrality adjustment. 
In FY 2010, the blended wage index reflects 50 percent of the State 
level adjustment and 50 percent of the national adjustment. In FY 2011, 
the adjustment will be completely transitioned to the State level 
methodology.
    In the FY 2009 IPPS final rule, we incorporated this policy in our 
regulation at Sec.  412.64(e)(4). Specifically, we provided that CMS 
makes an adjustment to the wage index to ensure that aggregate payments 
after implementation of the rural floor under section 4410 of the 
Balanced Budget Act of 1997 (Pub. L. 105-33) and the imputed rural 
floor under Sec.  412.64(h)(4) are made in a manner that ensures that 
aggregate payments to hospitals are not affected and that, beginning 
October 1, 2008, CMS would transition from a nationwide adjustment to a 
statewide adjustment, with a statewide adjustment fully in place by 
October 1, 2010. We note that the imputed floor expires on September 
30, 2011 (as discussed in section III.H. of this preamble).
    Comment: Several commenters requested that CMS repeal its decision 
to apply a State level budget neutrality adjustment for the rural and 
imputed floors. The commenters cited the disparity between the severe 
negative economic consequences of the policy for States with hospitals 
receiving a floor payment, compared to the relatively minor benefits 
received by nonfloor States. Multiple commenters pointed out that, 
because numerous other aspects of the Medicare wage index either cross 
State lines (CBSAs), or are modeled on national budget neutrality 
(geographic reclassification and outlier payments), they were concerned 
that a State-specific adjustment establishes a poor precedent and 
violates the intent of the legislation that established the rural 
floor.
    Response: We disagree that a State level budget neutrality 
adjustment establishes a poor precedent. Unlike geographic 
reclassification or outlier payment budget neutrality adjustments, the 
construction of the rural and imputed floors requires that wage index 
comparisons be made between labor market areas within a specific State. 
Analysis in the FY 2009 IPPS final rule demonstrated how, at a State-
by-State level, the rural and imputed floors create a benefit for a 
minority of States that is then funded by a majority of States, 
including States that are overwhelmingly rural in character. In the FY 
2009 IPPS final rule, we also explained that because the imputed and 
rural floor comparisons occur at the State level, we believed it 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 the FY 
2009 IPPS final rule, we adopted a 3-year phase-in to address the 
concerns that such a transition in policy may lead to sudden decreases 
in payments for certain providers. FY 2010 will mark the second year of 
this transition, with a 50-percent national, 50-percent within-State 
budget neutrality adjustment. We believe that this transition period 
will continue to mitigate any negative impacts on affected hospitals 
while we proceed towards the planned adoption of 100-percent within-
State budget neutrality in FY 2011.
    In addition, we do not believe the legislative history demonstrates 
an intent for a particular type of budget neutrality adjustment. The 
Conference Report for the rural floor states: ``The Secretary would be 
required to make any adjustments in the wage index in a budget neutral 
manner.'' (H.R. Conf. Rep. No. 105-217, 105th Cong., 1st Sess. at 712) 
However, the report does not reference a national budget neutrality 
adjustment, as compared to a statewide budget neutrality adjustment. 
Both the legislative history and the plain language of the rural floor 
provision anticipate that the Secretary would have administrative 
discretion regarding the ``manner'' of the budget neutrality 
adjustment. Section 4410(b) of the BBA of 1997 (Pub. L. 105-33) 
requires that the Secretary adjust wage indices ``in a manner which 
assures that the aggregate payments made under section 1886(d) of the 
Social Security Act * * * in a fiscal year for the operating costs of 
inpatient hospital services are not greater or less than those which 
would be made in the year if this section did not apply.'' Thus, 
Congress provided discretion to the Secretary to determine the manner 
of ensuring that the rural floor did not increase costs above what they 
would have been in the absence of the rural floor, and the Secretary 
has exercised such discretion through the adoption of a statewide 
adjustment.
    Comment: A number of commenters in an all-urban State urged CMS to 
make the imputed floor a permanent provision. The commenters explained 
that their State is geographically disadvantaged because it is bordered 
by two of the five largest cities in the United States, and the 
hospitals in the State have to compete with those larger cities for 
labor resources and patients. The commenters noted that, when CMS 
adopted the imputed floor policy in the FY 2005 IPPS final rule (69 FR 
49109), CMS acknowledged a concern by some individuals that hospitals 
in all-urban States are financially and competitively disadvantaged in 
the absence of an imputed floor wage index. The commenters stated that 
CMS has provided no rationale for discontinuing the imputed floor after 
FY 2011 and has provided no documentation to support that the 
``anomalous'' situation, as it was described by CMS in the FY 2005 IPPS 
final rule, has changed for all-urban States.
    Response: We appreciate the commenter's concern about the imputed 
floor. However, we made no proposals regarding the imputed floor in the 
FY 2010 IPPS/RY 2010 LTCH PPS proposed rule. Therefore, we are making 
no decisions in this final rule regarding any future extension of the 
imputed floor. We will address the imputed floor policy in the FY 2011 
IPPS proposed rule, which will allow for opportunity for public 
comment.
    Comment: One commenter requested clarification as to the 
discrepancy between rural and imputed floor budget neutrality factors 
referenced in the proposed rule (1.00016 referenced at 74 FR 24243 (the 
Addendum to the proposed rule) and 1.000017 referenced at 74 FR 24663 
(Appendix A to the proposed rule)).
    Response: We have included an updated budget neutrality factor in 
section I.A.4.c. of the Addendum to this final rule, along with an 
explanation in section VI.I of Appendix A to this final rule of why the 
adjustment amounts varied in the proposed rule.
    Comment: One commenter requested CMS to explain how the rural floor 
budget neutrality adjustment is performed so that it can be certified 
and compared to prior years. The commenter also expressed concerns 
about how State level budget neutrality may complicate a hospital's 
geographic reclassification application process, may result in rural 
hospitals with high wage indices being significantly disadvantaged, and 
may cause deviations in payments between hospital reclassifications 
into a labor market from an adjoining State.
    Response: We provided ample details of the iterative rural floor 
budget neutrality calculation process in the FY 2008 IPPS final rule 
with comment period (72 FR 47325 through 4733). In the FY 2009 IPPS 
final rule (73 FR 48574), we further explained how the

[[Page 43827]]

same calculation process will be used to phase in a State level budget 
neutrality adjustment.
    In response to the commenter's other concerns, the specific 
scenarios presented may occur regardless of how rural and imputed floor 
budget neutrality is achieved. The application of the rural floor 
itself, despite a national or a State level budget neutrality 
adjustment, may result in situations where hospitals classified or 
reclassified to the same labor market area may receive differing wage 
indices. Hospitals always must evaluate multiple scenarios when 
determining whether to apply for a reclassification or withdraw a 
geographic reclassification request. We provide the best information 
available in the IPPS proposed rule to facilitate these decisions and 
allow hospitals a 45-day period following publication of the proposed 
rule to evaluate their options.

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 2009 final rule, in the FY 2010 IPPS/RY 2010 LTCH 
PPS proposed rule (74 FR 24139), we proposed to provide that hospitals 
receive 100 percent of their wage index based upon the CBSA 
configurations. Specifically, for each hospital, we proposed to 
determine a wage index for FY 2010 employing wage index data from 
hospital cost reports for cost reporting periods beginning during FY 
2006 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 wage 
index (69 FR 49029) (regulations at Sec.  412.64(b)(1)(ii)(A)).
    On November 20, 2008, OMB announced three Micropolitan Statistical 
Areas that now qualify as MSAs (OMB Bulletin No. 09-01). The new urban 
CBSAs are as follows:
     Cape Girardeau-Jackson, Missouri-Illinois (CBSA 16020). 
This CBSA is comprised of the principal cities of Cape Girardeau and 
Jackson, Missouri in Alexander County, Illinois; Bollinger County, 
Missouri, and Cape Girardeau County, Missouri.
     Manhattan, Kansas (CBSA 31740). This CBSA is comprised of 
the principal city of Manhattan, Kansas in Geary County, Pottawatomie 
County, and Riley County.
     Mankato-North Mankato, Minnesota (CBSA 31860). This CBSA 
is comprised of the principal cities of Mankato and North Mankato, 
Minnesota in Blue Earth County and Nicollet County.
    OMB also changed the principal cities and titles of a number of 
CBSAs and a Metropolitan Division, as follows:
     Broomfield, Colorado qualifies as a new principal city of 
the Denver-Aurora, Colorado CBSA. The new title is Denver-Aurora-
Broomfield, Colorado CBSA.
     Chapel Hill, North Carolina qualifies as a new principal 
city of the Durham, North Carolina CBSA. The new title is Durham-Chapel 
Hill, North Carolina CBSA.
     Chowchilla, California qualifies as a new principal city 
of the Madera, California CBSA. The new title is Madera-Chowchilla, 
California CBSA.
     Panama City Beach, Florida qualifies as a new principal 
city of the Panama City-Lynn Haven, Florida CBSA. The new title is 
Panama City-Lynn Haven-Panama City Beach, Florida CBSA.
     East Wenatchee, Washington qualifies as a new principal 
city of the Wenatchee, Washington CBSA. The new title is Wenatchee-East 
Wenatchee, Washington CBSA.
     Rockville, Maryland replaces Gaithersburg, Maryland as the 
third most populous city of the Bethesda-Frederick-Gaithersburg, 
Maryland Metropolitan Division. The new title is Bethesda-Frederick-
Rockville, Maryland Metropolitan Division.
    The OMB bulletin is available on the OMB Web site at http://www.whitehouse.gov/OMB--go to ``Bulletins'' or ``Statistical Programs 
and Standards.'' CMS will apply these changes to the IPPS beginning 
October 1, 2009.
    We note that several public commenters who responded to the 
proposed rule expressed their concerns that CAHs in the new MSAs will 
lose their CAH status and be forced to convert to IPPS hospitals 
because the areas will be designated as urban instead of rural. The 
commenters recalled that the same situation occurred in FY 2005 when 
CMS adopted OMB's CBSA definitions. At that time, CMS allowed CAHs 
located in rural counties that became urban to maintain their CAH 
status for 2 years (69 FR 49221). If these CAHs were unable in 2 years 
to obtain rural status under Sec.  412.103, they were required to 
convert to IPPS status. A more detailed discussion of the public 
comments and our response is included in section VII.C. of the preamble 
of this final rule.

D. Occupational Mix Adjustment to the FY 2010 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 FY 2010 Occupational Mix Adjustment 
Based on the 2007-2008 Occupational Mix Survey
    As provided for under section 1886(d)(3)(E) of the Act, we collect 
data every 3 years on the occupational mix of employees for each short-
term, acute care hospital participating in the Medicare program. For 
the FY 2009 hospital wage index, we used data from the 2006 Medicare 
Wage Index Occupational Mix Survey (the 2006 survey) to calculate the 
occupational mix adjustment. In the 2006 survey, we included several 
modifications to the original occupational mix survey, 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.
    The 2006 survey provided for the collection of hospital-specific 
wages and hours data, a 6-month prospective

[[Page 43828]]

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 focused 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 
had four subcategories: Registered nurses, licensed practical nurses, 
aides, orderlies, attendants, and medical assistants. The registered 
nurse subcategory included 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. To allow flexibility for the reporting 
period beginning and ending dates to accommodate some hospitals' 
biweekly payroll and reporting systems, we modified the 6-month data 
collection period for the 2006 survey from January 1, 2006, through 
June 30, 2006, to a 6-month reporting period that began on or after 
December 25, 2005, and ended before July 9, 2006. OMB approved the 
revised 2006 occupational mix survey (Form CMS-10079 (2006)) on April 
25, 2006. 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).
    As we proposed, for the FY 2010 hospital wage index, we used 
occupational mix data collected on a revised 2007-2008 Medicare Wage 
Index Occupational Mix Survey (the 2007-2008 survey) to compute the 
occupational mix adjustment for FY 2010. In the FY 2008 IPPS final rule 
with comment period (72 FR 47315), we discussed how we modified the 
2006 occupational mix survey. The revised 2007-2008 occupational mix 
survey provided 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.
    On February 2, 2007, we published in the Federal Register a notice 
soliciting comments on the proposed revisions to the 2006 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 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/MACs. Hospitals were required to submit their 
completed surveys to their fiscal intermediaries/MACs by September 2, 
2008. The preliminary, unaudited 2007-2008 occupational mix survey data 
were 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.
2. Calculation of the Occupational Mix Adjustment for FY 2010
    For FY 2010 (as we did for FY 2009), we are calculating the 
occupational mix adjustment factor using the following steps:
    Step 1--For each hospital, determine the percentage of the total 
nursing category attributable to a nursing subcategory by dividing the 
nursing subcategory hours by the total nursing category's hours. Repeat 
this computation for each of the four nursing subcategories: Registered 
nurses; 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 four nursing subcategories.
    Step 4--For each hospital, determine the adjusted average hourly 
rate for the total nursing category by summing the adjusted average 
hourly rate (from Step 3) for each of the nursing subcategories.
    Step 5--Determine the national average hourly rate for the total 
nursing category by dividing total nursing category salaries for all 
hospitals in the occupational mix survey database by total nursing 
category hours for all hospitals in the occupational mix survey 
database.
    Step 6--For each hospital, compute the occupational mix adjustment 
factor for the total nursing category by dividing the national average 
hourly rate for the total nursing category (from Step 5) by the 
hospital's adjusted average hourly rate for the total nursing category 
(from Step 4).
    If the hospital's adjusted average hourly rate is less than the 
national average hourly rate (indicating the hospital employs a less 
costly mix of nursing employees), the occupational mix adjustment 
factor is greater than 1.0000. If the hospital's adjusted average 
hourly rate is greater than the national average hourly rate, the 
occupational mix adjustment factor is less than 1.0000.
    Step 7--For each hospital, calculate the occupational mix adjusted 
salaries and wage-related costs for the total nursing category by 
multiplying the hospital's total salaries and wage-related costs (from 
Step 5 of the unadjusted wage index calculation in section III.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).

[[Page 43829]]

    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 
FY 2010 occupational mix adjusted national average hourly wage is 
$33.5268.
    Step 11--To compute the occupational mix adjusted wage index, 
divide each area's occupational mix adjusted average hourly wage (Step 
9) by the national occupational mix adjusted average hourly wage (Step 
10).
    Step 12--To compute the Puerto Rico specific occupational mix 
adjusted wage index, follow Steps 1 through 11 above. The FY 2010 
occupational mix adjusted Puerto Rico-specific average hourly wage is 
$14.2555.
    The table below is an illustrative example of the occupational mix 
adjustment.
BILLING CODE 4120-01-P

[[Page 43830]]

[GRAPHIC] [TIFF OMITTED] TR27AU09.007


[[Page 43831]]


[GRAPHIC] [TIFF OMITTED] TR27AU09.008

BILLING CODE 4120-01-C

[[Page 43832]]

    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 
2010 wage index. For the FY 2007-2008 survey, the response rate was 89 
percent.
    In computing the FY 2010 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. 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 proposed occupational 
mix adjustment, we applied the national occupational mix factor of 
1.0000 in calculating the area's FY 2010 occupational mix adjusted wage 
index. (We indicated in the FY 2008 and FY 2009 IPPS final rules that 
we reserve the right to apply a different approach in future years, 
including potentially penalizing nonresponsive hospitals (72 FR 
47314).) In addition, if a hospital submitted a survey, but that survey 
data cannot be used because we determine it to be aberrant, we also 
assigned the hospital the average occupational mix adjustment for its 
labor market area. For example, if a hospital's individual nurse 
category average hourly wages were out of range (that is, unusually 
high or low), and the hospital did not provide sufficient documentation 
to explain the aberrancy, or the hospital did not submit any registered 
nurse salaries or hours data, we assigned the hospital the average 
occupational mix adjustment for the labor market area in which it is 
located.
    In calculating the average occupational mix adjustment factor for a 
labor market area, we replicated Steps 1 through 6 of the calculation 
for the occupational mix adjustment. However, instead of performing 
these steps at the hospital level, we aggregated the data at the labor 
market area level. In following these steps, for example, for CBSAs 
that contain providers that did not submit occupational mix survey 
data, the occupational mix adjustment factor ranged from a low of 
0.9252 (CBSA 17780, College Station-Bryan, TX), to a high of 1.0933 
(CBSA 29700, Laredo, 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 2010, there are 7 CBSAs (that 
include 15 hospitals) for which we did not have occupational mix data 
for any of its hospitals. The CBSAs are:

 CBSA 21940--Fajardo, PR (one hospital)
 CBSA 22140--Farmington, NM (one hospital)
 CBSA 25020--Guayama, PR (three hospitals)
 CBSA 36140--Ocean City, NJ (one hospital)
 CBSA 38660--Ponce, PR (six hospitals)
 CBSA 41900--San German-Cabo Rojo, PR (two hospitals)
 CBSA 49500--Yauco, PR (one hospital)

    Since the FY 2007 IPPS final rule, we have periodically discussed 
applying a hospital-specific penalty to hospitals that fail to submit 
occupational mix survey data. (71 FR 48013 through 48014; 72 FR 47314 
through 47315; and 73 FR 48580). During the FY 2008 rulemaking cycle, 
some commenters suggested a penalty equal to a 1- to 2-percent 
reduction in the hospital's wage index value or a set percentage of the 
standardized amount. During the FY 2009 rulemaking cycle, several 
commenters reiterated their view that full participation in the 
occupational mix survey is critical, and that CMS should develop a 
methodology that encourages hospitals to report occupational mix survey 
data but does not unfairly penalize neighboring hospitals. However, to 
date, we have not adopted a penalty for hospitals that fail to submit 
occupational mix data.
    After review of the data for the proposed FY 2010 wage index, we 
became concerned about the increasing number of hospitals that fail to 
submit occupational mix data and the impact it may have on area wage 
indices. The survey response rate has dropped significantly from 93.8 
percent for the 2003 survey to 90.7 percent for the 2006 survey and 
90.3 percent for the 2007-2008 survey. In 40 CBSAs, the response rate 
was under 70 percent. In addition, for 50 areas, including New York-
White Plains-Wayne, New York-New Jersey (35644), Oklahoma City, 
Oklahoma (36420), Rural Georgia (11), Rural Oklahoma (37), Dallas-
Plano-Irving, TX (19124), Newark-Union, NJ-PA (35084), and Fort Worth-
Arlington, TX (23104), the area response rate decreased 15 percent or 
more between the 2006 survey and the 2007-2008 survey. In all of Puerto 
Rico, only 21.6 percent of hospitals submitted 2007-2008 survey data. 
If we had proposed to apply a penalty for nonresponsive hospitals for 
the FY 2010 wage index, Puerto Rico hospitals would have been 
significantly adversely affected in both the proposed national and 
Puerto Rico-specific wage indices. We indicated in the FY 2010 IPPS/RY 
2010 LTCH PPS proposed rule that, while we were not proposing a penalty 
at that time, we would consider the public comments we previously 
received, as well as any public comments on the proposed rule, as we 
develop the proposed FY 2011 wage index. One approach that we will 
explore is to assign any nonresponsive hospital the occupational mix 
factor deriving from the survey that would result in the greatest 
negative adjustment to the hospital's wage index. We also will consider 
applying the same penalty to hospitals that submit unusable 
occupational mix data. Although we would apply this penalty factor in 
establishing the hospital's payment rate, we would not use this factor 
in computing the area's wage index. Rather, in computing the area wage 
index, we would apply the same methodology as described above (that is, 
assign the nonresponsive hospital the average occupational mix 
adjustment factor for the labor market area) so that other hospitals in 
the area are minimally impacted by the hospital's failure to submit 
occupational mix data. Again, we note that we reserve the right to 
penalize nonresponsive hospitals in the future. In the FY 2010 IPPS/RY 
2010 LTCH PPS proposed rule, we welcomed public comments on this matter 
and indicated that we would address this issue in next year's IPPS 
proposed rule.
    Comment: Several commenters indicated that they share CMS' concerns 
about the increasing number of hospitals that fail to submit 
occupational mix data. The commenters contended that accuracy and 
fairness in the occupational mix adjustment will only be achieved 
through 100 percent hospital participation and agreed that CMS should 
consider a penalty for hospitals that do not participate. The 
commenters suggested that CMS should not simply substitute unfavorable 
occupational mix data for noncompliant hospitals because it could 
unfairly penalize other neighboring hospitals that are diligent in 
reporting their data. Some commenters recommended that CMS apply a 
percentage adjustment to the standardized rate or to the wage index 
that would reduce Medicare

[[Page 43833]]

payment to nonparticipating hospitals, similar to the slight payment 
differential for hospitals failing to provide quality data. One 
commenter added that the penalty should be applied in a budget neutral 
manner. Another commenter suggested that the penalty should be applied 
to inpatient and outpatient payments. The commenters also recommended 
an appeal process that would allow hospitals to rectify the situation 
when the Medicare contractor or CMS determines that a hospital's data 
were not submitted, not acceptable, or unusable.
    Response: We appreciate all of the comments and suggestions we 
received regarding a penalty for hospitals that do not participate in 
the occupational mix survey. We will consider these comments and other 
methods in developing a proposal for the FY 2011 IPPS proposed rule.
    Comment: Several commenters gave suggestions for improving the next 
update of the occupational mix survey. (The 2007-2008 survey will 
expire with the FY 2012 wage index.) Suggestions included the 
following:
     Use calendar year 2010 instead of the 12 months ending 
June 30, 2011.
     Add unit secretaries because their duties are similar to 
the administrative functions of nurses and medical assistants.
     Add an ``all other nursing'' category to capture all 
employees in the specified cost centers who are not in the specific 
categories (for example, emergency medical technicians and instrument 
technicians). This will help CMS and others to quantify the percent of 
nursing cost center employees that are not covered under the survey 
categories.
     Revise the Medicare cost report to include the 
occupational mix survey data.
    Response: Although we made no proposals in the FY 2010 proposed 
rule regarding the next update of the occupational mix survey, we 
appreciate receiving these comments and will consider them as we plan 
and develop the new survey. As with prior updates to the occupational 
mix survey, we will publish a notice of proposed data collection with a 
comment period, through the Paperwork Reduction Act process, in a 
future Federal Register.

E. Worksheet S-3 Wage Data for the FY 2010 Wage Index

    The FY 2010 wage index values are based on the data collected from 
the Medicare cost reports submitted by hospitals for cost reporting 
periods beginning in FY 2006 (the FY 2009 wage index was based on FY 
2005 wage data).
1. Included Categories of Costs
    The FY 2010 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 include 
direct patient care, certain top management, pharmacy, laboratory, and 
nonteaching physician Part A services, and certain contract indirect 
patient care services (as discussed in the FY 2008 final rule with 
comment period (72 FR 47315)).
     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 IPPS final rule (70 FR 
47369).
    Comment: Several commenters addressed our policy for determining 
pension costs for the wage index. The commenters acknowledged that they 
have raised many of their arguments, such as arguments regarding 
retroactivity, before the Provider Reimbursement Review Board (PRRB).
    Response: First, we did not propose to make any changes to, nor 
request public comments on, reporting pension costs for the wage index. 
Therefore, we consider the public comments received on this issue 
outside of the scope of this rulemaking. Further, we already discussed 
our policies for reporting pension costs in the FY 2006 IPPS final rule 
(70 FR 47369). We note that the policy for reporting pension costs for 
the wage index currently can be found in section 3605.2 of the Provider 
Reimbursement Manual (PRM), Part II, and section 2142 of PRM, Part I. 
We expect that purely legal arguments, such as arguments on 
retroactivity, will be addressed through the adjudication process.
2. Excluded Categories of Costs
    Consistent with the wage index methodology for FY 2009, the wage 
index for FY 2010 also excludes the direct and overhead salaries and 
hours for services not subject to IPPS payment, such as SNF services, 
home health services, costs related to GME (teaching physicians and 
residents) and certified registered nurse anesthetists (CRNAs), and 
other subprovider components that are not paid under the IPPS. The FY 
2010 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 (HHAs), and hospices. In addition, they are used 
for prospective payments to IRFs, IPFs, and LTCHs, and for hospital 
outpatient services. We note that, in the IPPS rules, we do not address 
comments pertaining to the wage indices for non-IPPS providers, other 
than for LTCHs. (Beginning with this final rule, for the RY 2010, we 
are including in the same document updates to the LTCH PPS.) 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 FY 2010 wage index were obtained from 
Worksheet S-3, Parts II and III of the FY 2006 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 wage index includes FY 2006 
data submitted to us as of March 2, 2009. As in past years, we 
performed an intensive review of the wage data, mostly through the use 
of edits designed to identify aberrant data.
    We asked our fiscal intermediaries/MACs to revise or verify data 
elements that resulted in specific edit failures. For the proposed FY 
2010 wage index, we identified and excluded 34 providers with data that 
were too aberrant to include in the proposed wage index, although we 
stated that if data elements for some of these providers were 
corrected, we intended to include some of these providers in the FY 
2010 final wage index. We instructed fiscal intermediaries/MACs to 
complete their

[[Page 43834]]

data verification of questionable data elements and to transmit any 
changes to the wage data no later than April 15, 2009. The data for 2 
of the hospitals identified in the proposed rule were resolved; 
however, the data for 8 additional hospitals were identified as too 
aberrant to include in the final wage index. Therefore, we determined 
that the data for 40 hospitals (that is, 34 - 2 + 8 = 40) should not be 
included in the FY 2010 final wage index.
    In constructing the FY 2010 wage index, we included the wage data 
for facilities that were IPPS hospitals in FY 2006, 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 final rule, we removed 
17 hospitals that converted to CAH status between February 18, 2008, 
the cut-off date for CAH exclusion from the FY 2009 wage index, and 
February 16, 2009, the cut-off date for CAH exclusion from the FY 2010 
wage index. After removing hospitals with aberrant data and hospitals 
that converted to CAH status, the FY 2010 wage index is calculated 
based on 3,519 hospitals.
    In the FY 2008 final rule with comment period (72 FR 47317) and the 
FY 2009 IPPS final rule (73 FR 48582), we discussed our policy for 
allocating a multicampus hospital's wages and hours data, by full-time 
equivalent (FTE) staff, among the different labor market areas where 
its campuses are located. During the FY 2010 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. As we proposed, the FY 2010 wage index in 
this final rule includes separate wage data for campuses of three 
multicampus hospitals.
    For FY 2010, we are again allowing hospitals to use FTE or 
discharge data for the allocation of a multicampus hospital's wage data 
among the different labor market areas where its campuses are located. 
The Medicare cost report was updated in May 2008 to provide for the 
reporting of FTE data by campus for multicampus hospitals. Because the 
data from cost reporting periods that begin in FY 2008 will not be used 
in calculating the wage index until FY 2012, a multicampus hospital 
will still have the option, through the FY 2011 wage index, to use 
either FTE or discharge data for allocating wage data among its 
campuses by providing the information from the applicable cost 
reporting period to CMS through its fiscal intermediary/MAC. Two of the 
three multicampus hospitals chose to have their wage data allocated by 
their Medicare discharge data for the FY 2010 wage index. 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 final rule.

G. Method for Computing the FY 2010 Unadjusted Wage Index

    The method used to compute the FY 2010 wage index without an 
occupational mix adjustment follows:
    Step 1--As noted above, we are basing the FY 2010 wage index on 
wage data reported on the FY 2006 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, 2005, and before October 1, 2006. In addition, 
we included data from some hospitals that had cost reporting periods 
beginning before October 2005 and reported a cost reporting period 
covering all of FY 2005. 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 2006 (for 
example, a hospital had two short cost reporting periods beginning on 
or after October 1, 2005, and before October 1, 2006), 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 2010 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

[[Page 43835]]

Line 13 of Worksheet S-3, Part III. Next, we compute the amounts of 
overhead wage-related costs to be allocated to excluded areas using 
three steps: (1) We determine the ratio of overhead hours (Part III, 
Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to revised 
hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line 1 minus 
the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01, 22.01, 
26.01, and 27.01). (We note that for the FY 2008 and subsequent wage 
index calculations, we are excluding the sum of lines 22.01, 26.01, and 
27.01 from the determination of the ratio of overhead hours to revised 
hours because hospitals typically do not provide fringe benefits (wage-
related costs) to contract personnel. Therefore, it is not necessary 
for the wage index calculation to exclude overhead 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, as we proposed, we are not making any changes to the usage 
for FY 2010. 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
------------------------------------------------------------------------
10/14/2005..................................    11/15/2005       1.04966
11/14/2005..................................    12/15/2005       1.04632
12/14/2005..................................    01/15/2006       1.04296
01/14/2006..................................    02/15/2006       1.03955
02/14/2006..................................    03/15/2006       1.03610
03/14/2006..................................    04/15/2006       1.03269
04/14/2006..................................    05/15/2006       1.02936
05/14/2006..................................    06/15/2006       1.02613
06/14/2006..................................    07/15/2006       1.02298
07/14/2006..................................    08/15/2006       1.01990
08/14/2006..................................    09/15/2006       1.01688
09/14/2006..................................    10/15/2006       1.01391
10/14/2006..................................    11/15/2006       1.01098
11/14/2006..................................    12/15/2006       1.00808
12/14/2006..................................    01/15/2007       1.00526
01/14/2007..................................    02/15/2007       1.00257
02/14/2007..................................    03/15/2007       1.00000
03/14/2007..................................    04/15/2007       0.99745
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2006, and ending December 31, 2006, is June 30, 2006. An 
adjustment factor of 1.02298 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 2006 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 Step 5 for all hospitals in the Nation and then divide the 
sum by the national sum of total hours from Step 4 to arrive at a 
national average hourly wage. Using the data as described above, the 
national average hourly wage (unadjusted for occupational mix) is 
$33.5491.
    Step 9--For each urban or rural labor market area, we calculate the 
hospital wage index value, unadjusted for occupational mix, by dividing 
the area average hourly wage obtained in Step 7 by the national average 
hourly wage computed in Step 8.
    Step 10--Following the process set forth above, we develop a 
separate Puerto Rico-specific wage index for purposes of adjusting the 
Puerto Rico standardized amounts. (The national Puerto Rico 
standardized amount is adjusted by a wage index calculated for all 
Puerto Rico labor market areas based on the national average hourly 
wage as described above.) We add the total adjusted salaries plus wage-
related costs (as calculated in Step 5) for all hospitals in Puerto 
Rico and divide the sum by the total hours for Puerto Rico (as 
calculated in Step 4) to arrive at an overall average hourly wage 
(unadjusted for occupational mix) of $14.2462 for Puerto Rico. For each 
labor market area in Puerto Rico, we calculate the Puerto Rico-specific 
wage index value by dividing the area average hourly wage (as 
calculated in Step 7) by the overall Puerto Rico average hourly wage.
    Step 11--Section 4410 of Public Law 105-33 provides that, for 
discharges on or after October 1, 1997, the area wage index applicable 
to any hospital that is located in an urban area of a State may not be 
less than the area wage index applicable to hospitals located in rural 
areas in that State. The areas affected by this provision are 
identified in Table 4D-2 of the Addendum to this final 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 (72 FR 47321). In the FY 2009 IPPS final rule (73 FR 
48570 through 48574 and 48584), we extended the imputed floor for an 
additional 3 years, through FY 2011.

[[Page 43836]]

H. Analysis and Implementation of the Occupational Mix Adjustment and 
the FY 2010 Occupational Mix Adjustment Wage Index

    As discussed in section III.D. of this preamble, for FY 2010, we 
apply the occupational mix adjustment to 100 percent of the FY 2010 
wage index. We calculated the occupational mix adjustment using data 
from the 2007-2008 occupational mix survey data, using the methodology 
described in section III.D.3. of this preamble.
    Using the occupational mix survey data and applying the 
occupational mix adjustment to 100 percent of the FY 2010 wage index 
results in a national average hourly wage of $33.5268 and a Puerto 
Rico-specific average hourly wage of $14.2555. After excluding data of 
hospitals that either submitted aberrant data that failed critical 
edits, or that do not have FY 2006 Worksheet S-3 cost report data for 
use in calculating the FY 2010 wage index, we calculated the FY 2010 
wage index using the occupational mix survey data from 3,178 hospitals. 
Using the Worksheet S-3 cost report data of 3,519 hospitals and 
occupational mix survey data from 3,178 hospitals represents a 90.3 
percent survey response rate. The FY 2010 national average hourly wages 
for each occupational mix nursing subcategory as calculated in Step 2 
of the occupational mix calculation are as follows:

------------------------------------------------------------------------
                                                        Average hourly
        Occupational mix nursing subcategory                 wage
------------------------------------------------------------------------
National RN.........................................       $36.071788464
National LPN and Surgical Technician................        20.882610908
National Nurse Aide, Orderly, and Attendant.........        14.619113985
National Medical Assistant..........................        16.486068445
National Nurse Category.............................        30.482374867
------------------------------------------------------------------------

    The national average hourly wage for the entire nurse category as 
computed in Step 5 of the occupational mix calculation is 
$30.482374867. 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 July 2007 through June 2008 occupational mix survey 
data, we determined (in Step 7 of the occupational mix calculation) 
that the national percentage of hospital employees in the nurse 
category is 44.31 percent, and the national percentage of hospital 
employees in the all other occupations category is 55.69 percent. At 
the CBSA level, the percentage of hospital employees in the nurse 
category ranged from a low of 29.08 percent in one CBSA, to a high of 
70.76 percent in another CBSA.
    We compared the FY 2010 occupational mix adjusted wage indices for 
each CBSA to the unadjusted wage indices for each CBSA. As a result of 
applying the occupational mix adjustment to the wage data, the wage 
index values for 205 (52.4 percent) urban areas and 32 (68.1 percent) 
rural areas will increase. One hundred and six (27.1 percent) urban 
areas will increase by 1 percent or more, and 5 (1.3 percent) urban 
areas will increase by 5 percent or more. Nineteen (40.4 percent) rural 
areas will increase by 1 percent or more, and no rural areas will 
increase by 5 percent or more. However, the wage index values for 186 
(47.6 percent) urban areas and 14 (29.8 percent) rural areas will 
decrease. Eighty-eight (22.5 percent) urban areas will decrease by 1 
percent or more, and no urban area will decrease by 5 percent or more. 
Seven (14.9 percent) rural areas will decrease by 1 percent or more, 
and no rural areas will decrease by 5 percent or more. The largest 
positive impacts are 7.83 percent for an urban area and 2.97 percent 
for a rural area. The largest negative impacts are 3.90 percent for an 
urban area and 2.32 percent for a rural area. One rural area is 
unaffected. These results indicate that a larger percentage of rural 
areas (68.1 percent) benefit from the occupational mix adjustment than 
do urban areas (52.4 percent). While these results are more positive 
overall for rural areas than under the previous occupational mix 
adjustment that used survey data from 2006, approximately one-third 
(29.8 percent) of rural CBSAs will still experience a decrease in their 
wage indices as a result of the occupational mix adjustment.
    We also compared the FY 2010 wage data adjusted for occupational 
mix from the 2007-2008 survey to the FY 2010 wage data adjusted for 
occupational mix from the 2006 survey. This analysis illustrates the 
effect on area wage indices of using the 2007-2008 survey data compared 
to the 2006 survey data; that is, it shows whether hospitals' wage 
indices are increasing or decreasing under the current survey data as 
compared to the prior survey data. Our analysis shows that the FY 2010 
wage index values for 185 (47.3 percent) urban areas and 19 (40.4 
percent) rural areas will increase. Sixty-two (15.9 percent) urban 
areas will increase by 1 percent or more, and no urban areas will 
increase by 5 percent or more. One (2.1 percent) rural area will 
increase by 1 percent or more, and no rural areas will increase by 5 
percent or more. However, the wage index values for 202 (51.7 percent) 
urban areas and 28 (59.6 percent) rural areas will decrease using the 
2007-2008 data. Fifty-five (14.1 percent) urban areas will decrease by 
1 percent or more, and one (0.26 percent) urban area will decrease by 5 
percent or more. Three (6.4 percent) rural areas will decrease by 1 
percent or more, and no rural areas will decrease by 5 percent or more. 
The largest positive impacts using the 2007-2008 data compared to the 
2006 data are 4.32 percent for an urban area and 2.34 percent for a 
rural area. The largest negative impacts are 6.46 percent for an urban 
area and 4.40 percent for a rural area. Four urban areas and no rural 
areas will be unaffected. These results indicate that a larger 
percentage of urban areas (47.3 percent) will benefit from the 2007-
2008 occupational mix survey as compared to the 2006 survey than will 
rural areas (40.4 percent). Further, the wage indices of more CBSAs 
overall (52.5 percent) will be decreasing due to application of the 
2007-2008 occupational mix survey data as compared to the 2006 survey 
data to the wage index. However, as noted in the analysis above, a 
greater percentage of rural areas (68.1 percent) will benefit from the 
application of the occupational mix adjustment than will urban areas.
    The wage index values for FY 2010 (except those for hospitals 
receiving wage index adjustments under section 1886(d)(13) of the Act) 
included in Tables 4A, 4B, 4C, and 4F of the

[[Page 43837]]

Addendum to this final rule include the occupational mix adjustment.
    Tables 3A and 3B in the Addendum to this final rule list the 3-year 
average hourly wage for each labor market area before the redesignation 
of hospitals based on FYs 2008, 2009, and 2010 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 final 
rule includes the adjusted average hourly wage for each hospital from 
the FY 2004 and FY 2005 cost reporting periods, as well as the FY 2006 
period used to calculate the FY 2010 wage index. The 3-year averages 
are calculated by dividing the sum of the dollars (adjusted to a common 
reporting period using the method described previously) across all 3 
years, by the sum of the hours. If a hospital is missing data for any 
of the previous years, its average hourly wage for the 3-year period is 
calculated based on the data available during that period. The average 
hourly wages in Tables 2, 3A, and 3B in the Addendum to this final rule 
include the occupational mix adjustment. The wage index values in 
Tables 4A, 4B, 4C, and 4D-1 also include the State-specific rural floor 
and imputed floor budget neutrality adjustments.

I. 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 Public Law 106-554 provides that the Secretary 
must establish a mechanism under which a statewide entity may apply to 
have all of the geographic areas in the State treated as a single 
geographic area for purposes of computing and applying a single wage 
index, for reclassifications beginning in FY 2003. The implementing 
regulations for this provision are located at 42 CFR 412.235.
    Section 1886(d)(8)(B) of the Act requires the Secretary to treat a 
hospital located in a rural county adjacent to one or more urban areas 
as being located in the labor market area to which the greatest number 
of workers in the county commute, if the rural county would otherwise 
be considered part of an urban area under the standards for designating 
MSAs and if the commuting rates used in determining outlying counties 
were determined on the basis of the aggregate number of resident 
workers who commute to (and, if applicable under the standards, from) 
the central county or counties of all contiguous MSAs. In light of the 
CBSA definitions and the Census 2000 data that we implemented for FY 
2005 (69 FR 49027), we undertook to identify those counties meeting 
these criteria. Eligible counties are discussed and identified under 
section III.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 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 also has adopted the following policies:
     The wage data for a reclassified urban hospital is 
included in both the wage index calculation of the urban area to which 
the hospital is reclassified (subject to the rules described above) and 
the wage index calculation of the urban area where the hospital is 
physically located.
     In cases where hospitals have reclassified to rural areas, 
such as urban hospitals reclassifying to rural areas under 42 CFR 
412.103, the hospital's wage data are: (a) included in the rural wage 
index calculation, unless doing so would reduce the rural wage index; 
and (b) included in the urban area where the hospital is physically 
located. The effect of this policy, in combination with the statutory 
requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural 
areas may receive a wage index based upon the highest of: (1) Wage data 
from hospitals geographically located in the rural area; (2) wage data 
from hospitals geographically located in the rural area, but excluding 
all data associated with hospitals reclassifying out of the rural area 
under section 1886(d)(8)(B) or section 1886(d)(10) of the Act; or (3) 
wage data associated with hospitals geographically located in the area 
plus all hospitals reclassified into the rural area.

[[Page 43838]]

    In addition, in accordance with the statutory language referring to 
``hospitals'' in the plural under sections 1886(d)(8)(C)(i) and 
1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider 
reclassified hospitals as a group when deciding whether to include or 
exclude them from both urban and rural wage index calculations.
3. FY 2010 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 final rule was constructed, the MGCRB had 
completed its review of FY 2010 reclassification requests. Based on 
such reviews, there were 292 hospitals approved for wage index 
reclassifications by the MGCRB for FY 2010. Because MGCRB wage index 
reclassifications are effective for 3 years, for FY 2010, hospitals 
reclassified during FY 2008 or FY 2009 are eligible to continue to be 
reclassified to a particular labor market area based on such prior 
reclassifications. There were 313 hospitals approved for wage index 
reclassifications in FY 2008 and 271 hospitals approved for wage index 
reclassifications in FY 2009. Of all of the hospitals approved for 
reclassification for FY 2008, FY 2009, and FY 2010, based upon the 
review at the time of this final rule, 861 hospitals are in a 
reclassification status for FY 2010.
    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. Generally stated, the request for 
withdrawal of an application for reclassification or termination of an 
existing 3-year reclassification that would be effective in FY 2010 had 
to be received by the MGCRB within 45 days of the publication of the FY 
2010 IPPS proposed rule. Hospitals may also cancel prior 
reclassification withdrawals or terminations in certain circumstances. 
For further information about withdrawing, terminating, or canceling a 
previous withdrawal or termination of a 3-year reclassification for 
wage index purposes, we refer the reader to 42 CFR 412.273, as well as 
the FY 2002 IPPS final rule (66 FR 39887) and the FY 2003 IPPS final 
rule (67 FR 50065).
    Changes to the wage index that result from withdrawals of requests 
for reclassification, wage index corrections, appeals, and the 
Administrator's review process for FY 2010 are incorporated into the 
wage index values published in this FY 2010 IPPS/RY 2010 LTCH PPS final 
rule. These changes 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 2011 reclassifications are due to the MGCRB by 
September 1, 2009 (the first working day of September 2009). 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 2009, via the CMS Internet Web site at: 
http://cms.hhs.gov/MGCRB/02_instructions_and_applications.asp, or by 
calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB 
is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.
    Comment: Several commenters suggested that CMS lower the employment 
interchange measure (EIM) from 15 percent to 7.5 percent. EIM is a 
measure of ties between two adjacent entities, used when defining 
Combined Statistical Areas (CSAs). The EIM is calculated as the sum of 
the percentage of employed residents commuting from the smaller area to 
the larger area and the percentage of employment in the smaller area 
accounted for by workers residing in the larger area. Hospitals seeking 
a group reclassification from one urban area to another must be located 
in the same CSA (or CBSA where relevant) as the urban area to which 
they seek redesignation, as stated in Sec.  412.234(a)(3)(iv) of the 
regulations.
    Response: We are not adopting the commenters' recommendation. 
First, we have a longstanding policy of using OMB's statistical area 
definitions to set our labor market areas, and OMB does not modify the 
statistical area definitions to meet the requirements of any 
nonstatistical program. Second, such a change in the EIM could 
significantly reduce the wage indices of some reclassified hospitals. 
In analyzing the implications of the EIM change suggested by the 
commenters, we reviewed 31 of 127 CSAs (these are the 31 areas for 
which the Office of Personnel Management uses a 7.5 percent EIM in 
determining locality payment adjustments under the general schedule for 
Federal employees). The result was that the change would allow a total 
of at least 57 hospitals in 21 counties to reclassify, and while a 
national budget neutrality adjustment would affect all hospitals 
equally, the additional reclassifications could significantly reduce 
the wage index applied to reclassified hospitals in certain areas--in 
some cases, by as much as 10 percent as a result of the additional 
reclassifications. These effects could be even more significant were 
the EIM changed for all counties nationally.
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
    Section 1886(d)(8)(B) of the Act requires us to treat a hospital 
located in a rural county adjacent to one or more urban areas as being 
located in the MSA if certain criteria are met. Effective beginning FY 
2005, we use OMB's 2000 CBSA standards and the Census 2000 data to 
identify counties in which hospitals qualify under section 
1886(d)(8)(B) of the Act to receive the wage index of the urban area. 
Hospitals located in these counties have been known as ``Lugar'' 
hospitals and the counties themselves are often referred to as 
``Lugar'' counties. We provide the FY 2010 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, 2009, 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.

[[Page 43839]]

 
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, SC.
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.
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.

[[Page 43840]]

 
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 were permitted to compare the 
reclassified wage index for the labor market area in Table 4C in the 
Addendum to the proposed rule into which they would be reclassified by 
the MGCRB to the wage index for the area to which they are redesignated 
under section 1886(d)(8)(B) of the Act. Hospitals could have withdrawn 
from an MGCRB reclassification within 45 days of the publication of the 
FY 2010 proposed rule.
    Comment: Several commenters suggested that CMS allow Lugar 
hospitals the ability to waive their Lugar status once and have the 
waiver be effective until the hospital chooses to withdraw.
    Response: Section 1886(d)(8)(B) of the Act required us to treat a 
hospital located in a rural county adjacent to one or more urban areas 
as being located in the MSA to which the greatest number of workers in 
the county commute. Hospitals satisfying the criteria under section 
1886(d)(8)(B) of the Act are treated as urban hospitals and are also 
eligible for reclassification through the MGCRB or may waive their 
Lugar status if eligible to receive the out-migration adjustment. Once 
a hospital is listed as a Lugar hospital under section 1886(d)(8)(B) of 
the Act, it is treated as such until the hospital waives its Lugar 
status. Hospitals can only waive Lugar status if they are in a county 
that is eligible to receive an out-migration adjustment. A rural 
hospital that is redesignated as Lugar, or urban, that wishes to stay 
rural can apply to be reclassified back to rural status under Sec.  
412.103 of the regulations. Otherwise, hospitals that are redesignated 
as Lugar can only waive Lugar status if they are eligible for the out-
migration adjustment.
    The wage index is updated annually and, as such, hospitals wishing 
to waive their Lugar redesignation in order to receive the rural area 
wage index plus the out-migration adjustment must request the waiver 
annually. Each year, the preamble of the IPPS proposed rule is specific 
that hospitals redesignated under section 1886(d)(8) of the Act or 
reclassified under section 1886(10) of the Act will be deemed to have 
chosen to retain their redesignation or reclassification, and that 
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 the 
proposed rule that they elect to receive the out-migration adjustment 
instead. For example, we refer readers to the FY 2009 IPPS proposed 
rule (73 FR 23635). The introductory text of Table 4J in the Addendum 
to the rule also reminds hospitals of the annual process.
    If a hospital chooses to waive its Lugar status within 45 days of 
the proposed rule, each year it must send a written request to CMS at 
the following address: Division of Acute Care, Center for Medicare 
Management, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244, 
Attn: Brian Slater; and must send a copy to the MGCRB. The mailing 
address for the MGCRB is: 2520 Lord Baltimore Drive, Suite L, 
Baltimore, MD 21244-2670.
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
    As discussed in the FY 2009 IPPS final rule (73 FR 48588), Lugar 
hospitals are treated like reclassified hospitals for purposes of 
determining their applicable wage index and receive the reclassified 
wage index for the urban area to which they have been redesignated. 
Because Lugar hospitals are treated like reclassified hospitals, when 
they are seeking reclassification by the MGCRB, they are subject to the 
rural reclassification rules set forth at 42 CFR 412.230. The 
procedural rules set forth at Sec.  412.230 list the criteria that a 
hospital must meet in order to reclassify as a rural hospital. Lugar 
hospitals are

[[Page 43841]]

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)). In accordance with policy adopted in the FY 
2009 IPPS final rule (73 FR 48568 and 48569), beginning with 
reclassifications for the FY 2010 wage index, a Lugar hospital must 
also demonstrate that its average hourly wage is equal to at least 84 
percent (for FY 2010 reclassifications) and 86 percent (for 
reclassifications for FY 2011 and subsequent fiscal years) of the 
average hourly wage of hospitals in the area to which it seeks 
redesignation (Sec.  412.230(d)(1)(iv)(C)).
    Hospitals not located in a Lugar county seeking reclassification to 
the urban area where the Lugar hospitals have been redesignated are not 
permitted to measure to the Lugar county to demonstrate proximity (no 
more than 15 miles for an urban hospital, and no more than 35 miles for 
a rural hospital or the closest urban or rural area for RRCs or SCHs) 
in order to be reclassified to such urban area. These hospitals must 
measure to the urban area exclusive of the Lugar County to meet the 
proximity or nearest urban or rural area requirement. We treat New 
England deemed counties in a manner consistent with how we treat Lugar 
counties. (We refer readers to FY 2008 IPPS final rule with comment 
period (72 FR 47337) for a discussion of this policy.)
6. Reclassifications Under Section 508 of Public Law 108-173
    Section 508 of Public Law 108-173 allowed certain qualifying 
hospitals to receive wage index reclassifications and assignments that 
they otherwise would not have been eligible to receive under the law. 
Although section 508 originally was scheduled to expire after a 3-year 
period, Congress extended the provision several times, as well as 
certain special exceptions that would have otherwise expired. For a 
discussion of the original section 508 provision and its various 
extensions, we refer readers to the FY 2009 IPPS final rule (73 FR 
48588). The most recent extension of the provision was included in 
section 124 of Public Law 110-275 (MIPPA). Section 124 extended, 
through FY 2009, section 508 reclassifications as well as certain 
special exceptions. Because the latest extension of these provisions 
expires on September 30, 2009, and will not be applicable in FY 2010, 
we are not making any changes related to these provisions in this final 
rule.

J. FY 2010 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 Public Law 108-173, beginning 
with FY 2005, we established a process to make adjustments to the 
hospital wage index based on commuting patterns of hospital employees 
(the ``out-migration'' adjustment). The process, outlined in the FY 
2005 IPPS final rule (69 FR 49061), provides for an increase in the 
wage index for hospitals located in certain counties that have a 
relatively high percentage of hospital employees who reside in the 
county but work in a different county (or counties) with a higher wage 
index. Such adjustments to the wage index are effective for 3 years, 
unless a hospital requests to waive the application of the adjustment. 
A county will not lose its status as a qualifying county due to wage 
index changes during the 3-year period, and counties will receive the 
same wage index increase for those 3 years. However, a county that 
qualifies in any given year may no longer qualify after the 3-year 
period, or it may qualify but receive a different adjustment to the 
wage index level. Hospitals that receive this adjustment to their wage 
index are not eligible for reclassification under section 1886(d)(8) or 
section 1886(d)(10) of the Act. Adjustments under this provision are 
not subject to the 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 FY 2010 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 2009 will be eligible to retain the adjustment for 
FY 2010. 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, 2009.
    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, 2008, 
and 2009 IPPS final rules, we are specifying that hospitals 
redesignated under section 1886(d)(8) of the Act or reclassified under 
section 1886(d)(10) of the Act will be deemed to have chosen to retain 
their redesignation or reclassification. Section 1886(d)(10) hospitals 
that wished to receive the out-migration adjustment, rather than their 
reclassification adjustment, had to follow the termination/withdrawal 
procedures specified in 42 CFR 412.273 and section III.I.3. of the 
preamble of the proposed rule. Otherwise, they were deemed to have 
waived the out-migration adjustment. Hospitals redesignated under 
section 1886(d)(8) of the Act were deemed to have waived the out-
migration adjustment unless they explicitly notified CMS within 45 days 
from the publication of the proposed rule that they elected to receive 
the out-migration adjustment instead.
    Table 4J in the Addendum to this final rule lists the out-migration 
wage index adjustments for FY 2010.

[[Page 43842]]

Hospitals that are not otherwise reclassified or redesignated under 
section 1886(d)(8) or section 1886(d)(10) of the Act will automatically 
receive the listed adjustment. In accordance with the procedures 
discussed above, redesignated/reclassified hospitals will be deemed to 
have waived the out-migration adjustment unless CMS was otherwise 
notified within the necessary timeframe. In addition, hospitals 
eligible to receive the out-migration wage index adjustment and that 
withdrew their application for reclassification will automatically 
receive the wage index adjustment listed in Table 4J in the Addendum to 
this final rule.
    Comment: One commenter requested that CMS allow hospitals to submit 
their own commuting data to apply for the out-migration adjustment.
    Response: First, we did not propose any changes on commuting data 
for purposes of calculating the out-migration adjustment. Therefore, we 
believe this comment is outside the scope of the proposed rule. In 
addition, as we stated in the FY 2005 IPPS final rule (69 FR 49063), 
because the adjustment is based on the number of hospital workers in a 
county who commute to other higher wage areas, we believe it would be 
extremely problematic for individual hospitals to track and submit the 
data necessary for determining the out-migration adjustment. A hospital 
could not simply survey its own employees to obtain these necessary 
data, but would have to survey all hospital workers who live in the 
county where the hospital is located and commute to hospitals in other 
higher wage index areas.

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 2010 wage index were made available on 
October 6, 2008, through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    In the interest of meeting the data needs of the public, beginning 
with the proposed FY 2009 wage index, we post an additional public use 
file on our Web site that reflects the actual data that are used in 
computing the proposed wage index. The release of this new file does 
not alter the current wage index process or schedule. We notified the 
hospital community of the availability of these data as we do with the 
current public use wage data files through our Hospital Open Door 
forum. We encouraged hospitals to sign up for automatic notifications 
of information about hospital issues and the scheduling of the Hospital 
Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.
    In a memorandum dated October 6, 2008, we instructed all fiscal 
intermediaries/MACs to inform the IPPS hospitals they service of the 
availability of the wage index data files and the process and timeframe 
for requesting revisions (including the specific deadlines listed 
below). We also instructed the fiscal intermediaries/MACs to advise 
hospitals that these data were also made available directly through 
their representative hospital organizations.
    If a hospital wished to request a change to its data as shown in 
the October 6, 2008 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 8, 2008. 
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 6, 2008 memorandum referenced above.
    In the October 6, 2008 memorandum, we also specified that a 
hospital requesting revisions to its first and/or second quarter 
occupational mix survey data was to copy its record(s) from the CY 
2007-2008 occupational mix preliminary files posted to our Web site in 
October, highlight the revised cells on its spreadsheet, and submit its 
spreadsheet(s) and complete documentation to its fiscal intermediary/
MAC no later than December 8, 2008.
    The fiscal intermediaries/MACs notified the hospitals by mid-
February 2009 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 2009. CMS published the proposed 
wage index public use files that included hospitals' revised wage index 
data on February 23, 2009. In a memorandum also dated February 23, 
2009, 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 10, 2009, 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 also were required to submit sufficient 
documentation to support their requests.
    After reviewing requested changes submitted by hospitals, fiscal 
intermediaries/MACs were required to transmit any additional revisions 
resulting from the hospitals' reconsideration requests by April 15, 
2009. The deadline for a hospital to request CMS intervention in cases 
where the hospital disagrees with the fiscal intermediary's (or, if 
applicable, the MAC's) policy interpretations was April 22, 2009.
    Hospitals were given the opportunity to examine Table 2 in the 
Addendum to the proposed rule. Table 2 in the Addendum to the proposed 
rule contained each hospital's adjusted average hourly wage used to 
construct the wage index values for the past 3 years, including the FY 
2006 data used to construct the proposed FY 2010 wage index. We noted 
that the hospital average hourly wages shown in Table 2 only reflect 
changes made to a hospital's data and transmitted to CMS by March 2, 
2009.
    We released the final wage index data public use files in early May 
2009 on the Internet at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. The May 2009 public use files were made available 
solely for the limited purpose of identifying any potential errors made 
by CMS or the fiscal intermediary/MAC in the entry of the final wage 
index data that resulted from the correction process described above 
(revisions submitted to CMS by the fiscal intermediaries/MACs by April 
15, 2009). If, after reviewing the May 2009 final files, a hospital 
believed that its wage or occupational mix data were incorrect due to a 
fiscal intermediary/MAC or CMS error in the entry or tabulation of the 
final data, the hospital had to send a letter to both its fiscal 
intermediary/MAC and CMS that outlined why the hospital believed an 
error existed and that provided all supporting information, including 
relevant dates (for example, when it first became aware of the error). 
CMS and the fiscal intermediaries (or, if applicable, the MACs) had to 
receive these requests no later than June 8, 2009.
    Each request also had to be sent to the fiscal intermediary/MAC. 
The fiscal intermediary/MAC reviewed requests upon receipt and 
contacted CMS immediately to discuss any findings.

[[Page 43843]]

    At this point in the process, that is, after the release of the May 
2009 wage index data files, changes to the wage and occupational mix 
data were only made in those very limited situations involving an error 
by the fiscal intermediary/MAC or CMS that the hospital could not have 
known about before its review of the final wage index data files. 
Specifically, neither the fiscal intermediary/MAC nor CMS approved the 
following types of requests:
     Requests for wage index data corrections that were 
submitted too late to be included in the data transmitted to CMS by 
fiscal intermediaries or the MACs on or before April 15, 2009.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 23, 
2009 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 8, 2009) 
were incorporated into the final wage index in this FY 2010 IPPS/RY 
2010 LTCH PPS final rule, which will be effective October 1, 2009.
    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 2010 payment rates. Accordingly, 
hospitals that did not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the fiscal intermediary's (or, if applicable 
the MAC's) decision with respect to requested changes. Specifically, 
our policy is that hospitals that do not meet the procedural deadlines 
set forth above will not be permitted to challenge later, before the 
Provider Reimbursement Review Board, the failure of CMS to make a 
requested data revision. (See W. A. Foote Memorial Hospital v. Shalala, 
No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v. 
Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 
2000 IPPS final rule (64 FR 41513) for a discussion of the parameters 
for 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 hospitals had 
access to the final wage index data by early May 2009, they had the 
opportunity to detect any data entry or tabulation errors made by the 
fiscal intermediary or the MAC or CMS before the development and 
publication of the final FY 2010 wage index by August 2009, and the 
implementation of the FY 2010 wage index on October 1, 2009. 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 8, 2009, 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 8 deadline for making corrections 
to the wage data for the following fiscal year's wage index. This 
provision is not available to a hospital seeking to revise another 
hospital's data that may be affecting the requesting hospital's wage 
index for the labor market area. As indicated earlier, because CMS 
makes the wage index data available to hospitals on the CMS Web site 
prior to publishing both the proposed and final IPPS rules, and the 
fiscal intermediaries or the 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 8, 
2009 deadline for the FY 2010 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 8, 2009 deadline), and CMS acknowledges that the error 
in the hospital's wage index data was caused by CMS' or the fiscal 
intermediary's (or, if applicable, the MAC's) mishandling of the data, 
we believe that the hospital should not be penalized by our delay in 
publishing or implementing the correction. As with our current policy, 
we indicated that the provision is not available to a hospital seeking 
to revise another hospital's data. In addition, the provision cannot be 
used to correct prior years' wage index data; and it can only be used 
for the current Federal fiscal year. In other situations where our 
policies would allow midyear corrections, we continue to believe that 
it is appropriate to make 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.

IV. Rebasing and Revision of the Hospital Market Baskets for Acute Care 
Hospitals

A. Background

    Effective for cost reporting periods beginning on or after July 1, 
1979, we developed and adopted a hospital input price index (that is, 
the hospital market basket for operating costs). Although ``market 
basket'' technically describes the mix of goods and services used in 
providing hospital care, this term is also commonly used to denote the 
input price index (that is, cost category weights and price proxies 
combined) derived from that market basket. Accordingly, the term 
``market basket''

[[Page 43844]]

as used in this document refers to the hospital input price index.
    The percentage change in the market basket reflects the average 
change in the price of goods and services hospitals purchase in order 
to provide inpatient care. We first used the market basket to adjust 
hospital cost limits by an amount that reflected the average increase 
in the prices of the goods and services used to provide hospital 
inpatient care. This approach linked the increase in the cost limits to 
the efficient utilization of resources.
    Since the inception of the IPPS, the projected change in the 
hospital market basket has been the integral component of the update 
factor by which the prospective payment rates are updated every year. 
An explanation of the hospital market basket used to develop the 
prospective payment rates was published in the Federal Register on 
September 1, 1983 (48 FR 39764). We also refer readers to the FY 2006 
IPPS final rule (70 FR 47387) in which we discussed the most recent 
previous rebasing of the hospital input price index.
    The hospital market basket is a fixed-weight, Laspeyres-type price 
index that is constructed in three steps. A Laspeyres price index 
measures the change in price, over time, of the same mix of goods and 
services purchased in the base period. Any changes in the quantity or 
mix of goods and services (that is, intensity) purchased over time are 
not measured.
    The index itself is constructed in three steps. First, a base 
period is selected (in this final rule, the base period is FY 2006) and 
total base period expenditures are estimated for a set of mutually 
exclusive and exhaustive spending categories based upon type of 
expenditure. Then the proportion of total operating costs that each 
category represents is determined. These proportions are called cost or 
expenditure weights. Second, each expenditure category is matched to an 
appropriate price or wage variable, referred to as a price proxy. In 
nearly every instance, these price proxies are price levels derived 
from publicly available statistical series that are published on a 
consistent schedule (preferably at least on a quarterly basis). 
Finally, the expenditure weight for each cost category is multiplied by 
the level of its respective price proxy. The sum of these products 
(that is, the expenditure weights multiplied by their price levels) for 
all cost categories yields the composite index level of the market 
basket in a given period. Repeating this step for other periods 
produces a series of market basket levels over time. Dividing an index 
level for a given period by an index level for an earlier period 
produces a rate of growth in the input price index over that timeframe.
    The market basket is described as a fixed-weight index because it 
represents the change in price over time of the same mix (quantity and 
intensity) of goods and services purchased to provide hospital services 
in a base period. The effects on total expenditures resulting from 
changes in the mix of goods and services purchased subsequent to the 
base period are not measured. For example, shifting a traditionally 
inpatient type of care to an outpatient setting might affect the volume 
of inpatient goods and services purchased by the hospital, but would 
not be factored into the price change measured by a fixed-weight 
hospital market basket. In this manner, the market basket measures pure 
price change only. Only when the index is rebased would changes in the 
quantity and intensity be captured in the cost weights. Therefore, we 
rebase the market basket periodically so the cost weights reflect 
recent changes in the mix of goods and services that hospitals purchase 
(hospital inputs) to furnish inpatient care between base periods. We 
last rebased the hospital market basket cost weights effective for FY 
2006 (70 FR 47387), with FY 2002 data used as the base period for the 
construction of the market basket cost weights.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24154), 
we invited public comments on our proposed methodological changes to 
both the IPPS operating market basket and the capital input price index 
(CIPI). We note that this section addresses only the rebasing and 
revision of the IPPS market basket and CIPI for acute care hospitals 
and for children's and cancer hospitals and RNHCIs, which are excluded 
from the IPPS. We address the market basket that will be applicable to 
LTCHs in section VIII.C.2. of the preamble of this final rule. Separate 
documents will address the market basket for other hospitals that are 
excluded from the IPPS.

B. Rebasing and Revising the IPPS Market Basket

    The terms ``rebasing'' and ``revising,'' while often used 
interchangeably, actually denote different activities. ``Rebasing'' 
means moving the base year for the structure of costs of an input price 
index (for example, in this final rule, we are shifting the base year 
cost structure for the IPPS hospital index from FY 2002 to FY 2006). 
``Revising'' means changing data sources, or price proxies, used in the 
input price index. As published in the FY 2006 IPPS final rule (70 FR 
47387), in accordance with section 404 of Public Law 108-173, CMS 
determined a new frequency for rebasing the hospital market basket. We 
established a rebasing frequency of every 4 years and, therefore, for 
the FY 2010 IPPS update, as we proposed, we are rebasing and revising 
the IPPS market basket and the CIPI.
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
    The major source of expenditure data for developing the rebased and 
revised hospital market basket cost weights is the FY 2006 Medicare 
cost reports. As was done in previous rebasings, these cost reports are 
from IPPS hospitals only (hospitals excluded from the IPPS and CAHs are 
not included) and are based on IPPS Medicare-allowable operating costs. 
IPPS Medicare-allowable operating costs are costs that are eligible to 
be paid for under the IPPS. For example, the IPPS market basket 
excludes home health agency (HHA) costs as these costs would be paid 
under the HHA PPS and, therefore, these costs are not IPPS Medicare-
allowable costs.
    The IPPS cost reports yield seven major expenditure or cost 
categories--the same as in the FY 2002-based hospital market basket: 
Wages and salaries, employee benefits, contract labor, pharmaceuticals, 
professional liability insurance (malpractice), blood and blood 
products, and a residual ``all other.'' The cost weights that were 
obtained directly from the Medicare cost reports are reported in Chart 
1. These Medicare cost report cost weights are then supplemented with 
information obtained from other data sources to derive the IPPS market 
basket cost weights.

 Chart 1--Major Cost Categories and Their Respective Cost Weights Found
                      in the Medicare Cost Reports
------------------------------------------------------------------------
                                        FY 2002-based     FY 2006-based
        Major cost categories           market basket     market basket
------------------------------------------------------------------------
Wages and salaries..................            45.590            45.156

[[Page 43845]]

 
Employee benefits...................            11.189            11.873
Contract labor......................             3.214             2.598
Professional Liability Insurance                 1.589             1.661
 (Malpractice)......................
Pharmaceuticals.....................             5.855             5.380
Blood and blood products............             1.082             1.078
All other...........................            31.481            32.254
------------------------------------------------------------------------

b. Other Data Sources
    In addition to the Medicare cost reports, the other data source we 
used to develop the IPPS market basket cost weights was the Benchmark 
Input-Output (I-O) Tables created by the Bureau of Economic Analysis 
(BEA), U.S. Department of Commerce. The BEA Benchmark I-O data are 
scheduled for publication every 5 years. The most recent data available 
are for 2002. BEA also produces Annual I-O estimates; however, the 2002 
Benchmark I-O data represent a much more comprehensive and complete set 
of data that are derived from the 2002 Economic Census. The Annual I-O 
is simply an update of the Benchmark I-O tables. For the FY 2006 market 
basket rebasing, we used the 1997 Benchmark I-O data. In the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24155), we proposed to use 
the 2002 Benchmark I-O data in the FY 2006-based IPPS market basket, to 
be effective for FY 2010. Instead of using the less detailed, less 
accurate Annual I-O data, we aged the 2002 Benchmark I-O data forward 
to FY 2006. The methodology we used to age the data forward involves 
applying the annual price changes from the respective price proxies to 
the appropriate cost categories. We repeat this practice for each year.
    The ``all other'' cost category obtained directly from the Medicare 
cost reports is divided into other hospital expenditure category shares 
using the 2002 Benchmark I-O data. Therefore, the ``all other'' cost 
category expenditure shares are proportional to their relationship to 
``all other'' totals in the 2002 Benchmark I-O data. For instance, if 
the cost for telephone services was to represent 10 percent of the sum 
of the ``all other'' Benchmark I-O (see below) hospital expenditures, 
then telephone services would represent 10 percent of the IPPS market 
basket's ``all other'' cost category. Following publication of the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule, and in an effort to provide 
greater transparency, we posted on the CMS market basket Web page at: 
http://www.cms.hhs.gov/MedicareProgramRatesStats/05_MarketBasketResearch.asp#TopOfPage an illustrative spreadsheet that 
shows how the detailed cost weights in the proposed rule (that is, 
those not calculated using Medicare cost reports) were determined using 
the 2002 Benchmark I-O data.
2. Final Cost Category Computation
    As stated previously, for this rebasing we used the Medicare cost 
reports to derive seven major cost categories. As we proposed, the FY 
2006-based IPPS market basket includes three additional cost categories 
that were not broken out separately in the FY 2002-based IPPS market 
basket. The first is lifted directly from the Medicare cost reports: 
Blood and blood products. The remaining two are derived using the 
Benchmark I-O data: Administrative and business support services and 
financial services. As we proposed, we broke out the latter two 
categories so we can better match their respective expenses with price 
proxies. A thorough discussion of our rationale for each of these cost 
categories is provided in section IV.B.3. of the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule (74 FR 24155) and this final rule. Also, the FY 
2006-based IPPS market basket excludes one cost category: Photo 
supplies. The 2002 Benchmark I-O weight for this category is 
considerably smaller than the 1997 Benchmark I-O weight, presently 
accounting for less than one-tenth of one percentage point of the IPPS 
market basket. Therefore, as we proposed, we include the photo supplies 
costs in the chemical cost category weight with other similar chemical 
products (74 FR 24155).
    As we proposed, we are not changing our definition of the labor-
related share. However, we rename our aggregate cost categories from 
``labor-intensive'' and ``non-labor-intensive'' services to ``labor-
related'' and ``nonlabor-related'' services (74 FR 24155). As discussed 
in more detail below and similar to the previous rebasing, we classify 
a cost category as labor-related and include it in the labor-related 
share if the cost category is defined as being labor-intensive and its 
cost varies with the local labor market. In previous regulations, we 
grouped cost categories that met both of these criteria into labor-
intensive services. We believe the new labels more accurately reflect 
the concepts that they are intended to convey. We are not changing our 
definition of the labor-related share because we continue to classify a 
cost category as labor-related if the costs are labor-intensive and 
vary with the local labor market.
3. Selection of Price Proxies
    After computing the FY 2006 cost weights for the rebased hospital 
market basket, it was necessary to select appropriate wage and price 
proxies to reflect the rate of price change for each expenditure 
category. With the exception of the proxy for professional liability, 
all the proxies are based on Bureau of Labor Statistics (BLS) data and 
are grouped into one of the following BLS categories:
     Producer Price Indexes--Producer Price Indexes (PPIs) 
measure price changes for goods sold in markets other than the retail 
market. PPIs are preferable price proxies for goods and services that 
hospitals purchase as inputs because these PPIs better reflect the 
actual price changes faced by hospitals. For example, we use a special 
PPI for prescription drugs, rather than the Consumer Price Index (CPI) 
for prescription drugs, because hospitals generally purchase drugs 
directly from a wholesaler. The PPIs that we use measure price changes 
at the final stage of production.
     Consumer Price Indexes--Consumer Price Indexes (CPIs) 
measure change in the prices of final goods and services bought by the 
typical consumer. Because they may not represent the price faced by a 
producer, we used CPIs only if an appropriate PPI was not available, or 
if the expenditures were more similar to those faced by retail 
consumers in general rather than by purchasers of goods at the 
wholesale level. For example, the CPI for food

[[Page 43846]]

purchased away from home is used as a proxy for contracted food 
services.
     Employment Cost Indexes--Employment Cost Indexes (ECIs) 
measure the rate of change in employee wage rates and employer costs 
for employee benefits per hour worked. These indexes are fixed-weight 
indexes and strictly measure the change in wage rates and employee 
benefits per hour. Appropriately, they are not affected by shifts in 
employment mix.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly, 
preferably at least once a quarter. Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. The CPIs, PPIs, and ECIs selected meet these criteria.
    Comment: Several commenters stated that although the MMA requires 
CMS to rebase the weights used in the hospital market basket more 
frequently than every 5 years to reflect the most current data 
available, it does not require CMS to modify or revise the price 
proxies used in the market basket calculation. The commenters 
discouraged CMS from incorporating any new price proxies, particularly 
the new blended price proxy associated with the Chemicals cost 
category, and indicated that such a change was not preferred at this 
time. They pointed out that the methodology and data sources used by 
CMS to derive the proposed 2006-based IPPS market basket yield a 
projected 2.1 percent increase in the hospital market basket update, 
while the historical methodology and data sources used to derive the FY 
2002-based IPPS market basket yield a projected update of 2.3 percent. 
Several commenters pointed to the current status and volatility of the 
economy as a basis for maintaining the same price proxies going 
forward. Those comments included the following:
     Maintaining the current proxies will result in a more 
stable market basket increase and will demonstrate forbearance, given 
the current economic volatility that has occurred or may be yet to 
come.
     The country has recently experienced a period of very low 
inflation. The funds from the ARRA (Pub. L. 111-5) are beginning to 
work their way into the economy, possibly resulting in a period of 
higher inflation that could substantially affect the market basket 
estimate.
     The new price proxies selected by CMS are not responsive 
to the inflationary effects of the President's FY 2010 Budget and the 
inflationary stimulus effect of the Troubled Asset Relief Program 
(TARP), which is demonstrated by the modest market basket increases in 
FY 2010 and FY 2011.
     The traditional approach taken in developing the annual 
market basket forecast is inadequate, given the severe downturn in the 
economy and the potential for inflation to pick up at a pace quicker 
than we have seen for many years. Following several years of updates 
between 3 percent and 3.5 percent, a lower forecast may well 
underestimate hospital input costs, particularly nursing labor, as 
hospitals will not benefit from swelling labor markets due to the fact 
that it is unlikely that newly-unemployed workers possess the 
specialized skills required by hospitals.
    As a result of these issues, multiple commenters urged CMS only to 
rebase the data and weights used in the market basket calculation, and 
not to revise the price proxies.
    Response: We continuously monitor the technical appropriateness of 
all of CMS' market baskets (including the hospital market basket) 
whether or not the market basket is being rebased. However, whenever a 
market basket is rebased, it is a matter of practice for CMS to 
scrutinize all of its aspects, including the data sources that are used 
to construct it, the selection of its exhaustive and mutually exclusive 
cost categories, the weights associated with those categories, and the 
price proxies that are applied. We are revising the hospital market 
basket to make technical improvements that we believe results in more 
accurate payment updates.
    We believe that revising four new price proxies for existing cost 
categories and including three additional price proxies for the new 
cost categories in the FY 2006-based hospital market basket represents 
a significant technical improvement to the market basket.
    As many of the commenters stated, we proposed (and are adopting as 
final) a new blended chemical price proxy for the Chemicals cost weight 
in the FY 2006-based IPPS market basket. The FY 2002-based IPPS market 
basket used the PPI for industrial chemicals (WPI061) to proxy the 
chemicals cost category. In evaluating the technical merit of the 
continuing use of that proxy, we compared the 2002 BEA Benchmark I-O 
expenditure weights with the composition of the PPI for industrial 
chemicals. Using a commodity-to-industry crosswalk, we were able to 
identify the industry expenses classified by North American Industrial 
Classification System (NAICS) that comprise the commodity-based PPI for 
industrial chemicals.
    We found that the relative PPI weights for each of the NAICS 
expense categories were not always consistent with the expense weights 
for the hospital industry, as indicated by the 2002 Benchmark I-O data. 
For example, hospital spending for NAICS 325120 (Industrial Gas 
Manufacturing)--the hospital industry's largest chemical expense 
category (accounting for 29 percent of the hospital industry's total 
chemical expenses)--is not found in the PPI for industrial chemicals. 
In addition, hospital spending attributable to NAICS 325190 (Other 
Basic Organic Chemical Manufacturing) accounts for just 26 percent of 
the hospital industry's total chemical expenses. However, NAICS 325190 
accounts for 41 percent of the PPI for industrial chemicals.
    Given these findings, we proposed using a blended chemical price 
index that reflects the relative weights of the hospital industry's 
chemical expenses as indicated by the 2002 Benchmark I-O data. This 
blended index is composed of the PPI for industrial gases (NAICS 
325120), the PPI for other basic inorganic chemical manufacturing 
(NAICS 325180), the PPI for other basic organic chemical manufacturing 
(NAICS 325190), and the PPI for soap and cleaning compound 
manufacturing (NAICS 325610). The expenses for these NAICS industries 
account for approximately 90 percent of the hospital industry's 
chemical expenses, excluding NAICS 324110--Petroleum Refineries, which 
we proposed to include with other petroleum-related expenses classified 
in the fuel, oil, and gas cost category. We believe this new blended 
proxy represents a more accurate reflection of the price pressures 
associated with hospital chemical expenses.
    With respect to the state of the economy, we are attentive to the 
recent downturn and the fact that this year's update is lower relative 
to historical market basket updates. We also recognize the commenters' 
uncertainty regarding future inflationary pressures, given the 
activities undertaken in the last several months to aid the economy. 
However, the most recent forecast of the rebased and revised FY 2006-
based IPPS market basket FY 2010 update factor reflects the current 
expectations regarding the performance of the economy during FY 2010, 
including the inflation expectations associated with the economic 
stimulus plans. Moreover,

[[Page 43847]]

this forecast also reflects our most recent expectations regarding 
price pressures associated with the labor market for hospital workers.
    Comment: One commenter stated that CMS' proposal to rebase and 
revise the market basket appears to be directed at reducing the rate of 
increase in future market basket increases.
    Response: When selecting the price proxies for the IPPS market 
basket, we do not evaluate the resulting market basket update as a 
criterion in selecting these proxies, but rather choose the most 
technically appropriate measures of the price pressures faced by the 
hospital industry. We believe the proxies that were articulated in the 
FY 2010 proposed rule reflect that approach.
    Comment: Several commenters supported CMS' proposed use of the PPI 
for blood and organ banks for measuring changes in the cost of blood 
and blood products. The commenters expressed appreciation for CMS' 
responsiveness to the need for greater accuracy in the calculation of 
price changes attributable to blood and blood products in the IPPS 
market basket.
    Response: We appreciate the commenters' support for our proposed 
price proxy for the blood and blood products cost category. We agree 
with the commenters that the implementation of this price proxy 
represents a technical improvement to the IPPS market basket.
    After consideration of the public comments received, we are 
adopting as final the price proxies that we proposed in the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24155-24159).
    Chart 2 sets forth the FY 2006-based IPPS market basket, including 
cost categories, weights, and price proxies. For comparison purposes, 
the corresponding FY 2002-based IPPS market basket is listed as well. A 
summary outlining the choice of the various proxies follows the chart.

  Chart 2--FY 2006-Based IPPS Hospital Market-Basket Cost Categories, Weights, and Price Proxies With FY 2002-
                                Based IPPS Market Basket Included for Comparison
----------------------------------------------------------------------------------------------------------------
                                                      FY          Rebased FY
                                               2002[dash]based    2006-based
               Cost Categories                 hospital market     hospital      Rebased FY 2006-based hospital
                                                 basket cost     market basket     market basket price proxies
                                                   weights       cost weights
----------------------------------------------------------------------------------------------------------------
1. Compensation..............................           59.993          59.627
    A. Wages and Salaries \1\................           48.171          47.213  ECI for Wages and Salaries,
                                                                                 Civilian Hospital Workers.
    B. Employee Benefits \1\.................           11.822          12.414  ECI for Benefits, Civilian
                                                                                 Hospital Workers.
2. Utilities.................................            1.251           2.180
    A. Fuel, Oil, and Gasoline...............            0.206           0.418  PPI for Petroleum Refineries.
    B. Electricity...........................            0.669           1.645  PPI for Commercial Electric
                                                                                 Power.
    C. Water and Sewage......................            0.376           0.117  CPI-U for Water & Sewerage
                                                                                 Maintenance.
3. Professional Liability Insurance..........            1.589           1.661  CMS Professional Liability
                                                                                 Insurance Premium Index.
4. All Other.................................           37.167          36.533
    A. All Other Products....................           20.336          19.473
     (1.) Pharmaceuticals....................            5.855           5.380  PPI for Pharmaceutical
                                                                                 Preparations (Prescriptions).
     (2.) Food: Direct Purchases.............            1.664           3.982  PPI for Processed Foods & Feeds.
     (3.) Food: Contract Services............            1.180           0.575  CPI-U for Food Away From Home.
     (4.) Chemicals \2\......................            2.096           1.538  Blend of Chemical PPIs.
     (5.) Blood and Blood Products \3\.......  ...............           1.078  PPI for Blood and Organ Banks.
     (6.) Medical Instruments................            1.932           2.762  PPI for Medical, Surgical, and
                                                                                 Personal Aid Devices.
     (7.) Photographic Supplies..............            0.183
     (8.) Rubber and Plastics................            2.004           1.659  PPI for Rubber & Plastic
                                                                                 Products.
     (9.) Paper and Printing Products........            1.905           1.492  PPI for Converted Paper &
                                                                                 Paperboard Products.
     (10.) Apparel...........................            0.394           0.325  PPI for Apparel.
     (11.) Machinery and Equipment...........            0.565           0.163  PPI for Machinery & Equipment.
     (12.) Miscellaneous Products \3\........            2.558           0.519  PPI for Finished Goods Less Food
                                                                                 and Energy.
    B. Labor-related Services................            9.738           9.175
     (1.) Professional Fees: Labor-related               5.510           5.356  ECI for Compensation for
     \4\.                                                                        Professional and Related
                                                                                 Occupations.
     (2.) Administrative and Business Support              n/a           0.626  ECI for Compensation for Office
     Services \5\.                                                               and Administrative Services.
     (3.) All Other: Labor-Related Services              4.228           3.193  ECI for Compensation for Private
     \5\.                                                                        Service Occupations.
    C. Nonlabor-Related Services.............            7.093           7.885
     (1.) Professional Fees: Nonlabor-Related              n/a           4.074  ECI for Compensation for
     \4\.                                                                        Professional and Related
                                                                                 Occupations.
     (2.) Financial Services \6\.............              n/a           1.281  ECI for Compensation for
                                                                                 Financial Activities.
     (3.) Telephone Services.................            0.458           0.627  CPI-U for Telephone Services.
     (4.) Postage............................            1.300           0.963  CPI-U for Postage.
     (5.) All Other: Nonlabor-Related                    5.335           0.940  CPI-U for All Items Less Food
     Services \6\.                                                               and Energy.
                                              ------------------------------------------------------------------
    Total....................................          100.000         100.000
----------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Contract labor is distributed to wages and salaries and employee benefits based on the share of total
  compensation that each category represents.
\2\ To proxy the ``chemicals'' cost category, we used a blended PPI composed of the PPI for industrial gases,
  the PPI for other basic inorganic chemical manufacturing, the PPI for other basic organic chemical
  manufacturing, and the PPI for soap and cleaning compound manufacturing. For more detail about this proxy, see
  section IV.B.3.j. of the preamble of this final rule.
\3\ The ``blood and blood products'' cost category was contained within ``miscellaneous products'' cost category
  in the FY 2002-based IPPS market basket.

[[Page 43848]]

 
\4\ The ``professional fees: Labor-related'' and ``professional fees: Nonlabor-related'' cost categories were
  included in one cost category called ``professional fees'' in the FY 2002-based IPPS market basket. For more
  detail about how these new categories were derived, we refer readers to sections IV.B.3.s. and v. of the
  preamble of this final rule, on the labor-related share.
\5\ The ``administrative and business support services'' cost category was contained within ``all other: Labor-
  intensive services'' cost category in the FY 2002-based IPPS market basket. The ``all other: Labor-intensive
  services'' cost category is renamed the ``all other: Labor-related services'' cost category for the FY 2006-
  based IPPS market basket.
\6\ The ``financial services'' cost category was contained within the ``all other: Non-labor intensive
  services'' cost category in the FY 2002-based IPPS market basket. The ``all other: Nonlabor intensive
  services'' cost category is renamed the ``all other: Nonlabor-related services'' cost category for the FY 2006-
  based IPPS market basket.

    As we proposed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
(74 FR 24156 through 24159), for this final rule, we use the following 
choices with respect to the various proxies:
a. Wages and Salaries
    We use the ECI for wages and salaries for hospital workers (all 
civilian) (series code CIU1026220000000I) to measure the price 
growth of this cost category. This same proxy was used in the FY 2002-
based IPPS market basket.
b. Employee Benefits
    We use the ECI for employee benefits for hospital workers (all 
civilian) to measure the price growth of this cost category. This same 
proxy was used in the FY 2002-based IPPS market basket.
c. Fuel, Oil, and Gasoline
    For the FY 2002-based market basket, this category only included 
expenses classified under North American Industry Classification System 
(NAICS) 21 (Mining). We proxied this category using the PPI for 
commercial natural gas (series code WPU0552). For the FY 2006-
based market basket, we add costs to this category that had previously 
been grouped in other categories. The added costs include petroleum-
related expenses under NAICS 324110 (previously captured in the 
miscellaneous category), as well as petrochemical manufacturing 
classified under NAICS 325110 (previously captured in the chemicals 
category). These added costs represent 80 percent of the hospital 
industry's fuel, oil, and gasoline expenses (or 80 percent of this 
category). Because the majority of the industry's fuel, oil, and 
gasoline expenses originate from petroleum refineries (NAICS 324110), 
we use the PPI for petroleum refineries (series code 
PCU324110) as the proxy for this cost category.
d. Electricity
    We use the PPI for commercial electric power (series code 
WPU0542) to measure the price growth of this cost category. 
This same proxy was used in the FY 2002-based IPPS market basket.
e. Water and Sewage
    We use the CPI for water and sewerage maintenance (all urban 
consumers) (series code CUUR0000SEHG01) to measure the price 
growth of this cost category. This same proxy was used in the FY 2002-
based IPPS market basket.
f. Professional Liability Insurance
    We proxy price changes in hospital professional liability insurance 
premiums (PLI) using percentage changes as estimated by the CMS 
Hospital Professional Liability Index. To generate these estimates, we 
collect commercial insurance premiums for a fixed level of coverage 
while holding nonprice factors constant (such as a change in the level 
of coverage). This method also is used to proxy PLI price changes in 
the Medicare Economic Index (68 FR 63244). This same proxy was used in 
the FY 2002-based IPPS market basket.
g. Pharmaceuticals
    We use the PPI for pharmaceutical preparations (prescription) 
(series code PCU32541DRX) to measure the price growth of this 
cost category. This is a special index produced by BLS and is the same 
proxy used in the FY 2002-based IPPS market basket.
h. Food: Direct Purchases
    We use the PPI for processed foods and feeds (series code 
WPU02) to measure the price growth of this cost category. This 
same proxy was used in the FY 2002-based IPPS market basket.
i. Food: Contract Services
    We use the CPI for food away from home (all urban consumers) 
(series code CUUR0000SEFV) to measure the price growth of this 
cost category. This same proxy was used in the FY 2002-based IPPS 
market basket.
j. Chemicals
    We use a blended PPI composed of the PPI for industrial gases 
(NAICS 325120), the PPI for other basic inorganic chemical 
manufacturing (NAICS 325180), the PPI for other basic organic chemical 
manufacturing (NAICS 325190), and the PPI for soap and cleaning 
compound manufacturing (NAICS 325610). Using the 2002 Benchmark I-O 
data, we found that these NAICS industries accounted for approximately 
90 percent of the hospital industry's chemical expenses. Therefore, we 
use this blended index because we believe its composition better 
reflects the composition of the purchasing patterns of hospitals than 
does the PPI for industrial chemicals (series code WPU061), 
the proxy used in the FY 2002-based IPPS market basket. Chart 3 below 
shows the weights for each of the four PPIs used to create the blended 
PPI, which we determined using the 2002 Benchmark I-O data.

                  Chart 3--Blended Chemical PPI Weights
------------------------------------------------------------------------
                                         Weights (in
                Name                      percent)            NAICS
------------------------------------------------------------------------
PPI for Industrial Gases............                35            325120
PPI for Other Basic Inorganic                       25            325180
 Chemical Manufacturing.............
PPI for Other Basic Organic Chemical                30            325190
 Manufacturing......................
PPI for Soap and Cleaning Compound                  10            325610
 Manufacturing......................
------------------------------------------------------------------------

k. Blood and Blood Products
    In the FY 2002-based IPPS market basket, we classified blood and 
blood products into the miscellaneous products category and used the 
PPI for finished goods less food and energy to proxy the price changes 
associated with these expenses. At the time of the rebasing of the FY 
2002-based IPPS market basket, we noticed an apparent divergence 
between the PPI for blood

[[Page 43849]]

and blood derivatives, the price proxy used in the FY 1997-based IPPS 
market basket, and blood costs faced by hospitals over the recent time 
period. A thorough discussion of this analysis is found in the FY 2006 
IPPS final rule (70 FR 47390).
    Since the last rebasing of the market basket, BLS began collecting 
data and publishing an industry PPI for blood and organ banks (NAICS 
621991). For the FY 2006-based IPPS market basket, as we proposed, we 
incorporate this series (series code PCU621991) into the 
market basket and use it to proxy the blood and blood products cost 
category.
l. Medical Instruments
    We use the PPI for medical, surgical, and personal aid devices 
(series code WPU156) to measure the price growth of this cost 
category. In the 1997 Benchmark I-O data, approximately half of the 
expenses classified in this category were for surgical and medical 
instruments. Thus, we used the PPI for surgical and medical instruments 
and equipment (series code WPU1562) to proxy this category in 
the FY 2002-based IPPS market basket. The 2002 Benchmark I-O data show 
that this category now represents only 33 percent of these expenses and 
the largest expense category is surgical appliance and supplies 
manufacturing (corresponding to series code WPU1563). Due to 
this reallocation of costs over time, we are changing the price proxy 
for this cost category to the more aggregated PPI for medical, 
surgical, and personal aid devices.
m. Photographic Supplies
    We are eliminating the cost category specific to photographic 
supplies for the proposed FY 2006-based IPPS market basket. These costs 
will now be included in the chemicals cost category because the costs 
are presently reported as all other chemical products. Notably, 
although we are eliminating the specific cost category, these costs 
will still be accounted for within the IPPS market basket.
n. Rubber and Plastics
    We use the PPI for rubber and plastic products (series code 
WPU07) to measure price growth of this cost category. This 
same proxy was used in the FY 2002-based IPPS market basket.
o. Paper and Printing Products
    We use the PPI for converted paper and paperboard products (series 
code WPU0915) to measure the price growth of this cost 
category. This same proxy was used in the FY 2002-based IPPS market 
basket.
p. Apparel
    We use the PPI for apparel (series code WPU0381) to 
measure the price growth of this cost category. This same proxy was 
used in the FY 2002-based IPPS market basket.
q. Machinery and Equipment
    We use the PPI for machinery and equipment (series code 
WPU11) to measure the price growth of this cost category. This 
same proxy was used in the FY 2002-based IPPS market basket.
r. Miscellaneous Products
    We use the PPI for finished goods less food and energy (series code 
WPUSOP3500) to measure the price growth of this cost category. 
Using this index removes the double-counting of food and energy prices, 
which are already captured elsewhere in the market basket. This same 
proxy was used in the FY 2002-based IPPS market basket.
s. Professional Fees: Labor-Related
    We use the ECI for compensation for professional and related 
occupations (private industry) (series code CIS2020000120000I) 
to measure the price growth of this category. It includes occupations 
such as legal, accounting, and engineering services. This same proxy 
was used in the FY 2002-based IPPS market basket.
t. Administrative and Business Support Services
    We use the ECI for compensation for office and administrative 
support services (private industry) (series code 
CIU2010000220000I) to measure the price growth of this 
category. Previously these costs were included in the ``all other: 
labor-intensive cost'' category (now renamed the ``all other: labor-
related cost'' category), and were proxied by the ECI for compensation 
for service occupations. We believe that this compensation index better 
reflects the changing price of labor associated with the provision of 
administrative services and its incorporation represents a technical 
improvement to the market basket.
u. All Other: Labor-Related Services
    We use the ECI for compensation for service occupations (private 
industry) (series code CIU2010000300000I) to measure the price 
growth of this cost category. This same proxy was used in the FY 2002-
based IPPS market basket.
v. Professional Fees: Nonlabor-Related
    We use the ECI for compensation for professional and related 
occupations (private industry) (series code CIS2020000120000I) 
to measure the price growth of this category. This is the same price 
proxy that we use for the professional fees: labor-related cost 
category.
w. Financial Services
    We use the ECI for compensation for financial activities (private 
industry) (series code CIU201520A000000I) to measure the price 
growth of this cost category. Previously these costs were included in 
the ``all other: nonlabor-intensive cost'' category (now renamed the 
``all other: nonlabor-related cost'' category), and were proxied by the 
CPI for all items. We believe that this compensation index better 
reflects the changing price of labor associated with the provision of 
financial services and its incorporation represents a technical 
improvement to the market basket.
x. Telephone Services
    We use the CPI for telephone services (series code 
CUUR0000SEED) to measure the price growth of this cost 
category. This same proxy was used in the FY 2002-based IPPS market 
basket.
y. Postage
    We use the CPI for postage (series code CUUR0000SEEC01) to 
measure the price growth of this cost category. This same proxy was 
used in the FY 2002-based IPPS market basket.
z. All Other: Nonlabor-Related Services
    We use the CPI for all items less food and energy (series code 
CUUR0000SA0L1E) to measure the price growth of this cost 
category. Previously these costs were proxied by the CPI for all items 
in the FY 2002-based IPPS market basket. We believe that using the CPI 
for all items less food and energy will remove any double-counting of 
food and energy prices, which are already captured elsewhere in the 
market basket. Consequently, we believe that the incorporation of this 
proxy represents a technical improvement to the market basket.
    Chart 4 compares both the historical and forecasted percent changes 
in the FY 2002-based IPPS market basket and the FY 2006-based IPPS 
market basket.

[[Page 43850]]



  Chart 4--FY 2002-Based and FY 2006-Based Prospective Payment Hospital
         Operating Index Percent Change, FY 2004 Through FY 2012
------------------------------------------------------------------------
                                        FY 2002-based     FY 2006-based
                                         IPPS market       IPPS market
          Fiscal year (FY)            basket operating  basket operating
                                        index percent     index percent
                                           change            change
------------------------------------------------------------------------
Historical data:
    FY 2004.........................               4.0               4.0
    FY 2005.........................               4.3               3.9
    FY 2006.........................               4.3               4.0
    FY 2007.........................               3.4               3.6
    FY 2008.........................               4.3               4.0
    Average FYs 2004-2008...........               4.1               3.9
Forecast:
    FY 2009.........................               2.1               2.6
    FY 2010.........................               2.3               2.1
    FY 2011.........................               2.8               2.7
    FY 2012.........................               3.0               2.9
    Average FYs 2009-2012...........               2.6               2.6
------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 2nd Quarter 2009, USMACRO/
  [email protected]/TL0509.SIM.

    The differences between the FY 2002-based and the FY 2006-based 
IPPS market basket increases are mostly stemming from the revision the 
proxy used for the chemicals cost category. As stated earlier, we are 
adopting a blended chemical index that is comprised of four industry-
based chemical price proxies that represent approximately 90 percent of 
the hospital industry's chemical expenses. The FY 2002-based IPPS 
market basket used the PPI for industrial chemicals. The PPI for 
industrial chemicals attributes more weight to direct petroleum 
expenses, which is not consistent with a hospital's most recent 
purchasing pattern according to the 2002 Benchmark I-O data. The lower 
weight for direct petroleum expenses in the blended chemical index 
results in less volatile price movements. We believe the blended index 
represents a technical improvement because it better reflects the 
purchasing patterns of hospitals.
    Also contributing to the differences between the FY 2002-based and 
the FY 2006-based IPPS market basket increases is the larger weight 
associated with the professional fees category. In both market baskets, 
these expenditures are proxied by the ECI for compensation for 
professional and related services. The weight for professional fees in 
the FY 2002-based IPPS market basket is 5.5 percent compared to 9.4 
percent in the FY 2006-based IPPS market basket.
4. Labor-Related Share
    Under section 1886(d)(3)(E) of the Act, the Secretary estimates 
from time to time the proportion of payments that are labor-related. 
``The Secretary shall adjust the proportion (as estimated by the 
Secretary from time to time) of hospitals' costs which are attributable 
to wages and wage-related costs of the DRG prospective payment rates * 
* *.'' We refer to the proportion of hospitals' costs that are 
attributable to wages and wage-related costs as the ``labor-related 
share.''
    The labor-related share is used to determine the proportion of the 
national PPS base payment rate to which the area wage index is applied. 
We include a cost category in the labor-related share if the costs are 
labor intensive and vary with the local labor market. Given this, as we 
proposed, we are including in the labor-related share the national 
average proportion of operating costs that are attributable to wages 
and salaries, employee benefits, contract labor, the labor-related 
portion of professional fees, administrative and business support 
services, and all other: labor-related services (previously referred to 
in the FY 2002-based IPPS market basket as labor-intensive) (74 FR 
24159). Consistent with previous rebasings, the ``all other: labor-
related services'' cost category is mostly comprised of building 
maintenance and security services (including, but not limited to, 
commercial and industrial machinery and equipment repair, 
nonresidential maintenance and repair, and investigation and security 
services). Because these services tend to be labor-intensive and are 
mostly performed at the hospital facility (and, therefore, unlikely to 
be purchased in the national market), we believe that they meet our 
definition of labor-related services.
    For the rebasing of the FY 2002-based IPPS market basket in the FY 
2006 IPPS final rule, we included in the labor-related share the 
national average proportion of operating costs that are attributable to 
wages and salaries, employee benefits, contract labor, professional 
fees, and labor-intensive services (70 FR 47393). For the FY 2006-based 
IPPS market basket rebasing, the inclusion of the administrative and 
business support services cost category into the labor-related share 
remains consistent with the current labor-related share because this 
cost category was previously included in the labor-intensive cost 
category. As previously stated, we are establishing a separate 
administrative and business support service cost category so that we 
can use the ECI for compensation for office and administrative support 
services to more precisely proxy these specific expenses.
    For the FY 2002-based IPPS market basket, we assumed that all 
nonmedical professional services (including accounting and auditing 
services, engineering services, legal services, and management and 
consulting services) were purchased in the local labor market and, 
therefore, all of their associated fees varied with the local labor 
market. As a result, we previously included 100 percent of these costs 
in the labor-related share. In an effort to more accurately determine 
the share of professional fees that should be included in the labor-
related share, we surveyed hospitals regarding the proportion of those 
fees that go to companies that are located beyond their own local labor 
market (the results are discussed below).
    We continue to look for ways to refine our market basket approach 
to more accurately account for the proportion of costs influenced by 
the local labor market. To that end, we conducted a survey of hospitals 
to empirically determine the proportion of contracted

[[Page 43851]]

professional services purchased by the industry that are attributable 
to local firms and the proportion that are purchased from national 
firms. We notified the public of our intent to conduct this survey on 
December 9, 2005 (70 FR 73250) and received no comments (71 FR 8588).
    With approval from the OMB, we contacted the industry and received 
responses to our survey from 108 hospitals. Using data on FTEs to 
allocate responding hospitals across strata (region of the country and 
urban/rural status), we calculated poststratification weights. Based on 
these weighted results, we determined that hospitals purchase, on 
average, the following portions of contracted professional services 
outside of their local labor market:
     34 percent of accounting and auditing services;
     30 percent of engineering services;
     33 percent of legal services; and
     42 percent of management consulting services.
    We applied each of these percentages to its respective Benchmark I-
O cost category underlying the professional fees cost category. This is 
the methodology that we used to separate the FY 2006-based IPPS market 
basket professional fees category into professional fees: Labor-related 
and professional fees: Nonlabor-related cost categories. In addition to 
the professional services listed above, we also classified expenses 
under NAICS 55, Management of Companies and Enterprises, into the 
professional fees cost category as was done in previous rebasings. The 
NAICS 55 data are mostly comprised of corporate, subsidiary, and 
regional managing offices, or otherwise referred to as home offices. 
Formerly, all of the expenses within this category were considered to 
vary with, or be influenced by, the local labor market and were thus 
included in the labor-related share. Because many hospitals are not 
located in the same geographic area as their home office, we analyzed 
data from a variety of sources in order to determine what proportion of 
these costs should be appropriately included in the labor-related 
share.
    Comment: Several commenters disagreed with the proposed methodology 
to apportion home offices costs into the labor-related share.
    Response: Our proposed methodology was primarily based on data from 
the Medicare cost reports, as well as a CMS database of Home Office 
Medicare Records (HOMER) (a database that provides city and state 
information (addresses) for home offices). The Medicare cost report 
requires hospitals to report their home office provider numbers. Using 
the HOMER database to determine the home office location for each home 
office provider number, we compared the location of the hospital with 
the location of the hospital's home office. We then proposed to 
determine the proportion of costs that should be allocated to the 
labor-related share based on the percent of hospitals that had home 
offices located in their respective local labor markets--defined as 
being in the same MSA. Using this proposed methodology, we had 
determined that 27 percent of hospitals that had home offices had those 
home offices located in their respective local labor markets, and 
therefore, we proposed to allocate 27 percent of NAICS 55 expenses to 
the labor-related share.
    In response to the public comments submitted, we have revisited the 
home office cost allocation method and determined that a revision of 
the approach is appropriate. As an alternative to using provider counts 
(where each provider counts evenly) as the means by which home office 
costs are apportioned to the labor-related share, or deemed nonlabor-
related, for this final rule, we are weighting the providers by home 
office compensation costs as reported in Worksheet S-3, part II, line 
11 of the hospital MCR. (The Medicare cost report includes, but does 
not explicitly itemize, all home office costs. However, it does contain 
a line item for home office compensation costs.) We believe that this 
revised methodology of weighting the providers based on home office 
compensation costs provides a more technically appropriate estimate of 
the proportion of NAICS 55 expenses that should be allocated to the 
labor-related share.
    As proposed, we are still continuing to use the same data sources 
and methodology to determine whether a hospital's home office is 
located in their respective MSA. Once we determined whether the 
hospital's home office is located in their respective MSA, we used 
additional data on home office compensation costs from the Medicare 
cost report to assign weights to the providers. Using this revised 
methodology, we determined that 57 percent of hospitals' home office 
costs are paid into their respective local labor markets--defined as 
being in the same MSA.
    As was published in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
(74 FR 24159 through 24161), below is a more detailed explanation on 
our methodology used to determine whether a hospital's home office was 
located in their respective MSA. In addition to the number of providers 
that appeared in the proposed rule, we have also included our weighted 
results.
    The Medicare cost report requires hospitals to report their home 
office provider numbers. Using the HOMER database to determine the home 
office location for each home office provider number, we compared the 
location of the hospital with the location of the hospital's home 
office. We then placed hospitals into one of the following three 
groups:
     Group 1--Hospital and home office are located in different 
States;
     Group 2--Hospital and home office are located in the same 
State and same city; and
     Group 3--Hospital and home office are located in the same 
State and different city.
    We found that 59 percent of the hospitals with home offices (34 
percent of total home office compensation costs for hospitals with home 
offices) were classified into Group 1 (that is, different State) and, 
thus, these hospitals were determined to not be located in the same 
local labor market as their home office.
    We found that 12 percent of all hospitals with home offices (35 
percent of total home office compensation costs for hospitals with home 
offices) were classified into Group 2 (that is, same State and same 
city and, therefore, the same MSA). Consequently, these hospitals were 
determined to be located in the same local labor market as their home 
offices.
    We found that 29 percent of all hospitals with home offices (30 
percent of total home office compensation costs for hospitals with home 
offices) were classified into Group 3 (that is, same State and 
different city). Using data from the Census Bureau to determine the 
specific MSA for both the hospital and its home office, we found that 
16 percent of all hospitals with home offices (22 percent of total home 
office compensation costs for hospitals with home offices) were 
identified as being in the same State, a different city, but the same 
MSA.
    Pooling these results, we were able to determine that approximately 
28 percent of hospitals with home offices (57 percent of total home 
office compensation costs for hospitals with home offices) had home 
offices located within their local labor market (that is, 12 percent of 
hospitals with home offices (35 percent of total home office 
compensation costs for hospitals with home offices) had their home 
offices in the same State and city (and, thus, the same MSA), and 16 
percent of hospitals with home offices (22 percent of total

[[Page 43852]]

home office compensation costs for hospitals with home offices) had 
their home offices in the same State, a different city, but the same 
MSA). We note that due to data anomalies associated with home office 
compensation cost data on the Medicare cost report, we trimmed the data 
and, thus, the number of providers classified in each of the groups is 
slightly different than we had published in the proposed regulation. 
The aforementioned trim resulted in excluding hospitals whose home 
office costs as a percent of total hospital costs were in the top and 
bottom five percent of that ratio. In the proposed rule, we had 
determined that 27 percent of providers had a home office located in 
their respective MSA. Applying our trimming method resulted in 28 
percent of providers having a home office located in their respective 
MSA. Therefore, using the results of our weighting methodology, we are 
classifying 57 percent of the NAICS 55 costs into the professional 
fees: labor-related cost category and the remaining 43 percent into the 
professional fees: nonlabor-related cost category.
    Comment: Several commenters suggested that CMS maintain the labor-
related share from the FY 2002-based market basket (69.7 percent) for 
hospitals with an area wage index greater than 1.0 until a 
statistically valid approach for changing the labor-related share can 
be implemented. In addition, some commenters stated that, although CMS 
is required to rebase the hospital market basket, the proposal to 
revise the labor-related share is not required by statute and, thus, 
represents a discretionary decision by CMS.
    Response: As a matter of practice, CMS typically rebases and 
revises the market basket and the labor-related share simultaneously. 
We believe that doing so results in a more technically accurate market 
basket that has the effect of more precisely updating payments to 
Medicare's providers. We believe that revising the labor-related share 
is based on empirical research and relies on more recent data, 
representing a technical improvement to the construction of the market 
basket. The methodology relies, in part, on the results of a survey of 
professional fees that was nationally representative and inclusive of 
large, urban-based hospitals and whose results were estimated using 
widely accepted survey estimation techniques. It also is dependent on 
data from the Medicare cost reports and the HOMER database that showed 
43 percent of total home office compensation costs for hospitals with 
home offices had home offices located in different MSAs. Therefore, we 
disagree with the commenter's suggestion to continue to use a labor-
related share of 69.7 percent.
    Comment: Several commenters disagreed with the proposal to only 
allocate a portion of home office costs to the labor-related share 
based on whether these costs were incurred in the local labor market. 
One commenter stated that it is generally understood that there is a 
significant degree of correlation between the location of a 
multihospital system and the geographic locations of its member 
hospitals. All systems except the limited number of truly national 
hospital chains tend to be clustered in subareas of the country. 
Therefore, the commenters claimed that an assumption that 73 percent of 
home office labor costs more closely resemble national versus regional 
wage patterns is not necessarily supported by the methodology CMS 
proposed. Second, the commenter stated that it is generally the case 
that home office operations of multihospital systems and chains tend to 
be located in urban areas, even if the hospitals in the system or chain 
are nonurban or rural. The commenter further stated that this implies 
that average wage costs in these system headquarters may be 
systematically higher than the national average wage cost, making a 
national pricing proxy suspect in this case, as well.
    Response: In rebasing the labor-related share, we have identified 
new methodologies and newly available empirical evidence to estimate 
the portion of the standardized payment amount that is subject to the 
hospital area wage index. In determining what proportion of that amount 
should be apportioned to the labor-related share and what proportion 
should be deemed nonlabor-related, we referenced the following:
    Section 1886(d)(3)(E)(i) of the Act states that ``in general.--
Except as provided in clause (ii), 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 computed under subparagraph 
(D) 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.''
    Because the labor-related share determined through the market 
basket is linked to the hospital area wage index, for this rebasing, we 
have identified new methodologies and newly available empirical 
evidence to determine a labor-related share that more precisely 
reflects the wage and wage-related proportion of activities purchased 
where the individual hospital is located. Services purchased beyond the 
boundaries of the local labor market of the individual hospital are 
thereby excluded from the labor-related share.
    In order to distribute the appropriate proportion of home office 
costs to the labor-related share, we constructed a methodology that is 
similar to that undertaken to determine the area wage index. That is, 
we analyzed the locations of the individual hospitals and their 
respective home offices (at the MSA-level) as well as the home office 
compensation costs of the individual hospitals. The proportion of home 
office costs that we do not include in the labor-related share was not 
based on assumption, but rather it was based on Medicare cost report 
data and the HOMER database. Those data showed 43 percent of home 
office compensation costs were purchased from a different MSA than 
where the individual hospital is located and, thus, that proportion of 
home office costs are excluded from the labor-related share. The 
remaining 57 percent of home office compensation costs were purchased 
in the same MSA as the hospital; therefore, that proportion of home 
office costs is included in the labor-related share.
    Based on data published by the BEA, we determined that the share of 
total hospital costs attributable to home office costs in 2006 was 5.8 
percent. Applying the aforementioned shares to the 5.8 percent figure, 
we determined that 2.494 percentage points of total costs represent 
home office costs that are not incurred in the same local labor market 
as the hospital itself and, thus, are removed from the labor-related 
share. The remaining 3.306 percentage points remain in the labor-
related share.
    Comment: Several commenters addressed the survey CMS conducted 
regarding certain professional fees purchased by hospitals, stating 
that CMS used this survey to impute a 2.631 percentage point reduction 
in the labor-related share. These commenters stated that CMS failed to 
share data on the characteristics of the hospitals that responded, 
possible selection bias, or survey methodology. They also cited that 
the survey only received 108 respondents, which could lead to a high 
margin of error. The commenters stated that CMS provides no indication 
that it assessed for response bias in its survey nor did it explain how 
(or whether) it assured that the survey respondents were representative 
of all hospitals or of hospitals in wage areas greater than 1.0. 
Another commenter stated that the CMS survey assumed that such 
professional

[[Page 43853]]

services should be available in the local labor market and ignored some 
hospital's unavoidable need to incur those costs in order to comply 
with Federal and State requirements. The commenters requested CMS not 
remove a portion of professional fees from the labor-related share 
based on the results of this survey.
    Response: We disagree with the commenters' suggestion that we 
ignore the survey results and continue to assign 100 percent of 
nonmedical professional fees to the labor-related share, as has been 
done historically. We believe a method that distributes these fees 
based on empirical research and data represents a technical improvement 
to the construction of the market basket. Our intent to survey for this 
purpose was announced in the Federal Register on December 9, 2005 (70 
FR 73250). We received no public comment at that time.
    Although several commenters indicated that the professional fees 
survey was used to decrease the labor-related share by 2.631 percentage 
points, that indication is not correct. In the FY 2006-based IPPS 
market basket, nonmedical professional fees that were subject to 
allocation based on the survey results represent 2.114 percent of total 
costs (and are limited to those fees related to Accounting & Auditing, 
Legal, Engineering, and Management Consulting services). Based on our 
survey results, we are apportioning 1.335 percentage points of the 
2.114 percentage point figure into the labor-related share and 
designating the remaining 0.779 percentage point as nonlabor-related.
    The survey's methods unfolded in the following manner: A small 
sample of 12 hospitals was initially pre-tested in order to ensure the 
understandability of the survey questions. The survey prompted sample 
institutions to select from multiple choice answers the proportions of 
their professional fees that are purchased from firms located outside 
of their respective local labor market. The multiple choice answers for 
each type of professional service included the following options: 0 
percent of fees; 1-20 percent of fees; 21-40 percent of fees; 41-60 
percent of fees; 61-80 percent of fees; 81-99 percent of fees; and 100 
percent of fees. All respondents were assured that the information they 
provided would be kept strictly confidential.
    Understanding that larger, urban-based hospitals (and those located 
in areas with area wage indexes greater than 1.0) are most likely to be 
impacted by the survey's results, we used data on full-time equivalents 
(FTEs) to represent the sizes of hospitals and selected hospitals with 
probability proportional to their sizes across strata when drawing the 
full sample. Strata were formed by Census Region and Urban/Rural 
Status. The distributions of the hospital population, as well as 
weighted distributions for the responders, by Urban/Rural Status 
(including data on hospital size) and Census Region were as follows:

 
------------------------------------------------------------------------
                                                           Responding
                                        All hospitals       hospitals
                                           percent           percent
                                       distribution &    distribution &
                                      average FTE size  average FTE size
------------------------------------------------------------------------
Total...............................          100%/994        100%/1,156
Total Rurals........................           30%/388           25%/449
Total Urbans........................         70%/1,255         75%/1,460
Total Northeast Region..............         15%/1,442         20%/1,078
Total Mid-West Region...............         23%/1,062         24%/1,656
Total South Region..................           42%/843           37%/944
Total West Region...................           20%/899         19%/1,081
------------------------------------------------------------------------

    Sample weights were calculated as the inverse of the selection 
probability and were subsequently adjusted for nonresponse bias by 
strata and post-stratified to derive final weights. This type of 
application represents a common survey approach and is based on valid 
and widely-accepted statistical techniques.
    For the estimates of the nationwide proportion of nonmedical 
professional services fees purchased outside of the local labor market, 
we first examined the data on multiple levels. First, we found that 
fewer than 30 percent of the responding hospitals paid 100 percent of 
their professional fees to vendors located within their local labor 
market. Conversely, we found that roughly 20 percent of responding 
hospitals reported 81 percent or more of their professional services 
fees are paid to vendors located outside of their local labor market.
    In determining the specific and appropriate proportions of 
professional fees to consider labor-related and nonlabor-related, we 
generated weighted averages from the data in the following manner:
     For any multiple choice answer where the standard error 
associated with the weighted counts for that answer was less than 30 
percent, we multiplied the weighted counts associated with that answer 
by the midpoint of the range within that answer. For example, for 
Accounting and Auditing services, if a weighted count of 500 hospitals 
responded that they pay ``1 to 20 percent'' of their professional fees 
for these services to firms located outside of their local labor 
market, we would multiply 500 times 10 percent. We repeat this for each 
possible multiple choice answer.
     For any multiple choice answer where the standard error 
associated with the weighted counts for that answer exceeded 30 
percent, we multiplied the weighted hospital counts by the low point of 
the range. Using a similar example as above, if a weighted count of 300 
hospitals responded that they pay ``1 to 20 percent'' of their 
professional fees for these services to firms located outside of their 
local labor market, and the standard error on that estimate was greater 
than 30 percent, we would multiply 300 times 1 percent.
     After applying one of these two techniques to each answer, 
dependent on its associated standard error, we took a weighted average 
of the results to determine the final proportion to be excluded from 
the labor-related share for each of the four types of professional 
services surveyed.
    We do not assume that access to professional services such as those 
included in this survey should be available to all hospitals within 
their respective local labor market and we understand that, in some 
cases, hospitals may have to obtain these services from vendors beyond 
those boundaries. However, for purposes of estimating the labor-related 
share of the market basket, in accordance with the

[[Page 43854]]

aforementioned section 1886(d)(3)(E)(i) of the Act, we have used the 
newly available empirical evidence to determine the wage and wage-
related costs in the labor-related share that are incurred within the 
geographic location of the hospital itself.
    Comment: Several commenters questioned why CMS chose to conduct a 
survey to determine which proportion of professional fees is purchased 
in the local labor market when they could have conducted a study of 
Medicare cost reports for hospitals which, on line 22.01 of Worksheet 
S-3, part II, contains hospitals' average annual wage for professional 
services. In addition, one commenter suggested that instead of a 
survey, CMS should have proposed a change to the cost report in order 
to collect accurate data for all facilities.
    Response: The Medicare cost report data do provide an average 
hourly wage for administrative and general (A&G) services (including 
those professional services included in the CMS survey) under contract. 
However, the data do not distinguish whether these services were 
purchased in the local labor market. In addition, a comparison of the 
average hourly wage for A&G services performed by hospital staff (as 
reported in line 22 of Worksheet S-3, part II) and the average hourly 
wage for A&G services under contract (as reported on line 22.01 of 
Worksheet S-3, part II) would not be sufficient to determine whether 
the contracted services were purchased in the local or national labor 
market. The reason for this is that the average A&G wages reported for 
hospital staff could represent a different occupational mix than the 
average A&G wages under contract. For example, a hospital could choose 
to employ staff to perform their bookkeeping and tax preparation 
services, but contract out their legal services. The higher average 
annual wage rate for the contracted A&G services compared to the in-
house A&G services would not necessarily be a result of purchasing 
services in differing geographic areas, but rather a reflection of the 
different skill-mix represented in each group.
    At the time this survey was initiated, it was not a viable option 
to alter the Medicare cost report in such a way as to collect this 
information due to the long periods of time between when the Medicare 
cost report questions are updated.
    Comment: One commenter stated that it is inappropriate to restrict 
the wage index adjustment to labor-related costs that vary with the 
local labor market without recognizing that there are significant 
nonlabor costs that vary with the local market, of which professional 
liability insurance is but one obvious example. The commenter cited a 
regression analysis which showed that 85 percent of the variation in 
the estimated total unit costs of Medicare fee-for-service cases was 
explained by local input prices.
    Response: For purposes of estimating the labor-related share of the 
market basket, in accordance with the aforementioned section 
1886(d)(3)(E)(i) of the Act, we include only wage and wage-related 
costs in that proportion. The law does not call for the inclusion of 
nonlabor-related costs to be included in the labor-related share.
    As described in the FY 2006 IPPS final rule (70 FR 47394), we 
previously performed regression analyses to reevaluate the assumptions 
used in determining the labor-related share. Using several regression 
specifications, we attempted to determine the proportion of costs that 
are influenced by the area wage index. We note that the results 
obtained for the relevant coefficients (roughly equivalent to the labor 
share) using the various specifications were less than 85 percent.
    Comment: Many commenters disagreed with CMS removing any portion of 
professional fees from the labor-related share. The commenters stated 
that CMS did not appear to take into account the prevailing wages of 
areas from which hospitals typically purchase professional fees. They 
believe that it is uncommon for hospitals to purchase professional 
services from firms located in areas with lower prevailing wages than 
their own wage area. Therefore, they claimed that CMS failed to 
recognize the premium that hospitals must pay professionals from 
similar or higher prevailing wage areas.
    Several commenters also believed that CMS' assertion that a portion 
of professional fees is nonlabor-related is invalid because 
professional fees do, in fact, vary across regions and localities. The 
commenters indicated that even if a professional services firm is not 
based in the local area, professional fees are modified in response to 
local market factors. They added that rates and fees are set in a 
competitive market and must reflect the conditions of that market. In 
addition, several commenters stated that professional services are 
highly labor-intensive and constitute a necessary business expense. 
Finally, one commenter indicated that even though these services may be 
purchased from another entity, they represent substitutes for hospital-
employed staff and, thus, should be regarded by CMS as labor-related.
    Response: We disagree with the commenters' assertion that CMS 
should include all professional fees in the labor-related share. We 
recognize that hospitals may often purchase professional services from 
geographic areas with higher prevailing wages than their own. We 
further recognize that the prices for these services vary across 
regions and localities and that the services themselves are labor-
intensive. However, because we now have empirical evidence we can use 
to establish what portion of these professional fees are actually 
incurred in the local labor market, in accordance with section 
1886(d)(3)(E)(i) of the Act, we are including only such wage and wage-
related costs in the labor-related share. To the extent the evidence 
shows that the fees paid do not vary with, or are not influenced by, 
the local labor market, we are not including them in the labor-related 
share and are not subjecting them to the wage index adjustment.
    Comment: Several commenters stated that the proposed change to the 
labor-related share will only affect hospitals in areas with a wage 
index over 1.0. However, the commenters claimed that these higher-wage 
hospitals are much more likely to hire professional firms that are 
actually located in their local labor market and, thus, are paying 
higher wages. The commenters stated that most urban areas have an 
excellent supply of professional services firms, thereby enabling urban 
hospitals to purchase such services from a local or regional market 
rather than a national market. In addition, some commenters claimed 
that this proposal will have an adverse effect on urban hospitals in 
general. One commenter stated that the proposed labor-related share 
reduction would most seriously affect large urban teaching hospitals.
    One commenter stated that CMS' proposed change to the labor-related 
share is counter-intuitive to CMS's policy goal and would actually 
dampen the sensitivity of the IPPS payment methodology to area wage 
variations. The commenter cited that academic medical centers located 
in large urban markets are the most likely hospitals to be in markets 
with substantial local competition for professional services--markets 
in which professional services fees are most likely to be influenced by 
local labor market conditions. The commenter stated that the proposed 
methodology premised on the assumption that 73 percent of home office 
costs reflect national average wage patterns produces a substantial 
downward payment bias for teaching hospitals. Thus, the commenter urged 
CMS to only use more recent data and hold all other aspects constant, 
which

[[Page 43855]]

would result in a labor-related share of 72.1 percent. The commenter 
stated that, at a minimum, the current labor-related share of 69.7 
percent should be retained, pending further study and analysis.
    Response: We recognize that many hospitals could be affected 
differently by a change in the labor-related share. However, we believe 
the law calls for this proportion to be based on a national average and 
does not distinguish between types of hospitals for purposes of 
estimating or applying the labor-related share.
    We disagree with the suggestions that the FY 2006-based market 
basket's labor-related share should be set to 72.1 percent (as a result 
of holding all other aspects constant from the FY 2002-based market 
basket) or that it should be held to its current 69.7 percent level. We 
believe that incorporating more recent data, as well as the results of 
our research, represents a technical improvement to the accuracy of the 
market basket.
    Comment: One commenter stated that in order for hospitals to become 
more efficient and cost effective, they often use contract employees. 
The commenter further stated that in order to obtain the best price and 
service, these employees are located outside the local labor market. 
The commenter claimed that disallowing these services to be included in 
the wage index survey would reduce their labor-related payment rate and 
not adequately reimburse for care of Medicare patients.
    Response: We do include direct patient contract labor expenses in 
the labor-related share of the IPPS market basket. These costs are 
included in the Wages & Salaries and Benefits cost weights. We only 
exclude from the labor-related share those contract labor costs 
associated with professional fees and home office costs that were 
purchased outside of the local labor market. As stated previously, the 
purpose of the labor-related share is to determine which portion of the 
standardized payment amount that is subject to the hospital wage index. 
Therefore, we define the labor-related share as those expenses that are 
labor-intensive and vary with, or are influenced by, the local labor 
market.
    Comment: One commenter stated that without survey detail, they were 
unsure of CMS' treatment of professional fees paid for by a home 
office. The commenter stated that currently CMS excludes this expense 
for wage index purposes as the ``home office cost center is not 
included in the current definition of contract services for the wage 
index.'' The commenter believed that this created an inconsistency 
among the independent hospitals, which can include the professional fee 
costs/hours while health systems cannot. The commenter asked CMS to 
comment on its treatment of professional fees paid for by a home office 
and its use of such data in its survey.
    Response: The CMS survey asked the responding hospitals to share 
what proportion of their professional services were purchased from 
vendors located beyond their local labor market. We expected that, 
irrespective of the mechanism of the purchase (that is, purchased 
directly by the hospital or purchased by the hospital's home office on 
the hospital's behalf), the approach to answering the questions remains 
the same. Therefore, we believe independent hospitals, as well as 
hospital groups, were captured appropriately.
    Comment: One commenter questioned the conclusion from CMS' 
methodology, which implicitly assumes that the labor costs associated 
with ``non-local'' services, or those that are not adjusted at all for 
area wage variations, more closely reflects the national average than 
labor market conditions in the local area of the hospital receiving the 
services. The commenter described the market for professional services 
provided to hospitals as those that can be divided into the following 
categories: (1) Truly local firms whose clientele is comprised of the 
hospitals in a specific geographic area; (2) local offices of regional 
or national firms that will staff local assignments with some mix of 
local and non-local professionals; (3) firms that are ``regional'' in 
the sense of serving multiple geographic markets from a centralized 
location; and (4) truly national firms that operate nationwide from a 
single headquarters office and that serve local hospitals without 
assistance from locally based practitioners. The commenter claimed that 
CMS implicitly assumed that any firm that does not fall into the first 
category would experience labor costs indistinguishable from those that 
fall in the last category. However, the commenter stated that, in 
reality all such firms compete against each other in each local market. 
Therefore, the commenter added, local labor market conditions drive the 
prices local hospitals will pay for professional services even if those 
services wind up being rendered by professionals from out of town. The 
commenter stated that there is substantial regional variation in 
salaries paid to entry-level and early-career professionals who 
represent the lion's share of the cost that will be billed to 
hospitals. The commenter concluded that a payment methodology premised 
on the notion of a national professional services market with uniform 
prices fails to reflect the reality of what hospitals pay for 
professional services. The commenter also states that CMS did not 
disclose how professional services firms were identified as being 
``national'' firms in its survey. The commenter believed that 
determining the location of a contract based on the mailing address of 
the contractor could materially understate the volume of services 
rendered by national or regional firms with a local presence, which 
would be fully subject to local labor market conditions. Thus, the 
commenter concluded the effect of reducing the labor-related share 
would be to dampen the sensitivity of the IPPS payment methodology to 
area wage variations.
    Response: We recognize that fees paid for professional services 
provided by firms not located in the same local labor market as the 
hospital may be purchased in local labor markets and not always in a 
national market. However, given that we now have empirical evidence 
that can be used to estimate the portion of costs that varies based on 
the local labor market, we believe it is in keeping with section 
1886(d)(3)(E)(i) of the Act to only assign that portion that does vary 
to the labor-related share. Section 1886(d)(3)(E)(i) of the Act states 
that ``in general.--Except as provided in clause (ii), 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 computed under 
subparagraph (D) 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.''
    Comment: One commenter stated that the treatment of contract labor 
has a direct influence on the labor-related share, which in turn 
affects the area wage index adjusted portion of the payments. 
Conversely, the commenter stated, because the labor-related share now 
includes accounting and auditing services, it is not clear whether the 
data currently used to develop the area wage index are inclusive of the 
costs for accounting and auditing because consideration of these costs 
for area wage index purposes is only a current CMS wage data policy 
convention. Therefore, the commenter added, there could be a mismatch 
between the data CMS is using for the labor-related share

[[Page 43856]]

determination and the data CMS utilizes for developing the area wage 
index.
    Response: We are not changing our methodology on how contract labor 
costs are included in the IPPS market basket. As has been done 
historically, the market basket includes all contract labor services 
purchased by the hospital. Direct patient contract labor costs are 
included in the Wage & Salaries and Benefits cost weights, whereas 
other nondirect patient contract labor costs are represented in the 
other cost weights.
    Also, we interpret the commenter's statement to imply that 
accounting and auditing services were previously excluded from the 
labor-related share. Historically, 100 percent of the accounting and 
auditing services expenses were included in the labor-related share. We 
proposed to only include 66 percent of the accounting and auditing 
costs in the labor-related share because the remaining 34 percent of 
these costs were determined to have been purchased outside of the local 
labor market.
    With respect to a possible mismatch between the labor-related share 
and the area wage index, data from Worksheet S-3, part II, of the 
Medicare cost report are used to estimate both. Those data provide 
information on wage and wage-related costs incurred by the hospital but 
are not detailed enough to distinguish between costs incurred via 
purchase and costs incurred via direct hire. In estimating the labor-
related share, we incorporate data from other data sources to 
supplement the Medicare cost report data to more accurately capture and 
apportion wage and wage-related costs that are purchased.
    Comment: One commenter questioned whether the proposed revision of 
the labor-related share of the operating IPPS rates would affect the 
capital IPPS geographic adjustment factor (GAF), which is derived from 
the hospital wage index. The commenter requested that CMS review 
whether the formula used to determine the capital GAF should be revised 
based on the update of the operating IPPS labor-related share.
    Response: In determining payments under the capital IPPS, the 
capital rate is adjusted for differences in local cost variations by a 
factor (the GAF) that is equal to the hospital's applicable wage index 
raised to the 0.6848 power (Sec.  412.316(a) of our regulations). The 
formula for the GAF was developed using a regression analysis and the 
exponential form of this factor is used in order to apply a single 
factor to the entire capital rate rather than splitting the capital 
rate into labor-related share and nonlabor-related share (56 FR 43375). 
The formula for the GAF is independent of the operating IPPS labor-
related share and, therefore, requires no adjustment based on the 
revision of the operating IPPS labor-relate share. The GAF will 
continue to be computed as the hospital's applicable wage index raised 
to the 0.6848 power.
    After consideration of the public comments received, in this final 
rule, we are revising our labor-related share that we proposed in the 
FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24159-24161) to 
incorporate a revision to our methodology for allocating NAICS 55 
expenses to the labor-related share.
    Below is a chart comparing the FY 2006-based labor-related share 
and the FY 2002-based labor-related share.

 Chart 5--Comparison of the FY 2006-Based Labor-Related Share and the FY
                     2002-Based Labor-Related Share
------------------------------------------------------------------------
                                        FY 2002-based     FY 2006-based
                                        market basket     market basket
                                        cost weights      cost weights
------------------------------------------------------------------------
Wages and Salaries..................            48.171            47.213
Employee Benefits...................            11.822            12.414
Professional Fees: Labor-Related....             5.510             5.356
Administrative and Business Support   ................             0.626
 Services...........................
All Other: Labor-Related Services...             4.228             3.193
                                     -----------------------------------
    Total Labor-Related Share.......            69.731            68.802
------------------------------------------------------------------------

    Using the cost category weights from the FY 2006-based IPPS market 
basket, we calculated a labor-related share of 68.802 percent, 
approximately 0.9 percentage points lower than the current labor-
related share of 69.731.
    We continue to believe, as we have stated in the past, that these 
operating cost categories are related to, influenced by, or vary with 
the local markets. Therefore, our definition of the labor-related share 
continues to be consistent with section 1886(d)(3) of the Act.
    Using the cost category weights that we determined in section 
IV.B.1. of this preamble, we calculated a labor-related share of 68.802 
percent, using the FY 2006-based IPPS market basket. Accordingly, we 
are implementing a labor-related share of 68.8 percent for discharges 
occurring on or after October 1, 2009. We note that section 403 of 
Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) 
of the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless this employment ``would result in lower 
payments than would otherwise be made.''
    As we proposed, we also are updating the labor-related share for 
Puerto Rico. Consistent with our methodology for determining the 
national labor-related share, we add the Puerto Rico-specific relative 
weights for wages and salaries, employee benefits, and contract labor. 
Because there are no Puerto Rico-specific relative weights for 
professional fees and labor intensive services, we use the national 
weights.
    Below is a chart comparing the FY 2006-based Puerto Rico-specific 
labor-related share and the FY 2002-based Puerto Rico-specific labor-
related share.

[[Page 43857]]



  Chart 6--Comparison of the FY 2006-Based Puerto Rico-Specific Labor-
Related Share and FY 2002-Based Puerto Rico-Specific Labor-Related Share
------------------------------------------------------------------------
                                        FY 2002-based     FY 2006-based
                                        market basket     market basket
                                        cost weights      cost weights
------------------------------------------------------------------------
Wages and Salaries..................            40.201            44.221
Benefits............................             8.782             8.691
Professional Fees: Labor-Related....             5.510             5.356
Administrative and Business Support   ................             0.626
 Services...........................
All Other: Labor-Related Services...             4.228             3.193
                                     -----------------------------------
    Total Labor-Related Share.......            58.721            62.087
------------------------------------------------------------------------

    Using the FY 2006-based Puerto Rico cost category weights, we 
calculated a labor-related share of 62.087 percent, approximately 3.4 
percentage points higher than the current Puerto-Rico specific labor-
related share of 58.721. Accordingly, we are adopting an updated Puerto 
Rico labor-related share of 62.1 percent.

C. Separate Market Basket for Certain Hospitals Presently Excluded from 
the IPPS

    In the FY 2006 IPPS final rule (70 FR 47396), we adopted the use of 
the FY 2002-based IPPS operating market basket to update the target 
amounts for children's and cancer hospitals and religious nonmedical 
health care institutions (RNHCIs). Children's and cancer hospitals and 
RNHCIs are still reimbursed solely under the reasonable cost-based 
system, subject to the rate-of-increase limits. Under these limits, an 
annual target amount (expressed in terms of the inpatient operating 
cost per discharge) is set for each hospital based on the hospital's 
own historical cost experience trended forward by the applicable rate-
of-increase percentages.
    As we proposed (74 FR 24161), under the broad authority in sections 
1886(b)(3)(A) and (B), 1886(b)(3)(E), and 1871 of the Act and section 
4454 of the BBA, consistent with our use of the IPPS operating market 
basket percentage increase to update target amounts, we are using the 
FY 2006-based IPPS operating market basket percentage increase to 
update the target amounts for children's and cancer hospitals and 
RNHCIs.
    Due to the small number of children's and cancer hospitals and 
RNHCIs that receive, in total, less than 1 percent of all Medicare 
payments to hospitals and because these hospitals provide limited 
Medicare cost report data, we are unable to create a separate market 
basket specifically for these hospitals. Based on the limited data 
available, we believe that the FY 2006-based IPPS operating market 
basket most closely represents the cost structure of children's and 
cancer hospitals and RNHCIs. Therefore, we believe that the percentage 
change in the FY 2006-based IPPS operating market basket is the best 
available measure of the average increase in the prices of the goods 
and services purchased by cancer and children's hospitals and RNHCIs in 
order to provide care.
    We did not receive any public comments on the provisions of this 
section.

D. Rebasing and Revising the Capital Input Price Index (CIPI)

    The CIPI was originally described in the FY 1993 IPPS final rule 
(57 FR 40016). There have been subsequent discussions of the CIPI 
presented in the IPPS proposed and final payment rules. The FY 2006 
IPPS final rule (70 FR 47387) discussed the most recent rebasing and 
revision of the CIPI to a FY 2002 base year, which reflected the 
capital cost structure of the hospital industry in that year.
    As we proposed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
(74 FR 24161), we are rebasing and revising the CIPI to a FY 2006 base 
year to reflect the more current structure of capital costs in 
hospitals. As with the FY 2002-based index, we developed two sets of 
weights in order to calculate the FY 2006-based CIPI. The first set of 
weights identifies the proportion of hospital capital expenditures 
attributable to each expenditure category, while the second set of 
weights is a set of relative vintage weights for depreciation and 
interest. The set of vintage weights is used to identify the proportion 
of capital expenditures within a cost category that is attributable to 
each year over the useful life of the capital assets in that category. 
A more thorough discussion of vintage weights is provided later in this 
section.
    Both sets of weights are developed using the best data sources 
available. In reviewing source data, we determined that the Medicare 
cost reports provided accurate data for all capital expenditure cost 
categories. We used the FY 2006 Medicare cost reports for IPPS 
hospitals to determine weights for all three cost categories: 
depreciation, interest, and other capital expenses.
    Lease expenses are unique in that they are not broken out as a 
separate cost category in the CIPI, but rather are proportionally 
distributed among the cost categories of depreciation, interest, and 
other, reflecting the assumption that the underlying cost structure of 
leases is similar to that of capital costs in general. As was done in 
previous rebasings of the CIPI, we first assumed 10 percent of lease 
expenses represents overhead and assigned them to the other capital 
expenses cost category accordingly. The remaining lease expenses were 
distributed across the three cost categories based on the respective 
weights of depreciation, interest, and other capital not including 
lease expenses.
    Depreciation contains two subcategories: (1) Building and fixed 
equipment; and (2) movable equipment. The apportionment between 
building and fixed equipment and movable equipment was determined using 
the Medicare cost reports. This methodology was also used to compute 
the apportionment used in the FY 2002-based index.
    The total interest expense cost category is split between 
government/nonprofit interest and for-profit interest. The FY 2002-
based CIPI allocated 75 percent of the total interest cost weight to 
government/nonprofit interest and proxied that category by the average 
yield on domestic municipal bonds. The remaining 25 percent of the 
interest cost weight was allocated to for-profit interest and was 
proxied by the average yield on Moody's Aaa bonds (70 FR 47387).
    For this rebasing, we derived the split using the relative FY 2006 
Medicare cost report data on interest expenses for government/nonprofit 
and for-profit hospitals. Based on these data, we calculated an 85/15 
split between

[[Page 43858]]

government/nonprofit and for-profit interest. We believe it is 
important that this split reflects the latest relative cost structure 
of interest expenses.
    Chart 7 presents a comparison of the FY 2006-based CIPI cost 
weights and the FY 2002-based CIPI cost weights.

  Chart 7--FY 2006-Based CIPI Cost Categories, Weights, and Price Proxies With FY 2002-Based CIPI Included for
                                                   Comparison
----------------------------------------------------------------------------------------------------------------
                                                  FY 2002      FY 2006
                Cost categories                   weights      weights                  Price proxy
----------------------------------------------------------------------------------------------------------------
Total.........................................      100.00       100.00   ......................................
Total depreciation............................       74.583       75.154  ......................................
Building and fixed equipment depreciation.....       36.234       35.789  BEA chained price index for
                                                                           nonresidential construction for
                                                                           hospitals and special care
                                                                           facilities--vintage weighted (25
                                                                           years).
Movable equipment depreciation................       38.349       39.365  PPI for machinery and equipment--
                                                                           vintage weighted (12 years).
Total interest................................       19.863       17.651  ......................................
Government/nonprofit interest.................       14.896       15.076  Average yield on domestic municipal
                                                                           bonds (Bond Buyer 20 bonds)--vintage-
                                                                           weighted (25 years).
For-profit interest...........................        4.967        2.575  Average yield on Moody's Aaa bonds--
                                                                           vintage-weighted (12 years).
Other.........................................        5.554        7.195  CPI-U for residential rent.
----------------------------------------------------------------------------------------------------------------

    Because capital is acquired and paid for over time, capital 
expenses in any given year are determined by both past and present 
purchases of physical and financial capital. The vintage-weighted CIPI 
is intended to capture the long-term consumption of capital, using 
vintage weights for depreciation (physical capital) and interest 
(financial capital). These vintage weights reflect the proportion of 
capital purchases attributable to each year of the expected life of 
building and fixed equipment, movable equipment, and interest. We used 
the vintage weights to compute vintage-weighted price changes 
associated with depreciation and interest expense. Following 
publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, and in 
order to provide greater transparency, we posted on the CMS market 
basket Web page at: http://www.cms.hhs.gov/MedicareProgramRatesStats/05_MarketBasketResearch.asp#TopOfPage an illustrative spreadsheet 
that contains an example of how the vintage-weighted price indexes are 
calculated.
    Vintage weights are an integral part of the CIPI. Capital costs are 
inherently complicated and are determined by complex capital purchasing 
decisions, over time, based on such factors as interest rates and debt 
financing. In addition, capital is depreciated over time instead of 
being consumed in the same period it is purchased. The CIPI accurately 
reflects the annual price changes associated with capital costs, and is 
a useful simplification of the actual capital investment process. By 
accounting for the vintage nature of capital, we are able to provide an 
accurate, stable annual measure of price changes. Annual nonvintage 
price changes for capital are unstable due to the volatility of 
interest rate changes and, therefore, do not reflect the actual annual 
price changes for Medicare capital-related costs. The CIPI reflects the 
underlying stability of the capital acquisition process and provides 
hospitals with the ability to plan for changes in capital payments.
    To calculate the vintage weights for depreciation and interest 
expenses, we needed a time series of capital purchases for building and 
fixed equipment and movable equipment. We found no single source that 
provides a uniquely best time series of capital purchases by hospitals 
for all of the above components of capital purchases. The early 
Medicare cost reports did not have sufficient capital data to meet this 
need. Data we obtained from the American Hospital Association (AHA) do 
not include annual capital purchases. However, AHA does provide a 
consistent database back to 1963. We used data from the AHA Panel 
Survey and the AHA Annual Survey to obtain a time series of total 
expenses for hospitals. We then used data from the AHA Panel Survey 
supplemented with the ratio of depreciation to total hospital expenses 
obtained from the Medicare cost reports to derive a trend of annual 
depreciation expenses for 1963 through 2006.
    In order to estimate capital purchases using data on depreciation 
expenses, the expected life for each cost category (building and fixed 
equipment, movable equipment, and interest) is needed to calculate 
vintage weights. We used FY 2006 Medicare cost reports to determine the 
expected life of building and fixed equipment and of movable equipment. 
The expected life of any piece of equipment can be determined by 
dividing the value of the asset (excluding fully depreciated assets) by 
its current year depreciation amount. This calculation yields the 
estimated useful life of an asset if depreciation were to continue at 
current year levels, assuming straight-line depreciation. From the FY 
2006 Medicare cost reports, the expected life of building and fixed 
equipment was determined to be 25 years, and the expected life of 
movable equipment was determined to be 12 years. The FY 2002-based CIPI 
was based on an expected life of building and fixed equipment of 23 
years. It used 11 years as the expected life for movable equipment.
    As we proposed, we used the building and fixed equipment and 
movable equipment weights derived from FY 2006 Medicare cost reports to 
separate the depreciation expenses into annual amounts of building and 
fixed equipment depreciation and movable equipment depreciation (74 FR 
24162). Year-end asset costs for building and fixed equipment and 
movable equipment were determined by multiplying the annual 
depreciation amounts by the expected life calculations from the FY 2006 
Medicare cost reports. We then calculated a time series back to 1963 of 
annual capital purchases by subtracting the previous year asset costs 
from the current year asset costs. From this capital purchase time 
series, we were able to calculate the vintage weights for building and 
fixed equipment and for movable equipment. Each of these sets of 
vintage weights is explained in more detail below.
    For building and fixed equipment vintage weights, we used the real 
annual capital purchase amounts for building and fixed equipment to 
capture the actual amount of the physical acquisition, net of the 
effect of price inflation. This real annual purchase amount for 
building and fixed equipment was produced by deflating the nominal 
annual purchase amount by

[[Page 43859]]

the building and fixed equipment price proxy, BEA's chained price index 
for nonresidential construction for hospitals and special care 
facilities. Because building and fixed equipment have an expected life 
of 25 years, the vintage weights for building and fixed equipment are 
deemed to represent the average purchase pattern of building and fixed 
equipment over 25-year periods. With real building and fixed equipment 
purchase estimates available back to 1963, we averaged nineteen 25-year 
periods to determine the average vintage weights for building and fixed 
equipment that are representative of average building and fixed 
equipment purchase patterns over time. Vintage weights for each 25-year 
period are calculated by dividing the real building and fixed capital 
purchase amount in any given year by the total amount of purchases in 
the 25-year period. This calculation is done for each year in the 25-
year period, and for each of the nineteen 25-year periods. We used the 
average of each year across the nineteen 25-year periods to determine 
the average building and fixed equipment vintage weights for the FY 
2006-based CIPI.
    For movable equipment vintage weights, the real annual capital 
purchase amounts for movable equipment were used to capture the actual 
amount of the physical acquisition, net of price inflation. This real 
annual purchase amount for movable equipment was calculated by 
deflating the nominal annual purchase amounts by the movable equipment 
price proxy, the PPI for machinery and equipment. Based on our 
determination that movable equipment has an expected life of 12 years, 
the vintage weights for movable equipment represent the average 
expenditure for movable equipment over a 12-year period. With real 
movable equipment purchase estimates available back to 1963, thirty-two 
12-year periods were averaged to determine the average vintage weights 
for movable equipment that are representative of average movable 
equipment purchase patterns over time. Vintage weights for each 12-year 
period are calculated by dividing the real movable capital purchase 
amount for any given year by the total amount of purchases in the 12-
year period. This calculation was done for each year in the 12-year 
period and for each of the thirty-two 12-year periods. We used the 
average of each year across the thirty-two 12-year periods to determine 
the average movable equipment vintage weights for the FY 2006-based 
CIPI.
    For interest vintage weights, the nominal annual capital purchase 
amounts for total equipment (building and fixed, and movable) were used 
to capture the value of the debt instrument. Because we have determined 
that hospital debt instruments have an expected life of 25 years, the 
vintage weights for interest are deemed to represent the average 
purchase pattern of total equipment over 25-year periods. With nominal 
total equipment purchase estimates available back to 1963, nineteen 25-
year periods were averaged to determine the average vintage weights for 
interest that are representative of average capital purchase patterns 
over time. Vintage weights for each 25-year period are calculated by 
dividing the nominal total capital purchase amount for any given year 
by the total amount of purchases in the 25-year period. This 
calculation is done for each year in the 25-year period and for each of 
the nineteen 25-year periods. We used the average of each year across 
the nineteen 25-year periods to determine the average interest vintage 
weights for the FY 2006-based CIPI.
    The vintage weights for the FY 2002-based CIPI and the FY 2006-
based CIPI are presented in Chart 8.

                             Chart 8--FY 2002 Vintage Weights and FY 2006 Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Building and fixed equipment          Movable equipment                   Interest
                                                         -----------------------------------------------------------------------------------------------
                          Year                              FY 2002 23      FY 2006 25      FY 2002 11      FY 2006 12      FY 2002 23      FY 2006 25
                                                               years           years           years           years           years           years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           0.021           0.021           0.065           0.063           0.010           0.010
2.......................................................           0.022           0.023           0.071           0.067           0.012           0.012
3.......................................................           0.025           0.025           0.077           0.071           0.014           0.014
4.......................................................           0.027           0.027           0.082           0.075           0.016           0.016
5.......................................................           0.029           0.029           0.086           0.079           0.019           0.018
6.......................................................           0.031           0.031           0.091           0.082           0.023           0.020
7.......................................................           0.033           0.032           0.095           0.085           0.026           0.023
8.......................................................           0.035           0.033           0.100           0.086           0.029           0.025
9.......................................................           0.038           0.036           0.106           0.090           0.033           0.028
10......................................................           0.040           0.038           0.112           0.093           0.036           0.031
11......................................................           0.042           0.040           0.117           0.102           0.039           0.034
12......................................................           0.045           0.042  ..............           0.106           0.043           0.038
13......................................................           0.047           0.044  ..............  ..............           0.048           0.041
14......................................................           0.049           0.045  ..............  ..............           0.053           0.044
15......................................................           0.051           0.046  ..............  ..............           0.056           0.047
16......................................................           0.053           0.047  ..............  ..............           0.059           0.050
17......................................................           0.056           0.048  ..............  ..............           0.062           0.053
18......................................................           0.057           0.050  ..............  ..............           0.064           0.057
19......................................................           0.058           0.050  ..............  ..............           0.066           0.059
20......................................................           0.060           0.050  ..............  ..............           0.070           0.060
21......................................................           0.060           0.048  ..............  ..............           0.071           0.060
22......................................................           0.061           0.048  ..............  ..............           0.074           0.062
23......................................................           0.061           0.047  ..............  ..............           0.076           0.063
24......................................................  ..............           0.049  ..............  ..............  ..............           0.068
25......................................................  ..............           0.048  ..............  ..............  ..............           0.069
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           1.000           1.000           1.000           1.000           1.000           1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.


[[Page 43860]]

    After the capital cost category weights were computed, it was 
necessary to select appropriate price proxies to reflect the rate-of-
increase for each expenditure category. As we proposed, in this final 
rule, we used the same price proxies for the FY 2006-based CIPI that 
were used in the FY 2002-based CIPI, with the exception of the Boeckh 
Construction Index (74 FR 24164). We replaced the Boeckh Construction 
Index with BEA's chained price index for nonresidential construction 
for hospitals and special care facilities. The BEA index represents 
construction of facilities such as hospitals, nursing homes, hospices, 
and rehabilitation centers. Although these price indices move similarly 
over time, we believe that it is more technically appropriate to use an 
index that is more specific to the hospital industry. We believe these 
are the most appropriate proxies for hospital capital costs that meet 
our selection criteria of relevance, timeliness, availability, and 
reliability. The rationale for selecting the price proxies, excluding 
the building and fixed equipment price proxy, was explained more fully 
in the FY 1997 IPPS final rule (61 FR 46196).
    The price proxies are presented in Chart 7.
    Chart 9 below compares both the historical and forecasted percent 
changes in the FY 2002-based CIPI and the FY 2006-based CIPI.

  Chart 9--Comparison of FY 2002-Based and FY 2006-Based Capital Input
          Price Index, Percent Change, FY 2004 Through FY 2012
------------------------------------------------------------------------
                                                   CIPI, FY    CIPI, FY
                   Fiscal year                    2002-based  2006-based
------------------------------------------------------------------------
FY 2004.........................................         0.5         0.8
FY 2005.........................................         0.6         0.9
FY 2006.........................................         0.9         1.1
FY 2007.........................................         1.2         1.3
FY 2008.........................................         1.4         1.4
Forecast:
  FY 2009.......................................         1.7         1.5
  FY 2010.......................................         1.5         1.2
FY 2011.........................................         1.4         1.3
FY 2012.........................................         1.6         1.4
Average:
  FYs 2004-2008.................................         0.9         1.1
  FYs 2009-2012.................................         1.6         1.4
------------------------------------------------------------------------
Source: IHS Global Insight, Inc, 2nd Quarter 2009; USMACRO/
  [email protected]/TL0509.SIM.

    IHS Global Insight, Inc. forecasts a 1.2 percent increase in the FY 
2006-based CIPI for FY 2010, as shown in Chart 9. The underlying 
vintage-weighted price increases for depreciation (including building 
and fixed equipment and movable equipment) and interest (including 
government/nonprofit and for-profit) are included in Chart 10.

  Chart 10--CMS Capital Input Price Index Percent Changes, Total and Depreciation and Interest Components, FYs
                                                2004 Through 2012
----------------------------------------------------------------------------------------------------------------
                           Fiscal year                                 Total       Depreciation      Interest
----------------------------------------------------------------------------------------------------------------
FY 2004.........................................................             0.8             1.5            -2.6
FY 2005.........................................................             0.9             1.7            -3.1
FY 2006.........................................................             1.1             2.0            -3.2
FY 2007.........................................................             1.3             2.1            -3.4
FY 2008.........................................................             1.4             2.1            -2.6
Forecast:
    FY 2009.....................................................             1.5             2.1            -2.0
    FY 2010.....................................................             1.2             1.8            -2.1
    FY 2011.....................................................             1.3             1.7            -1.4
    FY 2012.....................................................             1.4             1.7            -0.7
----------------------------------------------------------------------------------------------------------------
Source: IHS Global Insight, Inc, 2nd Quarter 2009; USMACRO/[email protected]/TL0509.SIM.

    Rebasing the CIPI from FY 2002 to FY 2006 decreased the percent 
change in the FY 2010 forecast by 0.3 percentage point, from 1.5 to 
1.2, as shown in Chart 9. The difference in the forecast of the FY 2010 
market basket increase is primarily due to the proposed change in the 
price proxy for building and fixed equipment as well as the proposed 
change in the vintage weights applied to the price proxy for interest. 
As mentioned above, we are changing the price proxy used for building 
and fixed equipment to BEA's chained price index for nonresidential 
construction for hospitals and special care facilities. We believe this 
change represents a technical improvement as the BEA price index is an 
index that is more representative of the hospital industry. For the FY 
2010 update, the result of this change is a forecasted price change in 
total depreciation of 1.8 percent in the FY 2006-based CIPI compared to 
2.0 percent in the FY 2002-based CIPI. The other primary factor 
contributing to the difference is the change in the vintage weights 
used to calculate the vintage-weighted price proxy for interest. The 
forecasted price change in total interest is -2.1 percent in the FY 
2006-based CIPI compared to -1.5 percent in the FY 2002-based CIPI. 
This is a result of changing the expected life of hospital debt 
instruments from 23 years to 25 years. We did not receive any public 
comments on our proposed methodological changes to the capital input 
price index published in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule (74 FR 24154). Therefore, we are adopting as final, without 
modification, the proposed FY 2006-based CIPI for FY 2010 in this final 
rule.

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

A. Reporting of Hospital Quality Data for Annual Hospital Payment 
Update

1. Background
a. Overview
    CMS is seeking to promote higher quality and more efficient health 
care for Medicare beneficiaries. This effort is supported by the 
adoption of an increasing number of widely-agreed upon quality 
measures. CMS has worked with relevant stakeholders to define measures 
of quality in almost every setting and currently measures some aspect 
of care for almost all Medicare beneficiaries. These measures assess 
structural aspects of care, clinical processes, patient experiences 
with care, and, increasingly, outcomes.

[[Page 43861]]

    CMS has implemented quality measure reporting programs for multiple 
settings of care. The Reporting Hospital Quality Data for Annual 
Payment Update (RHQDAPU) program implements a quality reporting program 
for hospital inpatient services. In addition, CMS has implemented 
quality reporting programs for hospital outpatient services, the 
Hospital Outpatient Quality Data Reporting Program (HOP QDRP), and for 
physicians and other eligible professionals, the Physician Quality 
Reporting Initiative (PQRI). CMS has also implemented quality reporting 
programs for home health agencies and skilled nursing facilities that 
are based on conditions of participation, and an end-stage renal 
disease quality reporting program that is based on conditions for 
coverage.
b. Hospital Quality Data Reporting Under Section 501(b) of Public Law 
108-173
    Section 501(b) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Public Law 108-173, added section 
1886(b)(3)(B)(vii) to the Act. This section established the authority 
for the RHQDAPU program and revised the mechanism used to update the 
standardized payment amount for inpatient hospital operating costs. 
Specifically, section 1886(b)(3)(B)(vii)(I) of the Act, before it was 
amended by section 5001(a) of Public Law 109-171, provided for a 
reduction of 0.4 percentage points to the update percentage increase 
(also known as the market basket update) for FY 2005 through FY 2007 
for any subsection (d) hospital that did not submit data on a set of 10 
quality indicators established by the Secretary as of November 1, 2003. 
It also provides 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. The 
statute thereby established an incentive for IPPS hospitals to submit 
data on the quality measures established by the Secretary, and also 
built upon the previously established Voluntary Hospital Quality Data 
Reporting Program that we described in the FY 2009 IPPS final rule (73 
FR 48598).
    We implemented section 1886(b)(3)(B)(vii) of the Act in the FY 2005 
IPPS final rule (69 FR 49078) and codified the applicable percentage 
change in Sec.  412.64(d) of our regulations. We adopted additional 
requirements under the RHQDAPU program in the FY 2006 IPPS final rule 
(70 FR 47420).
c. Hospital Quality Data Reporting under Section 5001(a) of Public Law 
109-171
    Section 5001(a) of the Deficit Reduction Act of 2005 (DRA), Public 
Law 109-171, further amended section 1886(b)(3)(B) of the Act to revise 
the mechanism used to update the standardized payment amount for 
hospital inpatient operating costs, in particular, by adding new 
section 1886(b)(3)(B)(viii) to the Act. 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 submit 
quality data in a form and manner, and at a time, specified by the 
Secretary. 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 Sec.  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.
(1) Quality Measures
    Section 1886(b)(3)(B)(viii)(III) of the Act requires that the 
Secretary expand the ``starter set'' of 10 quality measures that was 
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 report 
issued by the Institute of Medicine (IOM) of the National Academy of 
Sciences under section 238(b) of Public Law 108-173.\8\
---------------------------------------------------------------------------

    \8\ Institute of Medicine, ``Performance Measurement: 
Accelerating Improvement,'' December 1, 2005, available at: http://www.iom.edu/CMS/3809/19805/31310.aspx. IOM set forth these baseline 
measures in a November 2005 report. However, the IOM report was not 
released until December 1, 2005 on the IOM Web site.
---------------------------------------------------------------------------

    The IOM measures include: 21 Hospital Quality Alliance (HQA) 
quality measures (including the ``starter set'' of 10 quality 
measures); the Hospital Consumer Assessment of Health Providers and 
Systems (HCAHPS) patient experience of care survey; and 3 structural 
measures.\9\ The structural measures are: (1) Adoption 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 National Quality Forum's (NQF's) 
30 Safe Practices for Better Healthcare. The HCAHPS survey is part of 
the Consumer Assessment of Healthcare Providers and Systems (CAHPS) 
program, which develops and supports the use of a comprehensive and 
evolving family of standardized surveys that ask consumers and patients 
to report on and evaluate their experiences with health care. These 
surveys cover topics that are important to consumers, such as the 
communication skills of providers and the accessibility of services. 
CAHPS originally stood for the Consumer Assessment of Health Plans 
Study, but as the products have evolved beyond health plans, the name 
has evolved as well to capture the full range of survey products and 
tools.
---------------------------------------------------------------------------

    \9\ Structural measures assess characteristics linked to the 
capacity of the provider to deliver quality healthcare. Institute of 
Medicine: Division of Health Care Services. Measuring the Quality of 
Health Care: A Statement by the National Roundtable on Healthcare 
Quality. National Academy Press; Washington, DC 1999.
---------------------------------------------------------------------------

    Section 1886(b)(3)(B)(viii)(V) of the Act requires 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. The NQF is a voluntary consensus 
standard-setting organization with a diverse representation of 
consumer, purchaser, provider, academic, clinical, and other health 
care stakeholder organizations. The NQF was established to standardize 
health care quality measurement and reporting through its consensus 
development process. We have generally adopted NQF-endorsed measures. 
However, we believe that consensus among affected parties also can be 
reflected by other means, including consensus achieved during the 
measure development process, consensus shown through broad acceptance 
and use of measures, and consensus through public comment.
    Section 1886(b)(3)(B)(viii)(VI) of the Act authorizes the Secretary 
to replace any quality measures or indicators in

[[Page 43862]]

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.
    In the FY 2007 IPPS final rule, we began to expand the RHQDAPU 
program measures by adding 11 quality measures to the 10-measure 
starter set to establish an expanded set of 21 quality measures for the 
FY 2007 payment determination (71 FR 48033 through 48037, 48045).
    In the CY 2007 OPPS/ASC final rule (71 FR 68201), we adopted six 
additional quality measures for the FY 2008 payment determination, for 
a total of 27 measures. Two of these measures (30-Day Risk Standardized 
Mortality Rates for Heart Failure and 30-Day Risk Standardized 
Mortality Rates for AMI) were calculated using existing administrative 
Medicare claims data; thus, no additional data submission by hospitals 
was required for these two measures. The measures used for the FY 2008 
payment determination included, for the first time, the HCAHPS patient 
experience of care survey.
    In the FY 2008 IPPS final rule (72 FR 47348 through 47358) and the 
CY 2008 OPPS/ASC final rule with comment period (72 FR 66875 through 
66877), we added three additional process measures to the RHQDAPU 
program measure set. (These three measures are SCIP-Infection-4: 
Cardiac Surgery Patients with Controlled 6AM Postoperative Serum 
Glucose, SCIP-Infection-6: Surgery Patients with Appropriate Hair 
Removal, and Pneumonia 30-day mortality (Medicare patients).) The 
addition of these 3 measures brought the total number of RHQDAPU 
program measures to be used for the FY 2009 payment determination to 30 
(72 FR 66876). The 30 measures used for the FY 2009 annual payment 
determination are listed in the FY 2009 IPPS final rule (73 FR 48600 
through 48601).
    For the FY 2010 payment determination, we added 15 new measures to 
the RHQDAPU program measure set and retired one. Of the new measures, 
13 were adopted in the FY 2009 IPPS final rule (73 FR 48602 through 
48611) and two additional measures were finalized in the CY 2009 OPPS/
ASC final rule with comment period (73 FR 68780 through 68781). This 
resulted in an expansion of the RHQDAPU program measures from 30 
measures for the FY 2009 payment determination to 44 measures for the 
FY 2010 payment determination. The RHQDAPU program measures for the FY 
2010 payment determination consist of: 26 chart-abstracted process 
measures, which measure care provided for Acute Myocardial Infarction 
(AMI), Heart Failure (HF), Pneumonia (PN), or Surgical Care Improvement 
(SCIP); 6 claims-based measures, which evaluate 30-day mortality or 30-
day readmission rates for AMI, HF, or PN; 9 AHRQ claims-based patient 
safety/inpatient quality indicator measures; 1 claims-based nursing 
sensitive measure; 1 structural measure that assesses participation in 
a systematic database for cardiac surgery; and the HCAHPS patient 
experience of care survey. The measures are listed below.

------------------------------------------------------------------------
                                             RHQDAPU program quality
                 Topic                       measures for the FY 2010
                                              payment determination
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)......   AMI-1 Aspirin at
                                          arrival.
                                          AMI-2 Aspirin
                                          prescribed at discharge.
                                          AMI-3 Angiotensin
                                          Converting Enzyme Inhibitor
                                          (ACE-I) or Angiotensin II
                                          Receptor Blocker (ARB) for
                                          left ventricular systolic
                                          dysfunction.
                                          AMI-4 Adult smoking
                                          cessation advice/counseling.
                                          AMI-5 Beta blocker
                                          prescribed at discharge.
                                          AMI-6 Beta blocker at
                                          arrival.
                                          AMI-7a Fibrinolytic
                                          (thrombolytic) agent received
                                          within 30 minutes of hospital
                                          arrival.
                                          AMI-8a Timing of
                                          Receipt of Primary
                                          Percutaneous Coronary
                                          Intervention (PCI).
Heart Failure (HF).....................   HF-1 Discharge
                                          instructions.
                                          HF-2 Left ventricular
                                          function assessment.
                                          HF-3 Angiotensin
                                          Converting Enzyme Inhibitor
                                          (ACE-I) or Angiotensin II
                                          Receptor Blocker (ARB) for
                                          left ventricular systolic
                                          dysfunction.
                                          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-5c Timing of
                                          receipt of initial antibiotic
                                          following hospital arrival.
                                          PN-6 Appropriate
                                          initial antibiotic selection.
                                          PN-7 Influenza
                                          vaccination status.
Surgical Care Improvement Project         SCIP-1 Prophylactic
 (SCIP).                                  antibiotic received within 1
                                          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.

[[Page 43863]]

 
                                          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 survey.
Readmission Measures (Medicare            READ-30-HF: Heart
 Patients).                               Failure 30[dash]Day Risk
                                          Standardized Readmission
                                          Measure (Medicare patients).
                                          READ-30-AMI: Acute
                                          Myocardial Infarction
                                          30[dash]Day Risk Standardized
                                          Readmission Measure (Medicare
                                          patients).
                                          READ-30-PN: Pneumonia
                                          30[dash]Day Risk Standardized
                                          Readmission Measure (Medicare
                                          patients).
AHRQ Patient Safety Indicators (PSIs),    PSI 04: Death among
 Inpatient Quality Indicators (IQIs)      surgical patients with
 and Composite Measures.                  treatable serious
                                          complications.
                                          PSI 06: Iatrogenic
                                          pneumothorax, adult.
                                          PSI 14: Postoperative
                                          wound dehiscence.
                                          PSI 15: Accidental
                                          puncture or laceration.
                                          IQI 11: Abdominal
                                          aortic aneurysm (AAA)
                                          mortality rate (with or
                                          without volume).
                                          IQI 19: Hip fracture
                                          mortality rate.
                                          Mortality for selected
                                          surgical procedures
                                          (composite).
                                          Complication/patient
                                          safety for selected indicators
                                          (composite).
                                          Mortality for selected
                                          medical conditions
                                          (composite).
Nursing Sensitive......................   Failure to Rescue
                                          (Medicare claims only).
Cardiac Surgery........................   Participation in a
                                          Systematic Database for
                                          Cardiac Surgery.
------------------------------------------------------------------------

    On December 31, 2008, CMS advised hospitals that they would no 
longer be required to submit data for the RHQDAPU program measure AMI-
6-Beta blocker at arrival, beginning with discharges occurring on April 
1, 2009. This change was based on the evolving evidence regarding AMI 
patient care, as well as changes in the American College of Cardiology/
American Heart Association (ACC/AHA) practice guidelines for ST-segment 
elevation myocardial infarction and non-ST segment elevation myocardial 
infarction, upon which AMI-6 is based. The new guideline recommends 
that early intravenous beta-blockers specifically should be avoided in 
certain patient populations due to increased mortality risk. These 
patients are identified by a complex set of contraindications that we 
believe would make revision of the measure impractical and might result 
in unintended consequences, including harm to patients based on 
misinterpretation of an overly complex measure in the clinical setting. 
Based on the new studies, the ACC/AHA Task Force on Performance 
Measures removed this measure from the set of AMI performance measures 
as of November 10, 2008, and did not replace the measure. CMS took 
action to remove the measure from reporting initiatives based on the 
lack of support by the measure developer and the considerations 
identified above.
    We discussed considerations relating to retiring or replacing 
measures in the FY 2008 IPPS final rule with comment period and the FY 
2009 IPPS final rule, including the ``topping out'' of hospitals' 
performance under a measure (72 FR 47358 through 47359 and 73 FR 48603 
through 48604, respectively). However, in this instance, the measure no 
longer ``represent[s] the best clinical practice,'' an additional basis 
under section 1886(b)(3)(B)(viii)(VI) of the Act for retiring a 
measure. For the FY 2010 payment determination and subsequent payment 
determinations, we have formally retired the AMI-6 measure from the 
RHQDAPU program. Therefore, hospitals participating in the RHQDAPU 
program are not required to submit data on the AMI-6 measure beginning 
with discharges occurring on April 1, 2009. However, in the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24167), we sought public 
comment on the retirement of the AMI-6 measure.
    Comment: Many commenters supported immediate retirement of quality 
measures, including AMI-6, for which evolving clinical evidence 
suggests potential patient safety concerns. Other commenters suggested 
that CMS seek public input when it is considering immediate retirement 
of a measure. These commenters also indicated that measure retirement 
for other reasons should be conducted through the rulemaking process. 
One commenter indicated that formal retirement through rulemaking 
following immediate retirement is confusing.
    Response: We believe that immediate retirement of quality measures 
should occur when the clinical evidence suggests that continued 
collection of the data may result in harm to patients. Under such 
circumstances, we may not be able to wait until the annual rulemaking 
cycle or until we have had the opportunity to obtain input from the 
public to retire the measure because of the necessity to discourage 
potentially harmful practices which may result from continued 
collection of the measure. We agree with the commenters that retirement 
of measures for reasons other than potential patient safety concerns 
should occur through the rulemaking process allowing for public 
comment. Because we generally adopt and retire RHQDAPU program quality 
measures through the rulemaking process (except for the immediate 
retirement exception we are adopting in this final rule), we believe 
that it is appropriate to use the rulemaking process to confirm the 
retirement of measures that were the subject of recent immediate 
retirement activity.
(2) Maintenance of Technical Specifications for Quality Measures
    The technical specifications for each RHQDAPU program measure are 
listed in the CMS/The Joint Commission Specifications Manual for 
National Hospital Inpatient Quality Measures (Specifications Manual). 
This

[[Page 43864]]

Specifications Manual is posted on the CMS QualityNet Web site at 
https://www.QualityNet.org/. We maintain the technical specifications 
by updating this Specifications Manual semiannually, or more frequently 
in unusual cases, and include detailed instructions and calculation 
algorithms for hospitals to use when collecting and submitting data on 
required measures. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
(74 FR 24167), we invited public comment on our process of notifying 
the public about the technical specifications for RHQDAPU program 
quality measures and whether it can be improved to enable more 
meaningful public comment on our proposed measures. We also invited 
public comment on whether the information posted on the https://www.QualityNet.org Web site, including the frequency with which this 
information is updated, provides hospitals enough information and time 
to implement the collection of data necessary for these required 
quality measures.
    Comment: Commenters agreed that timely updates to quality measures 
are necessary for maintaining comparable and credible measurement 
results and supported our process for posting changes to the 
Specifications Manual on the QualityNet Web site, and issuing 
notifications regarding updates issued. Some commenters suggested 
adding other methods to notify stakeholders as to technical 
specifications updates. These suggestions included utilizing a Real 
Simple Syndication (RSS) to send e-mail alerts to stakeholders, 
providing links to specifications not on the QualityNet Web site, 
listserv notifications, sharing the draft technical specifications with 
hospitals and data vendors 30 days prior to their release so that 
errors and omissions can be identified and corrected before the final 
version of the specifications is released, and not releasing the 
Specifications Manual until all revisions and updates are complete, 
thereby reducing the number of addenda. One commenter requested that 
the Specifications Manual be released with all relevant changes once a 
year.
    Response: We will consider these suggestions for other methods to 
notify stakeholders as to technical specifications updates. The 
Specifications Manual is updated in two scheduled releases a year 
occurring at 6 month intervals in order to incorporate updates to the 
code sets used in the measure specifications, add or remove measures, 
and to provide vendors with adequate notice of changes. The 
Specifications Manual contains specifications for measures that have 
been adopted into the RHQDAPU program. However, we may include 
specifications for some of the proposed measures or measures under 
consideration for preview purposes only. Specifications for measures 
that are under development are not included in the Specifications 
Manual.
(3) Public Display of Quality Measures
    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 has the opportunity to review its 
data before these data are made public. Data from the RHQDAPU program 
are included on the Hospital Compare Web site, https://www.hospitalcompare.hhs.gov. The RHQDAPU program currently includes 
process of care measures, risk adjusted outcome measures, the HCAHPS 
patient experience of care survey, and a structural measure regarding 
cardiac surgery registry participation. This Web site assists 
beneficiaries and the general public by providing information on 
hospital quality of care to 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 hospitals to improve the 
quality of care that they furnish.
    Comment: Several commenters submitted suggestions for improving 
public reporting of RHQDAPU program measures on the Hospital Compare 
Web site. A number of commenters stated that the Hospital Compare Web 
site is cumbersome to navigate and that data are displayed in a rigid 
fashion. The commenters suggested that CMS give end users the 
flexibility to create customized reports or tailor the data display to 
the end user's needs. Some commenters also suggested that hospitals 
would benefit from examining how well they are performing if they had 
access to reports that show performance on the care processes that take 
place during discharge. Other commenters stated that the display of 
data on the Hospital Compare Web site for the public may be interpreted 
as encouraging performance at 100 percent on the measures even though 
lower levels of performance on measures may be appropriate, and 
requested that CMS remove the current wording under the ``Learn how to 
use the information from this site'' link on the Hospital Compare Web 
site because it misrepresents to the public what the appropriate 
quality benchmarks are for certain measures. Several commenters 
supported the adoption of a more consumer-friendly star rating system 
for hospitals that would allow consumers to make decisions about where 
to receive care based on a composite ``score'' for the facility, rather 
than minor performance differences on individual measures. Another 
commenter disagreed with posting results on the Hospital Compare Web 
site when a hospital has fewer than 25 eligible cases in a reporting 
period for a measure, stating that the results may not be statistically 
valid or understood by most health care consumers. Another commenter 
stated that all reporting formats should be tested with consumers 
before being publicly displayed.
    Response: Section 1886(b)(3)(B)(viii)(VII) of the Act requires that 
the Secretary establish procedures for making the data reported under 
the RHQDAPU program available to the public. We appreciate these 
suggestions regarding potential improvements to the Hospital Compare 
Web site. We continue to conduct consumer focus groups and work to 
identify areas for improvement, and will make changes that we believe 
are beneficial. In terms of a report that focuses upon care provided at 
discharge, hospitals can use their quarterly Hospital Compare preview 
reports, the downloadable Hospital Compare data sets, and other 
QualityNet reports to examine their performance on measures that relate 
to care provided at discharge. Although we do not believe that the 
current wording in the ``Learn how to use the information from this 
site'' is misleading, we will re-examine the language and determine 
whether it would be appropriate to make changes. We are also working on 
condition-specific (AMI, HF, PN, SCIP and HCAHPS) composites for the 
Hospital Compare Web site in the future to make it more consumer-
friendly.
    On the Hospital Compare Web site, we employ a footnote for rates 
based upon fewer than 25 cases: ``The number of cases is too small 
(<25) to reliably tell how well a hospital is performing,'' but display 
the rate so that consumers can decide whether and how to consider the 
information.
2. Retirement of RHQDAPU Program Measures
    As stated above, we retired the AMI-6 measure from the RHQDAPU 
program measure set beginning with discharges occurring on April 1, 
2009, because we believed, based on new evidence, that the continued 
use of the measure raised specific patient safety concerns. In 
situations such as this, we do not

[[Page 43865]]

believe that it is appropriate to wait for the annual rulemaking cycle. 
Rather, in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 
24168), we proposed to promptly retire the measure and notify hospitals 
and the public of the retirement of the measure and the reasons for its 
retirement through the usual hospital and QIO communication channels 
used for the RHQDAPU program, which include e-mail blasts to hospitals 
and the dissemination of Standard Data Processing System (SDPS) 
memoranda to QIOs, as well as posting the information on the QualityNet 
Web site. We proposed to confirm the retirement of the measure in the 
next IPPS rulemaking. In other circumstances where we do not believe 
that continued use of a measure raises specific patient safety 
concerns, we intend to use the regular rulemaking process to retire a 
measure.
    We invited public comment on whether any other RHQDAPU program 
measures should be retired from the RHQDAPU program, as well as on the 
criteria that should be used in retiring measures. To the extent that 
performance has improved because of the collection and public display 
of quality measures, we also invited public comment on how performance 
could be maintained on the ``topped out'' measures once they are 
retired. We note that many of the measures in the existing program have 
experienced improved performance rates over the years. On our Web site, 
https://www.cms.hhs.gov/HospitalQualityInits/, we have posted the 
performance rates for the existing measures over the years that they 
have been collected through the RHQDAPU program. However, thus far, 
only one measure, the pneumonia oxygenation assessment measure, has 
reached such a high level of compliance (nearly 100 percent for the 
vast majority of hospitals) that we retired the measure.
    Comment: Some commenters recommended 11 measures for retirement for 
varying reasons. Seven of these measures were recommended for 
retirement based on their performance being uniformly high nationwide, 
with little variability among hospitals. These seven measures are:
     AMI-1 Aspirin at arrival
     AMI-3 ACEI/ARB for left ventricular systolic dysfunction
     AMI-4 Adult smoking cessation advice/counseling
     AMI-5 Beta-blocker prescribed at discharge
     HF-4 Adult smoking cessation advice/counseling
     PN-4 Adult smoking cessation advice/counseling
     SCIP-Infection-6: Surgery patients with appropriate hair 
removal
    Commenters also recommended that CMS implement an ongoing 
surveillance mechanism for measures that are retired due to unvarying 
high performance rates nationwide in order to prevent deterioration of 
performance.
    Four of the 11 measures recommended for retirement from the RHQDAPU 
program were recommended for reasons other than high unvarying 
performance. These four measures are:
     HF-1 Discharge instructions
     PN-3b Blood culture performed before first antibiotic 
received in hospital
     SCIP-Infection-2: Prophylactic antibiotic selection for 
surgical patients
     SCIP-Infection-4: Cardiac Surgery Patients with Controlled 
6AM Postoperative Serum Glucose
    With regard to the HF-1 Discharge instructions measure, a commenter 
stated that while high quality discharge instructions are important for 
better outcomes, this measure neither measures nor affects the quality 
of the discharge instruction. Another commenter stated that the 
complexity of the data collection guidelines for this measure outweighs 
its value.
    Several commenters recommended retirement of measure PN-3b, Blood 
culture performed before first antibiotic received in hospital, because 
they believe that it does not align with current clinical guidelines.
    Some commenters also suggested retirement of the SCIP-Infection-2: 
Prophylactic antibiotic selection for surgical patients measure because 
the measure is overly complicated and confusing, and the SCIP-
Infection-4: Cardiac Surgery Patients with Controlled 6AM Postoperative 
Serum Glucose measure because of a perceived risk of complications due 
to extended insulin drips. Several commenters suggested that CMS 
develop a process for determining when process measures should be 
retired to accommodate the inclusion of broad outcome measures on a 
topic, and that CMS retire measures when negative unintended 
consequences result.
    Response: We will consider these suggestions for measures to retire 
in a future rulemaking. We note that we will continue to retire 
measures based on reasons other than potential harm to patients by 
using the rulemaking process, and we believe it is important to weigh 
all relevant factors and consequences related to retirement of a 
measure with affected parties before proposing retirement. We agree 
that high levels of unvarying performance across hospitals should be 
among the factors considered in measure retirement. Such measures do 
not afford opportunities for improvements in care, nor do they allow 
consumers to discern meaningful differences in performance among 
hospitals.
    We currently do not have mechanisms available to conduct continued 
surveillance of retired measures, but will explore options for 
monitoring whether the performance on retired measures deteriorates 
following their retirement. We also agree that quality measures should 
relate to high quality care processes, should be related to better 
patient outcomes, should align with current clinical guidelines when 
possible, and should not be overly burdensome to collect. We will 
consider these factors when evaluating current RHQDAPU program measures 
for retirement. We agree that outcome measures are useful indicators of 
quality, and in recent years have added outcome measures for mortality, 
readmission, and patient safety indicators to the RHQDAPU program. 
However, we do not believe that outcome measures necessarily render 
process measures incompatible or redundant.
    Also, we agree that measures should be evaluated for negative 
unintended consequences, and that this should be a consideration for 
measure retirement. We strive to stay informed about measure support in 
current scientific literature, the continuing ability of measures to 
assess quality of care, and evolving unintended consequences. Some 
negative unintended consequences (such as patient harm) may warrant 
immediate action while other consequences (such as increased burden on 
the hospital) may need to be weighed against the utility of continuing 
to collect and publicly post the measure.
    Comment: One commenter indicated that there are no further measures 
that needed to be retired because there are no other ``topped out'' 
measures.
    Response: We have observed and other commenters have pointed out 
that there may be a number of RHQDAPU program measures that have high 
levels of unvarying performance. However, as we stated in the response 
to a previous comment, we also believe that there are other criteria 
that we must additionally consider before we propose to retire a 
measure from the RHQDAPU program.

[[Page 43866]]

3. Quality Measures for the FY 2011 Payment Determination and 
Subsequent Years
a. Considerations in Expanding and Updating Quality Measures Under the 
RHQDAPU Program
    In the FY 2009 IPPS proposed rule, we solicited public comment on 
several considerations related to expanding and updating quality 
measures, including how to reduce the burden on the hospitals 
participating in the RHQDAPU program and which approaches to 
measurement and collection would be most useful while minimizing burden 
(73 FR 23653 through 23654).
    In the FY 2009 IPPS final rule, we responded to the public comments 
we received on these issues (73 FR 48613 through 48616). We also stated 
that in future expansions and updates to the RHQDAPU program measure 
set, we would be taking into consideration several important goals. 
These goals include: (a) Expanding the types of measures beyond process 
of care measures to include an increased number of outcome measures, 
efficiency measures, and patients' experience-of-care measures; (b) 
expanding the scope of hospital services to which the measures apply; 
(c) considering the burden on hospitals in collecting chart-abstracted 
data; (d) harmonizing the measures used in the 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 reported by many hospitals, such as 
data that hospitals report to clinical data registries, or all-payer 
claims data bases; and (f) weighing the relevance and utility of the 
measures compared to the burden on hospitals in submitting data under 
the RHQDAPU program. Specifically, we give priority to quality measures 
that assess performance on: (a) Conditions that result in the greatest 
mortality and morbidity in the Medicare population; (b) conditions that 
are high volume and high cost for the Medicare program; and (c) 
conditions for which wide cost and treatment variations have been 
reported, despite established clinical guidelines. We have used and 
continue to use these criteria to guide our decisions regarding what 
measures to add to the RHQDAPU program measure set.
    Although RHQDAPU program payment decisions were initially based 
solely on a hospital's submission of chart-abstracted quality measure 
data, in recent years we have adopted measures, including structural 
and claims-based quality measures that do not require a hospital to 
submit chart-abstracted clinical data. This supports our stated goal to 
expand the measures for the RHQDAPU program while minimizing the burden 
on hospitals and, in particular, without significantly increasing the 
chart abstraction burden.
    In addition to claims-based measures, we are considering registries 
\10\ and electronic health records (EHRs) as alternative ways to 
collect data from hospitals. Many hospitals submit data to and 
participate in existing registries. In addition, registries often 
capture outcome information and provide ongoing quality improvement 
feedback to registry participants. Instead of requiring hospitals to 
submit the same data to CMS that they are already submitting to 
registries, we believe that we could collect the data directly from the 
registries, thereby enabling us to expand the RHQDAPU program measure 
set without increasing the burden of data collection for those 
hospitals participating in the registries. Examples of registries 
actively used by hospitals include the Society of Thoracic Surgeons 
(STS) Cardiac Surgery Registry (with approximately 90 percent 
participation by cardiac surgery programs), the AHA Stroke Registry 
(with approximately 1200 hospitals participating), and the American 
Nursing Association (ANA) Nursing Sensitive Measures Registry (with 
approximately 1400 hospitals participating). In the FY 2009 IPPS final 
rule (73 FR 48608 through 48609), we adopted the first RHQDAPU program 
measure related to registries: Participation in a Systematic Database 
for Cardiac Surgery. We continue to evaluate whether it is feasible to 
adopt measures that rely on one or more registries as a source for data 
collection.
---------------------------------------------------------------------------

    \10\ A registry is a collection of clinical data for purposes of 
assessing clinical performance, quality of care, and opportunities 
for quality improvement.
---------------------------------------------------------------------------

    We also stated our intention to explore mechanisms for data 
submission using EHRs (73 FR 48614). Establishing such a system will 
require interoperability between EHRs and CMS data collection systems, 
additional infrastructure development on the part of hospitals and CMS, 
and the adoption of standards for the capturing, formatting, and 
transmission of data elements that make up the measures. However, once 
these activities are accomplished, the adoption of measures that rely 
on data obtained directly from EHRs will enable us to expand the 
RHQDAPU program measure set with less cost and burden to hospitals.
    In the FY 2009 IPPS final rule, we adopted nine AHRQ measures for 
the RHQDAPU program. Although we stated that we would initially 
calculate the measures using Medicare claims data (73 FR 48608), we 
also stated that we remained interested in using all-payer claims data 
to calculate them and that we might propose to collect such data in the 
future. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 
24169), we invited input and suggestions on how all-payer claims data 
can be collected and used by CMS to calculate these measures, as well 
as on additional AHRQ measures that we should consider adopting for 
future RHQDAPU program payment determinations.
    We noted that we continue to use these criteria to guide our 
decisions on what measures to propose for the RHQDAPU program measure 
set. Therefore, we invited comments on the new quality measures we have 
proposed to include in future payment years and on the criteria we 
should use to retire measures.
    Comment: Several commenters supported the concept of EHR-based data 
collection. One commenter expressed concern that the process to 
implement electronic data collection may delay the adoption of 
measures, in particular the stroke measures, for the RHQDAPU program. 
Another commenter applauded CMS for considering EHRs as an alternative 
way to collect data, but suggested that no new quality measures be 
introduced for 2 years while the industry implements EHRs, and that 
some consideration be given to small rural hospitals that may not be 
able to adopt EHRs as soon as larger urban hospitals. One commenter 
believed that infrastructure development for establishing 
interoperability will be challenging and asked that CMS consider a 
phase-in period of 5 years, with reasonable benchmarks for every 6 
months to 1 year.
    Response: We appreciate these supportive comments regarding EHR-
based data collection as an alternative data source for quality 
measures. We encourage adoption of EHRs, and we also acknowledge the 
challenges that must be met both by hospitals and CMS to establish the 
infrastructure and interoperability necessary to collect data on 
quality measures via EHRs. In determining whether to adopt new quality 
measures for the RHQDAPU program, we weigh the potential benefit of 
improvement that would result from reporting a given measure against 
the potential resource burden associated with reporting a measure. For 
purposes

[[Page 43867]]

of the RHQDAPU program, EHR-based data submission may provide an 
alternative means of submitting quality data that would benefit 
hospitals by reducing their chart abstraction burden. However, because 
of the challenges noted above, we do not plan to make EHR-based data 
submission the only means by which hospitals can submit quality data 
for the RHQDAPU program in the near future.
    Comment: Several commenters opposed the direct collection of data 
from EHRs for quality measures, stating that quality data produced in 
this manner is unlikely to be useful or valid either for quality 
measurement or for research, and that programming software is incapable 
of interpreting and deciding between discrepant documentation in a 
single medical record.
    Response: We disagree with the comment that quality data produced 
from EHRs is not likely to be useful for quality measurement and 
research. The data collected from the EHR would essentially be the same 
data that hospitals would otherwise have to manually abstract from a 
medical chart. These data are what we currently use for quality measure 
reporting and for research. We acknowledge that additional programming 
work may need to be completed to enable current EHR systems to collect 
and submit quality measure data. We are currently working with the 
Healthcare Information Technology Standards Panel (HITSP), a public-
private partnership working to establish Health IT interoperability 
standards under contract to the DHHS Office of the National Coordinator 
on Health IT, to standardize the specifications of data elements used 
in stroke, VTE, and emergency department measures so that they may be 
collected and reported via EHRs. Standardization of the specifications 
allows software to convert clinical data of different types into a form 
that can be analyzed for quality measurement. We encourage 
collaboration between standards setting organizations and measure 
developers on the creation of standards for electronic collection of 
data elements for other quality measures as well, particularly those 
used in our quality data reporting programs.
    Comment: A number of commenters supported the use of registries as 
an alternative source of hospital-specific data on quality measures and 
as a means to reduce hospital burden. Several commenters indicated that 
the use of registries to collect hospital-level data would reduce 
administrative burden and ensure appropriate risk-adjustment for 
quality improvement and public reporting purposes, as well as other 
benefits, including the identification of opportunities for quality 
improvement, improvements in patient safety practices and coordination 
of care, and improved patient outcomes.
    However, several commenters expressed concern regarding the 
possibility that they may be required to participate in proprietary 
registries in the future, and requested clarity regarding alternatives 
for data submission should some hospitals (for example, small 
hospitals, rural hospitals) not have the resources to participate in 
registry-based data collection initiatives. These commenters saw 
registry-based data collection as costly and labor intensive because 
many registries require chart abstraction. Other commenters saw 
registries as useful for monitoring quality, but indicated that many 
data fields collected by registries are not related to quality 
measures, and preferred that if such a mechanism were to be used for 
data collection, CMS only receive data relevant to the quality measures 
of interest, and that the data be limited to the Medicare population 
only.
    Response: We are interested in reducing the burden associated with 
quality measurement. If hospitals are participating in registries and 
submit the same data to those registries that they would otherwise have 
to submit for measures that are part of the RHQDAPU program, we believe 
that the registry data would be an efficient alternative source from 
which to collect the data, and that this would prevent the hospital 
from having to report the same data twice. Many hospitals are currently 
participating in a number of registries that collect data on quality 
measures that are topics of interest to us. However, we acknowledge the 
commenters' concern regarding the cost associated with participation in 
certain registries which may make this alternative mechanism for data 
submission less feasible for some hospitals. We anticipate that 
registry-based data collection may be one means, but not an exclusive 
means, of submitting data for quality measures. We will take these 
considerations into account when selecting measures and potential data 
submission mechanisms for those measures for the RHQDAPU program in the 
future.
    Comment: A number of commenters indicated that it would not be 
feasible for hospitals to implement all-payer claims reporting for the 
AHRQ measures while trying to adopt a standardized EHR at the same 
time. Another commenter indicated that, for all-payer data to be 
transmitted to the QIO Clinical Warehouse, data vendors that currently 
collect and submit most of the clinical data for the RHQDAPU program 
would need to develop the capability to process and submit all-payer 
administrative data to the QIO Clinical Warehouse, and that the current 
CMS Abstraction & Reporting Tool (CART) would need to be modified to 
collect these additional data. One commenter urged CMS to develop a 
national all-payer claims database.
    Response: We thank the commenters for these comments. While we are 
interested in collecting all-payer claims data from hospitals in the 
future, we currently do not have a data collection mechanism in place 
to receive these claims. We will continue to explore the feasibility of 
collecting all-payer claims data in the future.
    Comment: Several commenters encouraged CMS to look to the National 
Priorities Partnership goals as a framework for the types of measures 
that should be included in the RHQDAPU program. Some commenters believe 
that some of the measures proposed are not NQF-endorsed. Some 
commenters suggested that CMS consider adopting the criteria for 
measure selection developed by The Joint Commission.
    Response: The National Priorities Partnership is a 28 member 
organization convened by the NQF for the purpose of identifying 
improvement goals and action steps for the U.S. healthcare system. We 
are a member of the National Priorities Partnership and participate in 
its framework-setting activity. Our measure selection activity for the 
RHQDAPU program is informed by this framework. The SCIP--Infection-9 
and -10 measures and the two measures of registry participation 
included in the proposed rule address the National Priorities 
Partnership goals of increasing patient safety and population health. 
The proposed SCIP--Infection-9 and -10 measures are NQF-endorsed, and 
the two structural measures regarding registry participation are 
inpatient applications of an NQF-endorsed measure of registry 
participation (NQF 0493). We regularly communicate with The 
Joint Commission regarding the aligned measures and participate in 
measure maintenance workgroups with The Joint Commission.
    Comment: Several commenters stated that measures selected for the 
RHQDAPU program should be both endorsed by the NQF and adopted by the 
HQA. Some commenters suggested that these steps were required by the 
DRA. One commenter stated that the standard for consensus for selection 
of

[[Page 43868]]

quality measures should be consistent with the National Technology 
Transfer and Advancement Act of 1995 (Pub. L. 104-113) (NTTAA) 
standards.
    Response: Section 1886(b)(3)(B)(viii)(V) of the Act requires, 
effective for payments beginning with FY 2008, that the Secretary add 
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. This provision does not require 
that the measures we adopt for the RHQDAPU program be endorsed by any 
particular entity, and we believe that consensus among affected parties 
can be reflected by means other than endorsement by a voluntary 
consensus organization, including consensus achieved during the measure 
development process, consensus shown through broad acceptance and use 
of measures, and consensus through public comment (74 FR 24165 through 
24166). Nevertheless, we have stated on numerous occasions that we 
prefer to adopt quality measures that have been endorsed by the NQF. 
The NQF uses a formal consensus development process. As the NQF notes 
on its Web site at: http://www.qualityforum.org/Measuring_Performance/Consensus_Development_Process.aspx, it has been recognized as a 
voluntary consensus standards-setting organization as defined by the 
NTTAA and Office of Management and Budget Circular A-119.
    In contrast, the HQA has a limited membership and its current 
policy is to limit measures that it selects for adoption to a subset of 
NQF-endorsed measures. In selecting measures for the RHQDAPU program we 
consider a variety of factors that we have discussed both in this final 
rule and in previous final rules and take into consideration input 
received from the public including but not limited to members of the 
HQA.
    Comment: One commenter supported the measure selection criteria 
that CMS stated in the proposed rule and suggested that emphasis in 
measure selection be placed upon the following: results of cost-benefit 
analyses; opportunities to leverage data reported to State health 
agencies and State hospital associations; alignment of measures and 
incentives across providers and settings through the application of 
care coordination measures and measures of quality across episodes of 
care that increase providers' clinical and financial accountability; 
and measurement of ambulatory care sensitive and preventable hospital 
admissions and readmissions for beneficiaries with chronic conditions. 
The commenter also suggested that CMS avoid selecting measures that 
allow hospitals to be rewarded for providing marginally effective care 
or care that is already routinely furnished.
    Response: We thank the commenter for these suggestions. In general, 
we agree with these suggested considerations for measure selection. We 
adopt measures of high relevance to the Medicare population for which 
the benefit of public reporting and improvement justifies the 
collection burden, and intend to reduce the collection burden by 
utilizing data sources such as administrative data, registries, and 
EHRs. We strive to align measures across settings whenever possible and 
will continue to do so. The current and proposed RHQDAPU program 
measure set contains measures of readmission for beneficiaries with 
certain acute and chronic conditions, and we intend to expand 
measurement in this area. We also intend to adopt measures of care 
coordination suitable for inclusion in the RHQDAPU program when such 
measures are developed. We also agree with the commenter that quality 
measures should emphasize effective care for which there is evidence of 
wide variability despite the presence of established guidelines. With 
regard to measurement of quality across episodes of care, the current 
RHQDAPU program process measures focus on topics of acute care quality. 
However, we believe that the 30-day mortality and 30-day readmission 
measures adopted for the RHQDAPU program also touch on the issue of 
quality across the continuum of care because other providers in the 
larger community share responsibility with the hospital for mortality 
and readmission during the 30-day period measured, as the quality of 
ambulatory follow up care or postacute care after discharge affects the 
likelihood of these events occurring.
    Comment: Two commenters supported the RHQDAPU program in general. 
One of these commenters attributed great improvements in performance 
and benefits to patients to the reporting of quality data and indicated 
that the reporting program allows hospitals to see comparative 
information that they otherwise might not see.
    Response: We agree with and appreciate these supportive comments.
    Comment: One commenter opposed quality data reporting and stated 
that decreasing payments via incentive programs leads to decreases in 
quality and safety of care for patients.
    Response: We disagree with this statement. The IOM, in its 2005 
volume titled Performance Measurement: Accelerating Improvement (part 
of the IOM series on ``Pathways to Quality Health Care'') credits 
performance measurement as the cornerstone of quality improvement in 
healthcare. Analyses of Hospital Compare data over time indicates 
improvement trends in most of the measures since reporting began in 
2004.
    In summary, we will continue to pursue goals regarding the 
expansion and updating of quality measures under the RHQDAPU program 
while minimizing burden. We will take into account the public comments 
we received on the possible uses of EHRs, registries, and all-payer 
claims data in the RHQDAPU program. We also will consider the measure 
selection criteria suggested by various commenters in prioritizing and 
selecting quality measures for the future.
b. RHQDAPU Program Quality Measures for the FY 2011 Payment 
Determination
(1) Retention of Existing RHQDAPU Program Quality Measures
    For the FY 2011 payment determination, in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule (74 FR 24169), we proposed to retain 41 RHQDAPU 
program quality measures that we are using for the FY 2010 payment 
determination. We refer readers to the table in the proposed rule (74 
FR 24169 through 24170) for a complete list of the measures we proposed 
to retain.
    As we discussed in section V.A.1.c.(1) of this final rule, we 
retired the AMI-6 Beta blocker at arrival measure from the RHQDAPU 
program measure set for the FY 2010 payment determination and 
subsequent years.
    We discussed above the public comments we received regarding the 
retirement of measures that are proposed for the FY 2011 payment 
determination. We did not receive any other public comments regarding 
our proposal to retain for the FY 2011 payment determination the 41 
measures that we are using for the FY 2010 payment determination. 
Therefore, we are adopting as final, without change, our proposal to 
retain the 41 quality measures used for the FY 2010 payment update.
(2) NQF Harmonization of Two Existing RHQDAPU Program Measures
    In May 2008, the NQF reviewed the specifications for two of the 
RHQDAPU program measures that we adopted for the FY 2010 payment 
determination: PSI 04--Death among surgical patients with treatable 
serious complications;

[[Page 43869]]

and Nursing Sensitive--Failure to rescue (Medicare claims only). This 
was part of an NQF project titled ``National Voluntary Consensus 
Standards for Hospital Care 2007: Performance Measures.'' As a result 
of this project by the NQF, these two measures now have the same name: 
``Death among surgical inpatients with serious, treatable 
complications'' and share a single set of measure specifications.
    In order to maintain consistency with national voluntary consensus 
standards with respect to referencing the measure, in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74 FR 24170), we proposed to combine 
PSI 04--Death among surgical patients with treatable serious 
complications; and Nursing Sensitive--Failure to rescue (Medicare 
claims only) into a single measure, Death among surgical inpatients 
with serious, treatable complications, and to list the measure under 
proposed topic name--AHRQ PSI and Nursing Sensitive Care. This measure, 
as well as its specifications, would replace, for purposes of hospital 
reporting, the two RHQDAPU program measures that we adopted for the FY 
2010 payment determination: PSI 04: Death among surgical patients with 
treatable serious complications; and Nursing Sensitive--Failure to 
rescue (Medicare claims only). However, we indicated that we may 
continue to publicly report the measure in two different topics areas 
on the Hospital Compare Web site--Nursing Sensitive Care and AHRQ PSIs, 
IQIs and Composite Measures. We invited public comment on this 
proposal.
    Comment: Several commenters supported harmonization of the Failure 
to Rescue measure and PSI 04: Death among surgical inpatients with 
serious, treatable complication in accordance with consensus standards. 
However, a number of commenters questioned the possible display of the 
harmonized measure in more than one topic area on the Hospital Compare 
Web site, stating this may be unnecessary, redundant, and result in 
confusion. One commenter indicated that continuing to report the 
measure under the two separate topic areas is beneficial.
    Response: We thank the commenters for their support of our use of 
the single harmonized measure and measure specification for the RHQDAPU 
program. The harmonized measure addresses two areas of topical 
significance, patient safety and nursing sensitive care. Therefore, we 
believe that publicly displaying the measure results in more than one 
topic area on the Hospital Compare Web site will give end-users a 
richer picture of a hospital's performance in both of these topic 
areas. We will conduct consumer testing to ensure that display of the 
measure on the Hospital Compare Web site does not appear redundant or 
confusing to consumers.
    After consideration of the public comments we received, we have 
decided to adopt as final our proposal to harmonize these two measures 
for the FY 2011 payment determination.
(3) New Chart-Abstracted Measures
    For the FY 2011 payment determination, in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule (74 FR 24170), we proposed to add two new chart-
abstracted measures. These proposed new measures, SCIP-Infection-9 
Postoperative Urinary Catheter Removal on Post Operative Day 1 or 2 and 
SCIP-Infection-10: Perioperative Temperature Management, are additions 
to the existing SCIP measure set. The SCIP Infection measures are 
designed to assess practices that reduce the risk of infections that 
surgical patients could acquire in the hospital. They have high 
relevance to the Medicare population, and address the growing concern 
regarding hospital-acquired infections.\11\
---------------------------------------------------------------------------

    \11\ U.S. Government Accountability Office. Health-Care 
Associated Infections in Hospitals: An Overview of State Reporting 
Programs and Individual Hospital Initiatives to Reduce Certain 
Infections. September 2008.
---------------------------------------------------------------------------

    Although these two measures require that hospitals abstract data 
from medical records, they add to the scope of the existing SCIP 
measure set. Hospitals currently collect and report data elements for 
eight SCIP measures. Additional data elements required for these two 
proposed new SCIP measures are minimal, and would be abstracted from 
the same records hospitals use to abstract data for the other SCIP 
measures. Therefore, we expect the additional burden on hospitals to be 
minimal. The two measures are NQF-endorsed. We invited public comment 
on our proposal to include SCIP-Infection-9 and SCIP-Infection-10 as 
RHQDAPU program measures to be used for the FY 2011 payment 
determination.
    Comment: Several commenters supported CMS' recognition of the 
burden associated with collection of chart-abstracted measures and 
limiting the number of chart-abstracted measures proposed this year.
    Response: We appreciate these comments and will continue to 
carefully consider the potential burden associated with the collection 
of chart-abstracted measures for the RHQDAPU program relative to 
potential benefit of public reporting and quality improvement.
    Comment: Several commenters supported the two proposed new chart-
abstracted measures. The commenters indicated that these measures have 
the potential to reduce hospital-acquired infections while minimizing 
burden, as the data elements would come from the same records hospitals 
are using to abstract data for the other SCIP measures.
    Response: We appreciate these supportive comments. We believe that 
these measures address areas of topical importance to the Medicare 
program because they measure quality of surgical care and practices 
associated with reduction of hospital-acquired infections, and thus, 
ensure better patient outcomes.
    Comment: A few commenters opposed the inclusion of both SCIP-
Infection-9 and SCIP-Infection-10 in the RHQDAPU program solely because 
they are not HQA adopted.
    Response: As we discussed more fully in our response to a prior 
comment, we do not believe that HQA endorsement is a required 
prerequisite for quality measure selection under the RHQDAPU program.
    Comment: One commenter expected a moderate increase in the 
administrative burden related to abstraction. Another commenter asked 
CMS to consider whether it should adopt SCIP-Infection-9 if it is 
considering implementing the Nursing Sensitive/HAI measure, Catheter 
Associated Urinary Tract Infection (CA UTI), in FY 2012. The commenter 
stated that the two measures work toward the same goal of reduced UTIs, 
and ultimately, a broader outcome measure should supplant the related 
process measure that is more likely to become outdated as science 
evolves.
    Response: Both SCIP-Infection-9 and SCIP-Infection-10 impose 
minimal additional abstraction burden as they build upon an existing 
measurement set for a population for which charts are already being 
pulled for abstraction. We acknowledge that the process measured by 
SCIP-Infection-9 is related to the outcome measured by the CA UTI 
measure being considered among measures for future adoption in FY 2012 
and beyond. Though CA UTI is being considered for the future, SCIP-
Infection-9 was proposed for the FY 2011 payment determination because 
there is widespread variation in practice for the processes measured, 
and the practices associated with the measure improve patient outcomes. 
The processes measured in SCIP-Infection-9 may be related to the CA UTI 
measure, but the process measure is not

[[Page 43870]]

supplanted by the outcome measure. The processes SCIP-Infection-9 is 
intended to measure are of clinical relevance to the Medicare 
population and have the potential to improve patient care outcomes.
    After consideration of the public comments we received, we have 
decided to finalize our proposal, without change, to adopt SCIP-
Infection-9: Postoperative Urinary Catheter Removal on Post Operative 
Day 1 or 2 and SCIP-Infection-10: Perioperative Temperature Management 
as quality measures under the RHQDAPU program for the FY 2011 payment 
determination. As we stated in the proposed rule, the collection of the 
new chart-abstracted measures for the FY 2011 payment determination 
will begin with 1st calendar quarter 2010 discharges, for which the 
submission deadline will be August 15, 2010.
(4) New Structural Measures
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24170), 
we also proposed to adopt two additional structural measures for the FY 
2011 payment determination. Structural measures assess the 
characteristics and capacity of the provider to deliver quality health 
care. We proposed to add two additional registry participation 
measures. The two structural measures are: (1) Participation in a 
Systematic Clinical Database Registry for Stroke Care; and (2) 
Participation in a Systematic Clinical Database Registry for Nursing 
Sensitive Care. These measures are specific applications for the 
inpatient setting of a structural measure entitled ``Participation by a 
physician or other clinician in a systematic clinical database registry 
that includes consensus endorsed measures,'' which received NQF 
endorsement under a project titled ``National Voluntary Consensus 
Standards for Health IT: Structural Measures 2008.'' The proposed 
measures are appropriate applications of the NQF-endorsed measure 
because the NQF has endorsed measures for Stroke Care and Nursing 
Sensitive Care which are currently being collected by widely used 
stroke and nursing sensitive care registries. Therefore, we believe 
that the proposed Stroke Registry Participation structural measure and 
Nursing Sensitive Care Registry Participation structural measure meet 
the consensus requirement in section 1886(b)(3)(B)(viii)(V) of the Act.
    As we have previously stated, we also believe that participation in 
registries reflects a commitment to assessing the quality of care 
provided and identifying opportunities for improvement. Many registries 
also collect outcome data and provide feedback to hospitals about their 
performance. Moreover, registries offer a potential future data source 
from which we can collect quality data.
    The Participation in a Systematic Clinical Database Registry for 
Stroke structural measure would require each hospital that participates 
in the RHQDAPU program to indicate whether it is participating in a 
systematic qualified clinical database registry for inpatient stroke 
care and, if so, to identify the registry.
    The Participation in a Systematic Clinical Database Registry for 
Nursing Sensitive Care structural measure would similarly require each 
hospital participating in the RHQDAPU program to indicate whether it is 
participating in a systematic qualified clinical database registry 
measuring nursing sensitive care quality for inpatient care and, if so, 
to identify the registry.
    We solicited public comment on these registry structural measures. 
Specifically, we invited public comment on whether ``systematic 
qualified clinical database registry'' is adequately defined and, if 
not, how it should be defined. In defining ``systematic qualified 
clinical database registry,'' should registries that do not collect 
outcome measures and/or do not provide feedback to hospitals about 
their performance be excluded? Are there other registries that we 
should consider in future rulemakings, beyond stroke and nursing 
sensitive registries, particularly for conditions where there is high 
mortality/morbidity in the Medicare population, high cost to the health 
care system, and widespread treatment variations despite established 
clinical guidelines? Finally, we welcomed more precise data on what 
percentage of hospitals already participate in a stroke registry or a 
nursing sensitive registry.\12\ Because we also retire measures when 
performance has reached a sufficiently high level, we invited public 
comment on whether reporting on stroke registry and nursing sensitive 
care registry structural measures has sufficient relevance and utility 
to justify the reporting burden, if a substantial proportion of 
hospitals already participate in these registries.
---------------------------------------------------------------------------

    \12\ Examples of registries that we are aware of that are being 
actively used by hospitals include the Society of Thoracic Surgeons 
(STS) Cardiac Surgery Registry (with approximately 90 percent 
participation by cardiac surgery programs), the AHA Stroke Registry 
(with approximately 1200 hospitals participating), and the American 
Nursing Association (ANA) Nursing Sensitive Measures Registry (with 
approximately 1400 hospitals participating).
---------------------------------------------------------------------------

    Both proposed structural measures can be submitted using a Web-
based collection tool that we will make available on the QualityNet Web 
site. We invited public comment on our proposal to adopt these two 
structural measures for the FY 2011 payment determination.
    Comment: Several commenters indicated that the two structural 
measures of clinical registry participation should not be included in 
the RHQDAPU program. They indicated that the measures had not been 
endorsed by the NQF or adopted by the HQA and there appears to be no 
established connection between whether a hospital answers ``yes'' or 
``no'' to the registry participation measures and the quality of the 
care that hospital provides. Some commenters expressed concern that 
these measures contain an implicit encouragement by the Medicare 
program for hospitals to participate in clinical data registries 
designed and operated by external organizations, which can be costly. 
Others commenters applauded the use of registries to promote quality 
improvement.
    Response: The proposed structural measures are specific 
applications for the inpatient setting of NQF-endorsed measure 
``participation by a physician or other clinician in a systematic 
clinical database registry that includes consensus endorsed measures.'' 
Therefore, we believe that they meet the requirement for consensus in 
section 1886(b)(3)(B)(viii)(V) of the Act. The measure as endorsed by 
the NQF is an indicator of quality, because it measures adoption of 
technology that has the capacity to improve quality of care. We believe 
that registries can play an important role in providing hospitals with 
information and services for internal quality improvement by providing 
performance benchmarking information, continuous feedback, and 
opportunities to learn best practices. Our intent with these structural 
measures is to assess the degree of current participation in registries 
collecting NQF-endorsed measures on the topics of stroke and nursing 
sensitive quality measures among hospitals participating in the RHQDAPU 
program. We note that hospitals are not required to actually 
participate in the registries in order to meet the RHQDAPU program 
requirements. We also note that in the public comments we received, 
many hospitals indicated that registry participation afforded them with 
valuable insights for improving quality and patient outcomes.
    Comment: Several commenters supported the structural measure 
``Participation in a systematic clinical database registry for 
stroke.'' The

[[Page 43871]]

commenters agreed that stroke measurement should be a priority for the 
RHQDAPU program because strokes cause significant mortality and 
morbidity in the Medicare population, and are treated with wide 
variation despite established guidelines. The commenters also stated 
that participation in such registries has resulted in improvements in 
the quality of care delivered to stroke patients. Commenters 
recommended that the Massachusetts Department of Public Health's acute 
stroke registry, the American Stroke Association (ASA) Get With the 
Guidelines-Stroke registry, and the CDC Paul Coverdell stroke registry 
should be recognized as qualifying registries for the Systematic 
Clinical Database Registry for Stroke measures. A few commenters 
indicated that quarterly submission of registry participation, while 
not overly burdensome, is unnecessary because hospitals tend to 
participate for an entire year, and not on an intermittent basis.
    Response: We agree that strokes cause high morbidity and mortality 
in the Medicare population, and we believe that stroke registries can 
play an important role in providing hospitals with information and 
services for internal quality improvement by providing performance 
benchmarking information, continuous feedback, and opportunities to 
learn best practices. We understand that hospitals that participate in 
registries tend to participate continuously for an entire year, rather 
than intermittently. Based on the feedback, we are modifying our 
proposal to require that hospitals only report whether they participate 
in a stroke and/or nursing sensitive care registry once annually. We 
also are modifying our submission requirement with respect to the 
cardiac surgery registry participaton measure to be consistent with the 
annual submisssion requirement for the stroke and nursing sensitive 
care registry participation measures.
    Comment: A number of commenters indicated that participation in 
stroke registries should not be mandated due to perceived burden, and 
that hospitals should be allowed to report the measures to CMS without 
a vendor. One commenter asked whether and how CMS would determine 
volume thresholds for participation in a stroke registry, and 
specifically whether there would be an expectation that hospitals 
having a low volume of stroke cases participate in a registry.
    Response: We acknowledge that registry participation may be 
burdensome for some hospitals, and we note that the proposed structural 
measures do not mandate that hospitals actually participate in either a 
stroke or nursing sensitive care registry. We also note that there is 
no requirement under the RHQDAPU program that hospitals use a vendor to 
report measures to the QIO Clinical Warehouse, the structural measures 
can be reported directly by hospitals using a Web-based tool.
    Comment: Commenters suggested criteria for a qualified systematic 
clinical database registry for stroke care. One commenter suggested a 
data collection system that supports real-time data collection 
concurrent with patient care, that collects at a minimum all data 
required to support the NQF-endorsed stroke measures, and that uses the 
data to guide improvement in stroke care within an organized program of 
quality improvement. Another commenter suggested that registries should 
be required to include the following services and information: (1) A 
feedback component; (2) the intended use (that is, plan of action/care) 
of the information; (3) potential intervention actions; (4) evaluation; 
and (5) the outcome measure intended to impact (this could be either a 
process-outcome link supported by literature, intermediate outcome, or 
long-term outcome). Commenters also suggested that the risk adjustment 
methodologies employed must be explained if a hospital is collecting 
outcome data, and the feedback provided should be ``systematic,'' which 
requires coordination of the feedback and dissemination of that 
feedback to the defined stroke team (not just the statement feedback to 
hospital).
    Response: We appreciate these suggestions and will consider these 
for future measure refinement. We note that the current NQF-endorsed 
measure 0493, upon which the stroke and nursing sensitive 
registry participation structural measures are based, contains the 
following definition for systematic clinical database registry:
    ``c. Registry measures shall include at least two (2) 
representative NQF consensus endorsed measures for registry's clinical 
topic(s) and report on all patients eligible for the selected measures.
    ``d. Registry provides calculated measures results, benchmarking, 
and quality improvement information to individual physicians and 
clinicians.
    ``e. Registry must receive data from more than 5 separate practices 
and may not be located (warehoused) at an individual group's practice. 
Participation in a national or state-wide registry is encouraged for 
this measure.
    ``f. Registry may provide feedback directly to the provider's local 
registry if one exists.''
    This definition of systematic clinical database registry is part of 
the specification for measure 0493 shown in NQF's 2008 
Consensus Report regarding National Voluntary Consensus Standards for 
Health Information Technology. We will modify this definition to apply 
to inpatient hospitals, and to the specific topics of stroke and 
nursing sensitive care registries.
    Comment: Some commenters supported the structural measure for 
``Participation in a Systematic Clinical Database Registry for Nursing 
Sensitive Care.'' One commenter suggested that the Patients First 
nursing sensitive measure project be recognized as a qualifying 
registry under the measure. Another commenter suggested that the 
National Database of Nursing Quality Indicators (NDNQI) be considered a 
qualifying registry.
    Response: We appreciate these supportive comments. Participation in 
a particular registry is not required in order for a hospital to 
properly report the Participation in a Systematic Clinical Database 
Registry for Nursing Sensitive Care measure, or any of the other 
structural measures we have, to date, adopted for the RHQDAPU program. 
A hospital can successfully report this structural measure simply by 
indicating whether they participate in a systematic clinical database 
registry for nursing sensitive care and, if so, which registry.
    Comment: A number of commenters indicated that participation in a 
nursing sensitive care registry, though currently widespread, may not 
be feasible for smaller hospitals due to the cost and the need for 
additional staff for data abstraction and reporting.
    Response: We understand the cost implications of participating in 
such registries. However, as we have stated above, actual participation 
in a nursing sensitive care registry is not required under the RHQDAPU 
program.
    Comment: Commenters suggested that CMS consider three additional 
registry topics for measuring hospital participation:
     Sepsis Survival
     Surgical Quality Improvement
     Healthcare Safety and Healthcare Acquired Infections
    Response: We thank the commenters for these suggestions and will 
consider these registry topics in the future.
    After consideration of the public comments we received, we are 
adopting as final the two proposed structural measures: Participation 
in a Systematic

[[Page 43872]]

Clinical Database Registry for Stroke Care; and Participation in a 
Systematic Clinical Database Registry for Nursing Sensitive Care under 
the RHQDAPU program for the FY 2011 payment determination. Based on 
public comments, we will collect these structural measures once 
annually rather than quarterly as originally proposed. Annual data 
submission for these structural measures via a Web-based collection 
tool will begin in July 2010 with respect to the time period January 1, 
2010, through June 30, 2010.
    In summary, after consideration of the public comments we received, 
for the FY 2011 payment determination, we are adopting as final our 
proposals to retain 41 of the measures we adopted for the FY 2010 
payment determination. In addition, we are adopting as final our 
proposal to harmonize an AHRQ measure and a Nursing Sensitive measure 
by combining these measures into a single measure entitled Death among 
surgical inpatients with serious, treatable complications for the 
RHQDAPU program measure set for FY 2011 payment determination. Finally, 
we are adopting as final our proposal to add an additional four 
measures to the RHQDAPU program measure set for the FY 2011 payment 
determination: SCIP-Infection-9: Postoperative Urinary Catheter Removal 
on Post Operative Day 1 or 2; SCIP-Infection-10: Perioperative 
Temperature Management; Participation in a Systematic Clinical Database 
Registry for Stroke Care; and Participation in a Systematic Clinical 
Database Registry for Nursing Sensitive Care.
    Set out below are the 46 RHQDAPU program quality measures we are 
adopting for the FY 2011 payment determination:

------------------------------------------------------------------------
                                             RHQDAPU Program quality
                 Topic                       measures for the FY 2011
                                              payment determination
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)......   AMI-1 Aspirin at
                                          arrival.
                                          AMI-2 Aspirin
                                          prescribed at discharge.
                                          AMI-3 Angiotensin
                                          Converting Enzyme Inhibitor
                                          (ACE-I) or Angiotensin II
                                          Receptor Blocker (ARB) for
                                          left ventricular systolic
                                          dysfunction.
                                          AMI-4 Adult smoking
                                          cessation advice/counseling.
                                          AMI-5 Beta blocker
                                          prescribed at discharge.
                                          AMI-7a Fibrinolytic
                                          (thrombolytic) agent received
                                          within 30 minutes of hospital
                                          arrival.
                                          AMI-8a Timing of
                                          Receipt of Primary
                                          Percutaneous Coronary
                                          Intervention (PCI).
Heart Failure (HF).....................   HF-1 Discharge
                                          instructions.
                                          HF-2 Left ventricular
                                          function assessment.
                                          HF-3 Angiotensin
                                          Converting Enzyme Inhibitor
                                          (ACE-I) or Angiotensin II
                                          Receptor Blocker (ARB) for
                                          left ventricular systolic
                                          dysfunction.
                                          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-5c Timing of
                                          receipt of initial antibiotic
                                          following hospital arrival.
                                          PN-6 Appropriate
                                          initial antibiotic selection.
                                          PN-7 Influenza
                                          vaccination status.
Surgical Care Improvement Project         SCIP-1 Prophylactic
 (SCIP).                                  antibiotic received within 1
                                          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-Infection-9:
                                          Postoperative Urinary Catheter
                                          Removal on Post Operative Day
                                          1 or 2 *.
                                          SCIP-Infection-10:
                                          Perioperative Temperature
                                          Management *.
                                          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 survey.
Readmission Measure (Medicare Patients)   READ-30-HF: Heart
                                          Failure 30[dash]Day Risk
                                          Standardized Readmission
                                          Measure (Medicare patients).
                                          READ-30-AMI: Acute
                                          Myocardial Infarction
                                          30[dash]Day Risk Standardized
                                          Readmission Measure (Medicare
                                          patients).
                                          READ-30-PN: Pneumonia
                                          30[dash]Day Risk Standardized
                                          Readmission Measure (Medicare
                                          patients).
AHRQ Patient Safety Indicators (PSIs),    PSI 06: Iatrogenic
 Inpatient Quality Indicators (IQIs)      pneumothorax, adult.
 and Composite Measures.

[[Page 43873]]

 
                                          PSI 14: Postoperative
                                          wound dehiscence.
                                          PSI 15: Accidental
                                          puncture or laceration.
                                          IQI 11: Abdominal
                                          aortic aneurysm (AAA)
                                          mortality rate (with or
                                          without volume).
                                          IQI 19: Hip fracture
                                          mortality rate.
                                          Mortality for selected
                                          surgical procedures
                                          (composite).
                                          Complication/patient
                                          safety for selected indicators
                                          (composite).
                                          Mortality for selected
                                          medical conditions
                                          (composite).
AHRQ PSI and Nursing Sensitive Care **.   Death among surgical
                                          inpatients with serious,
                                          treatable complications.
Cardiac Surgery........................   Participation in a
                                          Systematic Database for
                                          Cardiac Surgery.
Stroke Care............................   Participation in a
                                          Systematic Clinical Database
                                          Registry for Stroke Care *.
Nursing Sensitive Care.................   Participation in a
                                          Systematic Clinical Database
                                          Registry for Nursing Sensitive
                                          Care *.
------------------------------------------------------------------------
* New measure for FY 2011 payment determination.
** Harmonized measure. This measure may be publicly reported under two
  topics--the AHRQ PSIs and the Nursing Sensitive Care topic.

4. Possible New Quality Measures for the FY 2012 Payment Determination 
and Subsequent Years
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24172), 
we invited public comment on the following quality measures and topics 
that we might consider adopting beginning with the FY 2012 payment 
determination. We also sought suggestions and rationales to support the 
adoption of measures and topics for the RHQDAPU program that are not 
included in this list.

------------------------------------------------------------------------
             Measure topic                     Measure description
------------------------------------------------------------------------
AMI....................................  Statin at discharge.
ED--Throughput.........................  Median time from admit decision
                                          time to time of departure from
                                          the emergency department for
                                          emergency department patients
                                          admitted to inpatient status.
ED--Throughput.........................  Median time from emergency
                                          department arrival to time of
                                          departure from the emergency
                                          room for patients admitted to
                                          the facility from the
                                          emergency department.
Complications..........................  Lower Extremity Bypass
                                          Complications.
Complications..........................  Comorbidity Adjusted
                                          Complication Index.
PCI....................................  PCI mortality rate for patients
                                          without ST segment elevation
                                          myocardial infarction (STEMI)
                                          and without cardiogenic shock.
Stroke.................................  Patients with an ischemic
                                          stroke or a hemorrhagic stroke
                                          and who are non-ambulatory
                                          should start receiving DVT
                                          prophylaxis by end of hospital
                                          day two.
Stroke.................................  Patients with an ischemic
                                          stroke prescribed
                                          antithrombotic therapy at
                                          discharge.
Stroke.................................  Patients with an ischemic
                                          stroke with atrial
                                          fibrillation discharged on
                                          anticoagulation therapy.
Stroke.................................  Acute ischemic stroke patients
                                          who arrive at the hospital
                                          within 120 minutes (2 hours)
                                          of time last known well and
                                          for whom IV t-PA was initiated
                                          at this hospital within 180
                                          minutes (3 hours) of time last
                                          known well.
Stroke.................................  Patients with ischemic stroke
                                          who receive antithrombotic
                                          therapy by the end of hospital
                                          day two.
Stroke.................................  Ischemic stroke patients with
                                          LDL >/= 100 mg/dL, or LDL not
                                          measured, or, who were on
                                          cholesterol reducing therapy
                                          prior to hospitalization are
                                          discharged on a statin
                                          medication.
Stroke.................................  Patients with ischemic or
                                          hemorrhagic stroke or their
                                          caregivers who were given
                                          education or educational
                                          materials during the hospital
                                          stay addressing all of the
                                          following: personal risk
                                          factors for stroke, warning
                                          signs for stroke, activation
                                          of emergency.
Stroke.................................  Patients with an ischemic
                                          stroke or hemorrhagic stroke
                                          who were assessed for
                                          rehabilitation services.
VTE....................................  This measure assesses the
                                          number of patients that
                                          receive VTE prophylaxis or
                                          have documentation why no VTE
                                          prophylaxis was given within
                                          24 hours after the initial
                                          admission (or transfer) to the
                                          Intensive Care Unit (ICU) or
                                          surgery end time.
VTE....................................  Patients who received
                                          parenteral and warfarin
                                          therapy (overlap therapy): (1)
                                          For at least 5 days, with an
                                          INR greater than or equal to 2
                                          prior to discontinuation of
                                          parenteral therapy OR (2) For
                                          more than 5 days, with an INR
                                          less than 2, but were
                                          discharged on overlap therapy
                                          OR (3) Who were discharged in
                                          less than five days on overlap
                                          therapy.

[[Page 43874]]

 
VTE....................................  This measure assesses the
                                          number of patients receiving
                                          intravenous (IV) UFH therapy
                                          with documentation that the
                                          dosages and platelet counts
                                          are monitored by protocol (or
                                          nomogram).
VTE....................................  This measure assesses the
                                          number of VTE patients that
                                          are discharged home, home
                                          care, or home hospice on
                                          warfarin with written
                                          discharge instructions that
                                          addresses all four criteria:
                                          Follow-up Monitoring;
                                          Compliance Issues; Dietary
                                          Restrictions; and, Potential
                                          for Adverse Drug Reactions/
                                          Interactions.
VTE....................................  This measure assesses the
                                          number of patients that were
                                          diagnosed with VTE during
                                          hospitalization (not present
                                          at admission) that did not
                                          receive VTE prophylaxis.
Cardiac Surgery........................  Post-operative Renal Failure.
Cardiac Surgery........................  Surgical Re-exploration.
Cardiac Surgery........................  Anti-Platelet Medication at
                                          Discharge.
Cardiac Surgery........................  Beta Blockade at Discharge.
Cardiac Surgery........................  Anti-Lipid Treatment Discharge.
Cardiac Surgery........................  Risk-Adjusted Operative
                                          Mortality for Coronary Artery
                                          Bypass Graft CABG.
Cardiac Surgery........................  Risk-Adjusted Operative
                                          Mortality for Aortic Valve
                                          Replacement (AVR).
Cardiac Surgery........................  Risk-Adjusted Operative
                                          Mortality for Mitral Valve
                                          Replacement/Repair (MVR).
Cardiac Surgery........................  Risk-Adjusted Operative
                                          Mortality MVR+CABG Surgery.
Cardiac Surgery........................  Risk-Adjusted Operative
                                          Mortality for AVR+CABG.
Cardiac Surgery........................  Pre-Operative Beta Blockade.
Cardiac Surgery........................  Duration of Prophylaxis for
                                          Cardiac Surgery Patients.
Cardiac Surgery........................  Prolonged Intubation
                                          (ventilation).
Cardiac Surgery........................  Deep Sternal Wound Infection
                                          Rate.
Cardiac Surgery........................  Stroke/Cerebrovascular
                                          Accident.
Nursing Sensitive......................  Patient Falls: All documented
                                          falls with or without injury,
                                          experienced by patients on an
                                          eligible unit in a calendar
                                          month.
Nursing Sensitive......................  Falls with Injury: All
                                          documented patient falls with
                                          an injury level of minor or
                                          greater.
Nursing Sensitive/HAI..................  Catheter Associated Urinary
                                          Tract Infection.
Nursing Sensitive/HAI..................  Central Line Associated Blood
                                          Stream Infection in the ICU
                                          and high risk neonatal
                                          intensive care unit.
Nursing Sensitive/HAI..................  Ventilator Associated Pneumonia
                                          in the ICU.
Nursing Sensitive......................  Pressure Ulcer Prevalence.
Nursing Sensitive......................  Restraint Prevalence (vest and
                                          limb).
Nursing Sensitive......................  Skill Mix: Percentage of hours
                                          worked by: RN, LPN/LVN, UAP,
                                          Contract/Agency.
Nursing Sensitive......................  Hours per patient day worked by
                                          RN, LPN, and UAP.
Nursing Sensitive......................  Practice Environment Scale-
                                          Nursing Work Index.
Nursing Sensitive......................  Voluntary turnover for RN, APN,
                                          LPN, UAP.
Outcomes...............................  PSI 03: Decubitus Ulcer.
Outcomes...............................  PSI 07: Infection Due to
                                          Medical Care.
Outcomes...............................  PSI 08: Post Operative Hip
                                          Fracture.
Outcomes...............................  PSI 09: Post Operative
                                          Hemorrhage or Hematoma *.
Outcomes...............................  PSI 10: Post Operative
                                          Physiologic Metabolic
                                          Derangement *.
Outcomes...............................  PSI 11: Post Operative
                                          Respiratory Failure.
Outcomes...............................  PSI 12: Post Operative PE or
                                          DVT.
Outcomes...............................  PSI 13: Post Operative Sepsis.
Outcomes...............................  IQI 08: In-hospital Mortality
                                          for Esophageal Resection.
Outcomes...............................  IQI 09: In-hospital Mortality
                                          for Pancreatic Resection.
Outcomes...............................  IQI 12: In-hospital Mortality
                                          for Coronary Artery Bypass
                                          Graft CABG.
Outcomes...............................  IQI 13: In-hospital Mortality
                                          for Craniotomy *.
Outcomes...............................  IQI 14: In-hospital Mortality
                                          for Hip Replacement.
Outcomes...............................  IQI 15: In-hospital Mortality
                                          for AMI.
Outcomes...............................  IQI 16: In-hospital Mortality
                                          for CHF.
Outcomes...............................  IQI 17: In-hospital Mortality
                                          for Stroke.
Outcomes...............................  IQI 18: In-hospital Mortality
                                          for GI Hemorrhage *.
Outcomes...............................  IQI 20: In-hospital Mortality
                                          for Pneumonia.
SCIP...................................  Short Half-Life prophylactic
                                          administered preoperatively
                                          redosed within 4 hours after
                                          preoperative dose.
PCI Readmission........................  Hospital-specific 30-day risk-
                                          standardized readmission rate
                                          following Percutaneous
                                          Coronary Intervention (PCI)
                                          among patients aged 18 years
                                          or older.
PCI Mortality..........................  PCI Mortality for STEMI/shock
                                          patients: Hospital-specific 30-
                                          day all-cause risk-
                                          standardized mortality rate
                                          following Percutaneous
                                          Coronary Intervention (PCI)
                                          among patients aged 18 years
                                          or older with ST segment
                                          elevation myocardial
                                          infarction (STEMI) or
                                          cardiogenic shock at the time
                                          of procedure.

[[Page 43875]]

 
                                         PCI Mortality for non-STEMI/non-
                                          shock patients: Hospital-
                                          specific 30-day all-cause risk-
                                          standardized mortality rate
                                          following Percutaneous
                                          Coronary Intervention (PCI)
                                          among patients aged 18 years
                                          or older without ST segment
                                          elevation myocardial
                                          infarction (STEMI) and without
                                          cardiogenic shock at the time
                                          of procedure.
ICD Complications......................  Hospital-specific risk-
                                          standardized complication rate
                                          following implantable
                                          cardioverter defibrillator
                                          (ICD) implantation among
                                          patients aged 18 years or
                                          older.
Hospital Acquired Infections...........  Methicillin[dash]Resistant
                                          Staphylococcus Aureus (MRSA).
Hospital Acquired Infections...........  Clostridium Difficile
                                          Associated Diseases (CDAD).
------------------------------------------------------------------------
* AHRQ is currently working with to improve and refine these measures,
  after which they will be updated to reflect the most current evidence
  learned as a result of validation efforts and empirical analyses.

    We invited public comment on these measures for potential future 
use in the RHQDAPU program, as well as suggestions and supporting 
rationales for additional measures to consider using in the program at 
a future time.
 General Comments
    Comment: Several commenters expressed concern over the number of 
measures listed as being under consideration for FY 2012 and subsequent 
years in the proposed rule. Commenters believed that a large increase 
in measures in future years would compete with other critical 
initiatives that would be occurring (such as HIT adoption for incentive 
payments and transitioning to ICD-10-CM and ICD-10-PCS implementation). 
The commenters recommended that CMS give consideration to the number 
and burden associated with the measures particularly as many are not 
EHR-based or registry-based measures. The commenters also suggested 
that CMS prioritize the measures, avoid redundancy by adopting measures 
that add information not captured in other measures, and consider 
measures that are closest in relation to desired outcomes for patients. 
One commenter also suggested that CMS assess the feasibility of 
constructing measures from data contained in the typical hospital 
electronic health record.
    Response: We listed an array of measures that we are considering 
for the future. We will carefully weigh the burden associated with the 
adoption of measures against the benefit of publicly reporting that 
data. We anticipate limited adoption of chart-abstracted measures in 
the future because we wish to minimize the burden associated with 
quality measurement during a time when hospitals will be implementing 
new technologies and systems. We also will continue to assess the 
feasibility of alternative data sources for measures, such as 
registries and EHRs.
    Comment: Commenters recommended that CMS provide clarity on the 
status of the proposed measures regarding NQF endorsement, information 
about the data abstraction burden, and a central location for 
specifications for measures under consideration. Another commenter also 
suggested that for measures under consideration, CMS provide 
information on benchmarking, potential use, affect on patient care, and 
development.
    Response: We understand the commenters' desire to have more 
information about the measures being considered for the future. We 
provide some additional information in our responses to comments below, 
and we will endeavor to provide more detailed information about 
measures under consideration in the future.
 Comment on Measure Topic: AMI
    Comment: One commenter indicated that the Statin at Discharge 
measure for AMI would be better suited as a physician measure rather 
than a hospital measure.
    Response: We will take this into consideration in determining 
whether to adopt this measure for the RHQDAPU program in the future. 
However discharge medications, such as aspirin at discharge, form the 
basis for other measures which we have implemented in the RHQDAPU 
program.
 Comments on Measure Topic: ED-Throughput
    Comment: Several commenters supported the concept of the ED-
Throughput measures. Some commenters made suggestions for refinements 
to the specifications for ``Median time from admit decision time to 
time of departure from the emergency room for patients admitted to the 
facility from the ED'' measure. They suggested using the time when an 
admit order is written, and the time of departure from the emergency 
department to calculate the median times for this measure. Other 
commenters suggested stratification by population type.
    Response: We appreciate the supportive comments. These suggestions 
are in keeping with the current measure specifications as endorsed by 
NQF. These ED-Throughput measure specifications are available in the 
Specifications Manual on http://www.QualityNet.org.
    Comment: One commenter opposed the ED-Throughput measures because 
the commenter believed that they measured utilization.
    Response: The ED-Throughput measures are NQF-endorsed quality 
measures. The ED-Throughput measures reflect not only the processes of 
care that occur while the patient is in the emergency department, but 
also reflect the coordination of care, communication, and efficiency of 
service provision beyond the walls of the emergency department. They 
address ED overcrowding, which has been identified as a major quality 
issue by the IOM.
 Comment on Measure Topic: Complications
    Comment: One commenter stated that global measures such the 
Comorbidity Adjusted Complication Index are useful to hospitals in 
quality improvement efforts.
    Response: We agree that global measures can provide useful quality 
improvement information to hospitals. We also believe that the topic of 
complications is an important one for consumers. This measure is 
currently undergoing evaluation as part of the NQF consensus 
development project entitled Hospital Care: Outcomes and Efficiency 
Measures Phase II. We will take this comment into consideration in 
determining whether to adopt such measures in the future.
 Comments on Measure Topic: Stroke
    Comment: Numerous commenters encouraged CMS to adopt the stroke 
measures, which they see as evidence-based measures that accurately 
measure evidence-based care of the stroke patient to minimize secondary 
strokes and other complications, have been thoroughly researched, and 
are widely recognized. Several commenters cited firsthand

[[Page 43876]]

experience with dramatic quality improvements resulting from the 
collection and reporting of these measures to a registry.
    Response: We appreciate and agree with these supportive statements. 
Stroke is a topic of great relevance to the Medicare population due to 
its impact on morbidity and mortality, and an area of great potential 
improvement for hospitals.
    Comment: Two commenters supported the stroke measures under 
consideration but recommended limiting the measures in scope to 
``Certified Stroke Centers'' in order to minimize the possibility that 
patients will suffer from unintended consequences due to a provider's 
lack of expertise with stroke. One commenter supported all but the STK-
10 Assessed for Rehabilitation stroke measure and recommended that CMS 
establish eligibility criteria for the Assessment of Rehabilitation 
measure instead of including the entire stroke population as currently 
defined in the Specifications Manual.
    Response: We will consider these comments in deciding whether to 
adopt these measures in the future. We note that we adopt measures for 
the RHQDAPU program that are broadly applicable to all participating 
hospitals, and that acute care for stroke is not given only by 
hospitals that have attained specific certifications. Regarding the 
measure on stroke assessment, the scope of the NQF-endorsed measure 
includes the entire stoke population. However, the measure allows for 
variation in the extent/degree of the assessment based on clinical 
indications. Specifications for the stroke measures are available in 
the Specifications Manual at https://www.QualityNet.org.
    Comment: Several commenters generally opposed the future adoption 
of one or more of the stroke measures into the RHQDAPU program. One 
commenter stated that the abstraction rules for stroke are in need of 
greater refinement as they currently allow too much room for subjective 
interpretation. One commenter had concerns regarding inclusion of the 
anticoagulation measure because falls in the elderly population can be 
a significant problem with the risk of intracranial bleeding surpassing 
the benefit of anticoagulation therapy for atrial fibrillation. A few 
commenters opposed ``Thrombolysis therapy'' for stroke, stating that 
this therapy is not yet the standard of care for community or rural 
hospitals and that administering thrombolytic therapy to stroke 
patients has a high risk of complications.
    Response: We appreciate these comments and will take them into 
consideration. Most of the comments we received overwhelmingly 
supported the adoption of these measures for the RHQDAPU program in the 
future. We believe that the stroke topic is of great clinical relevance 
to the Medicare population because of its impact on morbidity and 
mortality, as well a stroke's debilitating effect on the quality of 
life among Medicare beneficiaries. All of the measures in the stroke 
set under consideration are important to the overall outcome of the 
patient. The stroke measures are based on current AHA and ASA 
guidelines. We believe that current guidelines for stroke care apply 
across hospital types. The measure ``Patients with an ischemic stroke 
with atrial fibrillation discharged on anticoagulation therapy'' 
currently excludes patients for whom risks associated with treatment 
with an anticoagulant would outweigh potential benefits. Providing 
timely thrombolytic therapy has shown to greatly reduce complications, 
mortality and morbidity related to stroke. The measures are intended 
for public reporting, and are not intended to encourage a particular 
treatment when it is not warranted.
 Comments on Measure Topic: VTE
    Comment: Two commenters supported CMS adding measures VTE-1, -2 and 
-3 as shown in the inpatient measure specification manual in FY 2012, 
but did not support measures VTE-4, -5, and -6. The commenters stated 
that the measures shown in the table do not seem to align with the VTE 
measures included in the Specifications Manual effective with October 
1, 2009 discharges. The commenters also recommended that the measure 
``VTE-1: prophylaxis in medical and non-SCIP-VTE surgical patients'', 
which we proposed in the FY 2009 IPPS proposed rule (73 FR 23648) but 
did not adopt, be considered for future adoption into the RHQDAPU 
program.
    Response: The VTE measures we listed in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule are the same as the VTE measures in the aligned 
Specifications Manual. VTE-1 appears in the aligned Specifications 
Manual, and we will include VTE-1 on the list of measures to be 
considered for FY 2012 and beyond.
    Comment: One commenter supported all but VTE-3 and -4 as shown in 
the inpatient measure specification manual, and suggested that the 
measure descriptions be clarified.
    Response: The formal specifications can be found in the aligned 
Specifications Manual on the QualityNet Web site: https://www.QualityNet.org.
 Comments on Measure Topic: Cardiac Surgery
    Comment: One commenter supported adopting the Cardiac Surgery 
measures for the RHQDAPU program because these measures are appropriate 
and useful for quality improvement and public reporting purposes. 
Another commenter indicated that the data element specifications for 
the Cardiac Surgery topic need more rigor and standardization.
    Response: Cardiac surgery is a topic of high relevance to the 
Medicare program because of its high volume among Medicare 
beneficiaries. We note that the cardiac surgery measures that are under 
consideration for adoption in future years, as well as their 
specifications, are NQF-endorsed and are available at http://www.qualityforum.org/.
 Comments on Measure Topics: Nursing Sensitive and Nursing 
Sensitive/HAI
    Comment: Several commenters supported the Central Line [catheter] 
Associated Blood Stream Infection in the ICU and high risk neonatal 
intensive care unit measure, and the CA UTI infection measure. Several 
commenters urged CMS to consider adopting a Center for Disease Control 
measure of Surgical Site Infection that is not listed in the table of 
measures under consideration for future years (Table--above) but which 
was listed in the future measure table in the 2009 IPPS rule at 73 FR 
48611. The commenters stated that the Central Line Associated Blood 
Stream Infection, Catheter Associated Urinary Tract Infection, and 
Surgical Site Infection measures are thoroughly specified, are 
currently used in other reporting initiatives, are relevant to 
consumers, and reveal important information that hospitals can use for 
their quality improvement programs. One commenter supported adoption of 
these measures if hospitals do not have to join a registry to report 
the information.
    Response: We thank the commenters for these suggestions and will 
add Surgical Site Infection to the list of measures being considered 
for FY 2012 and beyond because it addresses the high priority topical 
area of hospital-acquired infections. The Central Line [catheter] 
Associated Blood Stream Infection in the ICU and high risk neonatal 
intensive care unit measure and the Catheter Associated UTI measure are 
currently being collected by the CDC's National Healthcare Safety 
Network (NHSN) database as

[[Page 43877]]

surveillance measures. We are supportive of these measures as they 
address hospital-acquired infections. We are exploring the possibility 
of receiving data, with permission from participating hospitals, from 
the CDC to avoid duplicative reporting of information by hospitals that 
participate in NHSN. Furthermore, we are exploring the development of 
electronic specifications for the collection of these measures from 
EHRs.
    Comment: Several commenters indicated that more specificity, 
information, and clear expectations are needed for the following 
Nursing Sensitive measures: Patient Falls: All documented falls with or 
without injury, experienced by patients on an eligible unit in a 
calendar month; Falls with Injury: All documented patient falls with an 
injury level of minor or greater; CA UTI; Pressure Ulcer Prevalence; 
and Restraint Prevalence (vest and limb). In particular, the commenters 
believe that definitions for falls and CA UTI are needed. Two 
commenters indicated that the Pressure Ulcer Prevalence measure needs 
more specificity regarding the stage of the ulcer and whether the 
pressure ulcer was present on admission or hospital-acquired. One 
commenter indicated that, at times, pressure ulcers may not be 
preventable (for example, cases where patients experience multisystem 
organ failure, malnutrition, when vasopressors or fluid resuscitation 
have been employed, or when the patient cannot be turned due to traumas 
requiring surgery to be performed).
    Response: The Nursing Sensitive measures are currently the subject 
of an NQF reevaluation project. We anticipate that considerations such 
as these will be brought forth and addressed as necessary during the 
reevaluation process prior to the time we would propose to adopt the 
measures.
    Comment: A few commenters indicated that they would not be able to 
calculate the voluntary turnover measure unless this was manually 
tracked, making the collection of data necessary for this measure 
resource intensive. Another commenter indicated that the measures in 
the Nursing Sensitive measure set that rely on administrative data 
(such as voluntary turnover and skill mix) are of questionable validity 
for quality improvement.
    Response: We appreciate these comments and will take them into 
consideration in deciding whether to adopt these measures in the 
future. Our understanding is that most hospitals are currently 
collecting the data elements for the voluntary turnover and skill mix 
measures. Registries of Nursing Sensitive Care quality measures 
currently feature these administrative-based measures in hospital 
feedback reports for quality improvement purposes.
    Comment: Two commenters criticized the Ventilator Associated 
Pneumonia [VAP] in the ICU measure. One commenter noted that a recent 
HHS National Action Plan to Prevent Healthcare-Associated Infections 
indicated that ``no valid outcome or process metric had been identified 
for VAP.'' Another commenter indicated that, while VAP in the ICU is 
frequently tracked for State reporting purposes, it is a poor measure 
for quality improvement or for external comparison because of the 
challenges with diagnosis and definitions.
    Response: Healthcare-associated infections are a high priority area 
for us because they increase complications and treatment costs, and we 
are looking to this as an area for future measurement. We agree that 
the definition of VAP should undergo further standardization. 
Therefore, we will not consider adopting this measure for the RHQDAPU 
program until such a definition has been determined.
 Comments on Measure Topic: Outcomes
    Comment: Several commenters supported adoption of the AHRQ patient 
safety indicators and inpatient quality indicators, but many commenters 
suggested limiting adoption to two or three AHRQ measures annually 
because collection of more than three may present a burden to 
hospitals. A few commenters suggested reporting one or more of the AHRQ 
indicators separately from the composite measures.
    Response: We agree that these are important patient safety and 
outcome measures for the inpatient setting. These would be claims-based 
measures. Therefore, because we currently calculate claims-based 
measures using only Medicare claims, there would be no additional 
reporting burden associated with these measures. To the extent that the 
measures focus on quality of care issues, we believe that hospitals 
will benefit from the information these measures reveal. We will 
consider the suggestion for separate public reporting of selected 
indicators. However, if any of these individual measures are adopted, 
we will engage in consumer testing regarding how best to display the 
measures on the Hospital Compare Web site. The measure specifications 
for the AHRQ inpatient quality indicators and patient safety indicators 
are available at http://www.qualityindicators.ahrq.gov/.
    Comment: One commenter stated that, while AHRQ patient safety 
measures may have value to hospitals for internal quality improvement 
purposes, they currently lack the sensitivity and specificity required 
for use as comparative, publicly reported measures, especially the 
research-oriented PSI measures. Because they are derived from 
administrative data, one commenter suggested that they are less 
sensitive than measures derived from clinical chart abstraction at 
identifying relevant patients and excluding other patients. One 
commenter indicated that some of the AHRQ indicators have very high 
false positive rates and that extensive field testing and 
respecification would be needed. One commenter suggested that the risk 
adjustment seems unfairly advantageous to larger volume hospitals.
    Response: We appreciate these comments and will take them into 
consideration in determining which measures to adopt for the RHQDAPU 
program in the future. We are aware of and encourage current validation 
projects involving positive predictive value and sensitivity being 
performed on these measures as they will lead to improvements in the 
measure specifications.
    Comment: One commenter expressed concern that traditional risk 
adjustment would not be appropriate for IQI 17: In-hospital Mortality 
for Stroke. The commenter suggested that a proper risk adjustment model 
for in-hospital stroke mortality should account for stroke severity on 
presentation and stroke type (hemorrhagic versus ischemic stroke). The 
commenter suggested stratification of stroke mortality by type and 
suggested use of a well-established stroke severity scale in risk 
adjustment models for stroke mortality.
    Response: We appreciate this suggestion. However, we note that the 
current risk adjustment model for the in-hospital stroke mortality 
measure has been endorsed by the NQF as appropriate for this measure, 
and we also believe the model is appropriate because it underwent a 
rigorous consensus development process.
 Comments on Measure Topics: PCI Readmission and PCI Mortality
    Comment: Two commenters supported the PCI 30-day mortality and 30-
day readmission rates and requested that CMS consider adopting the PCI 
measure set for FY 2011 payment determination. One commenter also 
stated that it is imperative that the outcome findings are drilled down 
far

[[Page 43878]]

enough that hospital-specific results can be obtained and patients can 
view hospital results based upon the condition or procedure they are 
undergoing. One commenter recommended that that the PCI Readmission and 
PCI Mortality measure related to STEMI/Shock be defined to include the 
base population as defined in the AMI Core Measure in order to reduce 
additional abstraction burden in identifying and defining shock.
    Response: We thank the commenters for their support for the PCI 
mortality and readmission measures and will consider adopting these 
measures for the RHQDAPU program. Before we add them to the RHQDAPU 
program measure set, however, we will propose to adopt them as part of 
the rulemaking process. The current outcomes and readmissions measures 
are all calculated at the hospital level for various conditions, 
allowing patients to view hospital level results. Future outcomes and 
readmission measures, including the PCI 30-day mortality and 30-day 
readmission rates, if adopted for the RHQDAPU program, would be 
calculated in this manner as well. These measures are specified as 
claims-based measures for which there is no chart abstraction. These 
measures are currently undergoing evaluation as part of an NQF 
consensus development project entitled Hospital Care: Outcomes and 
Efficiency Measures Phase II.
 Comment on Measure Topic: ICD Complications
    Comment: One commenter recommended that CMS follow definitions 
established by the ICD Registry to assure standardization of the ICD 
Complications measure.
    Response: We intend to use standardized measure specifications for 
measures that are adopted into the RHQDAPU program and seek to adopt 
measures that have been endorsed by the NQF. Therefore, when available, 
we adopt NQF-endorsed measures for a particular topic and utilize the 
measure specifications that were endorsed by the NQF.
 Comment on Measure Topic: Hospital-Acquired Infections
    Comment: One commenter indicated that, because of increased 
screening, there is a need to distinguish between healthcare-acquired 
MRSA infections and community-associated infections, and that all 
multi-drug resistant infections should be reported in order to focus 
efforts on reducing these infections, rather than one in particular.
    Response: We agree that the distinction between the sources of MRSA 
infections is important. The MRSA measure under consideration for the 
RHQDAPU program focuses only on hospital-acquired infections. As for 
the reporting of other multi-drug resistant infections, we will take 
this comment into account as we develop future measures.
 Comments on Measure Topic: Topics and Measures Suggested by 
Commenters
    Comment: Commenters suggested seven additional topics and measures 
to consider for future adoption into the RHQDAPU program:
     Surgical site infection rate
     Dysphagia screening for stroke
     Pediatric Quality Indicators
     Chronic Obstructive Pulmonary Disease (COPD)
     Inpatient Resource Use and Efficiency
     Global smoking cessation measure
     Inpatient Psychiatric Measures
    Commenters noted that two of these topics (Surgical Site Infection 
and Chronic Obstructive Pulmonary Disease (COPD) were discussed in the 
future measure section of the FY 2009 IPPS proposed rule but not in the 
current proposed rule for FY 2010.
    Response: We will consider these suggestions when selecting 
measures for the RHQDAPU program in the future. We agree that surgical 
site infection, dysphagia screening for stroke, and COPD are 
appropriate areas for the RHQDAPU program because they address 
conditions that are of high prevalence and cost to the Medicare 
program.
    CMS currently includes several indicators of Pediatric Quality on 
the Hospital Compare Web site based on the submission of the data as 
part of other voluntary quality reporting initiatives. While we 
publicly report these measures, we are not currently considering 
requiring these indicators or other Pediatric Quality indicators for 
the RHQDAPU program because pediatric conditions affect a very small 
number of Medicare beneficiaries.
    In summary, we appreciate the public comments we received and will 
consider them as we develop proposals for new quality measures for the 
FY 2012 payment determination and subsequent years.
5. Form, Manner, and Timing of Quality Data Submission
    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 data submission requirements, Specifications Manual, and 
submission deadlines are posted on the QualityNet Web site at: https://www.QualityNet.org. CMS requires that hospitals submit data in 
accordance with the specifications for the appropriate discharge 
periods.
    Hospitals submit quality data through the secure portion of the 
QualityNet Web site (formerly known as QualityNet Exchange) (https://www.QualityNet.org). This Web site meets or exceeds all current Health 
Insurance Portability and Accountability Act requirements for security 
of protected health information.
a. RHQDAPU Program Procedures for the FY 2011 Payment Determination
    For the FY 2011 payment determination, in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule (74 FR 24174), we proposed that the following 
procedures would apply to hospitals participating in the RHQDAPU 
program. These procedures are, for the most part, the same as the 
procedures that apply to the FY 2010 payment determination. We identify 
below where we proposed to modify a procedure.
     Register with QualityNet, before participating hospitals 
initially begin reporting data, regardless of the method used for 
submitting data.
     Identify a QualityNet Administrator who follows the 
registration process located on the QualityNet Web site (https://www.QualityNet.org).
     Notice of Participation. New subsection (d) hospitals and 
existing hospitals that wish to participate in the RHQDAPU program for 
the first time must complete a revised ``Reporting Hospital Quality 
Data for Annual Payment Update Notice of Participation'' form (Notice 
of Participation form) that includes the name and address of each 
hospital campus that shares the same CMS Certification Number (CCN).
    We proposed that any hospital that receives a new CCN on or after 
October 15, 2009 (including new subsection (d) hospitals and hospitals 
that have merged) that wishes to participate in the RHQDAPU program and 
has not otherwise submitted a Notice of Participation form using that 
CCN must submit a completed Notice of Participation form no later than 
180 days from the date identified as the open date (that is, the 
Medicare acceptance date) on the approved CMS Online System 
Certification and Reporting (OSCAR) system. We believe that this 
deadline will give these

[[Page 43879]]

hospitals a sufficient amount of time to get their operations up and 
running while simultaneously providing CMS with clarity regarding 
whether they intend to participate in the RHQDAPU program for FY 2011.
    We also proposed that hospitals having an open date (or Medicare 
acceptance date) (as noted on the approved CMS OSCAR system) before 
October 15, 2009, that did not participate in the RHQDAPU program in FY 
2010 but that wish to participate in the RHQDAPU program for the FY 
2011 payment determination must submit completed Notice of 
Participation forms to CMS on or before December 31, 2009. These 
hospitals, unlike hospitals that receive a new CCN, do not need to get 
their operations up and running. Therefore, we believe this is a 
reasonable deadline that will enable these hospitals to decide whether 
they want to participate in the RHQDAPU program while also enabling CMS 
to collect enough data from them to make an accurate FY 2011 payment 
determination.
    We note that under our current requirements, hospitals must begin 
submitting RHQDAPU program data starting with the first day of the 
quarter following the date when the hospital registers to participate 
in the program. For purposes of meeting this requirement, we interpret 
the registration date to be the date that the hospital submits a 
completed Notice of Participation form. As proposed previously in this 
section, hospitals must also register with QualityNet and identify a 
QualityNet Administrator who follows the QualityNet registration 
process before submitting RHQDAPU program data.
     Collect and report data for each of the quality measures 
under the topic areas that require chart abstraction. For the FY 2011 
payment determination, these topic areas are AMI, HF, PN, and SCIP. 
Hospitals must report these data by each quarterly deadline. Hospitals 
must submit the data to the QIO Clinical Warehouse using the CART, The 
Joint Commission ORYX [supreg] Core Measures Performance Measurement 
System, or another third-party vendor tool that meets the measurement 
specification requirements for data transmission to QualityNet. All 
submissions will be executed through My QualityNet, the secure part of 
the QualityNet Web site. 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 for each quality measure that 
requires chart abstraction in accordance with the joint CMS/The Joint 
Commission sampling requirements located on the QualityNet Web site. 
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 
topic areas for which chart-abstracted data must be submitted 
(currently AMI, HF, PN, and SCIP). However, in order to reduce the 
burden on hospitals that treat a low number of patients in a RHQDAPU 
program topic area, a hospital that has five or fewer discharges 
(Medicare and non-Medicare combined) in a topic area during a quarter 
in which data must be submitted is not required to submit patient-level 
data for that topic area for the quarter. The hospital must still 
submit its aggregate population and sample size counts for Medicare and 
non-Medicare discharges for the four topic areas each quarter. We also 
note that hospitals meeting the five or fewer patient discharge 
exception may voluntarily submit these data.
     Continuously collect and submit HCAHPS data in accordance 
with the HCAHPS Quality Assurance Guidelines, V4.0 (the most current 
version of the guidelines), located at the Web site http://www.hcahpsonline.org. The QIO Clinical Warehouse will accept zero 
HCAHPS-eligible discharges. However, in order to reduce the burden on 
hospitals that treat a low number of patients that would be otherwise 
covered by the HCAHPS submission requirements, a hospital that has five 
or fewer HCAHPS-eligible discharges during a month is not required to 
submit HCAHPS surveys for that month. However, hospitals that meet this 
exception may voluntarily submit this data. The hospital must still 
submit its total number of HCAHPS-eligible cases for that month as part 
of its quarterly HCAHPS data submission.
     The quarterly data submission deadline for hospitals to 
submit patient level data for the proposed measures that require chart 
abstraction is 4 months following the last discharge date in the 
calendar quarter. CMS will post the quarterly submission deadline 
schedule on the QualityNet Web site (https://www.QualityNet.org). The 
collection of new chart-abstracted measures for the FY 2011 payment 
determination would begin with 1st calendar quarter 2010 discharges, 
for which the submission deadline would be August 15, 2010.
     The data submission deadline for hospitals to submit 
aggregate population and sample size count data for the measures 
requiring chart abstraction is four months following the last discharge 
date in the calendar quarter. This requirement allows CMS to advise 
hospitals regarding their submission status in enough time for them to 
make appropriate revisions before the data submission deadline. We will 
post the aggregate population and sample size count data submission 
deadlines on the QualityNet Web site (https://www.QualityNet.org).
     CMS strongly recommends that hospitals review the QIO 
Clinical Warehouse Feedback Reports and the RHQDAPU Program Provider 
Participation Reports that are available after patient level data are 
submitted to the QIO Clinical Warehouse. CMS generally updates these 
reports on a daily basis to provide accurate information to hospitals 
about their submissions. These reports enable hospitals to ensure that 
their data were submitted on time and accepted into the QIO Clinical 
Warehouse.
    Hospitals are encouraged to regularly check the QualityNet Web 
site, https://www.QualityNet.org, for program updates and information.
     We also proposed that the following RHQDAPU program 
claims-based measures would be calculated using Medicare claims:

------------------------------------------------------------------------
                                FY 2011 payment determination: proposed
            Topic                  claims-based quality measures (no
                                   hospital data submission required)
------------------------------------------------------------------------
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.

[[Page 43880]]

 
                                MORT-30-PN Pneumonia 30-day
                                mortality--Medicare patients.
------------------------------------------------------------------------
Readmission Measures (Medicare Patients)................................
------------------------------------------------------------------------
                                READ-30-HF Heart Failure (HF)
                                30[dash]Day Risk Standardized
                                Readmission Measure (Medicare patients).
                                READ-30-AMI Acute Myocardial
                                Infarction (AMI) 30[dash]Day Risk
                                Standardized Readmission Measure
                                (Medicare patients).
                                READ-30-PN Pneumonia (PN)
                                30[dash]Day Risk Standardized
                                Readmission Measure (Medicare patients).
------------------------------------------------------------------------
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators
 (IQIs) and Composite Measures.
------------------------------------------------------------------------
                                PSI 06: Iatrogenic pneumothorax,
                                adult.
                                PSI 14: Postoperative wound
                                dehiscence.
                                PSI 15: Accidental puncture or
                                laceration.
                                IQI 11: Abdominal aortic
                                aneurysm (AAA) mortality rate (with or
                                without volume).
                                IQI 19: Hip fracture mortality
                                rate.
                                Mortality for selected surgical
                                procedures (composite).
                                Complication/patient safety for
                                selected indicators (composite).
                                Mortality for selected medical
                                conditions (composite).
------------------------------------------------------------------------
AHRQ Patient Safety Indicator (PSI) and Nursing Sensitive Care..........
------------------------------------------------------------------------
                                Death among surgical inpatients
                                with serious, treatable complications.
------------------------------------------------------------------------

    For the claims-based RHQDAPU program measures listed in the table 
above, hospitals are not required to submit the data to the QIO 
Clinical Warehouse. CMS uses the existing Medicare fee-for-service 
claims to calculate the measures. For the FY 2011 payment 
determination, CMS will use 3 years of discharges from July 1, 2006, 
through June 30, 2009, for the 30-day mortality and 30-day readmission 
measures. For the AHRQ PSI, IQI and Composite measures (including the 
AHRQ PSI and Nursing Sensitive Care measure, Death among surgical 
inpatients with serious, treatable complications), we will use 1 year 
of claims from July 1, 2008, through June 30, 2009, to calculate these 
measures.
     We proposed that hospitals report the information needed 
to calculate the three proposed structural measures directly onto the 
QualityNet Web site on a quarterly basis starting with 1st calendar 
quarter 2010. The quarterly submission deadline for reporting these 
measures will be 4\1/2\ months following the last date in the quarter 
covered by the data report. For example, the reporting deadline for 
these structural measures covering 1st calendar quarter 2010 is August 
15, 2010. The 4\1/2\ month lag between the end of the quarter and the 
reporting deadline is intended to provide hospitals with sufficient 
time to collect the information needed to accurately report the 
proposed structural measures, and aligns with the quarterly submission 
deadlines for the measures for which chart-abstraction is required. As 
noted above in section V.A.3.b.(4). of this final rule, after 
consideration and review of public comments, we are modifying our 
proposal that the two new structural measures be reported quarterly and 
instead, we are finalizing a requirement that hospitals report these 
data annually. We also are requiring annual reporting for the existing 
cardiac surgery structural requirement for the FY 2011 payment 
determination. Annual data submission for the structural measures via a 
Web-based collection tool will begin in July 2010 with respect to the 
time period of January 1, 2010 through June 30, 2010.
    Below is the list of three structural measures we are adopting for 
the FY 2011 payment determination:

------------------------------------------------------------------------
                               FY 2011 payment determination: structural
            Topic                               measures
------------------------------------------------------------------------
Cardiac Surgery.........................................................
------------------------------------------------------------------------
                                Participation in a Systematic
                                Database for Cardiac Surgery.
------------------------------------------------------------------------
Stroke Care.............................................................
------------------------------------------------------------------------
                                Participation in a Systematic
                                Clinical Database Registry for Stroke
                                Care.
------------------------------------------------------------------------
Nursing Sensitive Care..................................................
------------------------------------------------------------------------
                                Participation in a Systematic
                                Clinical Database Registry for Nursing
                                Sensitive Care.
------------------------------------------------------------------------

    We indicated that we would add a link on the QualityNet Web site to 
the Web page(s) that hospitals can use to report the structural 
measures after we issued this final rule.
    Comment: Several commenters supported our proposal to allow 
hospitals with five or fewer heart failure, pneumonia, or surgical care 
patients in a calendar quarter to not submit quality measure data for 
that quarter. However, the commenters suggested that should a hospital 
wish to voluntarily report such data, it should be permitted to do so. 
This will reduce the burden on small hospitals with a very small number 
of cases.
    Response: We currently allow hospitals treating five or fewer 
patients in a calendar quarter in a topic area that do not otherwise 
have to submit data for that topic area to voluntarily report data for 
that topic. We believe that this

[[Page 43881]]

allowance is consistent with the intent of the RHQDAPU program to 
promote public reporting and hospital quality improvement through 
measuring quality of care. Currently, many hospitals to which the 
RHQDAPU program does not apply (including CAHs and hospitals located in 
Maryland and Puerto Rico) report these data on a voluntary basis as 
part of their quality improvement efforts.
    We note that we will publicly report the measure rates for all data 
submitted by RHQDAPU program participating hospitals, including data 
voluntarily reported by RHQDAPU program participating hospitals 
treating five or fewer cases in a topic in a calendar quarter, because 
we expect that a portion of these hospitals will have variable 
quarterly caseloads and will submit data on a sufficient number of 
cases (that is, more than 25) across all four posted quarters to make 
their overall measure rates generally reliable. However, we also will 
continue to include a footnote on the Hospital Compare Web site in the 
event that some of these hospitals do not have data for at least 25 
cases combined over the four quarters. That footnote states that ``The 
number of cases is too small (<25) to reliably tell how well a hospital 
is performing.'' We believe that this footnote adequately addresses 
hospital concerns about data reliability.
    Comment: One commenter stated that the proposed rule does not 
address the issue of data resubmission when a hospital or its vendor 
becomes aware of an error in the data that was sent for posting on the 
Hospital Compare Web site. The commenter urged immediate adoption of an 
effective mechanism that allows hospitals and their vendors to resubmit 
quality measure data if they discover an error. The commenter stated 
that the point of public reporting is to put accurate and useful 
information into the hands of the public, and this is facilitated by 
allowing known mistakes to be corrected.
    Response: Although we understand the commenter's concern, the 
quarterly validation sample selection is reliant on a locked final data 
file of hospital submitted cases. Allowing resubmission after the 
quarterly deadline would delay the final lockdown date of the quarterly 
data file, and CMS would have to delay the validation process or simply 
not validate resubmitted data. We believe that both of these options 
would adversely impact data quality.
    We remind the commenter that hospitals can correct information and 
resubmit cases until the quarterly submission deadline, which generally 
occurs 4\1/2\; months following the last discharge date in a calendar 
quarter. We also encourage hospitals to submit data early in the 
submission schedule, so that they can identify errors and resubmit data 
before the quarterly submission deadline. Generally, hospitals can 
submit cases from the first discharge date in a quarter until the 
quarterly submission deadline.
    After consideration of the public comments we received, we are 
adopting as final our proposals regarding RHQDAPU program procedures 
for the FY 2011 payment determination.
b. RHQDAPU Program Disaster Extensions and Waivers
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24176), 
we solicited public comment about rules we could adopt that would 
enable hospitals to request either an extension or a waiver of various 
RHQDAPU program requirements in the event of a disaster (such as a 
hurricane that damages or destroys the hospital).
    Specifically, we welcomed public comment on the following issues:
     Recommendations for rules that we could follow when 
considering whether to grant an extension or waiver of RHQDAPU program 
requirements in the event of a disaster, including suggested criteria 
that we should take into account (for example, specific hospital 
infrastructure damage, hospital closure time period, degree of 
destruction of medical records, impact on data vendors, and long-term 
evacuation of discharged patients impacting HCAHPS survey 
participation).
     The role that QIOs and QIO support contractors should play 
in the event of a disaster, including communicating with affected 
hospitals, communicating with State hospital associations, and 
collecting information directly from hospitals.
     How CMS extension or waiver decisions should be 
communicated to affected hospitals.
     Any other issues commenters deem relevant to a hospital's 
request for an extension or waiver of RHQDAPU program requirements in 
the event of a disaster.
    Comment: One commenter appreciated CMS recognizing that hospitals 
facing certain disasters, such as a hurricane, should be granted an 
extension or waiver of the RHQDAPU program requirements. Commenters 
suggested that, although the decision to grant an extension or waiver 
is best made on a case-by-case basis depending on each hospital's 
unique situation, CMS develop some general criteria for when such 
extensions or waivers would be granted. Commenters reminded CMS that 
when a hospital is damaged or destroyed, CMS' usual means of 
communicating to the hospital, such as by QualityNet or the mail, may 
be impossible. Commenters urged CMS to develop a creative and flexible 
approach to communicating with hospitals in these situations to ensure 
that such hospitals are aware that they may receive waivers during 
difficult times.
    Response: We will consider these comments as we develop program 
procedures for disaster extensions or waivers. We are mindful that many 
hospitals operating in these adverse situations cannot access the 
Internet or mail service. We note that we currently use a variety of 
means to communicate with hospitals in these circumstances, including 
utilizing our State QIOs and national/state hospital associations, and 
we will continue to do so.
    Comment: One commenter supported CMS and QIOs contacting both 
hospitals in affected areas and their data vendors in the event of 
disaster. The commenter also supported using e-mail first to 
communicate this information, followed by a phone call (if phone 
service is available) from a QIO, then a follow-up letter to the 
hospital administrator and hospital QualityNet Administrator. The 
commenter believed that the reasons for providing a waiver as outlined 
in the proposed rule were fair, but suggested that when a hospital 
response is requested by State or local government for any reason, then 
a waiver or extension should also be considered. The commenter 
recommended that, if a vendor is impacted, that should be should also 
be grounds for a hospital extension or waiver.
    Response: We will consider these recommendations when considering 
disaster extension/waiver communications and reasons for granting 
extensions or waivers. We interpret the comment about ``when a hospital 
response is requested by a State or local government'' to mean that the 
governmental entity has asked the hospital to continue or cease certain 
operations. Since hospital resources might be redirected from 
activities related to hospital quality data reporting to providing 
critical services in disaster situations, we will also consider State 
and local government requirements for hospitals providing critical 
services to the public while continuing to operate in disaster 
situations. We believe that if a hospital is required to provide 
critical public health services during a disaster or pandemic, this 
should be a factor that we consider when deciding whether to grant a 
waiver or extension. We will also consider the impact a disaster

[[Page 43882]]

might have had on a vendor when developing our policy on this issue.
    Comment: One commenter supported granting extensions and waivers of 
RHQDAPU program requirements in the event of a disaster and agreed with 
some of the criteria we requested comment on in the proposed rule. The 
commenter also supported CMS' interest in the role that QIOs would play 
in the event of a disaster and believes that they should be as 
proactive as possible in providing support to hospitals.
    Response: We thank the commenter for the feedback as we further 
develop our policy for disaster extensions/waivers. We also acknowledge 
the important service that QIOs provide to hospitals in their support 
of inpatient quality data reporting and will incorporate this comment 
into our future plans for operating the RHQDAPU program.
c. HCAHPS Requirements for the FY 2011 Payment Determination
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24176), 
we proposed that, for the FY 2011 payment determination, the RHQDAPU 
program HCAHPS requirements we adopted for FY 2010 would continue to 
apply. Under these requirements, a hospital must continuously collect 
and submit HCAHPS data in accordance with the current HCAHPS Quality 
Assurance Guidelines and the quarterly data submission deadlines, both 
of which are posted at http://www.hcahpsonline.org. In order for a 
hospital to participate in the collection of HCAHPS data, a hospital 
must either: (1) Contract with an approved HCAHPS survey vendor that 
will conduct the survey and submit data on the hospital's behalf to the 
QIO Clinical Warehouse; or (2) self-administer the survey without using 
a survey vendor provided that the hospital attends HCAHPS training and 
meets Minimum Survey Requirements as specified on the Web site at: 
https://www.hcahpsonline.org. A current list of approved HCAHPS survey 
vendors can be found on the HCAHPS Web site at: https://www.hcahpsonline.org.
    Every hospital choosing to contract with a survey vendor should 
provide the sample frame of HCAHPS-eligible discharges to its survey 
vendor with sufficient time to allow the survey vendor to begin 
contacting each sampled patient within 6 weeks of discharge from the 
hospital. (We refer readers to the Quality Assurance Guidelines located 
at https://www.hcahpsonline.org for details about HCAHPS eligibility 
and sample frame creation.) In addition, the hospital must authorize 
the survey vendor to submit data via My QualityNet, the secure part of 
the QualityNet Web site, on the hospital's behalf.
    After the survey vendor submits the data to the QIO Clinical 
Warehouse, we strongly recommend that hospitals employing a survey 
vendor promptly review the two HCAHPS Feedback Reports (the Provider 
Survey Status Summary Report and the Data Submission Detail Report) 
that are available. These reports enable a hospital to ensure that its 
survey vendor has submitted the data on time and the data has been 
accepted into the QIO Clinical Warehouse.
    As we stated above, any hospital that has five or fewer HCAHPS-
eligible discharges in any month is no longer required to submit HCAHPS 
surveys for that month, although the hospital may voluntarily choose to 
submit these data. However, the hospital must still submit its total 
number of HCAHPS-eligible cases for that month as part of its quarterly 
HCAHPS data submission.
    In order to ensure compliance with HCAHPS survey and administration 
protocols, hospitals and survey vendors must participate in all 
oversight activities. As part of the oversight process, during the 
onsite visits or conference calls, the HCAHPS Project Team will review 
the hospital's or survey vendor's survey systems and assess protocols 
based upon the most recent HCAHPS Quality Assurance Guidelines. All 
materials relevant to survey administration will be subject to review. 
The systems and program review includes, but is not limited to: (a) 
Survey management and data systems; (b) printing and mailing materials 
and facilities; (c) telephone and 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 
follow-up documentation of corrections for review. As needed, hospitals 
and survey vendors will be subject to follow-up site visits or 
conference calls. If CMS determines that a hospital is not compliant 
with HCAHPS program requirements, CMS may determine that the hospital 
is not submitting HCAHPS data that meet the requirements of the RHQDAPU 
program.
    We continue to strongly recommend that each new hospital 
participate in an HCAHPS dry run, if feasible, prior to beginning to 
collect HCAHPS data on an ongoing basis to meet RHQDAPU program 
requirements. New hospitals can conduct a dry run in the last month of 
a calendar quarter. We refer readers to the Web site at https://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 My QualityNet, the secure portion of QualityNet.
    For FY 2011, we are again encouraging hospitals to regularly check 
the HCAHPS Web site at https://www.hcahpsonline.org for program updates 
and information.
    We did not receive any public comments regarding our HCAHPS 
proposals. Therefore, we are adopting as final our proposals regarding 
HCAHPS requirements for the FY 2011 payment determination.
6. Chart Validation Requirements
a. Chart Validation Requirements and Methods for the FY 2011 Payment 
Determination
    For the FY 2011 payment determination, in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule (74 FR 24177), we proposed to generally continue 
using the following existing requirements implemented in previous 
years. We note below where we proposed to modify a requirement. These 
requirements, as well as additional information on these requirements, 
will be posted on the QualityNet Web site after we issue this FY 2010 
IPPS final rule.
     The Clinical Data Abstraction Center (CDAC) contractor 
will, each quarter, ask every participating hospital to submit five 
randomly selected medical charts from which the hospital previously 
abstracted and submitted data to the QIO Clinical Warehouse.
    We proposed the following timeline with respect to CDAC contractor 
requests for paper medical records for the purpose of validating 
RHQDAPU program data. Beginning with CDAC contractor requests for 
second calendar quarter 2009 paper medical records, the CDAC contractor 
will request paper copies of the randomly selected medical charts from 
each hospital via certified mail, and the hospital will have 45 days 
from the date of the request (as documented on the request letter) to 
submit the requested records to the CDAC contractor. If the hospital 
does not comply within 30 days, the CDAC contractor will send a second 
certified letter to the hospital, reminding the hospital that it must 
return paper copies

[[Page 43883]]

of the requested medical records within 45 calendar days following the 
date of the initial CDAC contractor medical record request. If the 
hospital still does not comply, then the CDAC contractor will assign a 
``zero'' score to each data element in each missing record.
    We proposed this timeline to provide hospitals with transparent and 
documented correspondence about RHQDAPU program validation paper 
medical record requests. Hospitals have submitted numerous questions to 
CMS about this process, and we believe this timeline will provide 
hospitals with adequate notice and time to submit paper copies of 
requested medical records to the CDAC contractor. We also believe that 
this timeline does not unduly burden hospitals. We remind hospitals 
that CMS reimburses up to 12 cents per copied page to copy the 
requested medical records, and CMS also pays United States Postal 
Service fees for hospitals to mail back a paper copy of the requested 
medical records.
     Once the CDAC contractor receives the charts, it will re-
abstract the same data submitted by the hospitals and calculate the 
percentage of matching RHQDAPU program data element values for all of 
that data.
     The hospital must pass our validation requirement of a 
minimum of 80 percent reliability. We use appropriate confidence 
intervals to determine if a hospital has achieved 80 percent 
reliability. The use of confidence intervals allows us to establish an 
appropriate range below the 80 percent reliability threshold that 
demonstrates a sufficient level of reliability to allow the data to 
still be considered validated. We estimate the percent reliability 
based upon a review of the sampled charts, and then calculate the upper 
95 percent confidence limit for that estimate. If this upper limit is 
above the required 80 percent reliability, the hospital data are 
considered validated.
     We will pool the quarterly validation estimates for the 
four most recently validated quarters (except for the SCIP-
Cardiovascular-2 measure discussed below). For the FY 2011 payment 
update, we proposed to validate 4th quarter CY 2008 through 3rd quarter 
2009 discharge data for the following measures:

------------------------------------------------------------------------
                                Quality measures
                              validated using data
                               from 4th quarter CY
            Topic               2008 through 3rd       Measure ID No.
                                 quarter CY 2009
                                   discharges
------------------------------------------------------------------------
AMI (Acute Myocardial         Aspirin at Arrival..  AMI-1.
 Infarction).
                              Aspirin Prescribed    AMI-2.
                               at Discharge.
                              ACEI or ARB for LVSD  AMI-3.
                              Adult Smoking         AMI-4.
                               Cessation Advice/
                               Counseling.
                              Beta-Blocker          AMI-5.
                               Prescribed at
                               Discharge.
                              Fibrinolytic Therapy  AMI-7a.
                               Received Within 30
                               Minutes of Hospital
                               Arrival.
                              Primary PCI Received  AMI-8a.
                               Within 90 Minutes
                               of Hospital Arrival.
HF (Heart Failure)..........  Discharge             HF-1.
                               Instructions.
                              Evaluation of LVS     HF-2.
                               Function.
                              ACEI or ARB for LVSD  HF-3.
                              Adult Smoking         HF-4.
                               Cessation Advice/
                               Counseling.
PN (Pneumonia)..............  Pneumococcal          PN-2.
                               Vaccination.
                              Blood Cultures        PN-3b.
                               Performed in the
                               Emergency
                               Department Prior to
                               Initial Antibiotic
                               Received in
                               Hospital.
                              Adult Smoking         PN-4.
                               Cessation Advice/
                               Counseling.
                              Initial Antibiotic    PN-5c.
                               Received Within 6
                               Hours of Hospital
                               Arrival.
                              Initial Antibiotic    PN-6.
                               Selection for
                               Community-Acquired
                               Pneumonia (CAP) in
                               Immunocompetent
                               Patients.
                              Influenza             PN-7.
                               Vaccination.
SCIP (Surgical Care           Prophylactic          SCIP-Inf-1.
 Improvement Project)--named   Antibiotic Received
 SIP for discharges prior to   Within One Hour
 July 2006 (3Q06).             Prior to Surgical
                               Incision.
                              Prophylactic          SCIP-Inf-2.
                               Antibiotic
                               Selection for
                               Surgical Patients.
                              Prophylactic          SCIP-Inf-3.
                               Antibiotics
                               Discontinued Within
                               24 Hours After
                               Surgery End Time.
                              Cardiac Surgery       SCIP-Inf-4.
                               Patients With
                               Controlled 6 A.M.
                               Postoperative Blood
                               Glucose.
                              Surgery Patients      SCIP-Inf-6.
                               with Appropriate
                               Hair Removal.
                              Surgery Patients      SCIP-VTE-1.
                               with Recommended
                               Venous
                               Thromboembolism
                               Prophylaxis Ordered.
                              Surgery Patients Who  SCIP-VTE-2.
                               Received
                               Appropriate Venous
                               Thromboembolism
                               Prophylaxis Within
                               24 Hours Prior to
                               Surgery to 24 Hours
                               After Surgery.
------------------------------------------------------------------------

     SCIP-Cardiovascular-2 will be validated using data from 
2nd and 3rd calendar quarter 2009 discharges. CMS adopted this measure 
in the FY 2009 IPPS final rule and hospitals began submitting data for 
this measure starting with 1st calendar quarter 2009 discharges (73 FR 
48605). However, because we generally strive to provide hospitals with 
ample notice before we add a new measure to the list of measures for 
which we will validate data, we believe that 2nd quarter discharge data 
is an appropriate validation starting point for this measure (these 
data are not due to the QIO Clinical Warehouse until November 15, 
2009).
     We will continue using the design-specific estimate of the 
variance for the confidence interval calculation, which, in this case, 
is a stratified single stage cluster sample, with unequal cluster 
sizes. (For reference, see Cochran, William G.: Sampling Techniques, 
John Wiley & Sons, New York, chapter 3, section 3.12 (1977); and Kish, 
Leslie: Survey Sampling, John Wiley & Sons, New York, chapter 3, 
section 3.3 (1964).) Each quarter is treated as a stratum for variance 
estimation purposes.
    Comment: Several commenters supported CMS' proposal to document the 
validation contact process. Specifically, the commenters supported CMS' 
plans to send two certified letter requests for medical records for 
data validation in case the hospital does not receive the first letter. 
The commenters suggested that CMS contractors also place phone calls to 
any hospital that does not respond to the first letter to ensure that 
every effort is made to

[[Page 43884]]

communicate the request to the appropriate staff in the hospital.
    Response: We thank the commenters and agree that certified letters 
provide hospitals with multiple written documented notification and 
reminder attempts. We did not propose supplementing this notification 
with telephone calls because the CDAC contractor already attempts to 
call hospitals as current practice at least three times about 30 
calendar days after it sends the initial medical record request. As a 
practice, we intend to continue attempting to call hospitals at least 
three times around the 30th calendar day following the initial request, 
in addition to sending written certified letters. We believe that these 
attempted calls at different time periods around the 30th calendar day 
following the initial request demonstrate our commitment to notify 
hospitals using multiple communication modes.
    Comment: Two commenters indicated that under the current process, 
the validation does not incorporate skip logic, despite The Joint 
Commission and CMS measure specifications and algorithms that clearly 
call for skip logic. The commenters stated that as a result, charts 
that are appropriately abstracted do not pass validation with the 
contractor. The commenters noted that this can be a challenge for some 
hospitals because the CDAC contractor's decision could affect the 
cumulative annual results and cause a hospital to fail the validation 
requirement for the year.
    Response: The Specifications Manual contains instructions regarding 
the use of skip logic by hospitals. Starting with discharges on or 
after April 1, 2008, and continuing to the most current update of the 
Specifications Manual, CMS and The Joint Commission have included the 
following text in the Missing and Invalid Data appendix of the 
Specifications Manual (currently under the heading ``Abstraction 
Software Skip Logic and Missing Data''):
    ``Skip logic allows hospitals and vendors to minimize abstraction 
burden by using vendor software edit logic to bypass abstraction of 
data elements not utilized in the measure algorithm. However, these 
bypassed elements also negatively impact data quality and the 
hospital's CMS chart audit validation results when elements are 
incorrectly abstracted and subsequent data elements are bypassed and 
left blank.''
    ``The use of skip logic by hospitals and ORYX vendors is optional 
and not required by CMS and The Joint Commission. Hospitals should be 
aware of the potential impact of skip logic on data quality, 
abstraction burden, and CMS chart audit validation scores. Vendors and 
hospitals utilizing skip logic should closely monitor the accuracy rate 
of abstracted data elements, particularly data elements placed higher 
in the algorithm flow (for example, Comfort Measures data element).''
    ``Historically, CMS chart audit validation results have been used 
in previous payment years as one of many requirements in the Reporting 
Hospital Quality for Annual Payment Update (RHQDAPU) program. We refer 
readers to the Federal Register and the QualityNet Web site for the 
current payment year's proposed and final requirements for acute care 
IPPS hospitals.''
    The CDAC contractor abstracts all data elements necessary to 
calculate a sampled case's measure status. The CDAC contractor uses 
skip logic only when it abstracts a data element value resulting in no 
additional data necessary to calculate a measure status. When it re-
abstracts the data elements, the CDAC contractor also uses the CART 
tool provided by CMS free of charge to hospitals. Under the current 
validation process, hospitals are at risk when utilizing skip logic, if 
they incorrectly abstract data elements and do not abstract subsequent 
data elements for the measure.
    We do recognize that the use of skip logic has been an issue for 
some hospitals, and we believe that our proposal for FY 2012 to change 
the methodology for calculating the validation score from data element 
counts to a measure match basis will reduce the likelihood that the use 
of skip logic will create validation problems for hospitals.
    After consideration of the public comments we received, we have 
decided to adopt as final, without change, our proposals regarding 
chart validation requirements and methods for the FY 2011 payment 
determination.
    b. Chart Validation Requirements and Methods for the FY 2012 
Payment Determination and Subsequent Years
    RHQDAPU program data are currently validated by re-abstracting on a 
quarterly basis a random sample of five medical records for each 
hospital. This quarterly sample generally results in an annual combined 
sample of 20 patient records across four calendar quarters per 
hospital, but because each sample is random, it might not include 
medical records from each of the measure topics (for example, AMI, 
SCIP, etc.). As a result, data submitted by a hospital for one or more 
measure topics might not be validated for a given quarter or, in some 
cases, for an entire year or longer.
    In the FY 2009 IPPS proposed rule (73 FR 23658), we solicited 
public comments on the impact of adding measures to the validation 
process, as well as on modifications to the current validation process 
that could improve the reliability and validity of the methodology. We 
specifically requested input concerning the following:
     Which of the measures or measure sets should be included 
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 the 
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?
    In the FY 2009 IPPS final rule, we summarized and responded to 
commenters' views on these issues and stated that we will consider the 
issues raised by these commenters if we decide to make changes to the 
RHQDAPU program chart validation methodology.
    Our objective is to validate the accuracy of RHQDAPU program data 
collected by hospitals using medical record abstraction. Accurate data 
provide consumers with objective publicly reported information about 
hospital quality for more informed decision making. Consistent with the 
public comments we received in response to the FY 2009 IPPS proposed 
rule (73 FR 23658-9) and discussed in the FY 2009 IPPS final rule (73 
FR 48623), we believe that the methodology recommended in the CMS 
Hospital Value-Based Purchasing Report to Congress is a promising 
approach worth consideration in the RHQDAPU program. This approach is 
designed to validate the accuracy of hospital reported quality measure 
data, and is also directly applicable to validating RHQDAPU program 
chart-abstracted quality data.
    We recognize that hospitals need ample notification regarding 
proposed changes to the current RHQDAPU program validation process. We 
believe that the FY 2012 RHQDAPU program annual payment determination 
is the earliest opportunity to make significant modifications to our 
validation process.
    Therefore, in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 
FR

[[Page 43885]]

24178), we proposed modifications to the RHQDAPU program validation 
methodology beginning with the FY 2012 payment determination. 
Specifically, we proposed to do the following:
     Randomly select on an annual basis 800 participating 
hospitals that submitted chart-abstracted data for at least 100 
discharges combined in the measure topics to be validated. To determine 
whether a hospital meets this ``100-case threshold,'' we will look to 
the discharge data submitted by the hospital during the calendar year 
three years prior to the fiscal year of the relevant payment 
determination. For example, if the 100-case threshold applied for the 
FY 2011 payment determination (which it will not), the applicable 
measure topics would be AMI, HF, PN, and SCIP, and we would choose 800 
hospitals that submitted discharge data for at least 100 cases combined 
in these topics during calendar year 2008. If a hospital did not submit 
discharge data for at least 100 cases in these topics during CY 2008, 
we would not select the hospital for validation. We will announce the 
topic areas that apply for the FY 2012 payment determination at a later 
date, and we plan to select the first 800 hospitals in July 2010. We 
will select hospitals for the FY 2012 validation if they meet the 100-
case threshold during CY 2009. We have proposed this 100-case threshold 
because we believe that it strikes the appropriate balance between 
ensuring that the selected hospitals have a large enough patient 
population to be able to submit sufficient data to allow us to complete 
an accurate validation, while not requiring validation for hospitals 
with a low number of submitted quarterly cases and relatively 
unreliable measure estimates. Based on previously submitted data, we 
estimate that 98 percent of participating RHQDAPU program hospitals 
will meet this threshold and, thus, be eligible for validation. As 
noted below, we solicited comments and suggestions on how we might be 
able to target the remaining 2 percent of hospitals for validation.
     We validate for each of the 800 hospitals a randomly 
selected stratified sample for each quarter of the validation period. 
Each quarterly sample will include 12 cases, with at least one but no 
more than three cases per topic for which chart-abstracted data was 
submitted by the hospital. However, we recognize that some selected 
hospitals might not have enough cases in all of the applicable topics 
to submit data (for example, if they have 5 or fewer discharges in a 
topic area in a quarter). For those hospitals, we would validate 
measures in only those topic areas for which they have submitted data. 
For the FY 2012 payment determination, we will validate 1st calendar 
quarter 2010 through 3rd calendar quarter 2010 discharge data. We 
proposed to validate 3 quarters of data for FY 2012 in order to provide 
hospitals with enough time to assess their medical record documentation 
and abstraction practices, and to take necessary corrective actions to 
improve these practices, before documenting their 1st calendar quarter 
2010 discharges into medical records that may be sampled as part of 
this proposed validation process.
    Beginning with the FY 2013 payment determination, we proposed to 
validate data submitted by hospitals during the four quarters that make 
up the fiscal year that occurs two years prior to the year that applies 
to the payment determination. For example, for FY 2013, we would 
validate 4th calendar quarter 2010 through 3rd quarter 2011 discharge 
data. This lag between the time a hospital submits data and the time we 
can validate that data is necessary because data is not due to the QIO 
Clinical Warehouse until 4[frac12] months after the end of each 
quarter, and we need additional time to select hospitals and complete 
the validation process.
     We proposed that the CDAC contractor will, each quarter 
that applies to the validation, ask each of the 800 selected hospitals 
to submit 12 randomly selected medical charts from which data was 
abstracted and submitted by the hospital to the QIO Clinical Warehouse. 
We note that, under our current requirements, hospitals must begin 
submitting RHQDAPU program data starting with the first day of the 
quarter following the date when the hospital registers to participate 
in the program. For purposes of meeting this requirement, we interpret 
the registration date to be the date that the hospital submits a 
completed Notice of Participation form. As proposed previously in this 
section, hospitals must also register with QualityNet and identify a 
QualityNet Administrator who follows the QualityNet registration 
process before submitting RHQDAPU program data.
    In addition, we proposed to continue the following timeline with 
respect to CDAC contractor requests for paper medical records for the 
purpose of validating RHQDAPU program data. Beginning with CDAC 
contractor requests for second calendar quarter 2009 paper medical 
records, the CDAC contractor will request paper copies of the randomly 
selected medical charts from each hospital via certified mail, and the 
hospital will have 45 days from the date of the request (as documented 
on the request letter) to submit the requested records to the CDAC 
contractor. If the hospital does not comply within 30 days, the CDAC 
contractor will send a second certified letter to the hospital, 
reminding the hospital that it must return paper copies of the 
requested medical records within 45 calendar days following the date of 
the initial CDAC contractor medical record request. If the hospital 
still does not comply, then the CDAC contractor will assign a ``zero'' 
score to each measure in each missing record.
     Once the CDAC contractor receives the charts, it will re-
abstract the same data submitted by the hospitals and calculate the 
percentage of matching RHQDAPU program measure numerators and 
denominators for each measure within each chart submitted by the 
hospital. Specifically, we will estimate the accuracy by calculating a 
match rate percent agreement for all of the variables submitted in all 
of the charts. For any selected record, a measure's numerator and 
denominator can have two possible states, included or excluded, 
depending on whether the hospital accurately included the cases in the 
measure numerator(s) and denominator(s). We will count each measure in 
a selected record as a match if the hospital-submitted measure 
numerator and denominator sets match the measure numerator and 
denominator states independently abstracted by our contractor. For 
example, one heart failure case from which data has been abstracted for 
four RHQDAPU program chart-abstracted measures (that is, HF-1, HF-2, 
HF-3, and HF-4) would receive a 75 percent match if three out of four 
of the hospital-reported heart failure measure numerator and 
denominator states matched the re-abstracted numerator and denominator 
states. This proposed scoring approach is the same as recommended in 
the CMS Hospital Value-Based Purchasing Report to Congress, and is 
illustrated in further detail using an example in pages 83-84 of the 
report which can be found on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf. 
We believe that this approach is appropriate, and was supported by many 
commenters when we requested comment in the FY 2009 IPPS final rule for 
input about the RHQDAPU program validation process (73 FR 48622 and 
48623).
     Use, as we currently do, each selected case as a cluster 
comprising

[[Page 43886]]

one or multiple measures utilized in a validation score estimate. Each 
selected case will have multiple measures included in the validation 
score (for example, for the FY 2011 payment determination, a heart 
failure record will include 4 heart failure measures). Specifically, we 
propose to continue using the design-specific estimate of the variance 
for the confidence interval calculation, which, in this case, is a 
stratified single-stage cluster sample, with unequal cluster sizes. 
(For reference, see Cochran, William G.: Sampling Techniques, John 
Wiley & Sons, New York, chapter 3, section 3.12 (1977); and Kish, 
Leslie: Survey Sampling, John Wiley & Sons, New York, chapter 3, 
section 3.3 (1964).) Each quarter and clinical topic is treated as a 
stratum for variance estimation purposes.
    In the proposed rule, we indicated that we believe that the 
proposed clustering approach is a statistically appropriate technique 
for calculating the annual validation confidence interval. Because CMS 
will not be validating all hospital records, we need to calculate a 
confidence interval that incorporates a potential sampling error. Our 
clustering approach incorporates the degree of correlation at the 
individual data record level, because our previous validation 
experience indicates that hospital data mismatch errors tend to be 
clustered in individual data records. We have used this clustering 
since the inception of the RHQDAPU program validation requirement to 
calculate variability estimates needed for calculating confidence 
intervals (70 FR 47423).
     Use the upper bound of a one-tailed 95 percent confidence 
interval to estimate the validation score; and
     Require all RHQDAPU program participating hospitals 
selected for validation to attain at least a 75 percent validation 
score per quarter to pass the validation requirement.
    We believe that this proposal incorporates many of the principles 
supported by the vast majority of commenters in response to our 
solicitation for public comments in the FY 2009 IPPS proposed rule (73 
FR 23658 through 23659). Specifically, we believe that the increased 
annual sample size per hospital will provide more reliable estimates of 
validation accuracy. The proposed sample size of 12 records per quarter 
would provide a total of 36 records across the three sampled quarters 
for the FY 2012 payment determination, and 48 records in subsequent 
years. This estimate would improve the reliability of our validation 
estimate, as compared to the current RHQDAPU program annual validation 
sample of 20 cases per year. We also believe that modifying the 
validation score to reflect measure numerator and denominator accuracy 
will ensure that accurate data are posted on the Hospital Compare Web 
site.
    In addition, we believe that stratified quarterly samples by topic 
will improve the feedback provided to hospitals. CMS would provide 
validation feedback to hospitals about all sampled topics submitted by 
the hospitals each quarter. Because all relevant data elements 
submitted by the hospital must match the independently re-abstracted 
data elements to count as a match, we have proposed to reduce the 
passing threshold from 80 percent to 75 percent. We proposed to use an 
one-tail confidence interval to calculate the validation score because 
we strongly believe that a one-tail test most appropriately reflects 
the pass or fail dichotomous nature of the statistical test regarding 
whether the confidence interval includes or is completely above the 75 
percent passing validation score.
    We also proposed to continue to allow hospitals that fail to meet 
the passing threshold for the quarterly validation an opportunity to 
appeal the validation results to their State QIO. QIOs are currently 
tasked by CMS to provide education and technical assistance about 
RHQDAPU program data abstraction and measures to hospitals, and the 
quarterly validation appeals process will provide hospitals with an 
opportunity to both appeal their quarterly results and receive 
education free of charge from their State QIO. This State QIO quarterly 
validation appeals process is independent of the proposed RHQDAPU 
program reconsideration procedures for hospital reconsideration 
requests involving validation for the FY 2010 payment update proposed 
below in section V.A.9. of this final rule.
    Comment: Several commenters supported setting a slightly lower 
validation threshold for the beginning years of the new validation 
process as hospitals and CMS gain experience with the new system. These 
commenters were generally pleased with CMS' proposal for the changes to 
the data validation process and urged CMS to continue to refine the 
plan put forward in the proposed rule.
    Response: We agree with the commenters that the proposed 75 percent 
threshold provides a reasonable passing threshold for the proposed 
validation process. We will evaluate the new validation process after 
initial implementation through data analysis of validation results. 
Based on the results of this data analysis, we may consider proposing 
modifications in future years to further refine the validation process.
    Comment: Several commenters stated that the burden to hospitals 
will be reduced if they do not have to submit records for validation 
every year. However, because hospitals will be selected at random each 
year and there is no guarantee that a hospital selected in one year 
will not be selected in the following year as well, some commenters 
urged CMS to refine the validation selection process so that hospitals 
selected for validation in one year are not eligible for selection 
again until 2 years later. Alternatively, the commenters suggested that 
CMS could ensure that no hospital is selected more than two times 
within a 5-year period, arguing that this would help guarantee that a 
particular hospital is not disproportionately burdened by the selection 
process. In addition, the commenters suggested that CMS should consider 
allowing hospitals that pass validation with a very high score to 
receive a ``pass'' from the validation process for several years. The 
commenters believed that such a policy would encourage hospitals to 
ensure their data are as accurate as possible and reward those 
hospitals with high accuracy rates.
    Response: We appreciate these comments and understand the concern 
about being selected multiple times during a short timeframe. We also 
appreciate the recommendation that hospitals receiving a high 
validation score be exempt from validation for two years. We must weigh 
this burden relative to the policy objective to ensure that we receive 
accurate data, and believe that using a truly random selection process 
strikes the appropriate balance. We considered options such as 
providing hospitals achieving high validation scores with a ``free 
pass'' for a certain period, and using a 4 to 5 year rotating panel of 
hospitals to lessen burden. However, we believe that using a truly 
random sample on an annual basis is fair to all hospitals included in 
the sample and will encourage all hospitals to take steps to ensure 
that their data are consistently accurate. We believe that providing 
hospitals with automatic exemptions from our validation requirement 
could detract from this policy objective, because hospitals receiving 
these exemptions would know in advance of data abstraction that CMS 
would not be validating their data.
    Comment: Commenters agreed that it is appropriate to focus on the 
hospital's measure rate, as opposed to individual data elements, 
because the measure rate captures the information that is

[[Page 43887]]

important to patient care. Commenters noted that for data validation in 
the current program, there have been several instances in which a 
mismatch between single data elements unrelated to the quality of care 
provided by a hospital, such as the patient's birth date, has caused 
hospitals to fail validation. Comments believe that validating the 
hospital's measure rate should eliminate these unfortunate incidents.
    Response: The proposed validation process focuses on validating 
whether hospital abstracted data results in accurate measure rates and 
denominator inclusion. We wish to clarify that the proposed validation 
process would measure the accuracy of each measure rate and measure 
denominator count posted on the Hospital Compare Web site. We will 
continue to use the data elements used in the current validation 
process to calculate the validation scores. We also note that all data 
used as part of the validation process (both the current process and 
the process proposed for FY 2012 and beyond) is protected under the 
Business Associate provisions of HIPAA and the QIO regulations.
    Comment: Commenters stated that CMS' proposed process for 
validating hospitals' quality data beginning in FY 2012 holds promise 
as a reasonable approach to ensure the accuracy of the quality data and 
improve upon the deficiencies in the current validation process.
    Response: We agree with the commenters that the proposed new 
validation process is an improved approach for the validation process. 
We will evaluate the new validation process after initial 
implementation and may consider proposing modifications in future years 
to further refine it.
    Comment: Several commenters stated that the current CMS validation 
sample of five charts per quarter does not provide a reliable estimate 
and advocated increasing the sample size.
    Response: We agree that the proposed requirement to increase the 
quarterly sample size from 5 records to 12 records will provide a more 
reliable annual validation estimate.
    Comment: One commenter objected to the proposal to randomly sample 
hospitals in the proposed validation process, as all hospitals would 
not be held equally accountable via a valid sample across all measures.
    Response: We believe that the proposed approach is equitable 
because all hospitals meeting the 100-case threshold will have an equal 
probability of being selected in the random sample. As we stated in the 
proposed rule (74 FR 24180), we are considering ways to include 
hospitals that do not meet the 100 case threshold in the validation 
process, such as by developing targeting criteria that would focus on 
these hospitals.
    Comment: One commenter asked for clarity on how CMS plans to 
address validation for hospitals with low numbers. While the commenter 
agreed that it is appropriate to ease the burden on hospitals with a 
very small number of cases, the commenter also believed that hospitals 
should always be able to voluntarily report on quality measures if they 
wish and should be held equally accountable for their participation and 
reported data.
    Response: As we stated in the proposed rule (74 FR 24180), we are 
considering ways to include hospitals that do not meet the 100-case 
threshold in the validation process, such as by developing targeting 
criteria that would focus on these hospitals. One possible approach 
would be to randomly sample these hospitals as part of the targeted 
sample, thereby ensuring that data from some of these hospitals also 
would be validated.
    Comment: One commenter urged that State QIOs be supportive not only 
during the validation appeals process but also proactively during data 
collection and reporting.
    Response: We agree with the commenter. CMS currently requires QIOs 
under their contract to improve or maintain consistently high levels of 
RHQDAPU program participation to meet all RHQDAPU program requirements, 
not solely validation appeals.
    Comment: Several commenters asked CMS to consider sending formal 
notification to hospitals not selected as part of the random sample. 
The commenters believe that this notification will aid hospitals with 
recordkeeping and internal operating procedures. The commenters were 
concerned that the lack of a consistent validation could cause internal 
processes within the hospitals to break down in the event that a 
hospital is not selected as part of the data validation sample for 
multiple years.
    Response: We will consider this comment and will consider using our 
QIOs to provide outreach to both selected and non-selected hospitals. 
We understand that hospitals must receive ample and clear communication 
about the requirements, and we recognize that the absence of quarterly 
medical record requests for all hospitals under the proposed validation 
process could affect the hospital's knowledge and ability to 
efficiently comply with the validation requirement.
    Comment: One commenter supported keeping validation standardized to 
a quarterly process that includes all hospitals. The commenter objected 
to excluding hospitals submitting fewer than 100 records.
    Response: We appreciate the comment but believe that the improved 
reliability of the validation estimate under the proposed new 
validation process will outweigh the benefit of validating a smaller 
number of records for all hospitals. As hospitals have improved their 
abstraction methods over time, we believe that the benefit of every 
hospital receiving quarterly feedback on their hospital's data has 
lessened over time. Regardless of whether a hospital was included in 
our annual validation sample, we plan to continue providing validation 
feedback on highly mismatching data elements and measures to all 
hospitals by providing aggregate validation information to all 
hospitals that submit quality data.
    Comment: Commenters stated that the lack of timely quarterly 
validation feedback is a huge problem. Some commenters did not believe 
that the 2,500 hospitals not selected for annual validation under the 
proposed new validation process would incorporate feedback provided to 
other selected hospitals, and data errors would increase over time due 
to the lack of hospital-specific feedback.
    Response: We interpret the comment to mean that hospitals that are 
not selected under the proposed, new validation process would not 
incorporate aggregate feedback information because they would not 
believe that the aggregate information would be relevant to them; and 
that their failure to incorporate supplied feedback would cause these 
hospitals' data errors to increase over time. However, we believe that 
the improved reliability of the validation estimate under the proposed 
new validation process will outweigh the benefit of validating a 
smaller number of records for all hospitals. As hospitals have improved 
their abstraction over time, we believe that the benefit of every 
hospital receiving quarterly feedback has lessened over time. As we 
noted in an earlier response, we plan to continue providing aggregate 
validation feedback at a State and national level on highly mismatching 
data elements and measures to all hospitals regardless of whether they 
were included in the annual validation sample.
    Comment: One commenter requested that CMS clarify that, under the 
proposed validation process, only those hospitals that are selected for 
validation

[[Page 43888]]

would have their payment at risk, and that the remaining hospitals 
would not be affected in any way by the validation results of the 
selected hospitals for that given year.
    Response: Only hospitals randomly selected for the proposed new 
annual validation process would have to meet the validation requirement 
for the applicable payment year. We note, however, that hospitals that 
are not selected for validation in a given year may nonetheless not 
receive the full annual payment update if they fail to meet other 
RHQDAPU program requirements, or if they withdraw from the program.
    Comment: One commenter supported a randomized selection of 200 
hospitals per quarter for validation with a minimum number of 20 charts 
reviewed. The commenter believes that hospitals should not be selected 
for validation any more frequently than one time per year. The 
commenter expressed concern that if validation occurred more than one 
time per year, hospitals may become complacent in their validation 
processes and this may lead to issues with data integrity. The 
commenter urged CMS to reduce the current administrative burden of 
quarterly validation and supported random selection of hospitals one 
per quarter per year with more charts reviewed.
    Response: We appreciate the commenter's concern and the suggestion 
to reduce the burden on the hospitals through validating one quarter of 
data per year. However, we believe that our proposed approach will 
enable hospitals to incorporate feedback learned earlier in the year 
and make improvements if necessary. The increased annual sample size 
from the current 20 records per year to 48 records per year also 
provides a more reliable validation estimate for sampled hospitals.
    Comment: One commenter urged continued attention to the data 
element level in order to increase the denominator and minimize the 
impact of a small number of errors.
    Response: We understand this comment and remind hospitals that they 
must continue to monitor their data element level validation processes 
because we use individual data elements as a combined set to calculate 
quality measures. The proposed validation score serves as a composite 
score of all data elements used to calculate quality measures, so it is 
critical that hospitals continue to ensure that data elements are 
abstracted accurately because inaccurately abstracted data elements can 
result in inaccurate measure rates and denominators.
    Comment: One commenter urged CMS to extend the turnaround time for 
chart selection to 60 days. The commenter suggested that CMS give 
hospitals the option to submit validation cases electronically rather 
than by mailing printed copies because such submissions would avoid 
shipping delays and allow faster turn around time.
    Response: We understand the commenter's concern about the deadline 
for hospitals to return requested medical records but note that under 
the current quarterly validation process, it takes 5 to 6 months from 
the initial medical record request until the CDAC contractor completes 
the validation process each quarter and the QIO completes its review of 
an appeal (if so requested by the hospital). We are concerned that 
adding time to this process would adversely impact hospitals' ability 
to incorporate validation feedback into future abstraction work.
    We will consider accepting electronic submission of validation 
cases using compact disc and electronic health record submission in 
future years. We must consider both the cost to accept and review these 
submissions, and the added benefit to the hospitals using electronic 
methods to store medical record information.
    Comment: Several commenters recommended that any changes to the 
validation process be tested before CMS imposes a payment penalty 
against the hospitals. These commenters also recommended that no 
hospital be penalized in terms of its annual payment update if it fails 
the validation requirement for only a single quarter.
    Response: We believe that the proposed changes represent a small 
relative change to the overall validation process. We have assessed the 
impact by calculating revised scores using the proposed new validation 
method. Preliminary results indicate that our proposal would not 
adversely impact the number of hospitals failing to meet our annual 
validation requirement. We will continue to assess the impact of this 
change in the near future, and consider changes in future years.
    Comment: One commenter recommended allowing all hospitals passing 
quarterly validation to appeal individual mismatches and adjust the 
score on a quarterly basis based upon a successful appeal.
    Response: Our proposal, which we discuss below, to require all 
hospitals failing our annual validation requirement to submit all 
mismatched data elements partially addresses this concern because 
hospitals failing our annual validation requirement would be able to 
appeal all data elements classified as mismatches by the CDAC 
contractor. We understand the desire of the commenter to correct 
mismatches on a quarterly basis; however, we do not currently have a 
mechanism in place to accommodate this need. We will investigate a 
possible solution to addrress mismatches on a quarterly basis for the 
future.
    Comment: One commenter suggested that CMS and CMS contractors 
return case detail reports in Excel file format rather than using 
portable document format (pdf).
    Response: We believe that this is an excellent suggestion, and we 
will consider the feasibility of implementing this suggestion for 
future years.
    Comment: One commenter asked whether hospitals would be selected 
from each State.
    Response: In order to maximize the overall sampling efficiency, the 
random sample would not be stratified by State. The intent of the 
random sample is to provide all participating hospitals that meet the 
100-case threshold with an equal probability of selection.
    Comment: Commenters asked whether hospitals not selected for 
validation would be considered for VBP. Commenters stated that 
hospitals use the validation process to learn and educate their staff 
about abstraction and documentation in the medical record.
    Response: We interpret the comment ``considered for VBP'' to mean 
eligible to receive payment under a proposed VBP methodology, as 
outlined in the 2007 CMS Hospital Value-Based Purchasing Report to 
Congress. As of the date of this final rule, value-based purchasing for 
hospitals has not been legislatively authorized. The proposed 
validation requirements would apply only for purposes of the RHQDAPU 
program.
    Comment: Commenters asked what would be the incentive for hospitals 
submitting fewer than 100 cases to continue abstracting and reporting 
data.
    Response: We remind the commenter that all RHQDAPU program 
participating hospitals must continue to meet the data submission and 
other requirements. We also note that we are considering developing 
targeting criteria that would enable us to also validate data submitted 
by hospitals that do not meet the 100-case threshold.
    Comment: Commenters noted that both hospitals and QIOs will have 
difficulty allocating resources for staffing when they do not know, 
from year to year, what hospitals will be selected for validation.
    Response: We understand that hospitals selected for validation will

[[Page 43889]]

need to allocate staffing for this effort and that hospitals that are 
not selected will not need to do so. However, the additional, minimal 
burden would be to submit the documentation for the requested medical 
records; a maximum of 12 records 4 times spaced over a year. Therefore, 
we do not believe that there will be a need for a large allocation of 
resources to meet this validation requirement.
    Comment: One commenter asked how CMS can compare all hospitals when 
different measure evaluations are being used, if some hospitals are 
using the new validation process and their measure score is based on 
this process.
    Response: We interpret the comment to be asking how we would 
validate all publicly reported data through a random sample of 
hospitals. We believe that a random sample of 800 hospitals provides a 
reliable estimate of accuracy for both sampled hospitals and national 
measure rates, since the sample is random and of sufficient size. We 
proposed stratifying the validation sample to ensure that all hospital-
submitted data are validated for selected hospitals. The validation 
sample for all sampled hospitals would be similar in sample size by 
clinical topic to ensure that the sample is representative of each 
hospital's population of submitted cases.
    After consideration of the public comments we received, we have 
decided to adopt as final our proposal regarding chart validation 
requirements and methods for the FY 2012 payment determination and 
subsequent years.
    c. Possible Supplements to the Chart Validation Process for the FY 
2013 Payment Determination and Subsequent Years
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24180), 
we also solicited public comment about criteria we could use to target 
hospitals for validation in the future. These targeting criteria could 
include abnormal data patterns identified by analyzing hospital-
submitted measure rates and counts for RHQDAPU program measures. For 
example:
     A high number of years a hospital was not randomly 
selected for annual validation (for example, at least 5 years);
     Consistently high measure denominator exclusion rates 
resulting in unexpectedly low denominator counts;
     Consistently high measure rates, relative to national 
averages;
     Small annual submission in the number of cases in previous 
years resulting in hospital exclusion from RHQDAPU program validation 
sample.
    Comment: One commenter recommended that CMS not implement targeting 
criteria for the FY 2013 validation. The commenter indicated that it 
does not appear to be random, and CMS would not provide all hospitals 
with feedback on their abstraction accuracy. The commenter believed 
that because hospitals widely vary in their abstraction accuracy, 
feedback to all hospitals is more important than lessening burden 
through targeted validation.
    Response: We recognize that providing feedback to hospitals is an 
important part of the validation process. We will continue to work with 
State QIOs to provide data element and measure-specific feedback to all 
participating hospitals, regardless of inclusion in the random sample. 
Additionally, our targeting criteria would not be random; they would be 
designed to select hospitals based on specific criteria. The increased 
annual sample size and stratification is designed to provide hospitals 
selected for validation with reliable information about all of their 
abstracted data.
    Comment: With regard to the reconsideration process, several 
commenters supported CMS' proposal to require hospitals to submit their 
paper medical records for re-abstraction when they submit a request for 
reconsideration involving data validation. The commenters believe that 
this process will give hospitals that believe the results of their data 
validation testing were inaccurate an opportunity to have their data 
re-abstracted.
    Response: We agree with the commenters that hospitals should be 
able to seek reconsideration of all validation mismatched data elements 
and measures throughout the year if the hospital fails to meet the 
annual validation requirement.
    Comment: Some commenters recommended continuing with the process of 
random selection of five charts per quarter for hospitals having fewer 
than 100 discharges.
    Response: We appreciate the recommendation that we continue 
validating hospital data for hospitals having fewer than 100 
discharges. As we discussed above, we are considering developing 
targeting criteria that would focus on these hospitals.
    We appreciate the public comments we received and will take them 
into consideration as we consider possible supplements to the chart 
validation process for the FY 2013 payment determination and subsequent 
years. Specifically, CMS plans to propose the following targeting 
criteria for FY 2013:
     Validating hospital data when the hospital failed the 
previous year's RHQDAPU program validation;
     Validating a sample of hospitals not included in the 
previous year's RHQDAPU program validation random sample for submitting 
fewer than 100 cases; and
     Validating hospital data when the hospital was not 
selected in 3 previous years' RHQDAPU program random validation 
samples.
    We will also consider other targeting criteria for FY 2013 and 
future years.
7. Data Accuracy and Completeness Acknowledgement Requirements for the 
FY 2011 Payment Determination and Subsequent Years
    For the FY 2011 payment determination and subsequent years, in the 
FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24180), we proposed 
to require hospitals to electronically acknowledge on an annual basis 
the completeness and accuracy of the data submitted for the RHQDAPU 
program payment determination. Hospitals will be able to submit this 
acknowledgement on the same Web page that they use to submit data 
necessary to calculate the structural measures, and we believe that 
this Web page will provide a secure vehicle for hospitals to directly 
acknowledge that their information is complete and accurate to the best 
of their knowledge. A single annual electronic acknowledgement will 
provide us with explicit documentation acknowledging that the 
hospital's data is accurate and complete, but will not unduly burden 
hospitals. We noted that commenters generally supported the idea of 
electronic attestation in the FY 2009 IPPS final rule (73 FR 48625) at 
the point of data submission to the QIO Clinical Warehouse.
    In addition, the Government Accountability Office (GAO) recommended 
in a 2006 report (GAO-06-54) that hospitals self-report that their data 
are complete and accurate. Therefore, for the FY 2011 payment 
determination, we proposed to require hospitals to electronically 
acknowledge their data accuracy and completeness once between January 
1, 2010, and August 15, 2010. Hospitals will acknowledge that all 
information that is, or will be, submitted as required by the RHQDAPU 
program for the FY 2011 payment determination is complete and accurate 
to the best of their knowledge.
    Comment: Several commenters commended CMS for proposing to collect 
data accuracy and completeness acknowledgements using an electronic 
method.

[[Page 43890]]

    Response: We thank the commenters, and believe that this proposed 
requirement imposes a minimal burden for hospitals.
    Comment: A number of commenters questioned the benefit of the 
proposed electronic data accuracy and completeness acknowledgement, and 
believed that data quality would not be improved. The commenters 
believed that requiring hospitals to attest to the accuracy of their 
data will not increase the reliability of the data collected for the 
RHQDAPU program and noted that historically, almost all hospitals have 
passed the data validation requirements, meaning that their data are 
found to be accurate and complete.
    Response: We believe that this proposed requirement will ensure 
that hospitals continue implementing procedures for ensuring data 
completeness and accuracy. This proposed requirement is intended to 
supplement our existing submission and validation requirements.
    After consideration of the public comments we received, we are 
adopting as final, without modification, our proposal to require 
hospitals to electronically acknowledge on an annual basis the 
completeness and accuracy of the data submitted for the RHQDAPU program 
payment determination.
8. Public Display Requirements for the FY 2011 Payment Determination 
and Subsequent Years
    For the FY 2011 payment determination, in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule (74 FR 24180), we proposed to generally continue 
using the following existing requirements implemented in previous 
years. Our continued goal for the chart validation requirements is to 
validate the reliability of RHQDAPU program chart-abstracted data. 
Accurate data are needed to calculate accurate publicly reported 
quality measures that are posted on the Hospital Compare Web site. We 
added the validation requirement in the FY 2006 IPPS final rule (70 FR 
47421 through 47422) to ensure that hospitals submit reliable data for 
RHQDAPU program chart-abstracted measures, based on our experience in 
FY 2005 that hospitals vastly differed in their data reliability. We 
modified the validation requirements in the FY 2008 IPPS final rule 
with comment period (72 FR 47366 and 47367) to update the RHQDAPU 
program list of validated measures for FY 2008, and pooled multiple 
quarterly validation estimates into a single annual estimate to improve 
reliability. We modified these requirements to reflect the changing 
RHQDAPU program list of chart-abstracted measures and validate all 
available RHQDAPU program data.
    We proposed to update the list of validated RHQDAPU program 
measures for the FY 2011 payment determination to incorporate changes 
to our list of required chart-abstracted RHQDAPU program measures for 
CY 2009 discharges. These requirements, as well as additional 
information on these requirements, will be posted on the QualityNet Web 
site after we issue this final rule.
    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 (https://www.hospitalcompare.hhs.gov). We require that hospitals sign a 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 included in the RHQDAPU program.
    We will continue to display quality information for public viewing 
as required by section 1886(b)(3)(B)(viii)(VII) of the Act. Before we 
display this information, hospitals will be permitted to review their 
information as recorded in the QIO Clinical Warehouse.
    Currently, hospital campuses that share the same CCN must combine 
data collection and submission across their multiple campuses (for both 
clinical measures and HCAHPS). These measures are then publicly 
reported on the Hospital Compare Web site 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. To 
increase transparency in public reporting and improve the usefulness of 
the Hospital Compare Web site, we plan to note on the Web site 
instances where publicly reported measures combine results from two or 
more hospitals.
    We did not receive any public comments on our proposals and are 
adopting them as final in this final rule.
9. Reconsideration and Appeal Procedures for the FY 2010 Payment 
Determination
    The general deadline for submitting a request for reconsideration 
in connection with the FY 2010 payment determination is November 1, 
2009. As discussed more fully below, in the FY 2010 IPPS/RY 2010 LTCH 
PPS proposed rule (74 FR 24181), we proposed that all hospitals submit 
a request for reconsideration and receive a decision on that request 
before they can file an appeal with the Provider Reimbursement Review 
Board (PRRB).
    For the FY 2010 payment determination, in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed rule (74 FR 24181), we proposed to continue utilizing 
most of the same procedures that we utilized in FY 2009. Under these 
proposed procedures, the hospital must--
     Submit to CMS, via QualityNet, a Reconsideration Request 
form (available on the QualityNet Web site) containing the following 
information:

--Hospital CMS Certification number (CCN).
--Hospital Name.
--CMS-identified reason for failure (as provided in the CMS 
notification of failure letter to the hospital).
--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 2010 IPPS annual payment 
update.
--CEO contact information, including name, e-mail address, telephone 
number, and mailing address (must include the physical address, not 
just the post office box). We proposed to no longer require that the 
hospital's CEO sign the RHQDAPU program reconsideration request. We 
have found that this requirement increases the burden for hospitals 
because it prevents them from electronically submitting the RHQDAPU 
program reconsideration request forms. In addition, to the extent that 
a hospital can submit a request for reconsideration on-line, the burden 
on our staff is reduced and, as a result, we can more quickly review 
the request.
--QualityNet System Administrator contact information, including name, 
e-mail address, telephone number, and mailing address (must include the 
physical address, not just the post office box).
--Paper medical record requirement for reconsideration requests 
involving validation. We proposed that if a hospital asks us to 
reconsider an adverse RHQDAPU program payment decision made because the 
hospital failed the validation requirement, the hospital must submit 
paper copies of all the medical records that it

[[Page 43891]]

submitted to the CDAC contractor each quarter for purposes of the 
validation. Hospitals must submit this documentation to a CMS 
contractor, which will redact all patient identifying information and 
forward the redacted copies to CMS. The contractor will be a QIO 
support contractor, which has authority to review patient level 
information under 42 CFR part 480. We will post the address where 
hospitals can ship the paper charts on the QualityNet Web site after we 
issue the FY 2010 IPPS/RY 2010 LTCH PPS final rule. Hospitals 
submitting a RHQDAPU program validation reconsideration request will 
have all mismatched data reviewed by CMS, and not their State QIO. (As 
discussed in section V.A.6.b. of this final rule, the State QIO is 
available to conduct a quarterly validation appeal if so requested by a 
hospital.)

    For the FY 2010 payment determination, the RHQDAPU program data 
that will be validated is 4th calendar quarter 2007 through 3rd quarter 
calendar year 2008 discharge data, except for SCIP-Infection-4 and 
Infection-6, which will be validated using 2nd and 3rd calendar quarter 
2008 discharges (73 FR 48621 through 48622). Hospitals must provide a 
written justification for each appealed data element classified during 
the validation process as a mismatch. We will review the data elements 
that were labeled as mismatched, as well as the written justifications 
provided by the hospitals, and make a decision on the reconsideration 
request. As we mentioned above, we proposed that all hospitals submit a 
reconsideration request to CMS and receive a decision on that request 
prior to submitting a PRRB appeal. We believe that the reconsideration 
process is less costly for both CMS and hospitals, and that this 
requirement will decrease the number of PRRB appeals by resolving 
issues earlier in the appeals process.
    Following receipt of a request for reconsideration, we will--
     Provide an e-mail acknowledgement, using the contact 
information provided in the reconsideration request, to the CEO and the 
QualityNet Administrator that the request has been received.
     Provide written notification to the hospital CEO, using 
the contact information provided in the reconsideration request, 
regarding our decision. We expect the process to take approximately 60 
to 90 days from the reconsideration request due date of November 1, 
2009.
    If a hospital is dissatisfied with the result of a RHQDAPU program 
reconsideration decision, the hospital may file a claim under 42 CFR 
part 405, Subpart R (a PRRB appeal). We solicited public comments on 
the extent to which these proposed procedures will be less costly for 
hospitals, and whether they will lead to fewer PRRB appeals.
    Comment: One commenter agreed that CMS should no longer require the 
CEO to sign the RHQDAPU program reconsideration request so that the 
request does not get held up for a signature, and can be submitted 
electronically. The commenter believed that use of the PRRB is less 
cost efficient, and should be the last resort. The commenter requested 
that the reconsideration process provide both written notification to 
the hospital CEO and QualityNet notification to the QualityNet 
Administrator working at the hospital.
    Response: We appreciate the comment and recognize the additional 
burden to hospitals associated with the requirement of a CEO signature.
    Comment: Several commenters supported CMS' proposal to require 
hospitals to submit their paper medical records for re-abstraction when 
they submit an appeal involving data validation. The commenters 
indicated that this process will give hospitals that believe the 
results of the data validation were inaccurate an opportunity to have 
their data re-abstracted again as part of the reconsideration process.
    Response: In the proposed rule, we proposed that hospitals must 
provide a written justification for each appealed data element 
classified during the validation process as a mismatch. We stated that 
we would review the data elements that were labeled as mismatched, as 
well as the written justifications provided by the hospitals, and make 
a decision on the reconsideration request. However, we wish to clarify 
that this would not be a re-abstraction, but a review of the hospital's 
justification and the medical record for each appealed mismatching data 
element. The intent of this proposal is for us to have all of the 
information necessary to review a request for reconsideration based on 
the hospital's validation results.
    Comment: One commenter asked for clarification about two possible 
situations that could arise under CMS' proposal to review paper medical 
records as part of the reconsideration process (when the issue is 
validation):
    1. Hospital fails to return one or more medical records to the CDAC 
contractor for the quarterly validation request within the 45 calendar 
day timeframe. There are no CDAC contractor-abstracted data elements 
for the reconsideration contractor to review, except for medical 
records returned after the 45 calendar day deadline. Would the hospital 
be allowed to submit medical records during reconsideration to receive 
credit for information submitted to the CDAC contractor after the 
quarterly validation 45 day deadline? If not, would the reconsideration 
contractor's review be limited in scope to the CDAC contractor's 
original documentation that verifies contact with the hospital as 
outlined in this regulation, and documents that the CDAC contractor did 
not receive the requested medical records in the required timeframe 
(for example, reconsideration limited to data and hospital receipt of 
CDAC contractor's request for medical records, written reminder notes, 
and CDAC contractor's non-receipt of medical records).
    2. Hospital receives one or more ``invalid record selection'' zero 
scores for failing to provide the correct medical record for the 
requested episode of care. Invalid record selections occur when the 
hospital submits medical record(s) that do not match the requested 
patient episode of care's admission date, discharge date, name or other 
hospital submitted identification information, and/or birthdate/birth 
year. Would the reconsideration contractor abstract medical records for 
these ``invalid records,'' or would the reconsideration contractor and 
CMS simply review the electronic submitted data, relative to the 
hospital submitted data to the CDAC contractor in response to the 
original medical record request?
    In both scenarios, the commenter argued that hospitals would 
attempt to circumvent the CDAC contractor validation process and submit 
medical records to the reconsideration process. The commenter 
recommended that CMS limit the scope of RHQDAPU program reconsideration 
review for validation to verification of CDAC contractor processing, 
and not circumventing the validation process to allow reconsideration 
contractor abstraction of these nonreturned and ``invalid record 
selection'' cases that receive zero validation scores. The commenter 
indicated that CMS should spend its dollars wisely and create processes 
that do not allow hospitals to bypass existing and expensive quarterly 
validation processes.
    Response: We appreciate the comment. Our intent is to provide 
hospitals a process to request our reconsideration review of mismatched 
data elements abstracted by the CDAC

[[Page 43892]]

contractor affecting the hospitals' validation scores. Hospitals must 
submit a copy of the entire requested medical record to the CDAC 
contractor during the quarterly validation process for the requested 
case to be eligible for reconsideration of mismatched data elements. 
Our review of medical records that we classify as not matching what was 
requested by the CDAC contractor (called ``invalid record selections'') 
will initially be limited to ascertaining whether the copy of the 
record submitted to the CDAC contractor was actually an entire copy of 
the requested medical record. If we determine during reconsideration 
that the hospital did submit the entire copy of the requested medical 
record to the CDAC contractor, then we would abstract data elements 
from the medical record submitted by the hospital along with its 
reconsideration request.
    We would also review the hospital's justification for medical 
records not returned in a timely manner to ascertain whether the CDAC 
contractor received the requested record within 45 calendar days, and 
whether the hospital received the initial medical record request and 
reminder notice as specified in this regulation. If we determine during 
reconsideration that the CDAC contractor did receive a paper copy of 
the requested medical record within 45 calendar days, then we would 
abstract data elements from the medical record submitted by the 
hospital along with its reconsideration request.
    After reviewing the public comments we received, we are adopting as 
final the proposed RHQDAPU program reconsideration requirements for FY 
2010. However, we wish to clarify the following regarding the scope of 
our review when a hospital requests reconsideration because it failed 
our validation requirements:
    1. Hospital requests reconsideration for CDAC contractor-abstracted 
data elements classified as mismatches affecting validation scores. 
Hospitals must timely submit a copy of the entire requested medical 
record to the CDAC contractor during the quarterly validation process 
for the requested case to be eligible to request reconsideration of 
mismatched data elements.
    2. Hospital requests reconsideration for medical record copies 
submitted during the quarterly validation process and classified as 
invalid record selections. Invalid record selections are defined as 
medical records submitted by hospitals during the quarterly validation 
process that do not match the patient's episode of care information as 
determined by the CDAC contractor (in other words, the contractor 
determines that the hospital returned a medical record that is 
different from that which was requested). If the CDAC contractor 
determines that the hospital has submitted an invalid record selection 
case, it awards a zero validation score for the case because the 
hospital did not submit the entire copy of the medical record for that 
requested case. During the reconsideration process, our review of 
invalid record selections will initially be limited to determining 
whether the record submitted to the CDAC contractor was actually an 
entire copy of the requested medical record. If we determine during 
reconsideration that the hospital did submit the entire copy of the 
requested medical record, then we would abstract data elements from the 
medical record submitted by the hospital along with its reconsideration 
request.
    3. Hospital requests reconsideration for medical records not 
submitted to the CDAC contractor within the 45 calendar day deadline. 
Our review will initially be limited to determining whether the CDAC 
contractor received the requested record within 45 calendar days, and 
whether the hospital received the initial medical record request and 
reminder notice as specified in this regulation. If we determine during 
reconsideration that the CDAC contractor did receive a paper copy of 
the requested medical record within 45 calendar days, then we would 
abstract data elements from the medical record submitted by the 
hospital along with its reconsideration request.
    In sum, we are initially limiting the scope of our reconsideration 
reviews involving validation to information already submitted by the 
hospital during the quarterly validation process, and we will not 
abstract medical records that were not submitted to the CDAC contractor 
during the quarterly validation process. We will expand the scope of 
our review only if we find during the initial review that the hospital 
correctly and timely submitted the requested medical records. In that 
case, then we would abstract data elements from the medical record 
submitted by the hospital along with its reconsideration request.
    After consideration of the public comments we received, we are 
adopting as final, with the clarifications outlined in this final rule, 
our proposals regarding reconsideration and appeals procedures for the 
FY 2010 payment determination.
10. RHQDAPU Program Withdrawal Deadlines
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24181), 
we proposed to accept RHQDAPU program withdrawal forms for the FY 2011 
payment determination from hospitals until August 15, 2010. We proposed 
this deadline so that we would have sufficient time to update the FY 
2011 payment to hospitals starting on October 1, 2010. If a hospital 
withdraws from the program for the FY 2011 payment determination, it 
will receive a 2.0 percentage point reduction in its FY 2011 annual 
payment update. We noted that once a hospital has submitted a Notice of 
Participation form, it is considered to be an active RHQDAPU program 
participant until such time as the hospital submits a withdrawal form 
to CMS.
    We did not receive any public comments about our proposal. 
Therefore, we are adopting as final our proposal to accept RHQDAPU 
program withdrawal forms for the FY 2011 payment determination from 
hospitals until August 15, 2010.
11. Electronic Health Records
a. Background
    Starting with the FY 2006 IPPS final rule, we have encouraged 
hospitals to take steps toward the adoption of EHRs (also referred to 
in previous rulemaking documents as electronic medical records) that 
will allow for reporting of clinical quality data from the EHRs 
directly to a CMS data repository (70 FR 47420 through 47421). We 
encouraged hospitals that are implementing, upgrading, or developing 
EHR systems to ensure that the technology obtained, upgraded, or 
developed conforms to standards adopted by HHS. We suggested that 
hospitals also take due care and diligence to ensure that the EHR 
systems accurately capture quality data and that, ideally, such systems 
provide point-of-care decision support that promotes optimal levels of 
clinical performance.
    In the FY 2008 IPPS final rule with comment period (72 FR 47366), 
we responded to comments we received on EHRs and noted that CMS planned 
to continue participating in the American Health Information Community 
(which has now sunset and is replaced by the National eHealth 
Collaborative) and other entities to explore processes through which an 
EHR could speed the collection of data and minimize the resources 
necessary for quality reporting.
    Recently, we initiated work directed toward enabling EHR submission 
of quality measures through EHR standards development and adoption. We 
are working under an inter-agency agreement between CMS and the Office

[[Page 43893]]

of the National Coordinator for Healthcare Information Technology (ONC) 
to identify and harmonize standards for the EHR-based submission of 
Emergency Department Throughput measures, Stroke measures, and Venous 
Thromboembolism measures. These measures have received NQF endorsement 
and are potential measures for future inclusion in the RHQDAPU program. 
Pursuant to this agreement, the Healthcare Information Technology 
Standards Panel (HITSP) has been tasked with harmonizing the EHR data 
element standards for the measure sets. The work for these three 
measure sets began in September 2008 and is due to be completed in a 
little more than 1 year. It is expected that interoperable standards 
will be developed and fully vetted by October 2009. When HITSP posts 
the standards, we anticipate that EHR vendors will be able to code 
their EHR systems with the new specifications and begin collecting this 
data electronically. We expect that these standards will be provided to 
its Certification Commission for Healthcare Information Technology 
(CCHIT) for inclusion in the criteria for certification of inpatient 
EHRs.
b. EHR Testing of Quality Measures Submission
    As we have previously stated, we are interested in the reporting of 
quality measures using EHRs, and we continue to encourage hospitals to 
adopt and use EHRs that conform to industry standards. We believe that 
the testing of EHR submission is an important and necessary step to 
establish the ability of EHRs to report clinical quality measures and 
the capacity of CMS to receive such data.
    Through CMS' interagency agreement with ONC previously described, 
the interoperable standards for EHR-based submission of the Emergency 
Department (ED) Throughput, Stroke, and Venous Thromboembolism (VTE) 
measures are scheduled to be finalized in late 2009 and will be 
available for review and testing. We anticipate testing the components 
required for the submission of clinical quality data extracted from 
EHRs for these measures, and are exploring different mechanisms and 
formats that will aid the submission process, as well as ensure that 
the summary measure results extracted from the EHRs are reliable. When 
the interoperable EHR-based submission standards become available, EHR 
vendors will be able to employ them in EHR systems and begin testing 
how they facilitate the electronic collection of these data. We intend 
to follow similar processes and procedures to those we are using for 
the PQRI EHR testing being conducted as described in the CY 2009 
Medicare Physician Fee Schedule final rule with comment period (73 FR 
69828 through 69830).
    We anticipate moving forward with testing CMS' technical ability to 
accept data from EHRs for the ED, Stroke, and VTE measures as early as 
July 1, 2010. Pursuant to the Paperwork Reduction Act, prior to the 
beginning of testing EHR-based data submission, we will publish a 
Federal Register notice seeking public comments on the process we 
intend to follow to select EHR vendors/hospitals and the methodology we 
plan to use for testing EHR-based data submissions.
    The test measures described above are not currently required under 
the RHQDAPU program. As long as that remains the case, EHR test data 
that is received for these measures will not be used to make RHQDAPU 
program payment decisions. In addition, the posting of the electronic 
specifications for any particular measure should not be interpreted as 
a signal that we intend to select the measure for inclusion in the 
RHQDAPU program measure set.
    We intend to select several EHR vendors/hospitals to develop and 
test EHR clinical quality data submission. EHR vendors/hospitals that 
wish to participate in the development and testing process will be able 
to self-nominate by sending a letter of interest to: ``RHQDAPU Program 
IT Testing Nomination'', Centers for Medicare and Medicaid Services, 
Office of Clinical Standards and Quality, Quality Measurement and 
Health Assessment Group, 7500 Security Boulevard, Mail Stop S3-02-01, 
Baltimore, MD 21244-8532. The letter must be received by CMS by 6 p.m., 
E.S.T. on December 31, 2009. Vendors/hospitals will be selected based 
on the following criteria: (1) They are able to submit clinical EHR 
data using interoperability standards such as Cross Document Sharing 
(XDS), Cross Community Access (XCA), Clinical Data Architecture (CDA), 
and Health Level 7 Version 3 to a CMS-designated clinical data 
repository; and (2) they have established or have applied for a 
QualityNet account. More information regarding these capabilities will 
be made available on the Hospital Quality Initiative section of the CMS 
Web site at: https://www.cms.hhs.gov/HospitalQualityInits/. Preference 
may be given to EHR vendors/hospitals that utilize EHRs that are 
currently certified by the CCHIT, use the National Health Information 
Network (NHIN), and/or utilize Health Information Technology Standards 
Panel (HITSP)/Integrating the Healthcare Environment (IHE) standards.
    EHR vendors/hospitals that would like to test the submission of 
inpatient EHR data to the CMS-designated clinical data repository 
should update their EHR products or otherwise ensure that those 
products can capture and submit the necessary data elements identified 
for an EHR-based submission once the standardized format has been 
determined. We suggest that these entities begin submitting EHR data 
promptly after CMS announces that the clinical data repository is ready 
to accept such data so that problems that may complicate or preclude a 
successful quality measure data submission can be corrected.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24182), 
we welcomed comments on this discussion of EHR-based data submission 
testing.
    Comment: A number of commenters supported voluntary EHR testing, 
the creation of uniform data content standards, and the concept of 
reducing the burden to hospitals through automated data transmission 
via EHR products. The commenters applauded CMS for EHR testing and for 
working to expand quality data submission to include electronic 
formats. The commenters also commended CMS for working with ONC to 
establish electronic standards for ED, Stroke and VTE quality measures. 
The commenters urged CMS to ensure the scientific integrity of the 
electronic standards and resulting measures, and encouraged CMS to work 
closely with NQF's Health IT Expert Panel (HITEP) and to incorporate 
HITSP standards for measures. Some commenters urged CMS to conduct EHR 
testing for measures that have already been adopted into the RHQDAPU 
program as well. However, one commenter stated that the timelines 
suggested in the proposed rule do not take into account the realities 
faced by hospitals.
    Response: We appreciate these supportive comments regarding 
voluntary EHR testing, and acknowledge the challenges faced by many 
hospitals in adopting EHRs at this time. We will continue to work with 
standard setting organizations toward standardization of data elements 
for quality measures in EHRs. A voluntary EHR-based data submission 
testing process would be initiated at such time as CMS systems are able 
to support it. Hospitals would not be required to participate in this 
testing process, but would do so voluntarily. We decided to begin EHR 
testing with non-implemented measures. However, we plan to create 
electronic formats for measures already

[[Page 43894]]

adopted for the RHQDAPU program as well.
    We thank the commenters for their suggestions and will take these 
comments into consideration as we move forward with voluntary EHR 
testing. We will announce further details regarding this voluntary 
testing program in a separate Federal Register notice.
c. HITECH Act EHR Provisions
    On February 17, 2009, the President signed into law the ARRA, 
Public Law 111-5. The HITECH Act (Title IV of Division B of the ARRA, 
together with Title XIII of Division A of the ARRA) authorizes payment 
incentives under Medicare for the adoption and use of certified EHR 
technology beginning in FY 2011. Hospitals are eligible for these 
payment incentives if they meet the following three requirements: 
Meaningful use of certified EHR technology; electronic exchange of 
health information; and reporting on measures using certified EHR 
technology (provided the Secretary has the capacity to receive such 
information electronically). With respect to this requirement, under 
section 1886(n)(3)(A)(ii) of the Act, as added by section 4102 of the 
HITECH Act, the Secretary shall select measures, including clinical 
quality measures, that hospitals must provide to CMS in order to be 
eligible for the EHR incentive payments. With respect to the clinical 
quality measures, section 1886(n)(3)(B)(i) of the Act requires the 
Secretary to give preference to those clinical quality measures that 
have been selected for the RHQDAPU program under section 
1886(b)(3)(B)(viii) of the Act or that have been endorsed by the entity 
with a contract with the Secretary under section 1890(a) of the Act. 
Any measures must be proposed for public comment prior to their 
selection, except in the case of measures previously selected for the 
RHQDAPU program under section 1886(b)(3)(B)(viii) of the Act.
    Thus, the RHQDAPU program and the HITECH Act have important areas 
of overlap and synergy with respect to the reporting of quality 
measures using EHRs. We believe the financial incentives under the 
HITECH Act for the adoption and meaningful use of certified EHR 
technology by hospitals will encourage the adoption and use of 
certified EHRs for the reporting of clinical quality measures under the 
RHQDAPU program. Further, these efforts to test the submission of 
quality data through EHRs may provide a foundation for establishing the 
capacity of hospitals to send, and for CMS to receive, quality measures 
via hospital EHRs for future RHQDAPU program measures. We again note 
that the provisions in this final rule do not implicate or implement 
any HITECH statutory provisions. Those provisions will be implemented 
in a future rulemaking.

B. Medicare-Dependent, Small Rural Hospitals (MDHs): Budget Neutrality 
Adjustment Factors for FY 2002-Based Hospital-Specific Rate (Sec.  
412.79(i))

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, or absence of other 
like hospitals (as determined by the Secretary) 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 at 42 CFR 
412.92. Section 1886(d)(5)(D)(iii)(III) of the Act and the regulations 
at Sec.  412.109 also provide that certain essential access community 
hospitals (EACHs) will be treated as an SCH for payment purposes under 
the IPPS.
    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 
of its inpatient days or discharges in its 1987 cost reporting year or 
in two of its most recent three 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 at 42 CFR 412.108.
    Although SCHs and MDHs are paid under special payment 
methodologies, they are still 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.
    For SCHs, effective with hospital cost reporting periods beginning 
prior to January 1, 2009, section 1886(d)(5)(D)(i) of the Act (as 
amended by section 6003(e) of Public Law 101-239 (OBRA 1989)) and 
section 1886(b)(3)(I) of the Act (as added by section 405 of Public Law 
106-113 (BBRA 1999) and further amended by section 213 of Public Law 
106-554 (BIPA 2000) provide that SCHs are paid based on whichever of 
four statutorily specified rates (listed below) yields the greatest 
aggregate payment to the hospital for the cost reporting period. For 
cost reporting periods beginning on or after January 1, 2009, section 
122 of Public Law 110-275 (MIPPA 2008) further amended the Act to 
specify that SCHs will be paid based on a FY 2006 hospital-specific 
rate (that is, based on their updated costs per discharge from their 
12-month cost reporting period beginning during Federal fiscal year 
2006), if this results in the greatest payment to the SCH. Therefore, 
currently, 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;
     The updated hospital-specific rate based on FY 1996 costs 
per discharge; or
     The updated hospital-specific rate based on FY 2006 costs 
per discharge.
    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 hospital-specific rate. For discharges 
during FY 2004 and subsequent fiscal years, payments based on the FY 
1996 hospital-specific rate are based on 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 amount by which the Federal rate is 
exceeded by the updated hospital-specific rates based on FY 1982 or FY 
1987 costs per discharge, whichever of these hospital-specific rates is 
higher. Section 5003(b) of Public Law 109-171 (DRA 2005) amended 
section 1886(d)(5)(G) of the Act to provide that, for discharges 
occurring on or after October 1, 2006, MDHs are paid based on the 
Federal rate or, if higher, the Federal rate plus 75 percent of the 
amount by which the Federal rate is exceeded by the updated hospital-
specific rate based on FY 1982, FY 1987, or FY 2002 costs per 
discharge, whichever of these hospital-specific rates is the highest. 
Unlike SCHs, MDHs

[[Page 43895]]

do not have the option to use their FY 1996 hospital-specific rate.
    For each cost reporting period, the fiscal intermediary or MAC 
determines which of the payment options will yield the highest 
aggregate payment. Interim payments are automatically made at the 
highest rate using the best data available at the time the fiscal 
intermediary or MAC makes the determination. However, it may not be 
possible for the fiscal intermediary or MAC to determine in advance 
precisely which of the rates will yield the highest aggregate payment 
by year's end. In many instances, it is not possible to forecast the 
outlier payments, or 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 or 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 the 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 
the MAC's decision in accordance with the procedures set forth in 42 
CFR part 405, Subpart R, which govern provider payment determinations 
and appeals.
2. FY 2002-Based Hospital-Specific Rate
    Acute care hospitals, including MDHs and SCHs, are subsection (d) 
hospitals paid under the IPPS. As mentioned earlier, under the special 
payment methodologies for MDHs and SCHs, Medicare payments per 
discharge are made based on DRG weights, as with all other acute care 
hospitals paid under the IPPS. (We note that effective beginning in FY 
2008, the MS-DRGs are used under the IPPS.) As discussed above, 
although the specific payment formulas for MDHs and SCHs differ, it is 
common to both types of hospitals that they may be paid based on an 
updated hospital-specific rate determined from their costs per 
discharge in a specified base year.
    Section 1886(d)(4)(C)(iii) of the Act requires that aggregate IPPS 
payments be projected to neither increase nor decrease as a result of 
the annual changes to the DRG classifications and weighting factors. 
Beginning in FY 1994, in applying the current year's budget neutrality 
adjustment factor to both the standard Federal rate and hospital-
specific rates, we do not remove the prior years' budget neutrality 
adjustment factors when applying the current year budget neutrality 
adjustment factor to assure that estimated aggregate payments after the 
DRG changes are equal to estimated aggregate payments prior to the 
changes (48 FR 46345). If we were to remove the prior year 
adjustment(s), we would not satisfy this requirement. As we have 
previously explained (for example, in the FY 2006 IPPS final rule (70 
FR 47429)), all section 1886(d) hospitals, including hospitals that are 
paid based on a hospital-specific rate, are subject to a DRG budget 
neutrality adjustment factor. As is the case for all other IPPS 
hospitals, these hospitals are paid based on DRG classifications and 
weighting factors that must be considered when we determine whether 
aggregate IPPS payments are projected to increase or decrease as a 
result of the annual changes to the DRG classifications and weighting 
factors.
    In order to comply with the statutory requirement that the DRG 
changes be budget neutral, we compute a budget neutrality adjustment 
factor based on a comparison of estimated aggregate payments using the 
current year's relative weights and factors to aggregate payments using 
the prior year's relative weights and factors. This budget neutrality 
adjustment factor is then applied to the standardized per discharge 
payment amounts (that is, the Federal rates and the hospital-specific 
rates). Cumulative budget neutrality factors, beginning with the 
adjustment factor for FY 1993, apply to all hospital-specific rates 
including rebased hospital-specific rate amounts derived from base 
years later than FY 1993. As discussed in the FY 2001 IPPS proposed 
rule (55 FR 19466), in setting updated DRG weights, each year we 
normalize DRG weights by an adjustment factor in order to first ensure 
that the average case weight after recalibration is equal to the 
average case weight prior to recalibration. While this adjustment is 
intended to ensure that recalibration does not affect total payments to 
hospitals under section 1886(d) of the Act, our analysis has indicated 
that the normalization adjustment does not usually achieve budget 
neutrality with respect to aggregate payments to hospitals under 
section 1886(d) of the Act. Thus, in order to comply with the 
requirement of section 1886(d)(4)(C)(iii) of the Act that the annual 
DRG reclassification changes and recalibration of the relative weights 
be budget neutral, we also compute a budget neutrality adjustment 
factor that is applied to both the standardized amounts and the 
hospital-specific rates. This budget neutrality adjustment ensures that 
the recalibration process neither increases nor decreases total 
payments to hospitals. If we were to remove this budget neutrality 
adjustment factor for years prior to the base year, the normalized DRG 
weights applied to the hospital-specific amounts would result in higher 
aggregate payments than permitted under the statute.
    Section 1886(b)(3)(I) of the Act (as added by section 405 of Public 
Law 106-113 (BBRA 1999) and further amended by section 213 of Public 
Law 106-554 (BIPA 2000)) contains a provision for SCHs to rebase their 
hospital-specific rate using the hospital's FY 1996 cost per discharge 
data. Specifically, beginning in FY 2001, SCHs can also use their 
reasonable and allowable FY 1996 operating costs for inpatient hospital 
services as the basis for their hospital-specific rate rather than only 
their FY 1982 or FY 1987 costs, if using FY 1996 costs would result in 
higher payments. Effective for cost reporting periods beginning on or 
after January 1, 2009, SCHs will be paid based on their hospital-
specific rate using FY 2006 costs, if this rate yields higher payments 
(as provided for under section 122 of Public Law 110-275 (MIPPA 2008)). 
For the reasons explained above, the instructions for implementing both 
the FY 1996 and FY 2006 SCH rebasing provisions direct the fiscal 
intermediary or MAC to apply cumulative budget neutrality adjustment 
factors to account for DRG changes since FY 1993 in determining an 
SCH's hospital-specific rate based on either FY 1996 or FY 2006 cost 
data. (The FY 1996 SCH rebasing provision was implemented in 
Transmittal A-00-66 (Change Request 1331) dated September 18, 2000, and 
the FY 2006 SCH rebasing provision was implemented in a Joint Signature 
Memorandum (JSM/TDL-09052), dated November 17, 2008.)
    As stated previously, section 5003(b) of Public Law 109-171 (DRA 
2005) allows MDHs to use the hospital's FY 2002 costs per discharge 
(that is, the FY 2002 updated hospital-specific rate) for discharges 
occurring on or after October 1, 2006, if that results in a higher 
payment. As we discussed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule (74 FR 24183 through 24185), to implement this provision, CMS 
issued Transmittal 1067 (Change Request 5276 dated September 25, 2006) 
with instructions to fiscal intermediaries to determine and update the 
FY 2002 hospital-specific rate for qualifying MDHs. To calculate an 
MDH's FY 2002 hospital-specific rate and update it to FY 2007, the 
instructions directed fiscal

[[Page 43896]]

intermediaries to apply cumulative budget adjustment factors for FYs 
2003 through 2007. However, the instructions did not include the 
cumulative budget neutrality adjustment factor to account for changes 
in the DRGs from FYs 1993 through 2002. As a result, effective 
beginning in FY 2007, any MDH that was paid based on its FY 2002 
hospital-specific rate (calculated in accordance with the instructions 
provided in Transmittal 1067) has been paid based on a hospital-
specific rate that failed to include a cumulative budget neutrality 
adjustment factor to account for DRG changes from FYs 1993 through 2002 
(a cumulative budget neutrality adjustment factor of 0.982557 (or about 
-1.74 percent)), in addition to the cumulative budget neutrality 
adjustment factors applied for FYs 2003 through 2007 that have already 
been applied as specified in the implementing instructions. As we 
discussed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, in order 
to conduct a meaningful comparison between payments under the Federal 
rate, which is adjusted by the cumulative budget neutrality factor, and 
payments based on the hospital-specific rate, consistent with our 
established policy of applying a cumulative budget neutrality 
adjustment factor to account for DRG changes since FY 1993, for 
discharges beginning on or after October 1, 2009, we stated our 
intention to include the cumulative budget neutrality adjustment 
factors for the DRG changes from FYs 1993 through 2002, in addition to 
the cumulative budget neutrality adjustment factors for FYs 2003 
forward. The cumulative budget neutrality adjustment factor of 0.982557 
is calculated as the product of the following budget neutrality 
adjustment factors to account for DRG changes from FYs 1993 through 
2002: 0.999851 for FY 1993; 0.999003 for FY 1994; 0.998050 for FY 1995; 
0.999306 for FY 1996; 0.998703 for FY 1997; 0.997731 for FY 1998; 
0.998978 for FY 1999; 0.997808 for FY 2000; 0.997174 for FY 2001; and 
0.995821 for FY 2002.
    We considered applying a factor of 0.982557 to any MDH's FY 2002 
hospital-specific rate to account for the cumulative budget neutrality 
adjustment for DRG changes from FYs 1993 through 2002, either effective 
for discharges occurring on or after October 1, 2006 (the initial 
effective date of the FY 2002 rebasing) or, alternatively, effective 
upon the issuance of the correction. However, consistent with the 
prospective nature of the rates under the IPPS, we are applying the 
adjustment on a prospective basis only, effective for discharges 
occurring on or after October 1, 2009 (FY 2010). This effective date 
would give affected MDHs sufficient notice of the change to their 
hospital-specific rate. We estimate that approximately 50 MDHs will be 
affected by the application of the cumulative budget neutrality 
adjustment for DRG changes from FYs 1993 through 2002. Based on the 
current cumulative budget neutrality adjustment factor of 0.982557 to 
account for DRG changes from FYs 1993 through 2002, we estimate that, 
in some instances, application of the cumulative budget neutrality 
adjustment factor will lower the hospital-specific rate to the point 
that the Federal rate would result in higher payments.
    Comment: Some commenters asserted that the application of a 
cumulative budget neutrality adjustment factor for the DRG changes from 
FYs 1993 through 2002 doubles the impact of this adjustment on the 
hospital-specific rates. The commenters believed that the average case 
weight from FYs 1993 through 2002 increased and that the cumulative 
budget neutrality adjustment built into the Federal rates and hospital-
specific rates for this time period offsets this average case weight 
increase. The commenters believed, therefore, that this budget 
neutrality adjustment is already being accounted for when the fiscal 
intermediary divides the MDH's FY 2002 average cost per discharge by 
the hospital's case mix index for FY 2002, because the case-mix index 
reflects the higher average case weight increase.
    Response: As described in section II.H. of the preamble of this 
final rule, the recalibrated DRG weights are normalized each year by an 
adjustment factor so that the national average case weight after DRG 
recalibration is equal to the national average case weight before 
recalibration. The normalization process is designed to offset any 
increase or decrease in the national average case weight due to 
recalibration. Because the weights are normalized, they do not reflect 
national average case weight change due to recalibration. Therefore, 
the hospital's case-mix index for FY 2002, which is calculated using 
DRG weights after normalization, do not reflect national average case 
weight change. We disagree with commenter's assertions that the average 
case weight from FYs 1993 through 2002 increased due to recalibration 
and that the cumulative budget neutrality adjustment built into the 
Federal rates and hospital specific rates for this time period offsets 
an average case weight increase due to recalibration. The cumulative 
budget neutrality adjustment is not already being accounted for when 
the fiscal intermediary divides the FY 2002 average cost per discharge 
for a hospital by the hospital's case-mix index for FY 2002.
    Comment: One commenter stated that even if a cumulative budget 
neutrality factor should be applied, it is wrongly calculated, pointing 
to a change made by CMS, effective FY 2006 and forward, to no longer 
apply the wage index budget neutrality adjustment factor to the 
hospital-specific rate of SCHs and MDHs, but rather only a DRG 
recalibration budget neutrality adjustment factor (70 FR 47430). The 
budget neutrality adjustment factor applied to the hospital-specific 
rate prior to FY 2006 was a composite of both the budget neutrality 
adjustment to account for redistribution of cases among DRGs and the 
budget neutrality adjustment to account for changes to the wage index. 
The commenter took issue that the cumulative budget neutrality 
adjustment factor continues to include factors that adjust for wage 
index changes prior to FY 2006, and stated that the adjustment factors 
prior to FY 2006 that are included in the cumulative budget neutrality 
factor should be only the DRG recalibration budget neutrality 
adjustment factors, consistent with the change made for FY 2006 
forward.
    Response: Regarding the application of combined wage index and DRG 
recalibration budget neutrality adjustment factors for FYs 1993 through 
2005, in the FY 2006 IPPS final rule (70 FR 47430), we stated that we 
believe that our former policy of applying both a combined wage and DRG 
budget neutrality adjustment factor is still valid. Therefore, we do 
not believe it is necessary or appropriate to change the applicable 
budget neutrality adjustment factors to only DRG recalibration budget 
neutrality adjustment factors for that period. We also note that those 
factors, the cumulative budget neutrality adjustment factors for the 
hospital-specific rates, which included both the wage index and DRG 
recalibration budget neutrality adjustment factors for FYs 1993 through 
2005, were established as a result of a notice-and-comment rulemaking 
process, and we would not retroactively recalculate these factors.
    Comment: One commenter stated that the cumulative budget neutrality 
adjustment factor for FYs 1993 through 2005 is incorrect because two 
factors within it, the FY 1999 and the FY 2003 budget neutrality 
adjustment factors, are incorrect; that is, they are not those

[[Page 43897]]

presented in the applicable Federal Register notice.
    Response: Although the FY 1999 budget neutrality adjustment factor 
was initially published in the FY 1999 IPPS final rule, in the February 
25, 1999 final notice (64 FR 9381), the budget neutrality adjustment 
factor for FY 1999 was subsequently revised to 0.998978, in conjunction 
with subsequent revisions to the wage index, effective March 1, 1999 
through September 30, 1999. Consistent with our policy of applying DRG 
budget neutrality in a cumulative manner, the revised factor is carried 
permanently in both the standardized rate and the hospital-specific 
rates.
    Similarly, for FY 2003, the original budget neutrality adjustment 
factor initially published in the FY 2003 IPPS final rule was 
subsequently revised. In conjunction with the implementation of the 
temporary equalization of the IPPS standardized amounts required by 
section 402(b) of Public Law 108-7, the budget neutrality adjustment 
factor was again revised based on wage index corrections.
    We note that we received a number of public comments of issues that 
were outside of the scope of the provisions of the proposed rule, and 
therefore, we are not responding to them in this final rule. These 
public comments related to the SCH FY 2006 hospital-specific rate, the 
SCH volume decrease adjustment, and the application of DSH payments to 
the hospital-specific rate.
    After considering the public comments we received and our findings 
regarding those comments, we are finalizing the policy discussed in the 
proposed rule to apply a cumulative budget neutrality adjustment factor 
to MDHs' FY 2002 hospital-specific rates to adjust for each fiscal year 
from 1993 forward, as is done for the Federal rate.

C. 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 that 
occurred before October 1, 1994, RRCs received the benefit of payment 
based on the other urban standardized amount rather than the rural 
standardized amount (as discussed in the FY 1993 IPPS final rule (59 FR 
45404 through 45409). Although the other urban and rural standardized 
amounts are the same for discharges occurring on or after October 1, 
1994, RRCs continue to receive special treatment under both the DSH 
payment adjustment and the criteria for geographic reclassification.
    Section 402 of Public Law 108-173 raised the DSH adjustment for 
RRCs such that they are not subject to the 12-percent cap on DSH 
payments applicable to other rural hospitals. RRCs are also not subject 
to the proximity criteria when applying for geographic 
reclassification. In addition, they do not have to meet the requirement 
that a hospital's average hourly wage must exceed, by a certain 
percentage, the average hourly wage of the labor market area where the 
hospital is located.
    Section 4202(b) of Public Law 105-33 states, in part, ``[a]ny 
hospital classified as an RRC by the Secretary * * * for fiscal year 
1991 shall be classified as such an RRC for fiscal year 1998 and each 
subsequent year.'' In the August 29, 1997 IPPS final rule with comment 
period (62 FR 45999), CMS reinstated RRC status for all hospitals that 
lost the status due to triennial review or MGCRB reclassification. 
However, CMS did not reinstate the status of hospitals that lost RRC 
status because they were now urban for all purposes because of the OMB 
designation of their geographic area as urban. Subsequently, in the 
August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were 
revisiting that decision. Specifically, we stated that we would permit 
hospitals that previously qualified as an RRC and lost their status due 
to OMB redesignation of the county in which they are located from rural 
to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC 
status must satisfy all of the other applicable criteria. We use the 
definitions of ``urban'' and ``rural'' specified in Subpart D of 42 CFR 
part 412. One of the criteria under which a hospital may qualify as an 
RRC is to have 275 or more beds available for use (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). (We refer readers to 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 (CMI)
    Section 412.96(c)(1) provides that CMS establish updated national 
and regional CMI values in each year's annual notice of prospective 
payment rates for purposes of determining RRC status. The methodology 
we used to determine the national and regional CMI values is set forth 
in the regulations at Sec.  412.96(c)(1)(ii). The national median CMI 
value for FY 2010 includes data from all urban hospitals nationwide, 
and the regional values for FY 2010 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 2008 (October 
1, 2007 through September 30, 2008), and include bills posted to CMS' 
records through March 2009.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24185), 
we proposed that, in addition to meeting other criteria, if rural 
hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
2009, they must have a CMI value for FY 2008 that is at least--
     1.4667; 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.
    Based on the latest available data (FY 2008 bills received through 
March 2009), 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, 2009, they must have 
a CMI value for FY 2008 that is at least--
     1.4669; 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.

[[Page 43898]]

    The final median CMI values by region are set forth in the 
following table:

------------------------------------------------------------------------
                                                               Case-mix
                           Region                            index value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)....................       1.2612
2. Middle Atlantic (PA, NJ, NY)............................       1.3011
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).....       1.4212
4. East North Central (IL, IN, MI, OH, WI).................       1.3994
5. East South Central (AL, KY, MS, TN).....................       1.3311
6. West North Central (IA, KS, MN, MO, NE, ND, SD).........       1.4045
7. West South Central (AR, LA, OK, TX).....................       1.4692
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)...............       1.5217
9. Pacific (AK, CA, HI, OR, WA)............................       1.4298
------------------------------------------------------------------------

    A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its fiscal intermediary 
or MAC. Data are available on the Provider Statistical and 
Reimbursement (PS&R) System. In keeping with our policy on discharges, 
the CMI values are computed based on all Medicare patient discharges 
subject to the IPPS MS-DRG-based payment.
2. Discharges
    Section 412.96(c)(2)(i) provides that CMS set forth the national 
and regional numbers of discharges in each year's annual notice of 
prospective payment rates for purposes of determining RRC status. As 
specified in section 1886(d)(5)(C)(ii) of the Act, the national 
standard is set at 5,000 discharges. In the FY 2010 IPPS/RY 2010 LTCH 
PPS proposed rule (74 FR 24186) we proposed to update the regional 
standards based on discharges for urban hospitals' cost reporting 
periods that began during FY 2007 (that is, October 1, 2006 through 
September 30, 2007), which were the latest cost report data available 
at the time the proposed rule was developed.
    Therefore, in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we 
proposed that, in addition to meeting other criteria, a hospital, if it 
is to qualify for initial RRC status for cost reporting periods 
beginning on or after October 1, 2009, must have as the number of 
discharges for its cost reporting period that began during FY 2007 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. (We refer readers to 
the table set forth in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
at 74 FR 24186.)
    Based on the latest discharge data available at this time, that is, 
for cost reporting periods that began during FY 2007, the final median 
number of discharges for urban hospitals by census region are set forth 
in the following table.

------------------------------------------------------------------------
                                                              Number of
                           Region                             Discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)....................        8,347
2. Middle Atlantic (PA, NJ, NY)............................       10,729
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).....       10,725
4. East North Central (IL, IN, MI, OH, WI).................        9,282
5. East South Central (AL, KY, MS, TN).....................        7,281
6. West North Central (IA, KS, MN, MO, NE, ND, SD).........        8,636
7. West South Central (AR, LA, OK, TX).....................        7,254
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)...............        9,823
9. Pacific (AK, CA, HI, OR, WA)............................        8,715
------------------------------------------------------------------------

    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, 
2009, the hospital would be required to have at least 3,000 discharges 
for its cost reporting period that began during FY 2007.

D. 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.
    Public Law 105-33 (BBA 1987) established a limit on the number of 
allopathic and osteopathic residents that a hospital may include in its 
full-time equivalent (FTE) resident count for direct GME and IME 
payment purposes. Under section 1886(h)(4)(F) of the Act, for cost 
reporting periods beginning on or after October 1, 1997, a hospital's 
unweighted FTE count of residents for purposes of direct GME may not 
exceed the hospital's unweighted FTE count for its most recent cost 
reporting period ending on or before December 31, 1996. Under section 
1886(d)(5)(B)(v) of the Act, a similar limit on the FTE resident count 
for IME purposes is effective for discharges occurring on or after 
October 1, 1997.
2. IME Adjustment Factor for FY 2010
    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 Public Law 108-173 modified the formula 
multiplier (c) to be used in the calculation of the IME adjustment. 
Prior to the enactment of Public Law 108-173, the formula multiplier 
was fixed at 1.35 for discharges occurring during FY 2003 and 
thereafter. In the FY 2005 IPPS final rule, we announced the schedule 
of formula multipliers to be used in the calculation of the IME 
adjustment and incorporated the schedule in our regulations at Sec.  
412.105(d)(3)(viii) through (d)(3)(xii). Section 502(a) modified the 
formula multiplier beginning midway through FY 2004 and provided for a 
new schedule of formula multipliers for FYs 2005 and thereafter as 
follows:
     For discharges occurring on or after April 1, 2004, and 
before October 1, 2004, the formula multiplier is 1.47.
     For discharges occurring during FY 2005, the formula 
multiplier is 1.42.
     For discharges occurring during FY 2006, the formula 
multiplier is 1.37.
     For discharges occurring during FY 2007, the formula 
multiplier is 1.32.
     For discharges occurring during FY 2008 and fiscal years 
thereafter, the formula multiplier is 1.35.
    Accordingly, for discharges occurring during FY 2010, the formula 
multiplier is 1.35. We estimate that application of this formula 
multiplier for the FY 2010 IME adjustment will result in an increase in 
IPPS payment of 5.5 percent for every approximately 10-percent increase 
in the hospital's resident-to-bed ratio.
    We did not receive any public comments specifically on the IME 
adjustment factor.

[[Page 43899]]

3. IME-Related Changes in Other Sections of This Final Rule
    We refer readers to section V.E.2. and 4. of the preamble of this 
final rule for a discussion of changes to the policies for counting 
beds and patient days in relation to the calculations for the IME 
adjustment at Sec.  412.105(b) and the DSH payment adjustment at Sec.  
412.106(a)(1)(ii). We also address the public comments we received in 
section V.E.2. and 4. of this preamble. The regulations relating to the 
DSH payment adjustment at Sec.  412.106(a)(1)(i) cross-reference the 
IME regulation at Sec.  412.105(b), which specifies how the number of 
beds in a hospital is determined for purposes of calculating a teaching 
hospital's IME adjustment. Specifically, as we proposed, we are 
changing our policies with respect to counting bed days for patients 
receiving observation services.
    We also refer readers to section V.G.2. of the preamble of this 
final rule for a discussion of our clarification of the definition of a 
new medical residency training program for purposes of Medicare direct 
GME payment and the public comments that we received on our proposed 
clarification and our responses. This clarification also will apply for 
purposes of IME payment and could affect IME FTE resident cap 
adjustments for new medical residency training programs. We also 
address any public comments that we received on this clarification in 
section V.G.2. of this preamble.

E. Payment Adjustment for Medicare Disproportionate Share Hospitals 
(DSHs) (Sec.  412.106)

1. Background
    Section 1886(d)(5)(F) of the Act provides for additional Medicare 
payments to subsection (d) hospitals that serve a significant 
disproportionate number of low-income patients. The Act specifies two 
methods by which a hospital may qualify for the Medicare 
disproportionate share hospital (DSH) adjustment. Under the first 
method, hospitals that are located in an urban area and have 100 or 
more beds may receive a Medicare DSH payment adjustment if the hospital 
can demonstrate that, during its cost reporting period, more than 30 
percent of its net inpatient care revenues are derived from State and 
local government payments for care furnished to needy patients with low 
incomes. This method is commonly referred to as the ``Pickle method.'' 
The second method for qualifying for the DSH adjustment, which is the 
most common, is based on a complex statutory formula under which the 
DSH payment adjustment is based on the hospital's geographic 
designation, the number of beds in the hospital, and the level of the 
hospital's disproportionate patient percentage (DPP). A hospital's DPP 
is the sum of two fractions: The ``Medicare fraction'' and the 
``Medicaid fraction.'' The Medicare fraction is computed by dividing 
the number of the hospital's inpatient days that are furnished to 
patients who were entitled to both Medicare Part A (including patients 
who are enrolled in a Medicare Advantage (Part C) plan) and 
Supplemental Security Income (SSI) benefits by the hospital's total 
number of patient days furnished to patients entitled to benefits under 
Medicare Part A (including patients who are enrolled in a Medicare 
Advantage (Part C) plan). The Medicaid fraction is computed by dividing 
the hospital's number of inpatient days furnished to patients who, for 
such days, were eligible for Medicaid, but were not entitled to 
benefits under Medicare Part A, by the hospital's total number of 
inpatient days in the same period.
    Because the DSH payment adjustment is part of the IPPS, the DSH 
statutory references (under section 1886(d)(5)(F) of the Act) to 
``days'' apply only to inpatient days. Regulations located at 42 CFR 
412.106 govern the Medicare DSH payment adjustment and specify how the 
DPP is calculated as well as how beds and patient days are counted in 
determining the Medicare DSH payment adjustment. Under Sec.  
412.106(a)(1)(i), the number of beds for the Medicare DSH payment 
adjustment is determined in accordance with bed counting rules for the 
IME adjustment under Sec.  412.105(b).
    In section V.E.4. of this preamble, we are combining our discussion 
of changes to the policies for counting beds in relation to the 
calculations for the IME adjustment at Sec.  412.105(b) and the DSH 
payment adjustment at Sec.  412.106(a)(1) because the underlying 
concepts are similar and we believe they should generally be 
interpreted in a consistent manner for both purposes. Specifically, as 
we proposed, we are changing our Medicare DSH policies with respect to 
counting patient days and bed days, as well as IME bed counting policy, 
for patients receiving observation services.
2. Policy Change Relating to the Inclusion of Labor and Delivery 
Patient Days in the Medicare DSH Calculation
a. Background
    As discussed in the FY 2004 IPPS final rule (68 FR 45419 through 
45420), prior to December 1991, Medicare's policy on counting days for 
purposes of allocating costs on the cost report and for purposes of the 
DSH payment adjustment for maternity patients was to count an inpatient 
day for an admitted maternity patient in a labor and delivery room at 
the census-taking hour. This pre-December 1991 policy is consistent 
with current Medicare policy for counting days for admitted patients in 
any other ancillary department at the census-taking hour. However, 
based on decisions in a number of Federal Courts of Appeal, including 
the United States Court of Appeals for the District of Columbia 
Circuit, relating to Medicare's policy for allocating costs, the policy 
regarding the counting of inpatient days for maternity patients was 
revised to reflect our existing policy for purposes of both cost 
allocation and the DSH calculation.
    Under the existing regulations at Sec.  412.106(a)(1)(ii)(B), 
patient days associated with beds used for ancillary labor and delivery 
are excluded from the Medicare DSH calculation. This policy, in part, 
is based on cost allocation rules (that is, rules for counting days for 
admitted patients in ancillary and routine cost centers for purposes of 
allocating costs on the Medicare cost report). In particular, section 
2205.2 of the Provider Reimbursement Manual (PRM) provides the 
following: ``A maternity patient in the labor/delivery room ancillary 
area at midnight is included in the census of the inpatient routine 
(general or intensive) care area only if the patient has occupied an 
inpatient routine bed at some time since admission. No days of 
inpatient routine care are counted for a maternity inpatient who is 
discharged (or dies) without ever occupying an inpatient routine bed. 
However, once a maternity patient has occupied an inpatient routine 
bed, at each subsequent census the patient is included in the census of 
the inpatient routine care area to which assigned even if the patient 
is located in an ancillary area (labor/delivery room or another 
ancillary area) at midnight. In some cases, a maternity patient may 
occupy an inpatient bed only on the day of discharge, where the day of 
discharge differs from the day of admission. For purposes of 
apportioning the cost of inpatient routine care, this single day of 
routine care is counted as the day of admission (to routine care) and 
discharge and, therefore, is counted as one day of inpatient routine 
care.''
    In applying the rules discussed above, if, for example, a Medicaid 
patient is in the labor room at the census-taking hour and has not yet 
occupied a routine inpatient bed, the day would not be counted as an 
inpatient day in the

[[Page 43900]]

numerator or the denominator of the Medicaid fraction of the Medicare 
DPP. If, instead, the same patient were in the labor room at the 
census-taking hour, but had first occupied a routine inpatient bed, the 
day would be counted as an inpatient patient day in both the numerator 
and the denominator of the Medicaid fraction of the Medicare DPP for 
purposes of the DSH payment adjustment (and for apportioning the cost 
of routine care on the Medicare cost report).
    We further clarified this policy in the FY 2004 IPPS final rule (68 
FR 45419 through 45420), given that hospitals had increasingly begun 
redesigning their maternity areas from separate labor and delivery 
rooms and postpartum rooms to single multipurpose labor, delivery, and 
postpartum (LDP) rooms. In order to appropriately track the days and 
costs associated with LDP rooms under our existing Medicare DSH policy, 
we stated that it was necessary to apportion them between the labor and 
delivery cost center, which is an ancillary cost center, and the 
routine adults and pediatrics cost center (68 FR 45420). This is done 
by determining the proportion of a patient's stay in the LDP room that 
is associated with the patient receiving ancillary services (labor and 
delivery), as opposed to routine adult and pediatric services 
(postpartum).
    Therefore, under the current policy, days associated with labor and 
delivery services furnished to patients who did not occupy a routine 
bed prior to occupying an ancillary labor and delivery bed before the 
census-taking hour are not included as inpatient days for purposes of 
the DSH calculation. This policy is applicable whether the hospital 
maintains separate labor and delivery rooms and postpartum rooms, or 
whether it maintains ``maternity suites'' in which labor, delivery, and 
postpartum services all occur in the same bed. However, in the latter 
case, patient days are counted proportionally based on the proportion 
of (routine/ancillary) services furnished. (We refer readers to the 
example provided in the FY 2004 IPPS final rule (68 FR 45420) that 
describes how routine and ancillary days are allocated under this 
policy.)
b. Proposed and Final Policy Change
    As we indicated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
(74 FR 24188), upon further examination of our existing policy on 
counting patient days, we no longer believe that it is appropriate to 
apply the cost allocation rules for purposes of counting labor and 
delivery patient days in the Medicare DSH calculation. That is, we 
believe that even if a particular labor and delivery patient day is not 
included in the inpatient routine care census-taking for purposes of 
apportioning routine costs, it may still reasonably be considered to be 
an inpatient day for purposes of determining the DPP, provided that the 
unit or ward in which the labor and delivery bed is located is 
generally providing services that are payable under the IPPS. In 
general, we believe the costs associated with labor and delivery 
patient days (regardless of whether they are associated with patients 
who occupied a routine bed prior to occupying an ancillary labor and 
delivery bed) are generally payable under the IPPS. Therefore, we 
believe that such patient days should be included in the DPP as 
inpatient days once the patient has been admitted to the hospital an as 
inpatient. Accordingly, in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule, for cost reporting periods beginning on or after October 1, 2009, 
we proposed to change our existing policy regarding patient days to 
include, in the DPP calculation, patient days associated with maternity 
patients who were admitted as inpatients and were receiving ancillary 
labor and delivery services at the time the inpatient routine census is 
taken, regardless of whether the patient occupied a routine bed prior 
to occupying a bed in a distinct ancillary labor and delivery room and 
regardless of whether the patient occupied a routine bed prior to 
occupying an ancillary labor and delivery bed and regardless of whether 
the patient occupies a ``maternity suite'' in which labor, delivery, 
recovery, and postpartum care all take place in the same room. We 
believed that this proposed policy would be consistent with our 
existing policy under section 2205 of the PRM-I regarding counting 
patient days associated with other ancillary areas (such as surgery and 
postanesthesia).
    We note that we did not propose to change our policy on patient 
days for labor and delivery patients who are not admitted to the 
hospital as inpatients. For example, if a woman presents at a hospital 
for labor and delivery services, but is determined by medical staff to 
be in false labor and is sent home without ever being admitted to the 
hospital as an inpatient, any days associated with such services 
furnished by the hospital would not be included in the DPP for purposes 
of the Medicare DSH calculation. That is, because the patient would be 
considered an outpatient, the day (or days) associated with the 
hospital visit would not be counted for purposes of the Medicare DSH 
calculation because such days would not be considered inpatient days. 
In addition, we indicated that the proposed policy would not affect 
existing policies relating to the allocation of costs for Medicare cost 
reporting purposes or for determining the number of available beds 
under Sec.  412.105(b)(4) or Sec.  412.106(a)(1)(i). In other words, 
our hospital instructions in the PRM-I for those purposes remain 
unchanged and unaffected by the proposed policy.
    Comment: Several commenters supported the proposal. Specifically, 
the commenters asserted that they agreed with CMS' statement that, 
because inpatient labor and delivery days are generally payable under 
the IPPS, they should be included in the DSH calculation. Some 
commenters commended CMS for revisiting its policy.
    Response: We thank the commenters for their support.
    Comment: One commenter opposed the proposal. The commenter stated 
that CMS should continue to exclude labor and delivery patient days 
associated with patients who did not occupy a routine bed prior to 
occupying a labor and delivery bed. The commenter asserted that 
``historical litigation has already resulted in a conclusion that labor 
and delivery days should be excluded from the cost allocation rules 
[and that] this recognition of the different nature of labor and 
delivery days is inconsistent with CMS' proposal to now treat those 
days exactly the same as routine days for all patients who are 
admitted.''
    Response: As we stated in the proposed rule (74 FR 24188), upon 
further examination of our existing policy on counting patient days, we 
no longer believe that it is appropriate to apply the cost allocation 
rules for purposes of counting labor and delivery patient days in the 
Medicare DSH calculation. That is, we believe that even if a particular 
labor and delivery patient day is not included in the inpatient routine 
care census-taking for purposes of apportioning routine costs, it may 
still reasonably be considered to be an inpatient day for purposes of 
determining the DPP, provided that the unit or ward in which the labor 
and delivery bed is located is generally providing services that are 
payable under the IPPS. We disagree that the rules for patient days 
included for purposes of cost allocation must mirror those included for 
purposes of Medicare DSH. We note that we did not propose to change the 
cost allocation rules and that to the extent that labor and delivery 
patient days are excluded for cost

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allocation purposes, that policy is unaffected by our proposed policy 
for Medicare DSH purposes.
    Comment: One commenter requested clarification that labor and 
delivery patient days will be counted only for DSH purposes and not for 
other patient day allocation purposes. The commenter asked that CMS 
confirm that a separate line would be added to Worksheet S-3 of the 
Medicare cost report to accommodate the reporting.
    Response: As we indicated in the proposed rule, the proposed policy 
would not change existing underlying policies relating to the 
allocation of costs for Medicare cost reporting purposes. We will 
provide cost reporting instructions (at a later time) to reflect the 
revised policy.
    Comment: Several commenters requested additional clarification of 
how the proposed policy would be applied. Specifically, the commenters 
asked how cost reports that had appealed the exclusion of labor and 
delivery days and cost reports that were either still open or 
``reopenable'' would be treated. Some commenters referenced a recent 
Administrator's decision (``QRS CHW DSH Labor Room Days Groups vs. Blue 
Cross Blue Shield Association/United Government Services LLC-CA'' 
signed April 13, 2009) that allowed the inclusion of patient days 
associated with labor, delivery, and postpartum beds for a group of 
hospitals located in the Ninth Circuit Court of Appeals for fiscal 
years prior to FY 2004. One commenter asked whether hospitals located 
in the Ninth Circuit would be treated differently with respect to the 
inclusion of labor and delivery days for periods prior to October 1, 
2009. Other commenters noted that there were several appeals pending on 
the issue of the exclusion of labor and deliver